NY High Court Weighs Impact of New Rent Laws in Series of Tenant Overcharge Cases
Each case dealt with how much those tenants should be awarded after their landlords unlawfully deregulated their apartments while simultaneously receiving tax benefits.
January 07, 2020 at 06:25 PM
6 minute read
A major overhaul of New York state's rent laws, approved last year by the Legislature, made its way Tuesday to the Court of Appeals, which heard arguments in five different cases from tenants seeking refunds from their landlords.
Each case dealt with how much those tenants should be awarded after their landlords unlawfully deregulated their apartments while simultaneously receiving tax benefits.
At issue in most of those cases was whether a recent law approved by the Legislature in June should allow those overcharges to be calculated based on evidence related to the level of rent charged several years ago, or if that lookback should be limited to four years.
But there were also other questions raised in the individual cases before the New York Court of Appeals on Tuesday.
The high court was also asked to decide if landlords should be allowed to base future levels of rent on previously unlawful amounts, or if they should be required to track down a legal rent from several years ago to use as a starting point for calculating the new rent.
The cases stem from a different Court of Appeals decision from more than a decade ago, in which the high court ruled that landlords couldn't receive J-51 tax benefits in New York City if they removed an apartment from rent stabilization via luxury decontrol.
Luxury decontrol previously allowed landlords to remove an apartment from rent stabilization if either the rent of that unit, through regular increases, exceeded a certain amount, or if the tenants' income surpassed a certain threshold.
Landlords had previously thought they could continue receiving J-51 tax benefits while simultaneously taking advantage of luxury decontrol. The Court of Appeals decided in 2009 that such a scheme was unlawful, which required landlords to cease the practice immediately.
That decision, captioned Roberts v. Tishman Speyer Properties, was retroactive. That meant tenants whose apartments had been unlawfully destabilized, per the Roberts decision, could file a claim for rent overcharges, even if those costs were accrued before the ruling.
Each case before the Court of Appeals on Tuesday involved claims that tenants were overcharged rent by their landlords, who had removed their apartments from rent stabilization while also collecting J-51 tax benefits.
Ordinarily, tenants would have four years to file an overcharge complaint. If that claim was successful, landlords would likely have to look at the tenants' rent over that four years and set a new base rent, as well as award any rent overcharges.
That changed this year when the state Legislature passed the Housing Stability and Tenant Protection Act, which was the largest overhaul of the state's rent laws in decades. It was intended to benefit tenants in New York City, but extended some protections statewide.
There's now question, as evidenced before the high court Tuesday, as to whether the new law should be interpreted as retroactive. If so, that would mean actions pending a final determination or on appeal would be subject to the new law.
The new law, among several other components, allows for a full lookback of a unit's rental history to determine a new base rent. That might mean a lookback of more than four years to find what the tenant's rent should have been if the unit hadn't been deregulated.
In one case before the Court of Appeals on Tuesday, two tenants signed a market rate lease in Manhattan in 2005, two years after the unit had been removed from rent stabilization.
After the Court of Appeals decided Roberts in 2009, the tenants filed a rent overcharge complaint against their landlord seeking to have a legally valid rent established because the unit had been unlawfully destabilized.
Assistant Solicitor General Ester Murdukhayeva argued on behalf of the state Division of Housing and Community Renewal, a state agency that tenants can use to pursue complaints of rent overcharges.
Murdukhayeva argued that the new rent law approved by the Legislature should be interpreted as retroactive, meaning that it could be used to examine all relevant rental history evidence related to an overcharge proceeding.
"In this case, the relevant changes in the HSTPA amend at most what's known as the evidentiary portion of the four year rule," Murdukhayeva said.
Attorneys representing landlords before the Court of Appeals on Tuesday argued against the law's retroactivity, saying there wasn't precedent or any legal justification for the statute to be interpreted that way.
Joel Zinberg, a solo practitioner from Manhattan, represented landlord 72A Realty Associates before the Court of Appeals on Tuesday.
That landlord had responded to the decision in Roberts by offering their tenants a new rent-stabilized lease, in which the rent was based on a level previously set after the unit had been removed from rent stabilization.
The tenants had argued that 72A Realty Associates couldn't set a newly stabilized rent on an amount that was previously unlawfully determined, per Roberts. They brought an overcharge complaint in late 2013, seeking a refund and a judgement setting the maximum legal rent.
The Appellate Division, First Department decided in that case that the landlord had to go back to what it charged in 2002 and then determine how much the rent would be for the tenants if the unit hadn't been destabilized in the meantime.
Zinberg argued that his client shouldn't have to go back that far to determine the new rent, and that the new rent law approved by the Legislature shouldn't compel them to because their case was active before it was enacted. It should only apply to future cases, he said.
To do otherwise may violate a landlord's due process rights, Zinberg said.
"We apply a different standard than we do for prospective," Zinberg said. "The fact that something may work for prospective doesn't mean it applies with the same standard of due process for retrospective."
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