Five Possible Arguments to Avoid Triple Damages for Rent Overcharge

Five Possible Arguments to Avoid Triple Damages for Rent Overcharge



No owner likes to get hit with a rent overcharge order. And it’s worse if the Division of Housing and Community Renewal (DHCR) orders you to pay triple damages on top of that. But the DHCR shouldn’t hit you with triple damages in every case where it finds an overcharge. If you can prove that the overcharge was “not willful,” you can escape triple damages.

Depending on the facts of your case, there are arguments you can make to improve your chances of showing that the overcharge wasn’t willful. Here are several arguments that owners have successfully used to avoid getting hit with triple damages for a rent overcharge. Make these arguments when they fit the facts of your case—either in the answer to the tenant’s overcharge complaint that you give to the District Rent Administrator (DRA) at the DHCR or in an appeal of a DRA’s rent overcharge order that awards triple damages to the tenant.

Argument #1: Overcharge Refunded

The DHCR’s Policy Statement 89-2 says that you shouldn’t get hit with triple damages if you refunded the overcharge to the tenant, with interest (currently set at 9 percent), within the time set for answering the tenant’s rent overcharge complaint. When you get a rent overcharge complaint, review the apartment’s rent history. If you discover that you’re collecting an overcharge, reduce the tenant’s rent to the right amount and refund the overcharge you’ve collected, with interest. Submit a copy of the refund check you sent to the tenant with your answer to the tenant’s complaint.

For example, in one case, an unregulated tenant complained of rent overcharge. The DRA ruled for the tenant and ordered the owner to refund $5,355. Since the owner had already refunded more than that amount to the tenant, no money was due to the tenant. The tenant appealed and lost, claiming that there was fraud and that there should have been triple damages. But the DHCR found that the owner investigated in response to the complaint, admitted that the apartment was rent stabilized, froze the rent at the base date rent until late registrations were filed, and made a refund to the tenant that was more than the overcharge plus interest. This showed that the owner wasn’t attempting to fraudulently deregulate the apartment and rebutted the presumption of willfulness [Thurlow: DHCR Adm. Rev. Docket No. DX410030RT (1/11/17)].

In another case, when a rent-stabilized tenant complained of rent overcharge, the DRA ruled for the tenant, but since the owner had refunded $2,000 to the tenant and the overcharge was only $1,672, no refund was due. The tenant appealed and lost. The tenant claimed that the DRA didn’t charge the statutory 9 percent interest on the overcharge and that the overcharge was willful. The tenant had advised the DRA that she received a refund check from the owner. In addition, in this case the overcharge resulted only from a rent freeze based on a prior DHCR order and the owner refunded the overcharge within three months after the tenant’s complaint was filed. The DRA properly calculated the interest due on the overcharge, and the owner demonstrated that there was no willful overcharge by issuing a prompt refund [Zeleny: DHCR Adm. Rev. Docket No. EN410030RT (8/23/16)].

Remember that DHCR Policy Statement 89-2 provides for assessment of triple damages if the owner didn’t adjust the tenant’s rent, with interest, during the time afforded to respond. So if there’s an overcharge, be mindful of the interest and provide the refund without delay. In one case where a rent-stabilized tenant complained of rent overcharge, the DRA ruled for the tenant and ordered the owner to refund $2,500, including triple damages and interest. Although the owner had refunded a portion of that amount before its order was issued, the DHCR assessed triple damages because the owner didn’t include interest with the refund. The owner appealed and lost. In this case, the owner didn’t attempt to pay the interest owed on the overcharge until after the DRA ruled on the complaint [100 Forsyth LLC: DHCR Adm. Rev. Docket No. EO410038RO (8/23/16)].

