Overcharge Resulted from Incorrect Deregulation of Apartment Subject to J-51 Benefits

Tenant complained of rent overcharge. Landlord claimed that tenant was unregulated. The DRA ruled for tenant, found that the apartment was improperly deregulated and that the free market rent in effect on the apartment’s base rent date couldn’t be used to set the legal regulated rent. The DRA reduced tenant’s rent and ordered landlord to refund $158,817, including interest.

Landlord and tenant both appealed and lost. Landlord claimed various calculation errors. But the legal regulated rent must be calculated in this case based on the prior rent-stabilized rent before landlord wrongfully claimed that the apartment was deregulated. Landlord now claimed that it was entitled to a longevity increase but hadn’t raised this issue before the DRA. And landlord didn’t provide enough rent history information to determine if a longevity increase applied. The DRA also properly disallowed some of landlord’s individual apartment improvement (IAI) costs because they were for nonqualifying repair or maintenance items. The DRA also properly excluded MCI rent hikes from the calculation of tenant’s legal rent since landlord had treated tenant as deregulated and tenant therefore never had the chance to oppose the MCI increases. Landlord shouldn’t be rewarded for omitting tenant’s apartment from MCI rent increase application proceedings.

Tenant claimed that the rent should be frozen because landlord failed to file annual rent registrations. Tenant also sought triple damages for willful overcharge. But landlord had relied on the DHCR’s prior erroneous policy concerning high-rent vacancy deregulation in J-51 buildings, and it was the DHCR’s practice not to impose a rent freeze or triple damages under those circumstances. Landlord initially registered the apartment as permanently exempt in 2000, prior to the Court of Appeals’ decision that buildings under J-51 benefits weren’t subject to high-rent deregulation. 

Korn/Yorkshire House Associates: DHCR Adm. Rev. Docket Nos. CX410046RT/CX410007RO (7/28/15) [5-pg. doc.]