Tenants Must Present Indicia of Fraud to Apply Default Formula to Overcharge Claim

Tenants sued landlord for rent overcharge. The court ruled for tenants without trial and set the matter down for a hearing to calculate overcharges under the default formula set forth in Rent Stabilization Code Section 2522.6(b)(3). Landlord appealed and won, in part. The appeals court found that the default formula didn't apply, clarified that the base rent date was Dec. 18, 2013, and sent the case back for further processing. Tenants should have been treated as rent stabilized while the building was subject to J-51 tax benefits. The refund check that landlord offered tenants with its answer to their complaint didn't establish that it had offered a full and proper calculation of damages. But a question of fact remained as to whether landlord's pre- and post-Roberts conduct rose to the level of fraud for the purposes of applying the default formula. Since tenants should have shown some indicia of fraud in the rent history, they should have the opportunity to prove at trial that they can fulfill the elements of fraud in order for the default formula to apply to the calculation of any overcharges. And, so far, landlord hadn't adequately rebutted tenants' claim that the significant rent increases in the rent history were based on fabricated individual apartment improvements. The appeals court also clarified that a four-year base date applied in this case since it was commenced before HSTPA took effect on June 14, 2019.

Jekielek v. 260 Partners, LP, Index No. 161176/17, App. No. 1125, Case No. 2023-02106, 2023 NY Slip Op 06203 (App. Div. 1 Dept., 11/30/23, Kapnick, JP, Webber, Singh, Moulton, Scarpulla, JJ)