May 2025 Insights
By Eileen O’Toole, Esq., Contributing Editor
Courts continue to address intertwined issues of rent overcharge and fraudulent deregulation in recent cases that demonstrate, among other things, that these cases move slowly and can involve multiple rounds of interim rulings, appeals, and remands before there is actually a finding as to how much of a rent overcharge occurred. Courts also continue to decide questions concerning whether rent concessions granted at the commencement of initial tenancies in 421-a buildings were actually impermissible preferential rents, resulting in rent overcharges. And in several cases of interest, courts granted preliminary injunctions to stop owners from taking actions while lawsuit issues were under consideration.
Fraudulent Deregulation Considered
In Cox v. 36 S. Orchard St., LLC (LVT #33691), the First Department appeals court quickly reopened a dismissed class action based on fraudulent deregulation, citing the March 2025 ruling by New York’s highest court in Burrows v. 75-25 153rd Street, LLC (LVT #33650) which affirmed that the “totality of the circumstances” test now applied in finding whether there had been a fraudulent scheme to deregulate apartments. In another case, Reichenbach v. Jacin Invs. Corp. (LVT #33694), the First Dept. similarly amended a lower court ruling to point out that the totality-of-the-circumstances test should apply to analysis of a claimed fraudulent deregulation scheme.
In another class action involving 37 apartments in a J-51 building, Najera-Ordonez v. 260 Partners LP (LVT #33695), the court rejected the tenants’ renewed request to consider fraudulent deregulation based on the totality-of-the-circumstances test and reiterated a prior appeals court ruling in this case that the fraud exception and overcharge default formula would not apply to the 29 units improperly deregulated prior to the Court of Appeals 2009 decision in Roberts v. Tischman Speyer Props. (LVT #22236).
In Maddicks v. 106-108 Convent BCR, LLC (LVT #33697), a court gave the landlord of 11 buildings in a class action claiming fraudulent deregulation of multiple apartments additional time to compile rent history records dating back to the 1990s. The court also noted that the tenants were not likely to get a ruling against the landlord without a trial since the totality-of-the-circumstances test required an assessment of the landlord’s intention.
In Ioannou v. 1 BK St. Corp. (LVT #33696), a tenant claimed rent overcharge and fraudulent deregulation where a building received J-51 tax benefits until June 30, 2011, but the owner didn't re-register the apartment as rent stabilized until 2022. The Manhattan court found that the tenant established fraud under either the former common law standard or under the newer totality-of-the-circumstances standard and referred the claim to a special referee to calculate any overcharge under the default formula and to determine whether the overcharge was willful and warranted triple damages.
In 304-306 E 83 Realty LLC v. Mason (LVT #33693), another case involving improper deregulation while a building received J-51 tax benefits, the court ordered a trial after finding that there were indicia of rent fraud under the totality-of-the-circumstances test.
Rent Concessions in 421-a Buildings
In two recent cases, a court considered whether rent concessions granted to the initial tenants in 421-a buildings were part of a scheme to improperly inflate the initial rent-stabilized rents. In Wise v. 1614 Madison Partners (LVT #33692), the court found that a trial was needed to determine whether the claimed construction concessions were a scheme to inflate the legal rents. And in Grey v. Lic Dev. Owner, L.P. (LVT #33698), the court noted changes in DHCR guidance concerning rent concessions and preferential rents pre- and post-HSTPA required a trial to determine whether there were rent overcharges but held that any overcharges here weren’t willful and weren’t part of a scheme to charge higher rents.
Preliminary Injunctions
In a nuisance case involving the tenant’s three pit bull dogs, the court granted a preliminary injunction and ordered the tenant to remove the dogs from the building while the case was pending after a showing that the dogs behaved aggressively toward other residents, pets and building staff. See PP 535 Carlton TC LLC v. Cosme (LVT #33684).
In DHCR v. Zara Realty Holding Corp. (LVT #33690), the court granted the DHCR and the State Attorney General a preliminary injunction against the collection of excessive brokerage fees equal to more than one month’s rent while the case claiming that the landlord and its real estate broker violated New York’s rent regulations laws and Executive Law Section 63(12).
And, in Burre v. Kipling Arms, LLC (LVT #33701), where rent-regulated tenants sued to stop the landlord from making building service changes, including replacing a manual elevator with an automated one, the court granted a preliminary injunction until the landlord either obtained DHCR permission to modify services or the court otherwise made a ruling in the case.