What if the tenant refuses your refund offer? You still should be able to avoid triple damages. In one case, the owner had issued three checks to the tenant to cover the overcharge refund, with interest, but the tenant refused to accept them. The fact that the owner didn’t tender the refund within the initial time afforded to answer the complaint didn’t matter in this case. The owner made a good faith attempt to refund the full amount including interest before the DRA’s order was issued [Seashore Management: DHCR Adm. Rev. Docket No. BR210039RO (8/6/14)].

> Sample argument: Say you refund an overcharge to the tenant. Your answer to the tenant’s complaint might say something like this:

Triple damages are not warranted in this case. The owner has established by a preponderance of the evidence that it did not willfully overcharge the tenant. After getting a copy of the complaint, the owner recalculated the tenant’s rent, and determined that it had inadvertently collected an overcharge of [insert amount of overcharge]. The owner promptly returned this amount to the tenant, plus nine (9) percent interest, by mailing a check to the tenant in the amount of [insert amount of overcharge plus interest]. Enclosed is a copy of the check that was sent. The owner also reduced the tenant’s current rent to the lawful amount. Policy Statement 89-2 says that no triple damages should be awarded when the owner refunds the overcharge to the tenant with interest and adjusts the rent to the proper amount.

If the DRA awards triple damages to the tenant, you should appeal. Point out that you refunded what you thought in good faith was the amount of the overcharge. And explain how you calculated the overcharge amount.

Argument #2: Overcharge Was Minor

The DRA shouldn’t award the tenant triple damages for minor overcharges. In one overcharge case, the owner didn’t file rent registrations from 2007 to 2009, which froze the collectible rent at $640 per month. The owner also charged $3 per month above the legal rent. The rent freeze was lifted in 2010, when the owner filed the missing registrations. The DRA ordered the owner to refund $3,335, including triple damages. The owner appealed and won in part. The tenant’s rent was properly frozen until late registrations were filed. But there was no willful overcharge since the overcharge largely resulted solely from the failure to register the apartment in a timely manner. The additional overcharge of $3 per month didn’t warrant triple damages [Ahmed: DHCR Adm. Rev. Docket No. CM110001RP (9/16/15)].

> Sample argument: Say the DRA awards the tenant triple damages for a minor overcharge. Appeal the order. If the overcharge was minor and a result of a minor calculation error, your appeal might say something like this:

The DRA’s award of triple damages to the tenant should be revoked. Triple damages are not warranted in this case. The owner has established by a preponderance of the evidence that it did not willfully overcharge the tenant. The DRA found an overcharge of [insert monthly overcharge] per month. The overcharge was due to minor calculation error and does not indicate an intent to evade the rent laws. In this situation, the DHCR has said that no triple damages are warranted [see Ahmed: DHCR Adm. Rev. Docket No. CM110001RP (9/16/15)].

Argument #3: Problems Proving Improvements Increase

If you make improvements or install new equipment in an apartment, you’re entitled to get a rent increase of 1/40th or 1/60th of the cost depending on how many apartments are in your building. But you may have problems proving the cost of the improvements or also proving that you got the tenant’s written consent to them. In these situations, the DHCR will find a rent overcharge, but shouldn’t award triple damages.

If you make improvements while a tenant occupies an apartment, you need to get the tenant’s written consent to collect the increase. In one case where a rent-stabilized tenant complained of rent overcharge, the DRA ruled for the tenant, and ordered the owner to refund $4,900 plus triple damages. The owner appealed and won, in part. The owner performed individual apartment improvements (IAIs) in the tenant’s apartment and the tenant orally agreed to pay a rent increase of $150 per month. But the owner didn’t obtain the tenant’s written consent before making the improvements. Therefore, the owner wasn’t entitled to collect the IAI rent increase. But the DHCR revoked the triple damages, finding no willful overcharge [Ilic: DHCR Adm. Rev. Docket No. BO110038RO (7/2/14)]. You can avoid triple damages only if the tenant has orally consented to the improvements but you didn’t get the consent in writing.

