I confess. Numbers scare me and I hate them. Like many attorneys, I'm arithmetically illiterate and painfully aware that—had I ever been any good at math—I probably wouldn't have ended up as a lawyer in the first place. This visceral insecurity triggers a craven avoidance response that I struggle to control. The panic generated by the need to do simple addition and subtraction usually subsides when I remember that there's a calculator somewhere on my phone. Other situations are more harrowing. Remember the word problems that used to induce nightmares when preparing for the SAT? The ones with a train that left Denver at 2:38 p.m. (Central time) at a speed of 54 mph and collided with a herd of buffalo in Utah thereby delaying its arrival in Salt Lake City by—how long? (Please solve for pi.) I don't know! They don't have buffalo in Utah! I thought I had left that horror behind for good by entering the legal profession. Then the New York state legislature went and enacted the Housing Stability and Tenant Protection Act of 2019 (HSTPA) this past June. The amendments that it made to the Rent Stabilization Law (RSL) now require an attorney faced with a rent overcharge claim to solve at least two sets of mathematical word problems when evaluating the claim! Thank you New York state legislature. This article is one dread-stricken lawyer's search for a step-by-step approach to dealing with those rent overcharge math problems.

A first observation: RSL §26-516 may be newly amended, but it's still drafted backwards and requires close reading. Paragraph (a) states that: "any owner of housing accommodations who, upon complaint of a tenant, … is found …, after a reasonable opportunity to be heard, to have collected an overcharge above the rent authorized for a housing accommodation subject to this chapter shall be liable to the tenant for a penalty equal to three times the amount of such overcharge." It then provides "[i]f the owner establishes by a preponderance of the evidence that the overcharge was not willful, the [finder of fact] shall establish the penalty as the amount of the overcharge plus interest … ." Deciphered, these provisions require determinations as to whether a landlord made a rent overcharge, if so, what penalty/s to impose. Or, in plain English, separate findings about liability and damages.

To determine liability, the statute requires one to establish whether a landlord has "collected an overcharge above the rent authorized for a housing accommodation." That language, in turn, indicates that there are two factors to compare. The first is the amount of rent that was actually "collected," which can be found by totaling a tenant's rent payments. The second is "the rent authorized for a housing accommodation," which RSL §26-516 allows to be computed in one of three ways (to be discussed next). When these factors are compared, the "liability equation" will yield a positive result for overcharge if the amount of rent collected > the amount authorized, and a negative result if the amount collected < the amount authorized. Neat.

But not quite. As mentioned, RSL §26-516(a) specifies three alternative methodologies to determine an apartment's "legal regulated rent" (a/k/a the "authorized rent" factor in the liability equation). The lawyeratician's task is to choose the methodology that is appropriate to the facts of a given case. The first provides that "the 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, (or, if more recently filed, the initial registration statement) plus in each case any subsequent lawful increases and adjustments." Note that RSL §26-517 requires landlords of rent stabilized apartment units to file annual apartment rent registration statements with the New York State Division of Housing and Community Renewal (DHCR). The first methodology sets an apartment's "legal regulated rent" by simple reference to the figure that is listed on one of its older registration statements. Normally, this is the registration statement filed six years before the registration statement that is in effect on the date that the tenant files the rent overcharge claim. If an apartment became subject to rent stabilization less than six years before the claim filing date, however, the "legal regulated rent" will be the amount listed on the apartment's "initial registration statement" (i.e., the first registration filed with the DHCR).

But wait! The inquiry doesn't end with simply choosing a "legally regulated rent" from a registration statement. RSL §26-516 contains two further caveats. The first, in subparagraph (a)(i), requires that the registration statement be "reliable." Subparagraph (h)(i) later states that "[n]othing … shall limit the examination of rent history relevant to a determination as to … 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." Scenarios involving "unexplained rent increases" and "fraudulent schemes to deregulate" have been heavily litigated in the past decade, but subparagraph 26-516 (h)(i) makes clear that these are not the only two situations that may render a registration statement "unreliable." Issues of "reliability" are certain to be litigated going forward. In all cases, however, the statutory remedy for dealing with an "unreliable" registration statements is to further investigate the apartment's rent history to find the most recent reliable legal regulated rent. RSL §26-516(a) specifically states that "a court of competent jurisdiction, in investigating complaints of overcharge and in determining legal regulated rent, shall consider all available rent history which is reasonably necessary to make such determinations." This replaces the previous statutory scheme that limited such examinations to a four-year inquiry.

