J51 RENT STABILIZATION ENFORCEMENT SUPPLEMENTAL MATERIALS

Transcription

1 NYCLA CLE I NSTITUTE J51 RENT STABILIZATION ENFORCEMENT SUPPLEMENTAL MATERIALS Prepared in connection with a Continuing Legal Education course presented at New York County Lawyers Association, 14 Vesey Street, New York, NY scheduled for February 24, 2016 Program Co-sponsor: Community Housing Improvement Program (CHIP) Faculty: Sherwin Belkin, Belkin Burden Wenig & Goldman, LLP; Blaine Schwadel, This course has been approved in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 2 Transitional and Non-Transitional credit hours: 2 Professional Practice. This program has been approved by the Board of Continuing Legal education of the Supreme Court of New Jersey for 2 hours of total CLE credits. Of these, 0 qualify as hours of credit for ethics/professionalism, and 0 qualify as hours of credit toward certification in civil trial law, criminal law, workers compensation law and/or matrimonial law. ACCREDITED PROVIDER STATUS: NYCLA s CLE Institute is currently certified as an Accredited Provider of continuing legal education in the States of New York and New Jersey.

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3 72A Realty v. Lucas NYLJ (Housing Court Decision) 72A Realty v. Lucas Appellate term Decision Altschuler v. Jobman Appellate Division, First Department Boyd v. DHCR Supreme Court Boyd v. DHCR Appellate Division, First Department Boyd v. DHCR Court of Appeals Gersten v. 56 7th Avenue LLC Appellate Division, First Department Grim v. DHCR Court of Appeals Meyers v. Four Thirty Realty Appellate Division, First Department Roberts v. Tishman Speyer Court of Appeals and Miscellaneous Decisions Preferential Rent Affirmation of Motion for Leave Ten Sheridan Associates v. Cohen In re J-P Group, LLC v. NYS department of Economic Development Miscellaneous Materials/Orders

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13 Altschuler v Jobman 478/480, LLC. (2016 NY Slip Op 00035) 1 of 4 1/19/ :28 AM Altschuler v Jobman 478/480, LLC NY Slip Op Decided on January 7, 2016 Appellate Division, First Department Published by New York State Law Reporting Bureau pursuant to Judiciary Law 431. This opinion is uncorrected and subject to revision before publication in the Official Reports. Decided on January 7, 2016 Acosta, J.P., Andrias, Manzanet-Daniels, Kapnick, JJ / [*1]Lane Altschuler, Plaintiff-Respondent, v Jobman 478/480, LLC., Defendant-Appellant. Belkin Burden Wenig & Goldman, LLP, New York (Magda L. Cruz of counsel), for appellant. Bernstein Liebhard LLP, New York (Christian Siebott of counsel), for respondent. Order, Supreme Court, New York County (Saliann Scarpulla, J.), entered January 18, 2013, which, to the extent appealed from as limited by the briefs, denied defendant landlord's motion for summary judgment dismissing plaintiff tenant's rent overcharge claim, and granted plaintiff's cross motion for summary judgment as to liability on that claim; order, same court and Justice, entered April 14, 2015, which, to the extent appealable, denied defendant's motion to renew the

