Landlords Lose Appeal of MBR Challenge
By William Gribben

A state appeals court has upheld the dismissal of a landlord lawsuit demanding higher rent increases for rent-controlled tenants, ruling that the suit should have been filed in New York City and that tenants have the right to a voice in the proceedings.

The decision, RSA v. DHCR and Met Council on Housing, handed down by the Appellate Division, Third Department last Dec. 17, held that if landlords file suit to restructure the Maximum Base Rent system, the City of New York must be a party to the case; the proper venue for hearing the lawsuit is New York City; and that tenants and Met Council have a “direct and substantial interest in the outcome of the litigation.”

If the landlords prevail, MBRs—the maximum rent landlords are allowed to charge for rent-controlled apartments—will increase substantially, and tenants will be hit with substantial rent increases.

The case originated when the state Division of Housing and Community Renewal set the 1996-97 MBR increase at 3%, the lowest they had been in years. Individual owners and the Rent Stabilization Association brought an action in state Supreme Court to annul the 1996-97 MBR increase, seeking to increase it from 3% to 32.4%, based on allegations that the DHCR was incorrectly calculating capital value, one of the components of the MBR. Hoping to have the suit decided far away from tenant pressure and possibly pro-tenant judges, they filed it in Albany County. This original lawsuit was dismissed by the trial court, but that decision was later reversed by the Appellate Division, Third Department, in Chip v. DHCR, setting the stage for massive MBR increases.

However, before any increase could be collected, the New York City Council passed Local Law 73, requiring the DHCR to calculate the MBR using the formula that yielded the 3% increase. The DHCR, which had already issued 1996-97 MBR orders of 32.4% following the appeals court’s Chip decision, then issued “Orders of Suspension” to “avoid uncertainty, confusion and hardship among tenants and owners.” These suspension orders set the stage for the litigation which resulted in the Dec. 17 decision.

The RSA and some individual landlords filed suit, once again in Albany, against the DHCR to annul Local Law 73. They did not name the City of New York as a party, even though they sought an annulment of the city’s law. The City of New York moved to intervene in the lawsuit and asked the court to dismiss it. Rent-controlled tenants, Met Council, and others made similar motions. The lower court in Albany granted the city’s motion and dismissed the case. However, it also denied Met Council’s motion to intervene. Both the RSA and Met Council appealed—the landlord group to try to win higher MBR increases; Met Council to try to win tenants the right to a voice in the case.

The Appellate Division’s ruling does not settle the MBR issue. The RSA has filed a suit in Queens County against DHCR and the city, challenging Local Law 73; while the city and a group of rent-controlled tenants have filed separate suits against DHCR in New York County (Manhattan) to get it to uphold Local Law 73. It is likely that all these lawsuits will be consolidated into one case, to be decided in New York County.

William Gribben is an attorney with the firm of Hammelstein, McConnell, Gribben and Donohue, which represented Met Council in this case pro bono.