This is a continuation of a series of articles about recent developments in rent overcharge litigation. It reviews the opinions rendered by the Appellate Division, Second Department in the 10 years since the Court of Appeals upheld the decision of the Appellate Division, First Department, in Roberts v. Tishman Speyer Props., L.P., 62 A.D.3d 71 (1st Dept. 2009), aff'd 13 N.Y.3d 270 (2009). A notable difference between the First and Second Departments is that the former has issued many rulings on rent overcharge claims that were originally filed in Supreme Court, while the latter has mainly reviewed Article 78 petitions that challenged claims initially submitted to the New York State Division of Housing and Community Renewal (DHCR). As a result, the cases discussed herein consist of rulings on: (1) Article 78 petitions; and (2) related legal issues.

Article 78/DHCR Cases

The Second Department has generally disfavored judicial review of rent overcharge claims. Wilcox v. Pinewood Apt. Assoc., 100 A.D.3d 873 (2d Dept. 2012) acknowledged that Supreme Court and the DHCR have concurrent jurisdiction over rent overcharge claims, but nevertheless held that it is appropriate for the court to transfer such claims to the agency pursuant to the doctrine of primary jurisdiction. See also Matneja v. Zito, 163 A.D.3d 802, 803 (2d Dept. 2018), citing Matter of Rockaway One Co. v. Wiggins, 35 A.D.3d 36, 39 (2006). This is not to say that the Second Department is completely uncritical of the DHCR. Its recent decision in Matter of London Leasing L.P. v. DHCR, 153 A.D.3d 709 (2d Dept. 2017), which upheld an agency order, nevertheless stressed the Court of Appeals observation that “[a] decision of an administrative agency which neither adheres to its own prior precedent nor indicates its reason for reaching a different result on essentially the same facts is arbitrary and capricious. Further, its more recent decision in Matter of Jourdain v. DHCR, 159 A.D.3d 41 (2d Dept. 2018), a succession rights case, acknowledged the general rule that a court reviewing an Article 78 petition should normally defer to “an agency's interpretation of its own regulations … if that interpretation is not irrational or unreasonable,” yet reversed the DHCR's order because it was based on a misinterpretation of controlling case law. This is at least a tacit recognition that questions of statutory interpretation and legal analysis are the province courts, and not the agency.

Several of the Second Department's post-Roberts Article 78 decisions are devoted to the question of what methodologies the DHCR should employ to calculate a rent-stabilized apartment's “base date,” its “base date rent,” and its “legal regulated rent.” RSC §2526.1 defines a rent overcharge as the difference between the “base date rent that” the tenant actually paid, and the “legal regulated rent” that the tenant should have paid. The statute sets a four-year limitations period on rent overcharge claims, and includes a rebuttable presumption that overcharges are willful acts that entitle a tenant to treble damages awards, with a limitation that the treble damages only apply to the two latest years.

With respect to “base dates,” the Second Department holds that they fall on the day “four years prior to the filing of the relevant rent overcharge complaint.” Matter of Watson v. DHCR, 109 A.D.3d 833, 834 (2d Dept. 2013).

With respect to “base date rents,” Matter of Gomez v. DHCR, 79 A.D.3d 878 (2d Dept. 2010) recognized that this figure is normally set by referring to the amount listed on the DHCR rent registration statement for the apartment that was in effect on the base date. Gomez also recognized an exception to this rule where there are “substantial indicia of fraud on the record” (which were not present in that case). Matter of Cipolla v. DHCR, 153 A.D.3d 920 (2d Dept. 2017) noted that, pursuant to RSC §2526.1(a)(3)(iii), the “base date rent” for a rent-stabilized apartment that was vacant on the “base date” used to be set at “the first rent agreed upon by the owner and the first rent-stabilized tenant taking occupancy after the vacancy.” Cipolla also noted that RSC §2526.1(a)(3)(iii) was subsequently amended. Now, that code provision sets the “base date rent” for a previously vacant apartment at “the prior legal regulated rent for the [unit]” plus the appropriate “vacancy increase.”

