New Landlord Not Responsible for Prior Landlord's Rent Overcharge

Rent-stabilized tenant complained of rent overcharge. Landlord claimed that it bought the building in a judicial sale and therefore wasn't responsible for any rent overcharges before April 2014. The DHCR ruled against landlord and found it fully liable for the rent overcharge found by the DRA. Landlord then filed an Article 78 court appeal, claiming that the DHCR's decision was arbitrary and unreasonable. The court sent the case back to the DHCR for further review.

The DHCR then ruled for landlord. In April 2013, a mortgage foreclosure action was commenced seeking the appointment of a receiver for the building. While that action was pending, the NY State Attorney General's office commenced an investigation into the rental practices of the building's prior managing agent. In April 2015, the pre-judicial sale building owner signed a regulatory agreement with the AG. In this Assurance of Discontinuance agreement, prior landlord agreed that the building would be subject to a foreclosure action and judicial sale, and that prior landlord would be released from all claims for repairs and rent overcharges prior to April 15, 2014. Prior landlord then transfered the building to new landlord on Feb. 11, 2016.

The DHCR found that Rent Stabilization Code Section 2526.1(f)(2)(i) doesn't require a court order that the building be sold and recognizes that a mortgage foreclosure proceeding may be resolved with a court order to sell. The Assurance of Discontinuance with prior landlord had referred to a court complaint filed in the foreclosure action. Therefore, landlord wasn't responsible for any overcharges that occurred before April 2015. And, as the second purchaser after a foreclosure sale, landlord wasn't responsible for overcharges collected by any prior landlord after the foreclosure, to the extent that such overcharges were the result of overcharges collected prior to the foreclosure sale. [Download PDF of decision here.]

City Life NY: DHCR Adm. Rev. Docket No. GT610004RP (1/11/19) [3-pg. doc.]