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No 4 yr SOL if Landlord hasn't filed rent registrations

NYC Rent Regulation: Rent Control/Rent Stabilized, DHCR Practice/Procedures

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No 4 yr SOL if Landlord hasn't filed rent registrations

Postby TenantNet » Wed Jul 20, 2016 12:18 pm

Note: The April 13, 2015 decision is at http://law.justia.com/cases/new-york/ot ... 660-u.html

We have heard there might be further motions or reargument in this matter, so please use due diligence when using this decision. See update below. Also see http://courts.state.ny.us/Reporter/pdfs ... _30911.pdf

New York Law Journal
July 20, 2016

Landlord- Tenant—Rent Overcharges—Where Landlord Had Not Filed Rent Registration Statements Because It Believed the Apartment Was Unregulated, the Four-Year Statute of Limitations Is Inapplicable—Inability to Document Renovations By Prior Landlord

Tenant plaintiffs commenced an action seeking, inter alia, reimbursement for alleged rent overcharges. They moved for leave to renew the court's prior decision, which had denied the plaintiffs' and the defendant landlord's motions for summary judgment.

The landlord had purchased the building in February 2014. The plaintiffs entered possession of the subject apartment in May 2007, "pursuant to a fair market residential lease agreement (the first lease) with [the landlord's] predecessor-in-interest." The plaintiffs' first lease provided for rent in the amount of $1,700 per month. During the next eight years, the plaintiffs signed at least five fair market residential leases with the prior landlord. The plaintiffs' rent had been raised a total of $100. The plaintiffs' current rent is $1,872 per month.

Prior to the plaintiffs' tenancy, the apartment had been registered as rent-stabilized. The monthly rent was $267.23. The landlord alleged that after a former tenant had vacated the apartment in 2007, the prior landlord, paid two construction companies more than $70,000 to renovate the apartment. The landlord asserted that those "renovations coupled with two statutory rent increases, increased the legal regulated rent…beyond $2,000" and that the apartment was therefore "deregulated in 2007, due to a high rent vacancy."

The plaintiffs alleged that "the apartment is still subject to the Rent Stabilization Law (RSL) and was not properly deregulated in 2007." They sought damages for "rent overcharges from May 1, 2007, treble damages and attorney fees." Each party moved for summary judgment.

The landlord argued, inter alia, that the subject rent increases are "beyond" the four-year statute of limitations (SOL) for such claims. The plaintiffs challenged the assertion that "approximately $70,000 worth of renovation work was done to the apartment in 2007 to increase the legally allowable rent to over $2,000 per month."

The court found that "the action was not time-barred because the RSL's four-year [SOL] is limited to calculating a rent overcharge claim and does not apply when the court is determining whether an apartment is regulated in the first instance and…there were triable issues of fact, including whether the apartment is exempt from rent stabilization based on the high rent vacancy decontrol said to have occurred in 2007."

The plaintiffs argued that since the prior decision had been issued, there had been "a change in the factual circumstances of the case." The plaintiffs cited a letter from the landlord's counsel, in which the landlord offered to reimburse the plaintiffs for "rent overcharges in the amount of $741 for the years 2011 through 2015 based on the fact that 'to date [they] have not received documentation from the prior owner to substantiate [the alleged apartment improvements that occurred prior to defendant's purchase of the property and prior to plaintiffs' occupancy of the subject premises], as the improvements occurred nearly a decade ago."

The landlord's letter advised the plaintiffs, "[w]ithout prejudice to any of defendant's defenses…, the defendant has retroactively registered the rents charged to plaintiffs for the years 2011 to 2015 at the Division of Housing and Community Renewal (DHCR),' thereby conceding that the apartment is regulated under the RSL."

The court granted the plaintiffs' motion to renew and upon renewal, and plaintiffs' summary judgment on their cause of action "to collect rent overcharges from May 1, 2007, the beginning of their tenancy in the apartment."

The court acknowledged that the SOL for rent overcharge claims is four years pursuant to CPLR §213-a and RSL §26-516(a)(2). However, the court found that "the four-year [SOL] is only applicable in cases where the landlord has filed annual rent registrations and is not applicable when no rent registrations were filed." The court based such finding on RSL §26-516(a) which provides that "[w]here the amount of rent set forth in the annual rent registration statement filed four years prior to the most recent registration statement is not challenged within four years of its filing, neither such rent nor service of any registration shall be subject to challenge at any time thereafter." The court explained that "the entire basis for the [SOL] is based on a rent registration statement being filed every year." Thus, "in the absence of rent registrations filed annually, there is no basis for applying the four-year [SOL]."

Since the plaintiffs are entitled to legal fees, pursuant to the RSL, the court did not address the plaintiffs' claim for attorney fees under Real Property Law §234, since the "plaintiffs may not collect the same attorney fees twice."

However, the court denied the plaintiffs' motion for summary judgment on their claim for treble damages. The court stated that "[t]reble damages amount to a substantial penalty, the purpose of which is to punish owners who deliberately and systematically charge tenants unlawful rents." The court further noted that "[t]he burden is on the owner to rebut the presumption of willfulness."

The court found that there was an issue of fact as to "whether the rent overcharge was 'willful' under the law." The landlord had bought the building in 2014, after the plaintiffs had been in the apartment for approximately seven years. The landlord had affirmed that, at the time of purchase, "it understood that certain improvements totaling $70,000 had been made to the apartment by the prior owner and thus believed the apartment was no longer regulated under the RSL."