The second caveat is that the amount listed on an apartment's registration statement must be modified to include "any subsequent lawful increases and adjustments" to the monthly rent. The question of which "increases and adjustments" are permitted has also been heavily litigated, and the list now includes:

(1) the percentage increases to one- or two-year renewal leases that the Rent Guidelines Board periodically promulgates ("RGBO increases"—RSC §2522.5[b]);

(2) a 20% "vacancy increase" (RSC §2522.8[a]);

(3) a .6 % "longevity increase" (id.);

(4) an increase of 1/40th of the total cost of any Individual Apartment Improvement (IAI) work in a unit (RSC §2522.4[a][1]); and

(5) an increase of 1/60th of the total cost of any Major Capital Improvement (MCI) work in a building (RSC §2522.4[a][2]).

The HSTPA places a 30-year limit on the collection of MCI increases. It also repealed the procedures for high rent, high income and luxury deregulation that used to be permitted.

When all of the foregoing variables are established, it's possible to solve the "liability equation" using the first "legal regulated rent" calculation methodology in RSL §26-516(a)(i). Note, that this methodology is only viable if there are DHCR registration statements and/or other documentary evidence of an apartment's rent history available to use for reference purposes.

The second methodology is slightly different. RSL §26-516(a)(ii) provides that: "[a]s to complaints filed within ninety days of the initial registration of a housing accommodation, the legal regulated rent shall be deemed to be the rent charged on the date six years prior to the date of the initial registration of the housing accommodation (or, if the housing accommodation was subject to this chapter for less than six years, the initial legal regulated rent) plus in each case, any lawful increases and adjustments. Where the rent charged on the date six years prior to the date of the initial registration of the accommodation cannot be established, such rent shall be established by the division [i.e., the DHCR]."

The first sentence plainly states that this second methodology should be used exclusively in cases where a tenant files a rent overcharge complaint within 90 days of his/her apartment's initial registration with the DHCR. In such cases, the "legal regulated rent" is either: (1) the monthly amount that was charged on the date six years before the apartment's initial registration date; or (2) the monthly amount that is listed on the apartment's first registration statement filed with the DHCR—if the apartment was subject to the RSL for less than six years. The limiting language in the second scenario does not necessarily lead to a counterintuitive result, since it is certainly possible for an apartment to have been "subject" to the RSL for a long period of time before its landlord eventually files a registration. Note that the second methodology also contains two caveats. First, it is the DHCR, and not the court, which must set an apartment's legal regulated rent in cases where the actual rent that was charged on the day six years prior to the apartment's initial registration date cannot be established by documentary evidence. Second, that once an apartment's legal regulated rent has been set, it must be modified by the same "lawful increases and adjustments" mentioned earlier; i.e., (1) RGBO increases; (2) vacancy increases; (3) longevity increases; (4) IAI increases; and/or (5) MCI increases. Recall that the HSTPA only permits MCI increases to be added to an apartment's rent for 30 years.

Like the first methodology, the second allows the rent overcharge "liability equation" to be solved by providing a legal regulated rent figure to be used as the "authorized rent" factor to compare to the "actually collected rent" factor. There are two differences, however. First, this methodology only applies where a party files a rent overcharge claim within 90 days of his/her apartment first being registered with the DHCR as a rent stabilized unit. Second, the tenant that asserts the rent overcharge claim may have to request the DHCR to provide the "legal regulated rent figure" if there is insufficient documentary evidence for the courts to use. The lesson to draw is that attorneys who file rent overcharge claims within the statutory 90-day time period after an apartment is initially registered with the DHCR should review their documentary evidence carefully before deciding whether to submit their claims to the agency or to Supreme Court. Failure to do so may result in the need to refile them later.

The third rent calculation methodology set forth in RSL §26-516(a) also applies in limited circumstances. Note that the statute does not contain a designated subparagraph (iii). However, it does set forth the methodology its own separate (albeit unnumbered) paragraph, and does describe factual scenarios different from the ones contained in the first and second methodologies. A plain reading of the statutory language, and well settled rules of interpretation, dictate that it should be treated as a separate and discrete provision. The third methodology simply provides that: "[w]here the prior rent charged for the housing accommodation cannot be established, such rent shall be established by the agency provided that where a rent is established based on rentals determined under the provisions of the local emergency housing rent control act such rent must be adjusted to account for no less than the minimum increases which would be permitted if the housing accommodation were covered under the provisions of this chapter, less any appropriate penalties."

