Waiver Rule Not Applied in Calculation of Rent Overcharge in 421-g Building

Tenant complained in October 2019 of rent overcharge. Tenant moved into the apartment on Nov. 1, 2014, and paid an initial rent of $7,775 under a one-year lease. The building received 421-g tax benefits that commenced in 2003 and continued through June 30, 2017. In response, landlord admitted that it misunderstood the 421-g program law and thought tenant was unregulated. As a result, landlord argued that any rent overcharge wasn't willful. Landlord also claimed the overcharge calculation should be subject to a four-year base date.

The DRA ruled for tenant and applied a four-year base date, found no willful overcharge, and ordered landlord to refund $12,341, including interest. Landlord was also directed to file rent registrations for the apartment.

Landlord appealed and lost, claiming that the apartment became permanently exempt from rent stabilization on June 30, 2020, when the complaining tenant moved out. Landlord argued that the DRA improperly applied the "waiver rule" in this case. Landlord also claimed that the DRA should have held off on deciding the case while the U.S. Supreme Court considered the issue of rent calculation.

The DHCR found that the DRA didn't use the waiver rule to calculate the rent but used the $7,775 base date rent charged as its starting point and then applied subsequent rent guideline increases. The DRA didn't wave the applicable legal regulated rent at any time during the calculation period. And the 2019 Regina Metro v. DHCR decision by New York's highest court rejected any argument that the DHCR should reconstruct the rent prior to the base date. And since the apartment was always subject to rent stabilization, any lawful rent higher than the rent charged should have been preserved in renewal leases. Unlike J-51 tax abatement cases, the DHCR wasn't involved with any confusion regarding the time frame for deregulation in a 421-g building.

Finally, the U.S. Supreme Court denied landlord's petition for certiorari on Jan. 13, 2020, before the DRA's order was issued. And the DHCR wasn't required to hold a proceeding in abeyance.

50 Murray Street Acquisition LLC: DHCR Adm. Rev. Docket No. JT410041RO (11/18/21)[7-pg. document]