14 Altschuler v Jobman 478/480, LLC. (2016 NY Slip Op 00035) 2 of 4 1/19/ :28 AM prior motions for summary judgment and plaintiff's motion for a so-ordered subpoena; order, same court (Geoffrey D. Wright, J.), entered June 8, 2015, which granted plaintiff's motion for summary judgment in the amount of $818, on his rent overcharge claim; and order, same court and Justice, entered August 20, 2015, which, among other things, directed the entry of judgment in plaintiff's favor in the amount of $876,619.10, plus interest, unanimously affirmed, with costs. Order, Supreme Court, New York County (Saliann Scarpulla, J.), entered October 1, 2013, which, among other things, granted plaintiff's motion for a so-ordered subpoena directing the Division of Housing and Community Renewal (DHCR) to produce documents sufficient to determine the apartment's proper base rent, unanimously dismissed, without costs, as abandoned and moot. Supreme Court correctly found that defendant improperly deregulated the apartment while it was receiving J-51 tax benefits, entitling plaintiff to rent-stabilized status for the duration of his tenancy and to collect any rent overcharges (see 72A Realty Assoc. v Lucas, 101 AD3d 401, [1st Dept 2012]). We reject defendant's contention that it properly deregulated the apartment in reliance on a 1996 DHCR advisory opinion. The Court of Appeals rejected that opinion in Roberts v Tishman Speyer Props., L.P. (13 NY3d 270 [2009]). In any event, defendant failed to show that its deregulation of the apartment was proper under the advisory opinion, as the record indicates that the apartment was rent stabilized solely because of the receipt of J-51 tax benefits (see id. at 281). Defendant's arguments otherwise are improperly raised for the first time on appeal, and we decline to consider them (see DiLeo v Blumberg, 250 AD2d 364, 366 [1st Dept 1998]). As an alternative holding, we reject them on the merits. Plaintiff claimed that defendant engaged in a "fraudulent scheme" to deregulate the apartment by increasing the 1995 rent of $ to over $2,000 in subsequent years, executing market rent leases during a time it was receiving J-51 tax benefits, failing to provide him with a lease rider, and failing to file the required annual registrations with DHCR during his tenancy. Defendant failed to refute these allegations of fraud. Its argument that the apartment was deregulated because it was renovated in 1995 is unavailing, as it fails to support it with sufficient evidence. The affidavit of its lease administrator, stating that at least $6, of individual apartment capital improvements were performed prior to plaintiff's first lease, is insufficient, as [*2]it was unsupported by "bills from a contractor, an agreement or contract for work in the apartment, or records of payments for the [claimed improvements]" (Lucas, 101 AD3d at ). Because plaintiff established a colorable claim of fraud, Supreme Court properly

15 Altschuler v Jobman 478/480, LLC. (2016 NY Slip Op 00035) 3 of 4 1/19/ :28 AM disregarded the rent charged four years prior to the filing of the rent overcharge claim, and properly examined the entire rent history to determine the legality of the base rent (see Matter of Grimm v State of N.Y. Div. of Hous. & Community Renewal Off. of Rent Admin., 15 NY3d 358, 366 [2010]). Further, the application of DHCR's default formula was warranted, given the unreliability of the rental history since 1995, due to defendant's failure to file a number of the annual rent registrations prior to the commencement of this action (see Levinson v 390 W. End Assoc., L.L.C., 22 AD3d 397, [1st Dept 2005]). Supreme Court properly imposed a rent freeze on the apartment, since defendant collected the unlawful rent overcharges before filing late rent registrations (see Matter of Hargrove v Division of Hous. & Community Renewal, 244 AD2d 241 [1st Dept 1997]). Supreme Court also properly awarded treble damages, because defendant failed to establish, by a preponderance of the evidence, that the overcharge was not willful (id.). A trial is not required, as there are no undisputed facts or unresolved issues (see Adria Realty Inv. Assoc. v New York State Div. of Hous. & Community Renewal, 270 AD2d 46 [1st Dept 2000]). To the extent the issue has not been abandoned on appeal (see McHale v Anthony, 41 AD3d 265, [1st Dept 2007]), Supreme Court properly denied defendant's motion to renew, since defendant did not provide a reasonable justification for its failure to present the new affidavit on the earlier motions (see CPLR 2221[e][3]; Whalen v New York City Dept. of Envtl. Protection, 89 AD3d 416, 417 [1st Dept 2011]). Defendant's appeal from the order granting plaintiff's motion for a so-ordered subpoena is deemed abandoned, as defendant failed to raise any arguments on appeal with respect that order (see McHale, 41 AD3d at ). Alternatively, the appeal has been rendered moot by DHCR's subsequent submission of the requested documents to plaintiff (see Nathanson v Tri-State Constr. LLC, 48 AD3d 373, 374 [1st Dept 2008]). We have considered defendant's remaining contentions and find them unavailing. THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT. ENTERED: JANUARY 7, 2016

