New York Law Journal
July 1, 2005
Panel Weighs Compensation In Rent Stabilization Case
John Chaer
ALBANY - The Court of Appeals yesterday held in a rent-stabilization case involving entertainer Cyndi Lauper and her husband that overcharged tenants are entitled to a default rent, but not necessarily the last legal rent charged.
Thornton v. Baron, 116, began in 1992, when 390 West End Associates leased a rent-stabilized apartment to Shlomo Baron. The rent was stabilized at $507.85 per month, but Mr. Baron agreed to pay $2,496 and also agreed that the apartment would not be his main residence. Mr. Baron then sublet the apartment to David and Cynthia Lauper Thornton for $3,250 per month.
Records suggest that the landlord regularly maneuvered with tenants to evade the rent-stabilization law by exploiting an exemption for non-primary residences.
According to the Court, on several occasions the landlord had the tenant sign a lease stating that he or she would not use the apartment as a primary residence. That permitted the landlord to charge rents far in excess of the legal limit.
Then, the apartments were immediately subleased to a third-party, who also agreed not to primarily reside in the unit. Almost always, according the Court, either the tenant or subtenant used the apartment as a primary residence.
"In this way," Chief Judge Judith S. Kaye wrote, "both the owner and the prime tenants earned profits far above what the Rent Stabilization Law allowed."
Six months after the Thorntons sublet the apartment, West End secured an order exempting the apartment from the Rent Stabilization Law on the grounds that Mr. Baron did not intend to use it as his primary residence. The Thorntons, however, sought the protections of the rent law that they had earlier evaded.
"Although the Thorntons made false written statements to the contrary at the time they signed their sublease, the record reveals that they have used the subject apartment as their primary residence since the commencement of their subtenancy," Chief Judge Kaye wrote. She said the Baron's tenancy was "illusory" and that the Thorntons were the actual residents of an apartment that was never removed from rent stabilization.
After concluding that the Thorntons were entitled to a stabilized rent, the question then turned to the amount of that rent.
The Thorntons claimed they should pay no more than the last legal rent charged, $507.85. The landlord claimed the amount should be $2,496, the amount charged to Mr. Baron in 1996.
Supreme Court, the Appellate Division and now the Court of Appeals all agreed that neither side got it right. Rather, the courts all said, the proper rent must be computed from a Division of Housing and Community Renewal default formula based on the lowest stabilized rent for a similar apartment in the same building.
Judges Robert S. Smith and Susan Phillips Read dissented. They maintained that the statute clearly limits a rent challenge to four years, and this challenge fell outside that time limit.
"Plainly, the true basis for the majority's holding is the outrageousness of the landlord's conduct in this case," Judge Smith wrote in dissent. "This is apparent from the torrent of adjectives - 'fraudulent,' 'willful,' 'egregious,' 'unscrupulous,' 'fictitious,' 'exorbitant,' 'dishonest' - that the majority finds room for in a single paragraph. Every one of the adjectives is deserved, but none of them justifies ignoring the statute."
In response, Chief Judge Kaye said an opinion along the lines of the dissent would reward and encourage wrongdoing.
"Under the dissent's rule, a landlord whose fraud remains undetected for four years - however willful or egregious the violation - would, simply by virtue of having filed a registration statement, transform an illegal rent into a lawful assessment that would form the basis for all future rent increases," Chief Judge Kaye wrote. "That surely was not the intention of the Legislature."
Also in the majority were Judges George Bundy Smith, Carmen Beauchamp Ciparick, Albert M. Rosenblatt and Victoria A. Graffeo.
Magda L. Cruz of Belkin Burden Wenig & Goldman in Manhattan argued for 390 West End Associates. Darryl M. Vernon of Vernon & Ginsburg in Manhattan represented the Thorntons.