Subsequent Purchaser After Judicial Sale Not Liable for Overcharge

Facts: Tenant complained of a rent overcharge. The DHCR ruled that current landlord wasn't responsible for overcharges collected by previous landlord. Although the Rent Stabilization Code provided in general that current landlords were responsible for all overcharges collected by prior or current landlord since April 1, 1984, the code provided an exception for current landlords who purchased a building at a judicial sale. The DHCR extended the exception to the next landlord who purchased the building from the judicial sale purchaser. Tenant appealed. The court ruled against tenant. Tenant appealed again, and the appeals court ruled for tenant, finding that nothing in the Rent Stabilization Code extended the overcharge liability exemption to a subsequent landlord after a judicial sale. The DHCR was then given permission to appeal to the state's highest court. Court: DHCR wins. The DHCR's application of the judicial sale exemption to a subsequent purchaser who didn't have pre-sale rental records was consistent with the Rent Stabilization Code. The code doesn't literally limit the exemption to the judicial sale purchaser. The DHCR's ruling was rational given the reason for the exemption, which is to avoid adverse impact on marketability at judicial sales.

Gaines v. DHCR: NYLJ, p. 26, col. 3 (10/17/97) (Ct. App.; Levine, J)