Scott E. Mollen

Landlord Tenant—Housing Stability and Tennant Protection Act of 2019—Rent Overcharges‑—Roberts Decision May Be Applied Retroactively Without Violating Due Process—Class of Plaintiffs Will Not Be Expanded—Owner's Effort To Make Interim Payments To Mitigate Any Future Interest Award Rejected Since Owner Conditioned Such Payments On Tenants' Obligation To Repay Such Amounts if Owner Subsequently Prevailed

This decision involved four appeals rising from class action litigations which challenged the deregulation of hundreds of apartments at a ten-building housing complex in Manhattan (complex). The plaintiffs are current and former tenants. The complex was built in 1931 and was originally subject to rent control. Pursuant to the 1974 Emergency Tenant Protection Act, upon vacancy, rent control apartments became rent stabilized (stabilized). Since 1974, the complex has both stabilized and rent controlled apartments.

Beginning in 1993, the owner began to deregulate apartments. The Rent Regulation Reform Act of 1993 permitted owners to deregulate rent—regulated apartments if the rents and/or the occupant's income "exceeded certain statutory thresholds." However, in 2009, the NY Court of Appeals held that owners may not deregulate units while they were simultaneously receiving tax benefits pursuant to New York City's J-51 tax abatement and exemption program. (Roberts v. Tishman Speyer Props., L.P., 13 NY3d 270 (2009) (Roberts)). Apartments and buildings receiving J-51 tax benefits had to be registered with the NYS Div. of Housing and Community Renewal (DHCR) and are generally subject to stabilization for as long as J-51 benefits are received.

In July 2003, the owner began receiving J-51 tax benefits. Before such date, the owner had deregulated approximately 95 apartments. However, the owner had not, "as required by law, returned these previously deregulated units to rent regulation." Moreover, after the J-51 benefits were conferred, owner "continued to deregulate additional apartments, despite the fact that the complex was receiving J-51 benefits." The owner charged market rents for the deregulated units and had not treated tenants in such units as rent regulated, had not registered the apartments with DHCR and had not followed the rent laws in "calculating the proper rents to be charged."

In November 2009, after Roberts was decided, certain plaintiffs commenced the subject class action, alleging that the owner deregulated apartments while receiving J-51 tax benefits and "failed to return previously deregulated apartments to rent stabilization when the J-51 benefits commenced." In December 2009, a similar class action was commenced. The plaintiffs sought a declaratory judgment that their apartments are rent regulated and money damages for rent overcharges. The owner answered and asserted counterclaims and affirmative defenses, including that the action was barred by the Statute of Limitations (SOL) and that Roberts should not be applied retroactively.

After the two actions were consolidated and a class certified, the plaintiffs moved to dismiss the counterclaims and affirmative defenses and sought summary judgment, seeking, inter alia, "a determination of the proper methodology for calculating the legal rents and the amount of any rent overcharges." The owner cross-moved for summary judgment, seeking dismissal of the complaint on the ground that Roberts cannot be retroactive, dismissal of the complaint as time barred and a declaratory judgment as to the proper methodology to collect rents.

The trial court rejected the owner's SOL defense, held that Roberts may be applied retroactively and set forth a methodology for calculation of legal rents and the amount of the overcharges. Each party appealed.

The owner argued that when it deregulated apartments, it was "relying in good faith on DHCR's pre-Roberts interpretation of the relevant statutes, and that applying Roberts under those circumstances would offend due process."

The Appellate Division (court) cited a prior decision wherein the court held that retroactive application of Roberts does not violate due process. The prior precedent held that Roberts can be applied retroactively "because the decision simply interpreted a statute that had been in effect for a number of years and did not establish a new principle of law." The owner attempted to distinguish the prior precedent by arguing that unlike the owners involved in the prior cases, it had "explicitly relied on DHCR's interpretation of the decontrol statutes at the time it decided to enter the J-51 program." However, the court had rejected that "very same argument" in a prior decision.

In June 2019, NY State enacted the Housing Stability and Tenant Protection Act of 2019 (HSTPA). The HSTPA provided that certain statutory amendments would "take effect immediately and apply to claims pending or filed on or after such date." The plaintiffs overcharge claims were pending on the effective date and the HSTPA is applicable.

The court then, inter alia, rejected the owner's SOL defense. The "newly-enacted CPLR 213-a provides that 'an overcharge claim may be filed at any time,' however no overcharge penalties or damages may be awarded for a period more than six years before the action is commenced." An amended RSL §26-516(a)(2) provides that an overcharge complaint "may be filed with [DHCR] or in a court of competent jurisdiction at any time, however, any recovery of overcharge penalties shall be limited the six years preceding the complaint." The court held that since those statutes provide that an overcharge complaint may be brought "at any time", the plaintiffs' claims are timely. However, recovery of overcharges may only go back to November 13, 2003, i.e. six years before the commencement date.

RSL§26-516 now states that a court "shall consider all available rent history which is reasonably necessary to investigate overcharges and determine the legal rent…." The court noted that this statutory change resolved a "split in this Department as to what rent records can be reviewed to determine rents and overcharges in Roberts cases." Now, "courts must examine all available rent history necessary to determine the legal regulated rent."

Under the new law the "legal regulated rent for purposes of determining most overcharges 'shall be the rent indicated in the most recent reliable registration statement filed and served upon a tenant six or more years prior to the most recent registration statement, … plus in each case any subsequent lawful increases and adjustments.'" Thus, HSTPA "requires examination of the 'most reliable' registration statement that was not only filed but also 'served upon the tenant' 'six or more years' before the most recent statement."

