Landlord & Tenant

Landlord Not Entitled to Rely on RRRA's 4-Year Rule

Thornton v. Baron

NYLJ 7/1/05, p. 18, col. 1

Court of Appeals

(5-2 decision; majority opinion by Chief Judge Kaye; dissenting opinion by R.S. Smith, J.)

In subtenant's rent overcharge proceeding against main tenant and landlord, each appealed from the Appellate Division's affirmance of the Supreme Court's determination that subtenant was entitled to a rent-stabilized lease from landlord at a rent to be determined using DHCR's default formula for determining rent when no reliable rent records are available. The Court of Appeals affirmed, holding that landlord's participation in a scheme to circumvent stabilization prevented landlord from relying on the four-year rule incorporated into the Rent Regulation Reform Act of 1997.

In the early 1990s, landlord leased various apartments in the subject building, previously subject to rent stabilization, to tenants who agreed not to use the apartments as their primary residences. The rents in these leases were far above the stabilized rents. Tenants, in turn, sublet apartments to subtenants, who also represented that they would not use the premises as their primary residence. The subtenants paid even higher rents than those prevailing in the main leases, enabling both landlord and tenants to profit from the scheme to remove the apartments from rent stabilization. In 1993, landlord brought proceedings — uncontested by tenants — to establish that the apartments were exempt from rent stabilization as non-primary residences. Each tenant then entered into a stipulation with landlord agreeing to a consent judgment upholding the parties' bargain. Landlord then filed annual rent registration statements stating the agreed-upon rents and listing the apartments as temporarily exempt from rent stabilization. In 1996, subtenants, who had represented in their subleases that they would not use the apartments as their primary residences, brought this overcharge proceeding against tenants. Supreme Court concluded that the tenancy of the main tenants was illusory, and that the subtenants were the actual tenants of the apartment, which should never have been removed from rent stabilization.

Not until 2000 did subtenants amend their complaint to name landlord as a defendant, seeking to compel landlord to offer them a rent-stabilized lease at $507.86 per month – the regulated rent prior to the 1992 commencement of the illusory tenancy. Landlord conceded that the apartment was subject to rent stabilization, but contended that the legal regulated rent was to be calculated from a base rent of $2496 — the rent reflected in the 1996 annual registration statement. Landlord relied on the Rent Regulation Reform Act of 1997(RRRA), which provides that where a rent stated in an annual registration statement is not challenged within 4 years of its filing, it shall not thereafter be subject to challenge. The Supreme Court adopted neither view, ruling that the rent must be fixed in accordance with DHCR's formula for overcharge cases where no reliable rent records are available. That formula uses the lowest rent for a rent-stabilized apartment with the same number of rooms in the same building on the relevant base date. The Appellate Division affirmed, and both parties appealed.

In affirming, the Court of Appeals majority emphasized the landlord's effort to circumvent the rent stabilization law, and concluded that the 1996 rent registration statement was a nullity. The court majority contended that to apply the RRRA's 4-year limitation period to the 1996 statement would reward the landlord for its fraudulent conduct. The majority rejected the view that the act of filing a registration statement could transform an illegal rent produced by landlord fraud into a lawful assessment. Hence, the majority endorsed using DHCR's default formula.

The dissenting judges argued that the majority's approach destroys the effectiveness of the 4-year limitation period, noting that the limitation “has no point unless it protects illegal rents against challenge. If a rent is not illegal, a challenge will fail anyway and the four-year limit is unnecessary.” The dissent further noted that the plaintiff subtenants were initially co-conspirators in the fraudulent scheme, and waited more than 4 years to challenge the rent established in their 1992 lease.

Rent Overcharge Claim Not Established

Clearwater Realty Co. v. Yonac

NYLJ 7/1/05, p. 25, col. 2

AppTerm, Second and 11th Districts

(memorandum opinion)

In landlord's nonpayment proceeding, landlord appealed from Civil Court's award of back rent. The Appellate Term modified to increase the award, rejecting the rent overcharge claim relied upon by Civil Court.

At trial, landlord established that tenant did not pay rent for the months from July through November 2002, for a total of $6949.48. Tenant asserted defenses based on rent overcharge and breach of the implied warranty of habitability. Tenant contended, in particular, that the individual apartment improvement (IAI) increases taken by landlord while the apartment was vacant were unjustified. Although landlord introduced canceled checks totaling $60,400 paid to a contractor for gut rehabilitation of the apartment, the trial court disallowed those amounts because landlord had not proven that the funds were earmarked for the apartment. The trial court also awarded tenant an abatement of $522.46 for a window leak, leaving landlord with a total of $550.15. Landlord appealed.

In modifying, the Appellate Term noted that $18,600 of the checks introduced by the landlord were paid contemporaneously with the work performed, and, together with other evidence, established overwhelmingly that the rehabilitation was completed. Under DHCR's policy statements, this would have been sufficient to establish entitlement to IAI increases. Since this amount, by itself, was sufficient to justify the rents landlord had charged tenant, the rent overcharge defense should have been disallowed. Further, the court concluded that the evidence established a window leak on only fiver or six occasions with driving rains. Given the daily rent for the apartment, the court concluded that an abatement of $250 was sufficient. As a result, the court held landlord entitled to a judgment of $6699.48.