The landlord further asserted that "it was only when it attempted to collect the records of the alleged improvements from the prior owner for purposes of the instant litigation," that "it realized that the prior owner had no such records." The court held that it could not be established, as a matter of law, that the landlord had "'willfully' overcharged the plaintiffs."

Tomic v. 92 East LLC, 151152/2015, NYLJ 1202756589079, at *1 (Sup., NY, Decided April 13, 2016), Kern, J.
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Re: No 4 yr SOL if Landlord hasn't filed rent registrations

Postby TenantNet » Tue Jul 26, 2016 9:20 pm

Realty Law Digest
By Scott E. Mollen
Published: Jul 26, 2016
http://www.law.com/sites/articles/2016/07/26/realty-law-digest-126/?slreturn=20160626211329

Landlord-Tenant—Rent Overcharges—Four-Year Statute of Limitations Applied—Fraud Exception—Treble Damages—Plaintiffs Failed to Demonstrate That Current Owner Knew That Prior Owner Unlawfully Deregulated Apartment—Owner Asserted That it Learned That Prior Owner Lacked Records of Alleged Renovations Only In Discovery In the Subject Litigation

IN MY JULY 20, 2016 COLUMN, I discussed a decision dated April 13, 2016, in Tomic v. 92 E. LLC, which involved a claim for rent overcharges (2016 N.Y., Misc. LEXIS 1392; 2016 NY Slip. Op. 30660 (U). I subsequently learned that the court recalled that decision and issued a subsequent decision dated May 17, 2016, 2016 N.Y. Misc. LEXIS 1864; 2016 NY Slip Op. 30911 (U).

Since the plaintiffs had established new facts and provided “reasonable justification” for the failure to present such facts on the prior motion, the court granted the plaintiffs’ motion to renew.

“[R]ent overcharge claims are generally subject to a four-year statute of limitations.” The court explained that:

“To effectuate the purpose of the four-year limitations period, in rent overcharge cases DHCR regulations, as relevant here, set the ‘legal regulated rent’ as the rent charged on the ‘base date,’ which is the ‘date four years prior to the date of the filing of [the overcharge] complaint’ plus any subsequent lawful increases”….

However, the Court of Appeals held that “where the overcharge complaint alleges fraud…[there is] an obligation to ascertain whether the rent on the base date is a lawful rent….”

The Court of Appeals has held that the fraud exception is inapplicable where the “tenant fail[s] to set forth sufficient indicia of fraud to warrant consideration of the rental history beyond the four-year statutory period.”

The subject court found that the plaintiffs were entitled to summary judgment on their rent overcharge claim, to be calculated from the base date, “four years prior to the commencement of the instant action.” The plaintiffs had commenced the instant action on Feb. 3, 2015. Thus, the plaintiffs are “only entitled to collect any overcharges which occurred within four years prior to the commencement of the overcharge proceeding, which would be the base date of Feb. 3, 2011.”

Since the landlord had acknowledged in a letter that it had overcharged the plaintiffs during the four-year period prior to the commencement of this action, the court held that the plaintiffs were entitled to summary judgment on such claim. However, the court declined “to review the rental history of the apartment prior to the base date of February 3, 2011 in order to determine whether the amount of the rent on the base date was lawful on the ground that plaintiffs have failed to sufficiently establish a colorable claim of fraud.” The complaint alleged that the defendants had failed to rent registration statements for the years 2007 to the present. However, the complaint failed “to include any allegations of fraud whatsoever.”

The plaintiffs alleged that the prior owner, not the current landlord, had wrongfully deregulated the apartment in 2007 and failed to register the apartment since 2006 and that the current landlord had “perpetuated [sic] the same scam by claiming that the apartment was permanently exempt from rent stabilization….” The plaintiffs contended that the prior owner and the current owner both claimed “bogus renovations were performed to the apartment in 2007.”

However, the court found that the plaintiffs failed to provide any evidence, nor did they allege, that the current owner knew that the apartment had been “unlawfully deregulated” when the current owner had purchased the building and continued to charge the plaintiffs “improper rent” or that the “defendant knew, prior to December 2015, that it could never prove that improvements to the apartment were actually made.”

The defendant had bought the building in 2014, after the plaintiffs had already been living in the apartment for approximately seven years. The defendant affirmed that at the time of the purchase, it believed that certain improvements had been made to the apartment by the prior owner and believed, in good faith, that the apartment was no longer regulated under the Rent Stabilization Law. The defendant asserted that “it was only when it attempted to obtain the records of the alleged improvements from [the prior owner] for purposes of the instant litigation,” that it learned that the prior owner “had no such records.”

The court held that the plaintiffs “failed to establish a colorable claim of fraud.” Therefore, the court declined “to review the rental history of the apartment prior to the base date of February 3, 2011, in order to determine whether the amount of the rent on the base date was lawful.”

The court further held that although the plaintiffs were entitled to attorney fees and interest, the plaintiffs were not entitled to summary judgment on their claim for treble damages. Treble damages are to be imposed on an owner “upon a finding of a rent overcharge unless the owner establishes by a preponderance of the evidence that the rent overcharge was not willful.” The court noted that treble damages is “a substantial penalty, the purpose of which is to punish owners who deliberately and systematically charge tenants unlawful rents…. The burden is on the owner to rebut the presumption of willfulness.”

Tomic v. 92 East LLC, Sup. Ct., N.Y. Co., Index No. 151152/2015, decided May 17, 2016, Kern, J.
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Information from TenantNet is from experienced non-attorney tenant
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