The law now embodies a comprehensive set of non-exclusive records that courts shall consider in determining legal rents and overcharges, including: "(i) rent registration and other records filed with DHCR or other government agencies, regardless of the date to which the information refers; (ii) orders issued by government agencies; (iii) records maintained by the owner or tenants; and (iv) public records kept in the regular course of business by any government agency."

Since the trial court determined the methodology for calculating legal rents and overcharges based on the then existing law, the court remanded the matter to trial court so that it may set forth a methodology "consistent with the HSTPA." It provided that the parties will have an opportunity "to present additional evidence on their respective summary judgment motions with respect to the calculation of rents and any other charges under the HSTPA."

The court then held that applying the amendments to RSL§26-15 and CPLR 213-a to the subject litigation did not violate due process. It noted, inter alia, that there is no procedural due process violation since the parties will have the opportunity to present additional evidence as to the calculation of rents and overcharges.

Although the original class included "only tenants who were charged deregulated rents during the J-51 period, the proposed new class would encompass tenants who moved in after the J-51 benefits period ended and reside in apartments that, at some point in the past, had been wrongly treated as deregulated." Citing CPLR 902, the court held that the trial court had "improvidently exercised its discretion in expanding the class." It found that the "redefined class represents such a fundamental change in the theory of plaintiffs' case that expansion of the class would be improper." The expanded class would "include tenants who never lived in the complex during defendant's receipt of J-51 benefits, and who received regulated leases for their tenancies." The court opined that the legal issues for such additional group of tenants are "separate and distinct from those of the original class."

Furthermore, the subject class action had been commenced more than nine years ago and "[e]xpanding the class to add members whose tenancies involved different legal issues from the original class would be inefficient at this late stage of the litigation and would unduly prejudice the (owner)." Thus, the court held that the class should remain as originally certified.

The owner had also appealed from the trial court's order which denied the owner's request to make "certain interim payments to plaintiffs in an effort to mitigate any ultimate award of prejudgment interest." The owner "sought to condition its payments on the requirement that plaintiffs repay some or all of those amounts if the court ultimately found in defendant's favor on the issues of liability or the amounts of any overcharges owed to a particular plaintiff." The court explained that the trial court was not "required to fashion a remedy outside of the CPLR, or grant a motion that addressed only to (owner's) concerns." It noted to the extent that such conclusion "may be inequitable, (owner's) remedy lies not with this court, but with the legislature."

Thus, the court vacated the trial court's order setting forth the methodology for calculating legal rents and overcharges and otherwise affirmed. The matter was remanded for the trial court, after further submissions from the parties, "to inter alia, "set forth the methodology for calculating rents and overcharges consistent with the HSTPA"; the court reversed the trial court's order expanding the class and affirmed the trial court's decision denying the owner's motion to make certain interim payments to the plaintiffs.

Dugan v. London Terrace Gardens LP, Appellate Division, 1st Dept., Case No. 603468/09, decided September 17, 2019, Richter, J.P., Gische, Kern, Oing, Moulton, JJ., Opinion by Richter, J.P. All concur.

Landlord-Tenant—Tenants Granted Extension Of Stay To Vacate Based On The Housing Stability And Tenant Protection Act of 2019

This decision involved the issue of whether "pursuant to amendments the RPAPL Section 753 enacted as part of the Housing Stability and Tenant Protection Act of 2019 (HSTPA), the court can extend a stay which afforded respondents five months to vacate." The respondent tenants had been paying use and occupancy.

The court explained that RPAPL Section 753, provides that a court may stay issuance (execution) of a judgment and warrant "for a period of up to one year if it would 'occasion extreme hardship to the applicant or the applicant's family if the stay were not granted. In determining whether refusal to grant a stay would occasion extreme hardship, the court shall consider serious ill health, significant exacerbation of an ongoing condition, a child's enrollment in a local school, and any other extenuating life circumstances affecting the ability of the applicant or the applicant's family to relocate and maintain quality of life. The court shall consider any substantial hardship the stay may impose on the landlord in determining whether to grant the stay in setting the length or other terms of the stay.'"

The tenant wife (wife) suffers from ovarian cancer and breast cancer. She "is undergoing radiation three days a week and chemotherapy two days a week." Her treatments are expected to continue for approximately three months. She has a "blood-clotting disorder which complicates her treatment." The tenants have three young children. The children attend school near the subject apartment. Citing the "after-effects of radiation," the court concluded that these treatments "increase the level of responsibility (tenant husband) has in caring not only for (wife) but also their children as (wife) is incapacitated following treatment."

The court opined that the tenant's medical condition "places an incredible level of stress of this family's emotional and potentially financial resources." The landlord is an "institutional landlord who would suffer no hardship if (tenants) were allowed to remain in the premises for a substantial period of time." The court noted that the tenants were paying use and occupancy and their presence did not impact their neighbors "in a negative way."

The court stated that the tenants' request for an extended stay "is of the exact nature the amendments to the statue were enacted to address," i.e. that failure to extend the stay would cause "extreme hardship" to the tenants. Accordingly, the court stayed execution of the judgment or warrant to allow the wife to complete medical treatment. The court provided that if tenants did not vacate, "a notice of eviction may be served subsequent to the default," ordered payment of ongoing use and occupancy and directed that New York City Adult Protective Services be notified prior to any eviction. The court also ordered the landlord provide the tenants with information on application for NYCHA Housing and to place them on the priority list for such housing if they qualify for same.

N.Y.C. Hous. Auth. v. Jones Jr., Civil Court, New York Co., Case No. 15234/18, decided Sept. 25, 2019, Elsner, J.

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