Landlord Fraudulently Deregulated Apartment While Getting J-51 Tax Benefits

Tenant sued landlord in October 2019, claiming rent overcharge and improper apartment deregulation. Tenant moved into the unit in 2006 and wasn't informed that the building was receiving J-51 tax benefits at that time. Tenant later asked the court for a ruling on his claims without trial.

The court ruled for tenant in part. Tenant demonstrated fraud by providing documentary proof that he wasn't given a rent-stabilized lease, that the building was subject to rent stabilization, and that landlord had actual notice that receiving J-51 benefits subjected the building to rent stabilization. Although a four-year statute of limitations applied to the overcharge claim (which accrued prior to HSTPA enactment on June 14, 2019), the court could look back further to determine whether the unit was properly deregulated where there was a colorable claim of fraud. New York courts have found that a landlord's failure to re-register apartments while receiving J-51 benefits could form the basis for a finding of a fraudulent scheme to deregulate and overcharge. Here, the building received J-51 tax benefits until June 30, 2011, but landlord didn't reregister the apartment as rent stabilized until 2022.  So tenant established fraud under either the former common law standard for fraud or under the newer "totality of the circumstances" standard.

The court would refer the overcharge claim to a special referee to calculate any overcharge under the default formula. The referee would also determine whether the overcharge was willful and warranted triple damages. And the referee would determine what the legal rent should be under a rent-stabilized renewal lease that should be offered to tenant. Tenant also was entitled to attorney's fees as the prevailing party in the case.

Ioannou v. 1 BK St. Corp.: Index No. 160523/2019, 2025 NY Slip Op 31426(U)(Sup. Ct. NY; 4/22/25; Hagler, J)