Trial Court Incorrectly Found Indicia of Fraud in Overcharge Case

Landlord sued to evict unregulated tenant in 2017 after tenant's lease expired. Landlord claimed that the unit was exempt from rent stabilization based on a high-rent vacancy that occurred sometime previously. Tenant claimed rent overcharge and improper deregulation of the unit.

The court ruled for tenant in early 2020, applied pre-HSTPA law to the case, and found that landlord had fraudulently inflated the cost of individual apartment improvements (IAIs) in order to deregulate the apartment. This warranted rent history review going back more than four years, and the case was set down for a hearing to calculate the legal regulated rent under the default formula.

Landlord appealed, objecting to the fraud finding, and won. The trial court erred in considering rent history beyond the four-year lookback period. Tenant's pre-HSTPA answer to the eviction petition didn't claim there was any fraud, tenant never asked to amend his answer before trial, and no mention of fraud was made in the parties' detailed court stipulation of facts, prepared by attorneys. So the trial court shouldn't have considered tenant's belated fraud claim, raised for the first time in tenant's post-trial motion papers. The facts agreed to by landlord and tenant also failed to support a finding of a fraudulent scheme to deregulate the apartment. Neither the sizeable IAI rent increase in 2006 nor the court's skepticism about the quality or extent of those IAIs, were sufficient to establish a colorable claim of fraud. The appeals court sent the case back for a new ruling on the overcharge issue.

150 E. Third St LLC v. Ryan: Index No. 570251/20, 2021 NY Slip Op 21044 (App. T. 1 Dept.; 2/26/21; Edmead, PJ, Higgitt, Brigantti, JJ)