Appeals Court Reinstates Tenants' Claim That Apartments Were Fraudulently Deregulated

Former and current tenants of five buildings sued landlords, claiming that the current and prior landlords engaged in a scheme designed to evade New York's rent regulations and deregulate apartments. The court granted landlord's request to dismiss the case, finding that the pre-war buildings weren't eligible for the 421-a tax benefit program and therefore couldn't have violated that program (see LVT #33534). The court also found that tenants failed to state a claim of fraudulent deregulation. The tenants appealed, and the First Dept. quickly ruled in their favor, reopening the case and sending it back to the lower court.

The appeals court found that tenants' complaint adequately alleged that the apartments were improperly deregulated due to improper IAI-related rent increases, and pointed out that courts have uniformly held that it is a landlord's burden to establish that an apartment's deregulation was proper. Recent amendments to the RSL and RSC in 2023 and 2024 (enacted one day after the lower court's decision in this case) permit the use of records of any age to determine an apartment's rent-stabilized status. This reflects the Legislature's intent to allow review of an apartment's full rent history for determining lawful deregulation. If the apartments here were fraudulently deregulated, tenants should have the chance to establish a fraudulent scheme to deregulate under the "totality of the circumstances" approach or, alternatively, to show rent overcharges during the lookback period.  There was no requirement that tenants show all elements of a common law fraud cause of action to avail themselves of the fraud exception to the lookback rule.

Cox v. 36 S Oxford St., LLC: Index No. 158487/23, App. No. 4174, Case No. 2024-07470, 2025 NY Slip Op 02408 (App. Div. 1 Dept.; 4/24/25; Moulton, JP, Mendez, Rodriguez, Pitt-Burke, Rosado, JJ)