Scott E. Mollen

Landlord-Tenant—New “Housing Stability and Tenant Protection Act of 2019” “Profoundly Alters the Scope of What Tenants May Seek From a Landlord Through Discovery to Prove Overcharge Claims and to Set Legal Regulated Rents”—Court Grants Motion for Records Going Back 23 Years—Landlord Was Sole Owner of the Building During Such Period

A landlord commenced a nonpayment proceeding against a rent stabilized tenant, alleging that the tenant occupied the subject apartment pursuant to an agreement to pay $1,471.92 per month, and that through the date of the petition, the tenant owed $4,415.52.

The tenant commenced occupancy on Aug. 1, 2007, pursuant to a one-year written lease for $1,150. A higher legal regulated rent of $1,620.64 was registered for the same period, although not stated on the face of the lease or in any rider. The tenant alleged, inter alia, that there were conditions in the apartment that went unrepaired and that the rent or part of the rent had been paid.

The tenant had moved pursuant to CPLR 3025 for leave to serve an amended answer and for discovery pursuant to CPLR 408. The tenant sought to discover

(1) names of tenants since 1996 who resided in the apartment prior to Respondent and those tenants’ leases, (2) all documents from 1996 to present demonstrating how the rent was calculated, (3) all registration documents from 1996 to present, (4) documents related to improvements, renovations, or repairs from 1996 to present, and (5) all leases between Respondent and Petitioner and any attachments or riders thereto.

The tenant provided documents which “showed that the rent registered with the (NYS) Division of Housing and Community Renewal (DHCR) in 1996, one year after (the landlord) purchased the building, was $419.96. In 1997, the apartment was registered with DHCR as a (vacant apartment (“VA”)), with a legal regulated rent of $600, a 43 percent increase.” No other explanation was apparent for that significant increase. “In 1998, the apartment was registered at a legal regulated rent of $569.10, an unexplained 5 percent” rent decrease. “In 1999, the apartment was registered at a legal regulated rent $759, a 26 percent increase over the 1997 registered rent of $600 and a 33 percent increase over the 1998 registered rent of $569.10. The reason for the increase in 1999 was listed as ‘VAC/LEASE—IMPRVMNT.’ For five years, no preferential rents were registered.” However, starting in 2003, the landlord “began registering…preferential rents and higher legal regulated rents. When (the tenant) took occupancy, her preferential rent of $1,150 was registered with DHCR, and a higher legal regulated rent of $1,620.64 was also registered.”

The tenant had initially appeared pro se but had thereafter retained counsel. The tenant explained that she had “inadvertently waived a potentially meritorious defense of rent overcharge.” She also sought to assert “counterclaims based on rent overcharge, breach of the warranty of habitability, and harassment, as well as a claim for attorneys’ fees.” The tenant argued that she had demonstrated “ample need” to obtain discovery “beyond the statute of limitations (SOL) that was in effect when her claim was interposed.” The SOL when that tenant’s motion was submitted was four years.

However, CPLR 213-a, was amended by the act. The act now provides that “no overcharge penalties or damages may be awarded for a period more than six years before the action is commenced or complaint is filed, however, an overcharge claim may be filed at any time, and the calculation and determination of the legal rent and the amount of the overcharge shall be made in accordance with the provisions of law governing the determination and calculation of overcharges.”

Additionally, CPLR §213-a, now provides that “[t]he legal regulated rent for purposes of determining an overcharge, shall be the rent indicated in the most recent reliable annual registration statement filed and served upon the tenant six or more years prior to the most recent registration statement…. [I]n investigating complaints of overcharge and in determining legal regulated rent, [a court] shall consider all available rent history which is reasonably necessary to make such determinations.”

The tenant contends that she is entitled to discovery based on the “unexplained increases registered for this apartment in 1997 and 1999.” She emphasized that the documents are necessary to demonstrate whether these increases were lawful, and the documents are in the landlord’s “sole custody as Petitioner has owned the building since 1995.” The tenant reasoned that the unexplained increases, together with other “‘irregularities and discrepancies’ are sufficient to constitute a ‘colorable claim of a fraudulent scheme to deregulate the apartment.’”

The landlord countered that the overcharge claim is “devoid of merit as it falls outside the (SOL) for such claims” and that the tenant had not produced “real and substantial evidence of fraud” sufficient to go beyond the SOL. Although landlord did not specifically argue prejudice, the landlord stated that the “only ‘evidence’ respondent proffers is that petitioner raised the rent over two decades ago!”

The court explained that the act “takes effect immediately and shall apply to any claims pending or filed. Neither party had requested leave to file additional briefs based on the passage of the new law.”

The court rejected the argument that the overcharge claim falls outside the SOL since the amended CPLR 213-a now provides that “an overcharge claim may be filed ‘at any time.’” Furthermore, the landlord had not claimed “surprise or prejudice would result from the interposition of the proposed amended answer.” Since the leave to amend pleadings are to be “‘freely given’ absent showing a prejudice or surprise resulting directly from moving party’s delay,” the court granted the tenant’s motion to interpose the amended answer.

