November 2024 Insights
By Eileen O’Toole, Esq., Contributing Editor
On Nov. 12, 2024, the U.S. Supreme Court denied a petition for certiorari in G-Max Mgmt. v. State of New York (LVT #33472), where a group of property owners had asked the Court to review a federal court denial of the owners’ challenge to certain provisions of the HSTPA. Owners claimed that New York’s rent stabilization laws, and in particular its restrictions on owner reclamation and condo/co-op conversions, violated the Takings Clause of the Constitution’s Fifth Amendment. As a result of the decision, issued without an opinion from the Court, the SCOTUS will not consider the owners’ appeal.
The DHCR issued several recent decisions clarifying the applicability of Rent Stabilization Code amendments to provisions governing substantial rehabilitation exemptions from rent stabilization. In Matter of ZG Court LLC (LVT #33446) the DHCR reversed a Rent Administrator’s ruling that had denied an owner’s sub rehab application by incorrectly applying the Nov. 8, 2023, RSC amendments and Operational Bulletin 2023-3 to an application pending before the agency on Nov. 8, even though the work was completed while prior RSC Section 2520.1(e) and prior Operational Bulletin 95-2 were in effect. The DHCR ruled in this case and several other PAR decisions that the prior provisions applied to sub rehab projects completed while prior rules were in effect. So the ZG Court owner’s exemption application ultimately was approved by the DHCR. Under the amended provisions, it’s more difficult to prove that a building was in substandard or seriously deteriorated condition before a sub rehab project is commenced.
In Matter of Creas, Inc. (LVT #33448), the DHCR also applied the prior RSC provisions and Operational Bulletin 95-2 to the owner’s application but affirmed denial of the owner’s application. Although a sufficient number of building systems were replaced to qualify for sub rehab, the DHCR found that because five of the eight apartments in the building were occupied before the work commenced, the building could not have been in substandard condition and therefore could not qualify for the substantial rehabilitation exemption. Consistent with other DHCR rulings in the past several years, the DHCR found that because the owner bought out three tenants and because the landlord had occupied two other apartments, the building could not have been in substandard condition.
While HSTPA provisions increased a landlord’s obligation to mitigate damages before proving entitlement to unpaid rent from a residential tenant who breaks a lease, one court recently held a tenant responsible for about a year’s worth of unpaid rent under the lease balance. In Amran Props. LLC Series 1 v. Watson (LVT #33469), the tenant had moved out in the middle of a renewal lease term at the height of the COVID-19 pandemic, and the landlord showed that it made immediate, diligent attempts to list, show, and re-rent the apartment, which ultimately was re-rented at a significant reduction in rent.
With mixed results, courts and the DHCR issued a number of rulings in recent cases involving claims both of rent overcharge and improper, even fraudulent, deregulation of apartments. See, e.g., Hefti v. DHCR (LVT #33437), where the First Department appeals court held that a 2001 rent increase, without more, was insufficient to establish a fraudulent scheme to deregulate. In Nadler v. Carmine Ltd. (LVT #33439), the same appeals court affirmed denial of a tenant’s rent overcharge claim raised 16 years after tenant moved into the apartment and nearly 30 years after the claimed improper deregulation. In Bo Hong Realty Inc. v. Butler (LVT #33441), a housing court noted that whether there was a fraudulent scheme to deregulate an apartment depends on the “totality of the circumstances” of a case and granted the tenant’s request to conduct pre-trial discovery going back more than four years beyond the base rent date concerning potential rent fraud.