Landlord Must Offer Rent-Stabilized Lease to First Tenant After Temporary Exemption

Tenant complained to the DHCR of improper apartment deregulation and rent overcharge. The DRA ruled against tenant, finding that the apartment had been vacancy deregulated by the base rent date. The DHCR denied tenant's PAR in 2017. Tenant then filed an Article 78 court appeal, arguing that the DHCR's decision was arbitrary and unreasonable. The court sent the case back to the DHCR for further consideration of whether the apartment was in fact deregulated and, if not, how to calculate any rent increase for individual apartment improvements (IAIs) performed by landlord before tenant moved in.

Landlord argued that the apartment had been temporarily exempt for some period before tenant moved in and that landlord therefore properly set a first, deregulated rent to prior tenant, in accordance with former Rent Stabilization Code Section (RSC) 2526.1(a)(3)(iii) as it existed before amendment effective Jan. 8, 2014. Landlord relied on a court's decision in AEJ 534 E 88th LLC v. DHCR, which held that the amended RSC provision couldn't be applied retroactively. But another 2012 appellate court decision in Gordon v. 305 Riverside Corp, held that a first rent set after a temporary exemption from rent stabilization must be offered under a rent-stabilized lease.

In this case, landlord offered the prior tenant a deregulated lease, not a rent-stabilized lease, at $1,650 per month. So the apartment remained subject to rent stabilization. The DHCR otherwise found that IAI rent increases were properly calculated. The total rent overcharge was $17,652, including interest.

Healy: DHCR Adm. Rev. Docket No. GX410004RK (3/18/19) [11-pg. doc.]