Unreliable Base Date Rent Yields $117,000 Overcharge Finding

Rent-stabilized tenant complained of rent overcharge. Tenant moved into the apartment in 1984 and said that, between 1992 and 2009, landlord treated the apartment as deregulated although the building was receiving J-51 tax benefits that expired on June 30, 1991. Landlord claimed that tenant became deregulated when the J-51 benefits expired. The DRA ruled for tenant and ordered landlord to refund $8,069, including triple damages. The DRA also found that, since tenant didn't receive J-51 notification riders in all her leases, she remained rent stabilized after J-51 benefits ended.

Tenant appealed, claiming that landlord had engaged in fraud to deregulate the apartment. The DHCR found no fraud but found that the DRA understated the overcharges and increased the overcharge finding to $28,705, including triple damages. Tenant then filed an Article 78 court appeal, and the case was sent back to the DHCR for further consideration.

The DHCR again found no fraud. Tenant had been in occupancy since 1984, so there was no attempted deregulation following an apartment vacancy. The omission of a J-51 rider in tenant's 1985 renewal lease wasn't fraudulent. Since tenant's 1984 vacancy lease was executed before the J-51 notice provisions were enacted in 1985, landlord's actions were merely incorrect. Landlord's failure to file apartment registrations from 1992 - 2009 also wasn't proof of a fraudulent scheme to deregulate the apartment, but was based on landlord's mistaken belief that the apartment was no longer rent stabilized when J-51 benefits ended in 1991. There also was no proof that landlord created an illusory tenancy in an effort to remove the apartment from rent stabilization. Since there was no fraud, use of the default formula or a rent freeze didn't apply in setting tenant's legal rent.

However, tenant's base date rent was unreliable due to the erroneous deregulation of the apartment prior to the base date. So the formula set forth in Rent Stabilization Code Section 2526.1(a)(3)(iii) should be used to "bridge the gap" and set the rent. The rent also must be frozen for failure to register rents for some period. The total refund due tenant was $117,603, including triple damages. 

Kreloff: DHCR Adm. Rev. Docket No. ER410014RP (9/21/17) [10-pg. doc.]