Regina Metro. Co. v. N.Y.S. Div. of Hous. & Cmty. Renewal, 5026

• Decision Date: 16 August 2018
• Docket Number: Index 101235/15,5026,101236/15
• Citation: 84 N.Y.S.3d 91,164 A.D.3d 420
• Parties: In re REGINA METROPOLITAN CO., LLC, Petitioner–Appellant, v. NEW YORK STATE DIVISION OF HOUSING AND COMMUNITY RENEWAL, Respondent–Respondent, Leslie E. Carr, Intervenor–Respondent. Community Housing Improvement Program, Inc., Amicus Curiae. In re Leslie E. Carr, Petitioner–Appellant, v. New York State Division of Housing and Community Renewal, Respondent–Respondent, Regina Metropolitan Co., LLC, Intervenor–Respondent.
• Court: New York Supreme Court — Appellate Division

164 A.D.3d 420

84 N.Y.S.3d 91

In re REGINA METROPOLITAN CO., LLC, Petitioner–Appellant,

v.NEW YORK STATE DIVISION OF HOUSING AND COMMUNITY RENEWAL, Respondent–Respondent,Leslie E. Carr, Intervenor–Respondent.

Community Housing Improvement Program, Inc., Amicus Curiae.

In re Leslie E. Carr, Petitioner–Appellant,

v.New York State Division of Housing and Community Renewal, Respondent–Respondent,Regina Metropolitan Co., LLC, Intervenor–Respondent.

5026

Index 101235/15

101236/15

Supreme Court, Appellate Division, First Department, New York.

ENTERED: AUGUST 16, 2018

Horing, Welikson & Rosen, P.C., Williston Park (Niles C. Welikson of counsel), for Regina Metropolitan Co., LLC, appellant/respondent.

Vernon & Ginsburg, LLP, New York (Darryl M. Vernon of counsel), for Leslie E. Carr and Harry A. Levy, respondents/appellants.

Mark F. Palomino, New York (Christina S. Ossi of counsel), for respondent.

Graubard Miller, New York (Peter A. Schwartz of counsel), for amicus curiae.

Friedman, J.P., Gische, Kapnick, Kahn, Moulton, JJ.

Order and judgment (one paper), Supreme Court, New York County (Alice Schlesinger, J.), entered October 24, 2016, denying the petitions to modify a determination of respondent New York State Division of Housing and Community Renewal (DHCR), dated May 13, 2015, which affirmed an order of the rent administrator, dated February 26, 2014, to the extent that, for purposes of determining a rent overcharge, it calculated a base date rent by looking back more than four years from the rent overcharge complaint, and denied petitioner tenants' requests for treble damages and attorneys' fees, and dismissing the proceedings, modified, on the law, to grant landlord's petition to the extent of remanding the matter to DHCR to recalculate the base date rent by looking back to four years before the filing of the overcharge complaint, and otherwise affirmed, without costs.

This appeal follows in the long wake of Roberts v. Tishman Speyer Props., L.P., 13 N.Y.3d 270, 890 N.Y.S.2d 388, 918 N.E.2d 900 (2009). In Roberts, the Court of Appeals held that apartments in buildings receiving benefits under the City's J–51 tax incentive program remain subject to rent stabilization for at least as long as the building continues to enjoy J–51 benefits.¹ In Gersten v. 56 7th Ave. LLC, 88 A.D.3d 189, 928 N.Y.S.2d 515 (1st Dept. 2011), appeal withdrawn 18 N.Y.3d 954, 944 N.Y.S.2d 482, 967 N.E.2d 707 (2012), this Court held that Roberts should be applied retroactively.

Rent Stabilization Law (RSL) § 26–517(a)(2) and CPLR 213–a set a four year limitations period for actions alleging rent overcharge. Therefore, a tenant who prevails on a Roberts claim is entitled to recoup only rent overcharges that accrued in the four years before the filing of the complaint (see e.g. Matter of Gilman v. New York State Div. of Hous. & Community Renewal, 99 N.Y.2d 144, 149, 753 N.Y.S.2d 1, 782 N.E.2d 1137 [2002] ). The beginning date for the calculation of recoupment is known as the "base date."

The primary question presented in this appeal is how to determine the proper rent on the base date.

Petitioner Regina Metropolitan Co., LLC. (landlord) is the owner and landlord of the residential apartment building located at 27 West 96th Street in Manhattan. Effective during the 1999–2000 tax year, landlord began receiving J–51 tax benefits, and it continued to do so until 2013. The building was subject to rent stabilization before, and independent of, the receipt of such benefits. In 2003, when the tenant of the subject apartment vacated, the monthly regulated rent was $2,096.47, above the then applicable $2,000 threshold for vacancy deregulation. Landlord set the market rate rent for the subsequent tenant at $4,500. Petitioner tenants (tenants) moved into the building pursuant to a lease for the period August 1, 2005 to August 1, 2007, at a monthly rent of $5,195. The lease stated on its face that the apartment was not subject to rent regulation.