> Sample argument: Say the DRA awards a tenant triple damages because you didn’t prove you got the tenant’s written consent for improvements that you made. Your appeal might say something like this:

The DRA’s award of triple damages to the tenant should be revoked. Triple damages are not warranted in this case. The owner has established by a preponderance of the evidence that it did not willfully overcharge the tenant. There is no dispute that improvements were made in the tenant’s apartment. The tenant orally consented to those improvements. The overcharge was based solely on the owner’s inability to get proof that the improvements were made with the tenant’s written consent. In this situation, the DHCR has ruled that triple damages are not warranted [see Ilic: DHCR Adm. Rev. Docket No. BO110038RO (7/2/14)].

Honest mistake about allowable improvements. Suppose you include the cost of various items in your improvements rent increase, only to have the DHCR rule that the items don’t qualify as improvements. This will result in a rent overcharge finding. But if the DHCR finds that it was reasonable for you to believe that you could include those items, it shouldn’t award triple damages based on the overcharge.

For example, in one case, after a fire in an apartment, the owner had added renovation costs to the new tenant’s rent as IAIs. The rent-stabilized tenant complained of rent overcharge, claiming that the owner had received insurance reimbursement for the renovation work and therefore couldn’t collect an IAI rent increase. The DRA ruled for the tenant and ordered the owner to refund $23,000, including triple damages. The owner appealed, claiming that the overcharge wasn’t willful. The DHCR ruled for the owner and revoked the triple damages. The owner claimed that he was unaware he couldn’t charge the IAI rent increase. And he didn’t receive the insurance proceeds until after signing the tenant’s lease [Bensonhurst Holdings LLC: DHCR Adm. Rev. Docket No. DQ210001RO (8/26/15)].

Argument #4: Portion of Improvements Cost Disallowed

You can collect a rent increase for improvements only if the work done actually qualifies as improvements and there is acceptable proof of payment. If you collect a 1/40th or 1/60th increase and the DHCR finds those improvements were, in fact, repairs or normal maintenance, the increase will be considered an overcharge, and you’ll generally be hit with triple damages.

Or if you can’t provide sufficient proof of improvements, you’ll generally have to pay triple damages. Documentation should include: (a) cancelled checks contemporaneous with the work; (b) an invoice receipt marked “paid in full” contemporaneous with the completion of the work; (c) a signed contract agreement; or (d) a contractor’s affidavit indicating that the work was completed and paid in full.

In one case, the DHCR’s Tenant Protection Unit (TPU) filed a rent overcharge complaint after the owner responded insufficiently to the TPU’s audit of IAI rent increases for the tenant’s apartment. The DRA ruled for the tenant and ordered the owner to refund $101,000, including triple damages. The owner appealed and lost. The owner claimed it spent $26,000 for labor in connection with IAIs. But the only proof submitted was a sworn statement signed after-the-fact. This wasn’t substantial proof of the labor cost. In addition, much of the owner’s proof of IAI costs was for work done on three apartments with insufficient proof of which work was performed in each apartment. And, since no IAI rent increase was proved, the DRA properly found the overcharge to be willful [Sha Realty, LLC: DHCR Adm. Rev. Docket No. EP210025RO (1/25/17)].

But you may be able to avoid triple damages in some situations. In some cases, the DHCR has ruled that if it disallows a portion of the total claimed cost of improvements, owners shouldn’t get hit with triple damages.

For example, in one case where a rent-stabilized tenant complained of rent overcharge, the DRA ruled for the tenant and ordered the owner to refund $161,644, including triple damages. The owner appealed and won, in part. The DRA had disallowed any rent increase for apartment improvements costing $56,000 because owner submitted purchase orders and invoices but no proof of payment. The owner pointed out that the invoices had been marked “paid” by its management office. The DHCR found that the owner should get some increase for the improvements based on “all factors bearing upon the equities involved” and granted a rent increase based on half of the claimed apartment improvement cost. And since the owner clearly believed that it had a justified rent increase based on apartment improvements, there was no willful overcharge. The DHCR revoked the triple damages and reduced the total overcharge to $47,000 [Clermont York Associates: DHCR Adm. Rev. Docket No. BM410028RO (12/2/13)].