RSC §2526.1(a)(3)(i) defines an apartment's “legal regulated rent” as “the rent charged on the base date, plus in each case any subsequent lawful increases and adjustments.” Two of the latter are proscribed by RSC §2522.4, which allows landlords to apply for permanent rent increases for Individual Apartment Improvement (IAI) work performed in apartments and Major Capital Improvement (MCI) work performed on buildings. The Second Department recognizes both as “lawful increases” that make up an apartment's “legal regulated rent.” Matter of London Leasing L.P. v. DHCR, 153 A.D.3d 709 (2d Dept. 2017) (MCIs); Matter of Buchanan v. DHCR, 163 A.D.3d 961 (2d Dept. 2018) (IAIs). The Second Department also recognizes that standing DHCR rent reduction orders are adjustments that decrease an apartment's “legal regulated rent. Matter of Napa Partners v. DHCR, 158 A.D.3d 632 (2d Dept. 2018).

Miscellaneous Cases

The Second Department's pre-Roberts decision in Matter of Lomagno v. DHCR, 38 A.D.3d 897 (2d Dept. 2007) and its more recent decision in Bartis v. Harbor Tech, 147 A.D.3d 51 (2d Dept. 2016) both acknowledged, but did not explicitly hold, that there is no statute of limitations on “regulatory status” requests as distinct from rent overcharge claims.

The Second Department issued several rulings involving the doctrine of collateral estoppel, which is sometimes invoked in rent overcharge litigation. Matter of Riverside Tenants Assn. v. DHCR, 133 A.D.3d 764 (2d Dept. 2015) declined to apply the doctrine to bar a landlord's second “reduction of services” application. The court found that the DHCR which dismissed the landlord's first application explicitly permitted the landlord to resubmit with new supporting documentation which was missing from the first application. Matter of Trump Vil. Apts. One Owner v. DHCR, 143 A.D.3d 996 (2d Dept. 2016) and Matter of Smolarczyk v. Towns, 166 A.D.3d 786 (2d Dept. 2018) both applied the doctrine to justify the dismissal of Article 78 petitions which challenged DHCR orders that were based on findings of fact that had been made in earlier, unappealed agency determinations. In each case, the court found that the landlord's neglect to file a timely challenge to the earlier DHCR order foreclosed the landlord from challenging the order's factual findings in a later Article 78 proceeding.

Matter of Migliaccio v. New York State Div. of Hous. & Community Renewal, 161 A.D.3d 747 (2d Dept. 2018) concerned a rent-controlled (rather than rent-stabilized) apartment leased by its landlord to a family member at an artificially low rent. The Second Department upheld the trial court's Article 78 vacatur of the DHCR order that had confirmed the low rent. The Second Department noted that the Rent Control Law (RCL) requires the DHCR to “grant an appropriate adjustment of a maximum rent where [it] finds that the presence of unique or peculiar circumstances materially affecting the maximum rent has resulted in a maximum rent which is substantially lower than rents generally prevailing in the same area for substantially similar housing accommodations.” The court found that the decades-long preferential family treatment that gave rise to the apartment's$125.00 monthly rent was a “unique or peculiar circumstance.”

The Second Department has issued several decisions in cases that involved succession rights, but did not involve rent overcharge claims. See, e.g., Matter of 9215 Realty v. DHCR, 136 A.D.3d 925 (2d Dept. 2016); Matter of Underhill-Washington Equities v. DHCR, 157 A.D.3d 705 (2d Dept. 2018).

Finally, the Second Department seems to have rendered one decision to date that involved a rent overcharge claim submitted to Supreme Court in the first instance. In Jee-Yung (“Amy”) Yang v. Krem Realty, 148 A.D.3d 1002 (2d Dept. 2017), the court upheld the trial judge's denial of the landlord's motion to dismiss on the ground that the landlord had failed to establish that it was entitled to an IAI increase to the tenant's legal regulated rent.

Francis J. Lane III is a staff attorney in the Law Department of New York County Supreme Court, Civil Branch. He can be reached at [email protected].