Four-Year Rule Applies to Overcharge Claims

Building tenants sued landlord, seeking a declaration that they were rent stabilized and were overcharged. In a prior appellate ruling, a court declared that the building was subject to rent stabilization as of April 12, 2011, when HUD's oversight of the property ceased. The court action then continued for the rent overcharge claims. Landlord asked the court to dismiss the overcharge claims as untimely.

The court ruled against landlord, who appealed and lost since more facts were needed. While the case was pending, the HSTPA was enacted effective June 14, 2019. This expanded the overcharge lookback period. But, in April 2020, New York's highest court ruled, in Regina Metropolitan Co., LLC v. DHCR, that the HSTPA's overcharge calculation amendments couldn't be applied retroactively to overcharges that occurred prior to their enactment. So, the four-year lookback period applied unless tenants could show fraud. 

Tenants claimed that the HUD rents in effect on April 11, 2011, were illegal and couldn't be used as the initial legal regulated rents without ruling on whether landlord engaged in a fraudulent rent overcharge scheme. Tenants raised sufficient proof to raise an issue of fact as to whether landlord tampered with a recertification process provided for under the HUD Use Agreement, and pressured and misled tenants for the purpose of improperly raising rents at "market" rates far higher than the Use Agreement "contract" rates.

The court rejected landlord's argument that the fraud exception to the four-year rule under rent stabilization should apply only to a fraudulent scheme to deregulate the units. If tenants prove there was a fraudulent rent overcharge scheme to raise the pre-stabilization rents, tainting the reliability of the base date rents, then the lawful rents on the base date must be determined by using the default formula devised by the DHCR. 

435 Cent. Park W. Tenant Assn. v. Park Front Apts., LLC: Index No. 11474, 452296/16, 2020 NY Slip Op 03059 (App. Div. 1 Dept.; 5/28/20, Acosta, PJ, Renwick, Richter, Gonzalez, JJ)