Landlord could not deregulate the apartment under Real Property Tax Law § 489(7)(b)(1) while simultaneously receiving J–51 tax benefits. Landlord maintains that it deregulated the apartment in 2003 due to a misunderstanding of the law—a misunderstanding once widely held in the real estate industry and shared by DHCR—which was later corrected by Roberts, 13 N.Y.3d 270, 890 N.Y.S.2d 388, 918 N.E.2d 900 (2009), supra . It is uncontested that, in light of Roberts and Gersten, 88 A.D.3d 189, 928 N.Y.S.2d 515, supra , the unit was improperly deregulated and remains a rent-stabilized apartment. It is also uncontested that an overcharge ensued. What is contested, however, is the calculation of the overcharge and, specifically, the base date rent on November 2, 2005, four years before tenants' filing of the overcharge complaint.

Before DHCR, landlord maintained that the base date rent should be set at the amount that obtained on November 2, 2005, pursuant to the tenants' lease, which was $5,195. Landlord contends that in the absence of any evidence of a fraudulent scheme to evade rent regulation, there is no support for avoiding the strict four-year limitations period of RSL § 26–517(a)(2) and CPLR 213–a.

Tenants argued before DHCR that there was evidence that landlord had engaged in a fraudulent scheme to evade rent regulation of the unit and that the correct rent should be set via the default formula specified in Thornton v. Baron, 5 N.Y.3d 175, 800 N.Y.S.2d 118, 833 N.E.2d 261 (2005) or the similar default formulas under Rent Stabilization Code (RSC) (9 NYCRR) § 2522.6(b)(2) and (3). Additionally, even if a default formula would not be appropriate, tenants asserted that the rent should be frozen at $2,096.47 because, as in Jazilek v. Abart Holdings, LLC, 72 A.D.3d 529, 899 N.Y.S.2d 198 (1st Dept. 2010), landlord failed to file proper and timely rent registration statements. Tenants also sought treble damages and attorneys' fees.

The Rent Administrator (RA) did not fully agree with either landlord's or tenants' analysis. In an order dated February 26, 2014, the RA found that the landlord did not engage in a fraudulent scheme to avoid rent stabilization. He found that there had been a rent overcharge, but he did not calculate the base date rent according to either of the opposing methods urged by landlord and tenants. Instead, the RA looked back beyond the four-year limitations period to find the last legal regulated rent, which was the $2,096.47 rent charged in 2003. To that amount the RA added all subsequent rent increases allowed under rent stabilization, and found the base date rent was $3,325.24. From this amount he calculated a rent overcharge of $207,192.59, plus interest, which came to $283,192.59.² The RA offered to hear evidence from the landlord concerning individual apartment improvements (IAIs) to the unit that could potentially increase the regulated rent. However, the landlord never offered such evidence to the RA. The RA further found that landlord had demonstrated that the overcharge was not willful and that treble damages were therefore not warranted. In so finding, the RA cited the general confusion about the impact of the J–51 program on rent stabilization before Roberts and Gersten. Finally, the RA found that tenants were not entitled to attorneys' fees.

Both sides filed Petitions for Administrative Review (PARs). The PARs were consolidated. The Commissioner affirmed the RA's order and denied the PARs. The Commissioner declined to hear landlord's evidence concerning alleged IAIs pertinent to the unit, on the ground that no such evidence was presented to the RA. Both sides filed article 78 petitions. Supreme Court denied the petitions, affirming DHCR's determination. We now modify.

Courts will not disturb an administrative agency's determination unless it lacks any rational basis (see Matter of Gilman v. New York State Div. of Hous. & Community Renewal, 99 N.Y.2d 144, 149, 753 N.Y.S.2d 1, 782 N.E.2d 1137 [2002], supra ). An agency's interpretation of its own regulations "is entitled to deference if that interpretation is not irrational or unreasonable" ( Matter of Gaines v. New York State Div. of Hous. & Community Renewal, 90 N.Y.2d 545, 548–549, 664 N.Y.S.2d 249, 686 N.E.2d 1343 [1997] ; see Samiento v. World Yacht Inc., 10 N.Y.3d 70, 79, 854 N.Y.S.2d 83, 883 N.E.2d 990 [2008] ). However, "where the question is one of pure statutory reading and analysis, dependent only on accurate apprehension of legislative intent, there is little basis to rely on any special competence or expertise of the administrative agency and its interpretive regulations" ( Roberts, 13 N.Y.3d at 285, 890 N.Y.S.2d 388, 918 N.E.2d 900 [internal quotation marks omitted] ).

We do not disturb DHCR's fact-finding. DHCR's determination that landlord did not fraudulently deregulate the unit has a rational basis. An increase in rent, standing alone, does not establish a fraudulent scheme to evade rent stabilization (see Conason v. Megan Holding, LLC, 25 N.Y.3d 1, 16, 6 N.Y.S.3d 206, 29 N.E.3d 215 [2015] ). Tenants point to suspicions about landlord's claimed IAIs and its failure to provide a rent-stabilized lease at some unspecified time after Roberts. These vague assertions provide no basis for disturbing DHCR's finding that there was no evidence of fraud by landlord. As discussed at greater length below, the absence of fraud affects our analysis of how DHCR calculated the base date rent.

DHCR's denial of tenants' request for treble damages was rational. Landlord demonstrated that its deviation from rent stabilization was not willful. The Court of Appeals has held that a finding of willfulness "is generally not applicable to cases arising in the aftermath of Roberts. For Roberts cases, defendants followed the Division of Housing and Community Renewal's own guidance when deregulating the units, so there is little possibility of a finding of willfulness" ( Borden v. 400 E. 55 St. Assoc., L.P., 24 N.Y.3d 382, 398, 998 N.Y.S.2d 729, 23 N.E.3d 997 [2014] )....