Translated from the legalese, the third methodology applies in any situation where "the prior rent charged for the housing accommodation cannot be established." It is in the nature of a "catch-all" provision that governs in all cases where there is insufficient documentary evidence for a court to determine an apartment's legal regulated rent on the day six years before its tenant files a rent overcharge claim. In those scenarios, it is incumbent on the DHCR to set the rental figure. The second half of the sentence that delineates the third methodology describes one such scenario. The reference therein to "the local emergency housing rent control act" refers to the Rent Control Law (RCL), which is set forth in NY Uncon. Laws §§26-401 et seq. The amended statute simply provides that, where the DHCR establishes a new legal regulated rent for an apartment which was previously governed by the RCL, it must modify that amount to include all of the "lawful increases and adjustments" authorized by RSL §26-526; i.e., (1) RGBO increases; (2) vacancy increases; (3) longevity increases; (4) IAI increases; and/or (5) MCI increases. Note that the HSTPA also repealed the rent deregulation procedures that used to be permitted under the RCL. Recall also the 30-year time limit on the imposition of MCI rent increases. Finally, observe that the last portion of the third methodology admonishes the DHCR to reduce any "legal regulated rent" that it establishes to account for "any appropriate penalties."

In addition to formerly rent controlled units, some of the other scenarios where it is likely that the third methodology should be used include those involving newly rent-stabilized apartments that were formerly commercial spaces, units subject to the Loft Law, units governed by the rules of the "Section 8" program of the U.S. Department of Housing and Urban Development (HUD), or other common rent-regulatory regimes. As is the case with the second methodology, an attorney who seeks to prosecute a rent overcharge claim relating to an apartment that was once subject to any of those regimes should be careful to submit it to the DHCR in the first instance. Under the third methodology, only the agency can promulgate the "legal regulated rent"—aka the "authorized rent" factor—to be used when solving the rent overcharge "liability equation."

This might seem like the close of discussion about the "liability equation." NO. Sharp eyed lawyeraticians interested in extra credit for their answers surely noticed that oblique reference to "any appropriate penalties" at the end of RSL §26-516(a). Those three little words hide two major potential modifications to the equation's "authorized rent" factor. The first is the previously mentioned rent registration requirement of RSL §26-517 (e), which provides that: "[t]he failure to file a proper and timely initial or annual rent registration statement shall, until such time as such registration is filed, bar an owner from applying for or collecting any rent in excess of the legal regulated rent in effect on the date of the last preceding registration statement or if no such statements have been filed, the legal regulated rent in effect on the date that the housing accommodation became subject to the registration requirements of this section." The effect of this rule is that a landlord's failure to file a DHCR registration statement will preclude the "lawful increases and adjustments" to an apartment's rent that are normally permitted (i.e., RGBO increases, vacancy and longevity increases, and IAI or MCI increases). The unavailability of these increases always results in a lower "authorized rent" factor in the rent overcharge "liability equation."

Several other rules pertain to RSL §26-517(e). First, a landlord's filing of a late registration statement only results in the prospective elimination of the statutory penalty. Second, in order to escape liability for a rent overcharge caused by the failure to file a timely registration statement, a landlord must show that any rent increases that it imposed during the period of non-registration were otherwise lawful. Third, if a landlord eventually files a late DHCR registration statement after a tenant has already filed an overcharge complaint, the DHCR can assess the landlord "a late filing surcharge for each late registration in an amount equal to fifty percent of the timely rent registration fee." Finally, there is a vast quantity of case law for the lawyeratician to familiarize him or herself with on the issue of what constitutes a "proper and timely rent registration statement."

The other "appropriate penalty" mentioned at the end of RSL §26-516(a) that can modify an apartment's legal regulated rent is derived from the appellate case law that recognized the any pre-existing agency rent reduction orders must be also factored into the rent calculation along with the "lawful increases and adjustments" that the law permits. See, e.g., Matter of Sun v. Lawlor, 96 A.D.3d 685 (1st Dept. 2012). THIS is the point at which discussion of the heinously complicated issue of the rent overcharge "liability equation" can be considered closed.

