October 2023 Insights

By Eileen O’Toole, Esq., Contributing Editor

By Eileen O’Toole, Esq., Contributing Editor

On Oct. 23, 2023, the DHCR certified adoption of amendments to the Rent Stabilization Code (RSC) it had proposed in August 2022 (LVT #32912). These RSC Amendments are expected to be published in the NY State Register on Nov. 8, 2023, which is the date they will become effective. However, amendments to the rent stabilization and rent control laws that were approved in June 2023 by the NY State Legislature remain unsigned by Governor Hochul at this time. 

While a large portion of the RSC revisions amend the code to conform with Rent Stabilization Law (RSL) changes made by the Housing Stability and Tenant Protection Act (HSTPA) in 2019, provisions concerning newly created apartments that result by combining or dividing existing units also have been added to the RSC although not addressed in the HSTPA amendments to the RSL. The new RSC amendments eliminate the ability to set a “first rent” for new apartments that then become subject to rent-stabilized rent increases. Instead, the new regulations significantly restrict how the initial rents for new apartments may be established, even if a former rent-stabilized unit is combined with a lawfully deregulated apartment. These particular RSC amendments appear to have no basis in the existing RSL, although amendments to the law awaiting action by the governor would add similar restrictions to the governing law.

The U.S. Supreme Court (SCOTUS) has declined to hear the appeal of CHIP, RSA, and individual property owners who filed a constitutional challenge to the RSL against the City of New York, the DHCR, and others shortly after HSTPA was enacted (LVT #32921). Consistent with its usual practice in responding to such applications, the decision to deny certiorari was issued by SCOTUS without explanation.

A number of recent court and DHCR decisions address the applicability of RSL and RSC provisions to particular situations.

In 200 Haven Owner, LLC v. Drachman (LVT #32821), the First Department appeals court ruled that a rent-stabilized apartment didn’t become vacancy deregulated when the tenant added a new co-tenant. While the owner was entitled to collect a vacancy rent increase when the new co-tenancy began, there was no actual vacancy, so vacancy deregulation didn’t apply although the rent now exceeded the deregulation threshold then in effect.

In Thomas v. 500-566 Hudson LLC (LVT #32922), the First Department appeals court held that J-51 building tenants failed to present sufficient proof that the owner engaged in a fraudulent scheme to deregulate apartments. Finding lease and registration documents insufficient—without more—wasn’t enough, and the RSC default formula couldn’t be applied to calculate any rent overcharges.

In Matter of Ironton Realty, LLC (LVT #32794), the DHCR ruled that apartments temporarily exempt from rent stabilization counted as rent-stabilized units when calculating whether 35 percent of a building’s apartments were regulated and therefore subject to MCI rent increases.

In Matter of Manchester I, LLC (LVT #32910), the DHCR applied triple damages to an overcharge based on a 2015 rent reduction order despite the owner’s refund to the tenant. The DHCR found the overcharge willful because the landlord ignored the prior order, which froze the collectible rent. However, in a separate decision involving another building, Matter of Gonzalez (LVT #32911), the DHCR found that an overcharge resulting from a rent reduction order was not willful after the owner had refunded the overcharge plus interest.

In 268 Bowery Realty Inc. v. DHCR (LVT #32917), a court upheld the DHCR’s denial of an owner’s demolition application since the owner’s plan to demolish only the upper three floors in a six-floor building wasn’t a plan to demolish an entire building and therefore didn’t meet RSC requirements for DHCR approval.

More generally, a court addressed a building owner’s attempt to hold a tenant responsible for costs incurred in addressing the tenant’s unlawful short-term apartment rental. In 148 E. 30th St. Co. LLC v. Chun (LVT #32920), the court ruled that the owner couldn’t recover violation fines resulting from a tenant’s short-term apartment sublets through Airbnb where there was no proof that the fines were actually imposed after the owner fought them at administrative OATH hearings. The court noted that the owner could start a separate action against the tenant for the costs incurred in fighting the violations, an issue the owner hadn’t specifically raised in its court papers in this case.