Roberts ' What's Next?

Retroactivity

The defendants argued to the Court of Appeals that any determination affirming the Appellate Division order should only have prospective effect. The Court of Appeals majority, noting that the retroactivity issue had not been raised below, declined to rule on whether the court should apply “the statute prospectively rather than retroactively.”

In Gurnee v. Aetna Life & Cas. Co., 55 N.Y.2d 184, 448 N.Y.S.2d 145 (1982), the Court of Appeals wrote that a decision will not be applied retroactively where: 1) the decision establishes a new principle of law by, inter alia, overruling past precedent upon which litigants have relied; and 2) retroactive application would be inequitable. The defendants thus argued for prospective application in that the Appellate Division and Court of Appeals rulings overturned DHCR's 1996 interpretation of the statute, as well as DHCR's 2000 regulation codifying that interpretation. As the Court of Appeals dissent noted, there had been, for many years, “an understanding of the law upon which numerous and substantial business transactions and other dealings have been predicated ' .”

That understanding was not limited to DHCR's interpretation. For over a decade, as the dissent observed, the New York City Department of Housing Preservation and Development (“HPD”) issued “prorated J-51 tax benefits to buildings with luxury-decontrolled apartments,” meaning that HPD reduced J-51 benefits to account for deregulated units, as opposed to denying benefits altogether, or requiring owners to re-regulate these apartments.

The tenants, in response, argued that prospective application should be restricted to decisional law that supplants common law precedent, not to a judicial determination that merely interpreted a statute in existence since 1993.

While prospective application would constitute a substantial victory for owners, the question remains as to what “prospective” application might entail. Would it apply to the issue of rent stabilization status, i.e., would apartments putatively “deregulated” before the Appellate Division or Court of Appeals rulings remain deregulated? Alternatively, would prospectivity only affect rent calculations and overcharge liability? If so, how ' and from what date or event ' would rental issues for affected apartments be prospectively determined?

The Statute of Limitations

Section 26-516(a) of the Rent Stabilization Law provides that an overcharge complaint “shall be filed with the state division of housing and community renewal within four years of the first overcharge alleged and no determination of an overcharge and no award or calculation of an award of the amount of an overcharge may be based upon an overcharge having occurred more than four years before the complaint was filed.” CPLR 213(a) is to the same effect.

Owners will argue that where a tenant files an overcharge complaint pursuant to the Roberts decision, the legal “base” rent shall be whatever rent was charged and paid four years prior to the filing of the complaint. Assuming that rent increases subsequent to the base date are legal under stabilization guidelines (which may well be the case given that so-called market rents have declined over the past several years), there will be no rent overcharge.

Tenants, in contrast, will rely on the First Department's recent determination in Grimm v. New York State Division of Housing and Community Renewal, ___ A.D.3d ___, 886 N.Y.S.2d 111 (1st Dep't 2009), a 3-2 decision which is being appealed to the Court of Appeals by both the owner therein and by DHCR.

In Grimm, the majority held that where there is evidence of “fraud,” the lease in effect four years prior to the overcharge complaint can be “rendered void,” such that the base rent will be calculated pursuant to DHCR's restrictive default rent methodology. In Grimm, the evidence of fraud consisted of a 1999 rent registration statement that called into question the legality of the 2001 base rent.

The dissent in Grimm argued that pursuant to the four-year statute of limitations, the rental history prior to 2001 could not be examined under any circumstances, even if it purported to establish that the 2001 base rent might not have been legal.

Absent some kind of consolidation, all of these issues will be fought out in individual Supreme Court, Civil Court and DHCR proceedings for months and years to come.

Jeffrey Turkel, a member of this newsletter's Board of Editors, is a partner in the Manhattan real estate law firm of Rosenberg & Estis, P.C. He represented amicus curiae Rent Stabilization Association of NYC, Inc. in Roberts v. Tishman Speyer Properties, L.P.

In its Oct. 22, 2009 decision in Roberts v. Tishman Speyer Properties, L.P., the Court of Appeals, by a 4-2 margin, ruled that the current and former owners of the Stuyvesant Town and Peter Cooper Village housing complexes in Manhattan “were not entitled to take advantage of the luxury deregulation provisions of the Rent Stabilization Law ' while simultaneously receiving tax benefits under the City of New York's J-51 program.”

