Overcharge for Unit in J-51 Building Must Be Calculated Using Regina Methodology

Tenant complained to the DHCR of rent overcharge and improper apartment deregulation. Landlord admitted that the apartment had been mistakenly deregulated while the building received J-51 tax benefits. But landlord claimed that tenant received a $1,300 preferential rent in 2011 when he moved in, and that it had properly preserved a higher legal regulated rent of $2,125.

The DRA ruled for tenant, found that the $1,300 rent was the legal regulated rent (LRR), and ordered landlord to refund $8,229, including interest. Landlord appealed and objected to the overcharge calculation method applied by the DRA.

The DHCR ruled for landlord in part. The DRA improperly applied the Lucas case method of rent calculation, because the Court of Appeals' Regina case decision in 2020 overruled Lucas. In cases of improper deregulation while receiving J-51 benefits, the base date rent is now determined by a four-year lookback period and the rent paid on the four-year base date is the legal regulated rent. In this case, the four-year lookback period points to a base date LRR of $1,350 per month, the amount paid by tenant. The rental history prior to this renewal lease isn't subject to review absent evidence of a fraudulent scheme to deregulate, which is not shown on the facts of this case. And since the $1,350 base date rent is not stated to be a preferential rent, and no LRR is preserved in that lease, there was no reason under the facts or under Regina to review prior rent history to confirm a preferential rent. The total overcharge was reduced to $8,208.

Denis P. Mullarkey RE, LLC: DHCR Adm. Rev. Docket No. IS110084RK (1/20/21) [3-pg. doc.]