Overcharge Resulted from Misinterpretation of Apartment Status While J-51 Tax Benefits in Effect

(Decision submitted by Elizabeth Lentini, Esq. of the Manhattan law firm of Borah, Goldstein, Altschuler, Nahins & Goidel, P.C., attorneys for the landlord.)

Tenants complained to the DHCR in 2017 of rent overcharge and improper deregulation of their apartment. Landlord pointed out that the apartment had been dererulated by a DHCR order in 2006, which found that the unit had been high-rent vacancy deregulated in 1999. Tenants argued that prior landlord's failure to register the apartment after the building started collecting J-51 tax benefits in 2003 constituted fraud and required the DHCR to examine the rental history prior to the four-year look-back period.

The DRA ruled for tenants. Although the apartment had been deregulated, when tenants moved into the unit in 2012, the apartment was rent stabilized. And, since tenants never received lease notices that their apartment was rent stabilized until the J-51 benefits expired, they remained rent stabilized. The DRA froze tenants' rent at the $2,100 rent in effect on April 1, 2013, due to landlord's failure to properly file annual apartment and/or building registrations for the years 2013-2015. The rent would remain frozen until the unit was registered for those years. The DRA ordered landlord to refund a total overcharge of $64,695, including interest and triple damages.

Both sides appealed. The DHCR denied landlord's and tenants' PARs. Landlord then filed an Article 78 court appeal of the DHCR's decision. The court sent the case back to the DHCR for further consideration. The DHCR then denied tenants' PAR, which sought a recalculation of overcharges.

But the DHCR ruled for landlord in part. The tenants would remain rent stabilized until they moved out of the apartment. Apartments subject to rent stabilization solely due to receipt of J-51 tax benefits remain rent stabilized until the first vacancy after expiration of the benefits when J-51 expiration notices weren't included with each lease or renewal lease received by the tenant in occupancy when J-51 expired. The DHCR's prior deregulation order for this apartment didn't change the result. But, as landlord claimed, the Court of Appeals decision in Regina v. DHCR (2020) rejected claims that the rent should be frozen based on an intervening failure to register the apartment with the DHCR. In Regina, the Court noted that rent freezing under RSL Section 26-517(e) would not apply in Roberts-type cases where there were registration irregularities that stemmed from a misunderstanding of the law. Here, landlord had filed registrations from 2016 to the present following publication of the DHCR's J-51 Rent Registration Initiative. This Initiative didn't require the filing of missing registrations before 2016.

As a result, the total overcharge, with interest only, was reduced to $15,491. The overcharge wasn't willful since it resulted from a misinterpreation of the law by the DHCR and the owner's reliance thereon. 

Klein/Pazmino: DHCR Adm. Rev. Docket Nos. KV410001RP, KV410002RP (12/21/24)[9-pg. document]