Avoid Triple Damages in Post-Roberts Rent Overcharge Cases
In October 2009, New York State’s highest court dealt a devastating blow to the owners of the Stuyvesant Town and Peter Cooper Village complexes in Manhattan when it ruled that they improperly began charging market rents on thousands of apartments. In a 4-to-2 decision, the court said that the owners improperly deregulated apartments and raised rents beyond legal levels at the complexes while receiving J-51 tax breaks from the city for major renovations [Roberts v. Tishman Speyer Properties, 13 NY3d 279 (Ct. App. 2009)].
Since then, tenants in other buildings receiving J-51 benefits have complained to the DHCR or in court proceedings that they were improperly deregulated and overcharged. Fortunately, the DHCR and courts have recognized that landlords relied on the DHCR’s pre-Roberts opinion and policy permitting high-rent vacancy deregulation and high-rent/high-income deregulation of rent-stabilized apartments in J-51 buildings. As a result, in a number of cases, the general presumption that a rent overcharge is “willful” has been overcome and landlords have avoided an assessment of triple damages on any overcharge determination.
In one case, the DHCR initially ruled for the rent-stabilized tenant who claimed rent overcharge, disallowed landlord’s claim for rent increase based on individual apartment improvements (IAIs), and ordered landlord to refund $161,643—including triple damages. The landlord then filed an Article 78 court appeal, arguing that the DHCR’s decision was unreasonable. The case was sent back to the DHCR for reconsideration. The DHCR accepted landlord’s proof of the IAIs and reduced the total overcharge to $10,000, including interest. The DHCR ruled that the remaining overcharge wasn’t willful, because the landlord had mistakenly deemed the apartment to be deregulated while the building was receiving J-51 benefits [Clermont York Associates: DHCR Adm. Rev. Docket No. CW410004RP (1/14/14) (LvT #26070)].
In a later case where the landlord had relied on the DHCR’s prior erroneous policy concerning high-rent vacancy deregulation in J-51 buildings, the DHCR confirmed that it was the agency’s practice not to impose a rent freeze or triple damages under those circumstances. In that case, the landlord initially registered the apartment as permanently exempt in 2000, prior to the Roberts decision that buildings under J-51 benefits weren’t subject to high-rent deregulation [Korn/Yorkshire House Associates: DHCR Adm. Rev. Docket Nos. CX410046RT/CX410007RO (7/28/15) (LvT #26517).
In a case where the tenant brought his overcharge complaint to a court instead of the DHCR, the court also refused to award triple damages. The landlord gave tenant a free-market lease in December 2007 and charged tenant an unregulated rent of $10,000 per month. At the time, the building was receiving J-51 tax benefits. In 2009, when the tenant sued the landlord, he claimed that he was rent stabilized and that he was being willfully overcharged. The landlord admitted that the tenant was rent stabilized in light of the Court of Appeals decision in Roberts, but the parties disputed the amount of the legal rent. The court refused to award triple damages. As the court explained:
Treble damages may only be awarded where an overcharge is willful. RSC § 2526.1(a). Whether treble damages are available in the context of post Roberts overcharge cases is a further legal issue now emerging in the trial courts. Although there is a presumption that any overcharge is willful, willfulness in the context of post Roberts overcharge cases is still almost impossible to establish. This is because the initial rents were established in reliance on existing DHCR regulations as they then stood. Since Roberts, the law on how to calculate the rent stabilized rents is emerging, without any fixed formula. Thus any attempt at recalculating the rent cannot be considered a willful disregard of law that is not yet fully established. [Rosenzweig v. 305 Riverside Corp.: 35 Misc.3d 1241(A), 2012 NY Slip Op 51103(U) (Sup. Ct. NY Co. 2012)].
Results can vary in individual cases, depending on the facts. Owners facing post-Roberts overcharge claims resulting from mistaken deregulation of rent-stabilized apartments in J-51 buildings should point out that, under these circumstances there was no willful overcharge and that triple damages should not apply.