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Cecilia v. Irizarry

Posted by chelsea on June 10, 2001 at 10:39:51:

There was a request last month for the text of Cecilia v. Irizarry, the appellate term ruling overturning part of the RSC code amendments. I still don't see the full decision on line anywhere, but note the summary has been posted:


Case Caption:
Cecilia v. Irizarry
Issues/Legal Principles:
Prior tenants' agreement in court settlement that building is deregulated on grounds of substantial rehabilitation is rejected by Appellate Term because no evidentiary determination was ever had proving system-wide renovations were actually made; Tenant's overcharge claim is not based on amount of rent paid four years prior to filing complaint, as the amended Code provisions inconsistently require, but rather Appellate Term holds that the legal regulated rent must be based on the rent registered four years prior to the last registered rent.
substantial rehabilitation; rent registration; overcharges; collateral estoppel
Appellate Term, 2nd and 11th Districts
lower Court: Hon. G. Wright
May 24, 2001
NYLJ, page 22, col 4
Referred Statutes:
Emergency Tenant Protection Act of 1974; Emergency Housing Rent Control Law 8584(4)(a); Administrative Code of the City of New York 26-504.3(b), 26-403; RSL 26- 511(c)(6), 26-512(e), 26-517(e), 26-516(g); RSC 2520.13; 1997 Rent Regulation Reform Act; CPLR 213-a
In 1985 a prior landlord brought holdover proceedings against all the tenants in the building alleging that the building was exempt from rent stabilization on grounds of substantial rehabilitation. The proceedings were settled by stipulation wherein the prior landlord agreed to forego several months rent and give all the tenants four year leases at rent below the legal registered rents in return for a waiver by all the tenants of their claims to rent stabilized status and their acknowledgement that the building was decontrolled. In 1986, a new landlord purchased the building. At the end of the tenants' lease terms in 1990, the landlord brought holdover proceedings against these tenants. The tenants sought to set aside the prior settlement stipulations, but the Housing Court denied their application holding that the stipulations constituted a valid waiver of their rights. In the interim, a new tenant moved into the building and in July, 1989 applied to the DHCR to compel the landlord to give her a lease. The landlord opposed her complaint on grounds that the building was substantially rehabilitated and therefore the landlord was not obliged to give a renewal lease to a non-rent stabilized tenant. The DHCR held for the landlord by order dated 1995 on grounds that the 1985 court stipulation exempted the building from DHCR jurisdiction.

The instant action involves another tenant who has sued the current landlord and the prior landlord who purchased in 1986. The complaint alleges that the registered rent in 1984 was $260 per month, that no further registrations have been filed, that the tenant is subject to rent stabilization and that the landlord has engaged in overcharging the tenant. The landlord responded that the tenant is not entitled to rent stabilization coverage by virtue of the 1985 court stipulation wherein those tenants agreed to decontrol status, the 1990 Housing Court decision which denied tenants' efforts to vacate the 1985 stipulation, and the 1995 DHCR order. The lower court granted the landlord summary judgment, but the Appellate Term reversed.

The Appellate Term held that at no time was there ever an evidentiary determination that the building had indeed undergone a substantial rehabilitation which would otherwise decontrol the rent stabilized units. Simply because the tenants in 1985 agreed to be destabilized did not by itself deregulate the building. In fact, the current tenant's lawsuit included affidavits from the prior tenants which indicated that very little rehabilitation work was undertaken. A new certificate of occupancy was issued but this was only because a store in the building had been converted into a residential unit. Otherwise, there was no evidence that the prior landlord had replaced at least 75% of the building's systems (in accord with a DHCR policy statement). The court held that the current tenant cannot be bound by a mere stipulation binding prior tenants who conceded deregulated status. The current tenant was not a party to that stipulation. Had there been an actual DHCR determination based on an inspection and evidence, then the current tenant would of course be bound by such a ruling (as would all subsequent tenants). But in the absence of any finding of fact by a court or the DHCR, and particularly where the evidence seems to indicate to the contrary of any substantial rehabilitation undertaken, the landlord cannot claim that the issue has already been litigated. In fact, the Appellate Term held that the 1985 stipulation was a "sham" in its representation that the premises were substantially rehabilitated. Further, the single tenant's complaint to the DHCR cannot be binding on other tenants since no building-wide order of exemption was ever made, nor again was their any evidentiary proof of substantial rehabilitation.

With respect to the tenant's overcharge claim, the Appellate Term rejected the landlords' argument that the claim was time barred by a four-year statute of limitations. After this litigation was commenced, the owner belatedly filed rent registration statements for the years 1996 to 1999. The Court held that "for owners who fail to register, the legal regulated rent must and can only be calculated as it would ordinarily be calculated, i.e., based on the last properly registered rent and these owners must continue to maintain and produce rental records dating from before the four-year period. The late filing of the registrations for the four years from 1996 to 1999 cannot operate to give [the landlords] the benefit of a legal regulated rent that is based on the rent indicated in the annual registration statement filed four years prior to the most recent registration statement."

The Court noted that the DHCR's amendment to the Rent Stabilization Code changed the Code's definition of the term "legal regulated rent,"to be defined as the "rent charged on the base date set forth in subdivision f of this section, plus any subsequent lawful increases and adjustments [RSC 2520.6(e)]," and defines the "base date" as the "date four years prior to the date of the filing of the complaint." The Court held that the amended Code definition is "completely inconsistent" with the definition of "legal regulated rent"" which the Legislature has provided in the Rent Stabilization Law, which is "the rent indicated in the annual registration statement filed four years prior to the most recent registration statement . . .plus in each case any subsequent lawful increases and adjustments." The Court noted that it is not fair to define the legal regulated rent as whatever it may have been four years prior to when the tenant files an overcharge complaint. Rather, it should be based on the filed registration statements. Otherwise, observed the Court, owners who did not duly register are given benefits greater than or equal to those given to duly registered owners (i.e., higher rents, unregistered).

The Court held that "it has been a cardinal rule of rent stabilization that the legal regulated rent must be based on the registered rent, not on the charged rent." The Rent Stabilization Law's definition of a legal regulated rent for the purposes of overcharge is based on a registration scheme. In contrast, the drafters of the amended Code, in framing a definition of legal regulated rent that is based on the charged rent, have clearly departed from the statutory scheme. The Code provision is in such disharmony with the statute that it is designed to implement that it cannot be followed. Thus, the Appellate Term ruled that it must continue to hold that the legal regulated rent for owners of units that are not duly registered must be calculated based on the last properly registered rent.

This is a very significant case because the Appellate Term has declared that the new Code amendments regarding "legal regulated rent" promulgated in December, 2000 by the DHCR are "inconsistent" with the Rent Stabilization Law. This ruling provides fuel to the lawsuit filed by legal aid lawyers challenging the legality of those amendments. Most of the 2000 amendments were disastrous to tenants' rights. Tenant advocates welcome this decision which firmly rejects the position that whatever the rent was four years prior to the tenant's complaint must be deemed the lawful rent, particularly if, as happened in this case, the rent was never registered in the past four years and even longer (i.e., here, after 1984).

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