Which, of course, brings us to the second issue of how to solve a rent overcharge "damages equation." Mercifully, this is a less complicated endeavor. It involves taking whatever overcharge amount is yielded by the "liability equation" and modifying it with the appropriate penalties. RSL §26-516 provides for four.

First, RSL §26-516(a)(2) plainly specifies that "any recovery of overcharge penalties shall be limited to the six years preceding the complaint."

Second, RSL §26-516(a) creates the presumption that all rent overcharges are considered "willful" and subject to a penalty of treble damages. This simply entails multiplying any overcharge amount by three.

Note that the statute affords landlords the opportunity to overcome its presumption by proving that an overcharge was not "willful" by a preponderance of the evidence. The statute does not specify what kind of evidence is acceptable proof, but it does provide that, once a tenant has filed a rent overcharge claim, neither the DHCR nor the courts can consider a landlord's "voluntary adjustment of the rent and/or the voluntary tender of a refund" to be "evidence that the overcharge was not willful." As indicated, the presumption is modified by RSL §26-517(e), which permits a landlord to avoid liability for rent overcharge by filing a late DHCR registration statement (as long as the landlord did not seek to collect any otherwise improper rent increases during the period of non-registration). Note that RSL §26-517(e) does allow the DHCR to assess the landlord a "late filling surcharge" in those situations, however. Also, RSL §26-516(c)(1) allows the DHCR to impose certain "civil penalties;" i.e., fines.

Another possible modification to the willfulness presumption was the subject of appellate litigation. In Roberts v. Tishman Speyer Props., L.P., 62 A.D.3d 71 (2009), the Court of Appeals found a certain DHCR directive to be based on an improper interpretation of Real Property Tax Law (RPTL) §489, the statute that authorized the "J-51" real estate tax abatement program for landlords who maintained the rent stabilized status of their buildings. The DHCR directive had permitted landlords who took the "J-51" tax abatement to also deregulate apartments in their buildings. The Court of Appeals found this improper. In Gersten v. 56 7th Ave. LLC, 88 AD3d 189 (2011), the Appellate Division, First Department found the Roberts ruling to be retroactive, and also held that any inadvertent "J-51" deregulations based on the erroneous DHCR directive that resulted in rent overcharges were nevertheless subject to treble damages. The Court of Appeals' subsequent decision in Borden v. 400 E. 55th St. Assoc., L.P., 24 N.Y.3d 382, 398 (2014) observed that, because the landlords who had imposed "J-51" rent overcharges had "followed the [DHCR's] own guidance when deregulating the units, … there is little possibility of a finding of willfulness." However, in Nolte v. Bridgestone Assoc. LLC, 167 A.D.3d 498 (1st Dept. 2018), the First Department rejected the landlord's attempt to argue that a rent overcharge was not willful because of its reliance on the DHCR directive where the landlord had nevertheless fraudulently failed to register any of the apartments in its building as of "March 2012, when the applicability of Roberts v. Tishman Speyer Props., L.P… . was clear." This amounts to a rejection of the "inadvertent reliance" argument, and indicates that the Court of Appeals' observation in Borden may merely be dicta. In any case, the HSTPA did not modify or limit the presumption of willfulness in RSL §26-516(a).

The third penalty for rent overcharge is the imposition of attorney fees, court costs and statutory interest, all of which are specifically authorized by RSL §26-516(a)(4).

The final penalty for rent overcharge is not monetary in nature, but equitable. RSL §26-516(e) authorizes the DHCR and the courts to impose injunctive relief. This most often takes the form of orders that require a landlord to register an apartment with the DHCR as rent stabilized, or to issue a tenant a rent stabilized lease that reflects the unit's correct "legal regulated rent."

There is also "extra credit" work that may be done in connection with a rent overcharge "damages calculation." RSL §26-516(a)(5) allows a tenant who prevails on a rent overcharge claim that was presented to the DHCR to either file it in a court of competent jurisdiction "and enforce it in the same manner as a judgment" or to offset the overcharge judgment "against any rent thereafter due the owner" in an amount "not in excess of twenty percent thereof per month."

Once all of the foregoing factors accounted for, the calculation of the rent overcharge "damages equation" can also be considered complete. Now breathe lawyeratician, breathe …

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].