The court then explained:

On June 14, 2019, while this motion was pending, the Legislature passed the (“Act”). CPLR 213-a was amended to extend the statute of limitations on overcharge claims to six years from four years, and allows that “the calculation and determination of the legal rent and the amount of the overcharge shall be made in accordance with the provisions of law governing the determination and calculation of overcharges.” …. The act also enacted sweeping changes to the provisions of law regarding examination of the rental history and determination of rent overcharges and legal regulated rents, e.g., “the courts, in investigating complaints of overcharge and in determining legal regulated rents, shall consider all available rent history which is reasonably necessary to make such determinations.” …. As a result, the amendments have abrogated much of the decisional authority that evolved around the prior law.

Previously, “tenants (were) required to demonstrate a colorable claim of a fraudulent scheme to deregulate apartments that would warrant granting discovery beyond the (SOL).” Prior cases held that a “significant increase in rent alone was insufficient indicia of such a fraudulent scheme.” However, the court explained that “the new act profoundly alters the scope of what tenants may seek from a landlord through discovery to prove overcharge claims and to set legal regulated rents.”

The new language provides

The (DHCR) and the courts, in investigating complaints of overcharge and in determining legal regulated rents, shall consider all available rent history which is reasonably necessary to make such determinations, including but not limited to (i) any rent registration or other records filed with the state division of housing and community renewal, or any other state, municipal or federal agency, regardless of the date to which the information on such registration refers; (ii) any order issued by any state, municipal or 28 federal agency; (iii) any records maintained by the owner or tenants; and (iv) any public record kept in the regular course of business by any state, municipal or federal agency. Nothing contained in this paragraph shall limit the examination of rent history relevant to a determination as to: (i) whether the legality of a rental amount charged or registered is reliable in light of all available evidence including, but not limited to, whether an unexplained increase in the registered or lease rents, or a fraudulent scheme to destabilize the housing accommodation, rendered such rent or registration unreliable….

The court further explained that “[g]one is the precept that a significant increase in rent alone is insufficient to warrant examination of rent history beyond the (SOL)…. Now, nothing limits the examination of rent history relevant to determining whether an overcharge has occurred based on a modest ‘unexplained’ increase ‘rendering such rent or registration unreliable’….” “Gone is the requirement that sufficient indicia of fraud must be established for a court to grant discovery beyond the (SOL).” Additionally, the court stated:

Now, a landlord’s purported fraudulent scheme to deregulate an apartment is simply a factor that may be established in the alternative to an unexplained increase which alone renders the registered rent unreliable. …. Gone is the temporal limitation on the rental history that can be examined to determine whether an overcharge based on a registered rent made unreliable by an unexplained increase has occurred. Now, a court must search the entire rent history, “regardless of the date to which the information on such registration refers,” for the “most recent reliable annual registration statement filed and served upon the tenant six or more years prior to the most recent registration statement.”…When read together, the amendments to CPLR 213-a and RSL 26-516 clarify and reinforce one another and instruct a court to look back as far as necessary to find the most reliable rent registration upon which to base its determination regarding an overcharge claim.

Here, the tenant had examined the DHCR rent registration history and discovered a 43 percent increase in the rent registered in 1997, which the landlord asserts is solely due to a vacancy in the apartment. The court explained that a 43 percent increase “based only on a vacancy between tenants was an inexplicable unlawful increase in 1997.” The Rent Guidelines Board “vacancy increase in effect at the time was 14 percent for a one-year lease and 16 percent for a two-year lease.” The court stated that other discovery was necessary to determine whether the legality of that unexplained increase “rendered such rent or registration unreliable.”

The court reasoned that “[t]he most recent reliable annual registration is that from 1996, the year before the 43 percent unexplained increase was registered.” Since “all subsequent leases, registrations, and increases” were predicated on the “unexplained increase and the unreliable 1997 registration,” the court held that the “production of all documents requested by (tenant) in its proposed document demand is reasonably necessary to investigate (tenant’s) overcharge claim and determine the legal regulated rent.”

The court further held that the tenant had “demonstrated ample need for disclosure reaching back to 1996 because she has identified and asserted facts, i.e., ‘an unexplained increase in rent resulting in an unreliable registration, to establish a claim for overcharge.” The court opined that the “[a]dditional information is necessary directly related to this claim and defense, and (the tenant’s) request is tailored to the language of the act.”

The court acknowledged that “23 years is a long time.” However, the court found that the “plain words of the (Act) require[d] it to grant the requested discovery.” The court also cited language in the act stating that “owners who do not maintain records from more than six years ago do so at their own peril.” The court stated that if prejudice “yet remains a factor, it is limited in this case by the fact that (tenant) has been the sole owner of the building since 1995.”

