Computing Rent Overcharges in Light of Roberts

"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 is filed…. This paragraph shall preclude examination of the rental history of the housing accommodation prior to the four-year period preceding the filing of a complaint pursuant to this subdivision."

CPLR 213-a, a statute of limitations provision, similarly precludes examination of the rental history more than four years before commencement of an action.

The facts underlying the First Department's recent decision in Regina Metropolitan, LLC v. Division of Housing and Community Renewal, NYLJ 8/20/18, p. 19., col. 4, illustrate the harmonization difficulty. In 2003, when tenant of the subject apartment moved out, the monthly regulated rent was $2,096.47, above the then-applicable $2,000 threshold for vacancy luxury deregulation. Landlord then set the market rate at $4,500, and rented to new tenants for a period starting Aug. 1, 2005 at a monthly rent of $5,195. Roberts was decided in 2009, and, on Nov. 2, 2009, tenant brought an overcharge complaint, alleging that because the building was receiving J-51 benefits, the apartment was still subject to rent stabilization. In light of Roberts, tenant was certainly correct. But how much was tenant entitled to recoup?

The rent landlord was entitled to charge at the inception of tenant's 2005 lease was $3,325.24 (allowing for all permissible increases from the $2,096.47 rent at the departure of the last stabilized tenant in 2003). Based on that lawful rent, tenant would have been entitled to collect $283,192.59 from the landlord. But DHCR could only arrive at that amount if it ignored section 26-516's four-year lookback period. Only by examining records from 2003 — six years before filing of the complaint — would the parties learn that the lawful rent in 2005 would have been $3,325.24. Landlord's claim was that the overcharge should be based on the actual rent on Nov. 2, 2005 — $5,195 — and that tenant was entitled only to a refund of excess rent increases from that period forward, resulting in a total overcharge of $10,271.40, and leaving landlord entitled to charge a rent of $6,334.12 going forward.

In the Regina case, DHCR looked back beyond the four-year period and awarded tenant $283,192.59. Supreme Court upheld that determination. After Supreme Court made its decision in the Regina case, the First Department took precisely the same approach in Taylor v. 72A Realty Assoc., L.P., 151 A.D.3d 95 — holding that even if landlord had not engaged in any fraud, it was appropriate to look back beyond the statutory four-year period. In Regina itself, however, a different panel of First Department judges held, in a 3-2 decision, that the statute's four-year lookback limitation precluded the Taylor approach (and the approach taken by DHCR and Supreme Court in the Regina case itself). The Appellate Division majority recognized that the Court of Appeals had permitted an exception to the four-year period in cases of fraud, but emphasized that this case involved no fraud by the landlord.

The majority did not, however, instruct DHCR to adopt the landlord's position. Instead, the court indicated that DHCR had discretion to implement other methods of base date rent calculation that do not run afoul of the four-year limitations period. In particular, the court cited with approval Matter of 160 East 84^th Street v. DHCR, a First Department case decided earlier this year in which the panel approved DHCR's use of a sampling method based on average rents for comparable stabilized apartments within the building. That sampling approach could be more favorable for tenants than the DHCR's approach, because the only stabilized apartments in the building in 2005 were likely to be those that had not yet reached the luxury deregulation threshold. The majority did not, however, compel DHCR to use that methodology, but merely remanded to DHCR "with discretion to implement other methods of base date rent calculation that do not run afoul of the limitations period."

Justice Gische, dissenting for herself and Justice Kapnick, would have adhered to the approach in Taylor (an opinion she had authored), taking a flexible approach to the four-year period. She emphasized that permitting a base rent fixed as a market rent would render Roberts a nullity.

The conflicting panel decisions within the First Department suggest that the Court of Appeals will ultimately have to weigh in on the issue.

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Stewart E. Sterk, Mack Professor of Law at Benjamin Cardozo School of Law, is the Editor-in-Chief of New York Real Estate Law Reporter.