Rent Overcharge Resulted from Improper Apartment Deregulation

Landlord sued to evict unregulated tenant in 2017 after tenant's unregulated lease expired. In response, tenant claimed rent overcharge and improper deregulation of the unit. The court ruled for tenant in early 2020, finding fraudulent inflation of the cost of individual apartment improvements (IAIs) and improper deregulation. The case was set down for a hearing to calculate the legal rent under the default formula.

Landlord appealed and won, in part. The appeals court found no indication of a fraudulent scheme to deregulate the apartment, and tenant didn't claim fraud in his answer to the court petition. But the appeals court did affirm that the apartment was improperly deregulated and that there was an overcharge.

Landlord then appealed to a higher court and lost. Under the pre-HSTPA rent stabilization provisions that applied to the case, a tenant was allowed to challenge the deregulated status of an apartment at any time during the tenancy. This allowed consideration of rent history events prior to the four-year lookback period for the purpose of determining whether an apartment was regulated. The trial court properly found that the IAIs performed didn't support a rent increase that would have resulted in apartment deregulation. The first appeals court also properly affirmed the finding of triple damages for willful rent overcharge. The case was sent back to the lower court for calculation of the rent overcharge.

Matter of 150 E. Third St LLC v. Ryan: Index No. 570251/20, App. No. 15152, Case No. 2021-01773, 2022 NY Slip Op 00497 (App. Div. 1 Dept.; 1/27/22; Acosta, PJ, Renwick, Moulton, Scarpulla, JJ)