Unanswered Questions

While partially answering one question ' the general effect of receiving J-51 benefits on the defendants' ability to take advantage of luxury deregulation ' the Court of Appeals left dozens of other questions unanswered, as the majority conceded:

Defendants predict dire financial consequences from our ruling, for themselves and the New York City real estate industry generally. These predictions may not come true; they depend, among other things, on issues yet to be decided, including retroactivity, class certification, the statute of limitations, and other defenses that may be applicable to particular tenants.

While many have commented on the merits of the majority and dissenting opinions, the fact remains that the Court of Appeals has ruled. For the real estate and landlord-tenant practitioner, the J-51/luxury deregulation battle now turns on “issues yet to be decided.” This article deals with two of those issues: retroactive application and the four-year statute of limitations for rent overcharges.

Retroactivity

The defendants argued to the Court of Appeals that any determination affirming the Appellate Division order should only have prospective effect. The Court of Appeals majority, noting that the retroactivity issue had not been raised below, declined to rule on whether the court should apply “the statute prospectively rather than retroactively.”

In Gurnee v. Aetna Life & Cas. Co. , 55 N.Y.2d 184, 448 N.Y.S.2d 145 (1982), the Court of Appeals wrote that a decision will not be applied retroactively where: 1) the decision establishes a new principle of law by, inter alia , overruling past precedent upon which litigants have relied; and 2) retroactive application would be inequitable. The defendants thus argued for prospective application in that the Appellate Division and Court of Appeals rulings overturned DHCR's 1996 interpretation of the statute, as well as DHCR's 2000 regulation codifying that interpretation. As the Court of Appeals dissent noted, there had been, for many years, “an understanding of the law upon which numerous and substantial business transactions and other dealings have been predicated ' .”

That understanding was not limited to DHCR's interpretation. For over a decade, as the dissent observed, the New York City Department of Housing Preservation and Development (“HPD”) issued “prorated J-51 tax benefits to buildings with luxury-decontrolled apartments,” meaning that HPD reduced J-51 benefits to account for deregulated units, as opposed to denying benefits altogether, or requiring owners to re-regulate these apartments.

The tenants, in response, argued that prospective application should be restricted to decisional law that supplants common law precedent, not to a judicial determination that merely interpreted a statute in existence since 1993.

While prospective application would constitute a substantial victory for owners, the question remains as to what “prospective” application might entail. Would it apply to the issue of rent stabilization status, i.e., would apartments putatively “deregulated” before the Appellate Division or Court of Appeals rulings remain deregulated? Alternatively, would prospectivity only affect rent calculations and overcharge liability? If so, how ' and from what date or event ' would rental issues for affected apartments be prospectively determined?

The Statute of Limitations

Section 26-516(a) of the Rent Stabilization Law provides that an overcharge complaint “shall be filed with the state division of housing and community renewal within four years of the first overcharge alleged and no determination of an overcharge and no award or calculation of an award of the amount of an overcharge may be based upon an overcharge having occurred more than four years before the complaint was filed.” CPLR 213(a) is to the same effect.

Owners will argue that where a tenant files an overcharge complaint pursuant to the Roberts decision, the legal “base” rent shall be whatever rent was charged and paid four years prior to the filing of the complaint. Assuming that rent increases subsequent to the base date are legal under stabilization guidelines (which may well be the case given that so-called market rents have declined over the past several years), there will be no rent overcharge.

Tenants, in contrast, will rely on the First Department's recent determination in Grimm v. New York State Division of Housing and Community Renewal , ___ A.D.3d ___, 886 N.Y.S.2d 111 (1st Dep't 2009), a 3-2 decision which is being appealed to the Court of Appeals by both the owner therein and by DHCR.

In Grimm, the majority held that where there is evidence of “fraud,” the lease in effect four years prior to the overcharge complaint can be “rendered void,” such that the base rent will be calculated pursuant to DHCR's restrictive default rent methodology. In Grimm, the evidence of fraud consisted of a 1999 rent registration statement that called into question the legality of the 2001 base rent.

The dissent in Grimm argued that pursuant to the four-year statute of limitations, the rental history prior to 2001 could not be examined under any circumstances, even if it purported to establish that the 2001 base rent might not have been legal.

Absent some kind of consolidation, all of these issues will be fought out in individual Supreme Court, Civil Court and DHCR proceedings for months and years to come.

Jeffrey Turkel, a member of this newsletter's Board of Editors, is a partner in the Manhattan real estate law firm of Rosenberg & Estis, P.C. He represented amicus curiae Rent Stabilization Association of NYC, Inc. in Roberts v. Tishman Speyer Properties, L.P.