Rent Fraud Exception to Base Date Review Applied Only to Post-Roberts Deregulations

Tenants of 37 apartments sued landlord in a class action claiming improper deregulation and rent overcharge while landlord received J-51 tax benefits. In 2022, the court granted tenants' request for a decision without trial and found that landlord engaged in a fraudulent scheme to deregulate some of the apartments. The court also ruled that overcharge damages for all the apartments should be calculated using the DHCR's default formula.

Tenants appealed in 2023, and the First Dept. modified the court's order, ruling that the fraud exception and thus the default formula didn't apply to 29 of the apartments deregulated prior to the Court of Appeals' Roberts decision in 2009. For those apartments, the First Dept. ruled that overcharges should be calculated using the actual rent paid on the November 2013 base rent date. For the other eight apartments, the First Dept. ruled that tenants had shown sufficient indicia of fraud to warrant review of each rent history beyond the four-year lookback period but that tenants must still ultimately prove a fraudulent scheme to deregulate by showing all the elements of common law fraud.

The case was sent back to the lower court where tenants later made a second request for summary judgment based on changes to the law concerning the fraud exception enacted in early 2024. Tenants argued that the new "totality of the circumstances" test for rent fraud should be applied to all of the 37 tenant complaints.

The court denied tenants' request. The First Dept. had already ruled that the fraud exception was inapplicable to the 29 pre-Roberts cases. As to the other eight cases, the First Dept. had ruled that the post-Roberts deregulation of those units and the failure to promptly re-register them provided sufficient indicia of fraud to warrant review of each unit's rent history. The lower court now noted that, even under the amended fraud requirements, tenants still hadn't shown as a matter of law that landlord knowingly engaged in a fraudulent scheme to deregulate. A trial was still needed to determine the facts.

Najera-Ordonez v. 260 Partners LP: Index No. 160546/2017, 2025 NY Slip Op 31336(U)(Sup. Ct. NY; 4/15/25; Kotler, J)