In another case, triple damages weren’t ordered where the owner didn’t prove improvement costs. After the tenant complained of a rent overcharge, the DRA ruled for the tenant because the owner couldn’t prove the cost of a number of improvements made to the tenant’s apartment. The DRA also ruled that the overcharge was willful and assessed triple damages. The owner appealed, claiming that there was no willful overcharge. The DHCR ruled for the owner. Rent increases disallowed because expenditures aren’t fully substantiated aren’t subject to triple damages. Some of the owner’s improvement documents didn’t specify that the work was for the tenant’s apartment and some invoices didn’t include a vendor’s name and address. Also, the amounts specified in construction proposals didn’t coincide with amounts allegedly spent and there was no explanation for the difference. But some of the improvement costs were substantiated and the tenant never denied that the improvements were made [Leslie: DHCR Adm. Rev. Docket Nos. IK210013RP; GB210189R) (1/27/95)].

But having a portion of improvement costs disallowed won’t always help you avoid triple damages. For example, you may get hit with triple damages for collecting a rent increase for an item that is clearly maintenance—for example, painting—even if that item costs less than the majority of the total claimed costs of the improvements.

> Sample argument: Say the DRA awards the tenant triple damages after disallowing a portion of the total claimed cost of improvements. Your appeal might say something like this:

The DRA’s award of triple damages should be revoked. Triple damages are not warranted in this case. The owner has established by a preponderance of the evidence that it did not willfully overcharge the tenant. Rent increases disallowed because expenditures aren’t fully substantiated aren’t subject to triple damages. A significant portion of the improvement costs were substantiated and the tenant never denied that the improvements were made. In this situation, the DHCR has said that no triple damages are warranted [see Leslie: DHCR Adm. Rev. Docket Nos. IK210013RP; GB210189R) (1/27/95)].

Argument #5: Overcharge Based on Not Registering

Sometimes you’re missing a registration statement for a particular year. The DHCR can roll back the rent to what it had been on April 1 of the year you didn’t register the apartment, and freeze the rent at that amount until you file the registration.

This will result in a rent overcharge finding. But Rent Stabilization Code Section 2526.1(a)(1) says that the DHCR can’t impose triple damages for overcharges that occur solely because an owner didn’t file a rent registration. Specifically, it says, “In no event shall such treble damage penalty be assessed against an owner based solely upon the owner’s failure to file any timely or proper rent registration statement.”

In one case where a tenant complained of rent overcharge, the DRA ruled for the tenant and ordered the owner to refund $12,400, including triple damages. The owner appealed and won, in part. The DRA properly froze rent paid on the base date because the owner failed to register the apartment after the apartment became reregulated in 2009 when the owner received J-51 tax benefits. A prior DHCR order had directed the owner to file annual apartment registrations. But since the overcharge finding was based entirely on this rent freeze and the owner’s failure to file rent registrations, triple damages didn’t apply under Rent Stabilization Code Section 2526.1. So the triple damages were revoked and the refund due the tenant was $6,560, representing overcharges plus interest [E&M Harlem Portfolio LLC: DHCR Adm. Rev. Docket No. EP410030RO (8/11/16)].

> Sample argument: Say the DRA awards a tenant triple damages based on a rent overcharge that resulted solely from a failure to file a rent registration in a particular year. Your appeal might say something like this:

The DRA’s award of triple damages to the tenant should be revoked. The rent overcharge resulted solely from a failure to file a rent registration. Rent Stabilization Code Section 2526 states that “In no event shall such treble damage penalty be assessed against an owner based solely upon the owner’s failure to file any timely or proper rent registration statement.” Accordingly, no triple damages should be awarded to the tenant in this case.