Fraud and Willful Overcharge Result in Refund Due Tenant for Over $200K

Tenant sued landlord, claiming unlawful deregulation and rent overcharge. Landlord had given tenant an unregulated five-year lease when he moved into the unit in May 2003 at a monthly rent of $2,001. The apartment was rented to tenant in "as is" condition, and tenant made substantial and expensive improvements to make the unit habitable. Tenant sublet the apartment to at least three different subtenants between 2006 and 2011. In January 2007, the building began receiving J-51 tax benefits, and in May 2008, tenant renewed his lease for three years at $2,225 per month. In January 2014, landlord sent tenant a notice to cure, followed by a termination notice for violating his lease by subletting the unit. Tenant then filed his lawsuit.

During a trial of the case, the parties reached a partial settlement. Tenant agreed that he was surrendering all rights to the apartment in exchange for a payment from subtenants, and landlord stipulated that it would issue a two-year rent-stabilized lease to the subtenants at a monthly rent to be determined by the court. This left the court to decide whether landlord had overcharged tenant, and whether tenant owed use and occupancy for periods while the case was pending.

The court ruled that landlord had engaged in willful fraud by improperly deregulating the apartment when it increased the unit's rent without making individual apartment improvements (IAIs), and by intentionally deceiving tenant about the apartment's status and encouraging him to expend his own money to make the apartment habitable. Therefore, it was necessary to use the default formula to determine the base rent.

Since there was insufficient testimony at trial regarding the registered rents for comparable apartments in the building, the court had to look to the last legal registered rent for the prior tenant, which was $500 per month. The legal base rent for the overcharge claim therefore was $500. The total rent overcharge, with triple damages, was $245,390. As to use and occupancy during the long period that the case was pending, tenant owed landlord 84 months at $500 per month, for a total of $42,006. So, the total refund due to tenant was $203,385. The court would hold an inquest to determine the amount of attorney's fees that also were owed to tenant by landlord.

Davis v. Graham Ct. Owners Corp.: Index No. 153293/2014, 2021 NY Slip Op 32533(U)(Sup. Ct. NY; 12/3/21; Engoron, J)