Four Class Actions Allege Rent Overcharge Chicanery

In 1971, Real Property Tax Law §421-a was enacted by the New York State Legislature to offer developers tax incentives for constructing new, market-rate, multi-family rental housing. In exchange for those credits, owners are required to provide their tenants with the protections of rent regulation, even if the apartments would otherwise be exempt. (This requirement has been modified under the "Affordable New York Housing Program" amendments to the 421-a program.) New York City's Rent Stabilization Law (RSL), and the Rent Stabilization Code (RSC), limit the amount of rent that NYC landlords can charge, and circumscribe the manner in which landlords are able to raise rents. To secure future percentage-based increases, participating landlords in newly constructed buildings must first establish an initial legal regulated rent for each unit and must register the "initial adjusted monthly rent charged and paid," with the New York State Division of Housing and Community Renewal (DHCR). See, RSL §26-517(a)(4) and RSC §2521.1(g).

The 3052 Brighton First Street complaint sets forth the most obvious way that owners allegedly circumvented the tax program's requirements. The tenant in that case claims that his landlord wrongfully filed an initial registration with a legal regulated rent of $5,438.07, and a preferential rent of $2,150.00. But because RSC §2501.2 defines a "preferential rent" as "the amount of rent charged and paid by the tenant," (and mirrors the "charged and paid" language found in 421-a's requirements), the tenant contends that the initial legal regulated rent should have been $2,150.00 — the amount paid by the tenant — rather than the $5,437.07 figure that was registered. At least one appellate case supports that interpretation. See, 125 Ct. St., LLC v. Sher, 58 Misc. 3d 150(A). And, notably, the 3052 Brighton First Street landlord previously lost a DHCR dispute, in which a different tenant objected to this landlord's use of an incorrect initial rent calculation. (By utilizing that higher number, upon each renewal, the landlord was able to take percentage rent increases in excess of those that were permitted by law.)