Landlord Not Entitled to Rely on RRRA's 4-Year Rule

Thornton v. Baron

NYLJ 7/1/05, p. 18, col. 1

Court of Appeals

(5-2 decision; majority opinion by Chief Judge Kaye; dissenting opinion by R.S. Smith, J.)

In subtenant's rent overcharge proceeding against main tenant and landlord, each appealed from the Appellate Division's affirmance of the Supreme Court's determination that subtenant was entitled to a rent-stabilized lease from landlord at a rent to be determined using DHCR's default formula for determining rent when no reliable rent records are available. The Court of Appeals affirmed, holding that landlord's participation in a scheme to circumvent stabilization prevented landlord from relying on the four-year rule incorporated into the Rent Regulation Reform Act of 1997.

In the early 1990s, landlord leased various apartments in the subject building, previously subject to rent stabilization, to tenants who agreed not to use the apartments as their primary residences. The rents in these leases were far above the stabilized rents. Tenants, in turn, sublet apartments to subtenants, who also represented that they would not use the premises as their primary residence. The subtenants paid even higher rents than those prevailing in the main leases, enabling both landlord and tenants to profit from the scheme to remove the apartments from rent stabilization. In 1993, landlord brought proceedings — uncontested by tenants — to establish that the apartments were exempt from rent stabilization as non-primary residences. Each tenant then entered into a stipulation with landlord agreeing to a consent judgment upholding the parties' bargain. Landlord then filed annual rent registration statements stating the agreed-upon rents and listing the apartments as temporarily exempt from rent stabilization. In 1996, subtenants, who had represented in their subleases that they would not use the apartments as their primary residences, brought this overcharge proceeding against tenants. Supreme Court concluded that the tenancy of the main tenants was illusory, and that the subtenants were the actual tenants of the apartment, which should never have been removed from rent stabilization.

Not until 2000 did subtenants amend their complaint to name landlord as a defendant, seeking to compel landlord to offer them a rent-stabilized lease at $507.86 per month – the regulated rent prior to the 1992 commencement of the illusory tenancy. Landlord conceded that the apartment was subject to rent stabilization, but contended that the legal regulated rent was to be calculated from a base rent of $2496 — the rent reflected in the 1996 annual registration statement. Landlord relied on the Rent Regulation Reform Act of 1997(RRRA), which provides that where a rent stated in an annual registration statement is not challenged within 4 years of its filing, it shall not thereafter be subject to challenge. The Supreme Court adopted neither view, ruling that the rent must be fixed in accordance with DHCR's formula for overcharge cases where no reliable rent records are available. That formula uses the lowest rent for a rent-stabilized apartment with the same number of rooms in the same building on the relevant base date. The Appellate Division affirmed, and both parties appealed.

In affirming, the Court of Appeals majority emphasized the landlord's effort to circumvent the rent stabilization law, and concluded that the 1996 rent registration statement was a nullity. The court majority contended that to apply the RRRA's 4-year limitation period to the 1996 statement would reward the landlord for its fraudulent conduct. The majority rejected the view that the act of filing a registration statement could transform an illegal rent produced by landlord fraud into a lawful assessment. Hence, the majority endorsed using DHCR's default formula.

The dissenting judges argued that the majority's approach destroys the effectiveness of the 4-year limitation period, noting that the limitation “has no point unless it protects illegal rents against challenge. If a rent is not illegal, a challenge will fail anyway and the four-year limit is unnecessary.” The dissent further noted that the plaintiff subtenants were initially co-conspirators in the fraudulent scheme, and waited more than 4 years to challenge the rent established in their 1992 lease.

Rent Overcharge Claim Not Established

Clearwater Realty Co. v. Yonac

NYLJ 7/1/05, p. 25, col. 2

AppTerm, Second and 11th Districts

(memorandum opinion)

In landlord's nonpayment proceeding, landlord appealed from Civil Court's award of back rent. The Appellate Term modified to increase the award, rejecting the rent overcharge claim relied upon by Civil Court.

At trial, landlord established that tenant did not pay rent for the months from July through November 2002, for a total of $6949.48. Tenant asserted defenses based on rent overcharge and breach of the implied warranty of habitability. Tenant contended, in particular, that the individual apartment improvement (IAI) increases taken by landlord while the apartment was vacant were unjustified. Although landlord introduced canceled checks totaling $60,400 paid to a contractor for gut rehabilitation of the apartment, the trial court disallowed those amounts because landlord had not proven that the funds were earmarked for the apartment. The trial court also awarded tenant an abatement of $522.46 for a window leak, leaving landlord with a total of $550.15. Landlord appealed.

In modifying, the Appellate Term noted that $18,600 of the checks introduced by the landlord were paid contemporaneously with the work performed, and, together with other evidence, established overwhelmingly that the rehabilitation was completed. Under DHCR's policy statements, this would have been sufficient to establish entitlement to IAI increases. Since this amount, by itself, was sufficient to justify the rents landlord had charged tenant, the rent overcharge defense should have been disallowed. Further, the court concluded that the evidence established a window leak on only fiver or six occasions with driving rains. Given the daily rent for the apartment, the court concluded that an abatement of $250 was sufficient. As a result, the court held landlord entitled to a judgment of $6699.48.