Rents Adjusted Where HUD-Regulated Building Become Subject to Rent Stabilization

Building tenants sued landlord in 2019, seeking declarations that they were rent stabilized and asked for decisions on individual claims for nonfraud overcharges predating the HSTPA. Landlord had previously received guidance from the DHCR and HUD indicating that federal regulation of the building would preempt rent stabilization coverage of the building until at least April 1, 2026. In a related action, the court held that the building would no longer be subject to rent stabilization as of April 12, 2011, when the original HUD loan matured. When that decision was appealed, the appeals court found that the building was rent stabilized as of April 1, 2011.  

In the new case, the court denied tenants' request to impose a rent freeze during the "Interim Period" between April 12, 2011, to Aug. 2, 2018, because landlord treated the building in a manner consistent with the ultimately erroneous departmental guidance from the DHCR and HUD. Tenants appealed, and the appeals court agreed that landlord's reliance on DHCR and HUD advice was a defense to certain sanctions imposed for noncompliance with the RSL and RSC.

But the appeals court also found that the lower court erred in permitting landlord to avail itself of luxury or high-rent vacancy deregulation based on records concerning the Interim Period. Landlord could not now dispute that the building was subject to the RSL as of April 1, 2011. Also, in nonfraud cases, the base date rent is generally the amount tenants were actually paying on the base date. The lower court therefore erred in how it restructured the legal rents and artificially increased the base date rents with certain apartments. 

Independent 435 CPW Tenants' Assn. v. Park Front Apts., LLC: Index No. 152192/19, App. No. 3199, Case No. 2023-03232 (App. Div. 1 Dept.; 3/20/25; Manzanet-Daniels, JP, Singh, Rodriguez, Michael, JJ)