Rent Overcharge Found for Some Rent Concessions Granted in 421-Buildings

Tenants of a three-building complex with 1,800 apartments brought a class action against landlord, claiming that rent concessions given to the initial tenants in these 421-a buildings were in fact preferential rents and that the initial rent-stabilized rents therefore were improper and resulted in rent overcharges. Tenants asked the court to rule in their favor without trial.

Landlord argued that the rent concessions were valid, stating that when initial rentals began the property wasn't completed and that landlord also offered rent concessions due to the COVID-19 pandemic in order to prevent widespread vacancies.

The court ruled for tenants in part. Landlord overcharged tenants in the buildings in violation of the 2019 version of Fact Sheet #40 for renewal leases that didn't properly account for concessions that are now treated as preferential rents. The court granted landlord's request to dismiss any complaint based on the concessions offered to the initial tenants. Landlord was directed to provide relevant rent ledgers requested by tenants.

Citing the recent Court of Appeals decision in Burrows v. 75-25 153rd Street LLC, the court here found that, in July 2018, when the questioned rent concession was offered to initial tenants, DHCR Fact Sheet #40 discussed a difference between a specific concession for limited months and a prorated concession that was in effect a preferential rent. The court also noted that the former Fact Sheet was at that time "a permissible interpretation of the law." However, DHCR guidance changed under the HSTPA with the revised Fact Sheet #40 where the DHCR noted that "tenants that were paying a preferential rent as of June 14, 2019, retain the preferential rent for the life of the tenancy," and eliminated in that revised Fact Sheet any discussion of permissible rent concessions. 

So a trial was needed on damages concerning the extent of overcharges for leases or lease renewals that ran afoul of the new Fact Sheet #40. The court declined to impose a rent freeze based on the initial rents charged but found that overcharge damages would be assessed under RSC Section 2526.1(a)(1). The court also found that any overcharges to tenants here were not willful, didn't warrant triple damages, and weren't part of a scheme to charge higher rents. 

Grey v. Lic Dev. Owner, L.P.: Index No. 151699/2022, 2025 NY Slip Op 31091(U)(Sup. Ct. NY; 4/3/25; Bluth, J)