Accordingly, the court granted the motions for leave to serve an amended answer and for discovery.

699 Venture Corp. v. Zuniga, Civil Court, Bronx Co., Case No. 19533/2019, decided July 1, 2019, Bacdayan, J.

Landlord-Tenant—Rent Stabilization—Grandson Entitled to Succession Rights—He Lived with Tenant of Record for Two Years Before His Vacatur—“It Is Difficult to Identify a Specific Date Upon Which a Rent-Regulated Tenant” Who is Confined to a Medical Facility Permanently Vacated Their Primary Residence

 A respondent asserted a right to succeed to his deceased grandfather’s rent-stabilized tenancy. The respondent had to prove “his relationship to the tenant of record and that he lived in the subject apartment with the tenant of record for at least two years before the tenant of record permanently vacated.” 9 NYCR Section 2523.5(b)(1).

The respondent had proved that he is the grandson of the last tenant of record and that he had lived in the apartment since 2001. The grandfather had included the respondent’s name on a rent check in 2001. In 2002 and 2003, the grandfather listed the respondent as a resident in the apartment on his renewal lease documents. The respondent had signed maintenance requests in 2004 and 2005 and his motor vehicle registration included the subject address since 2004.

Additionally, the cable bill was in the respondent’s name from approximately the same time and he was a co-account holder on a Con Edison account starting in 2007. The “[r]espondent’s tax returns and W-2 forms show the subject address from 2006 onward.” The respondent did “not appear to have filed tax returns from 2001 to 2005.” However, he “had a joint bank account with (his grandfather) starting in 2001 with the subject address.” The respondent “had his own bank account starting in 2010 with the same address” and that account showed “substantial activity in the vicinity of the apartment.”

The court found that the landlord apparently was “fully aware of respondent’s presence in the apartment almost from the beginning of his occupancy.” In 2006, the landlord had commenced “an illegal sublet proceeding against (the grandfather) and the respondent.” Documents indicated that the respondent had been deposed and that landlord had thereafter abandoned the case.

The landlord did not “seriously contest respondent’s long-term occupancy of the apartment.” Rather, the landlord argued “that (the grandfather) had stopped living in the apartment in about 2010, or perhaps earlier.” The landlord contended that the apartment was not the grandfather’s primary residence for the last two years of the grandfather’s life, and that this “defeats the respondent’s succession claim.”

The deposition of the grandfather’s treating physician and his records indicated that the grandfather had a stroke in 2005. In 2006, while the parties were litigating the subject case, the grandfather stayed at (“A’s”) home in Yonkers while he recovered. “He returned home some time in 2007. From 2007 to 2010 or 2011, (the grandfather) lived in the subject apartment.”

Respondent and his mother “shared responsibility” for the grandfather’s care. The grandfather visited (“A”) in Yonkers regularly, but continued to live in the subject apartment. The respondent and (“A”) testified “credibly” to those facts and there was no evidence to the contrary. In 2010 or 2011, the grandfather once again became seriously ill. He had a second stroke. Until he died in July 2012, he was “repeatedly hospitalized, transferred to a rehab facility, released to his daughter’s home in Yonkers, and then hospitalized again.” There was no evidence that the grandfather had moved out of his apartment during such period, even though the grandfather was rarely in the apartment during such period.

The court explained that it was “difficult to identify a specific date upon which a rent regulated tenant, like (the grandfather), who is confirmed to a nursing home (or, as in (tenant’s) case, to a series of hospitals and other facilities) for medical reasons, transitions from maintaining his apartment as his primary residence to permanently vacating the apartment.”

The court found that the grandfather had “permanently vacated the…apartment at some point, impossible to pinpoint, between his second stroke in early 2011 and his death in 2012.” During such period, the grandfather was “probably physically unable to return to the apartment.” However, before such point in time, the apartment was his the “primary residence, despite his physical absences for medical treatment.” The court found that “[n]o matter when, during the time frame described (the grandfather) permanently vacated, respondent clearly lived with him for the two years prior to his vacatur.”

The court distinguished the ‘Third Lenox Terrace Assoc. v. Edwards,’ 91 AD 3d 532 (1st Dept. 2012), noting that there is no evidence that the respondent had “engaged in deception about the occupancy of the apartment.” The respondent’s occupancy had been fully disclosed to landlord and the delay of one or two years in disclosing to the landlord the tenant’s absence and eventual death did not justify denying “respondent’s succession claim.” “Courts have repeatedly excused such delay under circumstances like these” and that is “especially true, where, as here, there is no evidence of deception.” Accordingly, the proceeding was dismissed.

Edelstein LLC v. Connelly, Civil Court, New York Co., Case No. 63062/13, decided June 28, 2019, Schneider, J.

Scott E. Mollen is a partner at Herrick, Feinstein.