Collecting Special Rent Increases Under RGBO No. 41

Q: Can I collect special rent increases for low-rent apartments that were issued under Rent Guidelines Board Order No. 41 and later challenged in court?

A: According to the Division of Housing and Community Renewal (DHCR), whether an owner can collect the $60 rent increase instead of a lower percentage rent increase depends on whether the owner notified the tenant that the higher flat-rate increase was the subject of a court appeal and could ultimately be collectible. In the case of Casado v. Markus, New York’s highest court ultimately ruled that the special flat-rate increase for low-rent apartments was legal, reversing two lower court rulings.

In Matter of Rosenblum [DHCR Adm. Rev. Docket No. BP210049RO (7/18/14)], the DHCR ruled that because the owner didn’t notify the tenant in his May 1, 2010, renewal lease that there was a possibility that the rent might be increased under a final ruling on the Casado case, the owner wasn’t permitted to modify the rent increase provided in the lease. But the DHCR also found that the owner acted in the good faith belief that it was entitled to the $60 increase, and therefore the overcharge wasn’t willful. The owner had charged the tenant a 6 percent renewal increase for the lease term between May 1, 2010, and April 30, 2012, instead of the higher flat-rate $60 increase because, at the time, the lower court in Casado had disallowed the $60 flat-rate increase for low rents that had been approved under Rent Guidelines Board Order (RGBO) No. 41.

Later, when New York's highest court upheld the $60 increase, the owner used the higher rent it could have charged under the tenant's 2010 renewal lease as the base rent for calculating the tenant's rent under his 2012 renewal lease. The DHCR disregarded the owner’s argument that the DHCR renewal lease forms didn't allow him to modify the lease to preserve the higher rent on the form. The owner also had included both the higher rent and the rent collected in its annual rent registration.

The DHCR reached the opposite result in Matter of SP 96-97 LLC [DHCR Adm. Rev. Docket No. BR410028RO (7/18/14)]. In that case, when the owner offered the tenant a renewal lease for the period commencing on Aug, 1, 2010, the lower court decision was in effect barring the $60 rent increase. The owner advised the tenant of the final court decision permitting the flat-rate increase by letter in April 2011 and told the tenant it would seek to collect retroactive and prospective rent increases resulting from the court's order. The tenant's renewal lease also contained a clause permitting an adjustment to the rent during the term of the lease because of an order from the DHCR or the RGB. In this case, the owner also had an agreement with the building's tenant association concerning the collection of preferential rents, which permitted the owner to collect any increase permitted by law.

About the Author

Eileen O’Toole is a partner with the New York City law firm of Borah, Goldstein, Altschuler, Nahins & Goidel, P.C., whose law practice concentrates on landlord-tenant matters. A frequent writer and lecturer on rent regulation and other real estate topics, she is also the Contributing Editor of New York Landlord v. Tenant, the Insider’s monthly legal decision service, and Editor of the annual NYC Apartment Management Checklist, a one-stop resource for complying with the many laws and regulations affecting New York City apartment buildings.