16 Altschuler v Jobman 478/480, LLC. (2016 NY Slip Op 00035) 4 of 4 1/19/ :28 AM CLERK

17 2012 WL (N.Y.Sup.) Page 1 Supreme Court, New York. New York County In the Matter of the Application of: Kelley S. BOYD, v. NEW YORK STATE DIVISION OF HOUSING AND COMMUNITY RENEWAL, and 232/242 Realty Co. LLC aka Uptown Realty Robert Candee, Owner Respondents. No /11. May 11, West Headnotes Landlord and Tenant Landlord and Tenant 233VIII Rent and Advances 233VIII(A) Rights and Liabilities 233k Actions to Recover Overcharges and Penalties 233k k. Admissibility of evidence. Most Cited Cases There was insufficient evidence of fraud to warrant examination of tenants' rent overcharge claims beyond the four-year limitations period; whereas landlords engaged in fraudulent deregulation by requiring tenants to sign leases containing a provision that their apartments would not be their primary residences, increasing rent without providing rent stabilized lease riders, and threatening to raise rents if tenants failed to perform repairs at their own expense, the building owner always registered the apartment as rent stabilized, even when the registered rent exceeded the $2,000 limit for rent stabilized apartments, and provided rent stabilized lease riders. McKinney's CPLR 213 a; New York City Administrative Code [a][2]. For a Judgment pursuant to Article 78 of the Civil Practice Law and Rules Motion Seq. Nos.: 002 Motion Cal. No. 14 Decision & Judgment For petitioner: Kelley S. Boyd, self-represented, 240 Cabrini Boulevard, Apt. 4F, New York, NY 10033, For respondent Dhcr, Gary R. Connor, Esq., General Counsel, 25 Beaver Street, 7th Floor, New York, NY 10004, For respondent 232/242 Realty: David I. Paul, Esq., Rappaport, Hertz, et al., P.C., Queens Blvd., 9th Floor, Forest Hills, NY 11375, [This opinion is uncorrected and not selected for official publication.] Present: Barbara Jaffe, JSC. The following papers, numbered 1 to were read on this motion to/for Vacate administrative determination Notice of Motion/Order to Show Cause - Affidavits - Exhibits _ No(s). 1 Answering Affidavits - Exhibits _ No(s). 2, 3, 4 Replying Affidavits _ No(s) Thomson Reuters. No Claim to Orig. US Gov. Works.

18 2012 WL (N.Y.Sup.) Page 2 MOTION DATE 1/17/12 Upon the foregoing papers, It Is ordered that this motion Is This judgment has not been entered by the County Clerk z and notice of entry cannot be served based hereon. To obtain entry, counsel or authorized representative must appear in person at the Judgment Clerk's Desk (Room 141B). Dated: 5/11/12 <<signature>>, J.S.C, BARBARA JAFFE 1. CHECK ONE:... X CASE DISPOSED [ ] NON-FINAL DISPOSITION 2. CHECK AS APPROPRIATE:... [ ] MOTION IS: X GRANTED [ ] DENIED [ ] GRANTED IN PART [illegible text] OTHER 3. CHECK IF APPROPRIATE:... [ ] SETTLE ORDER [ ] SUBMIT ORDER [ ] DO NOT POST [ ] FIDUCIARY APPOINTMENT [ ] REFERENCE Argued: 1/17/11 By notice of petition dated September 13, 2011, petitioner brings this Article 78 proceeding seeking an order vacating and reversing respondent New York State Division of Housing and Community Renewal's (DHCR) order and opinion denying her petition for administrative review. Respondents oppose. By order to show cause dated December 21, 2011, DHCR moves pursuant to CPLR 2304 for an order quashing the judicial subpoena duces tecum petitioner served on it. Petitioner opposes. By order to show cause dated January 3, 2012, respondent 232/242 Realty Co. LLC, a/k/a Uptown Realty, moves pursuant to CPLR 2304 for an order quashing the judicial subpoena duces tecum petitioner served on it. Petitioner opposes. I. ARTICLE 78 Judicial review of an administrative agency's decision is limited to whether the decision was made in violation of lawful procedure, was affected by an error of law or was arbitrary and capricious or an abuse of discretion, including abuse of discretion as to the measure or mode of penalty or discipline imposed. (CPLR 7803[3]). In reviewing an administrative agency's determination as to whether it is arbitrary and capricious, the test is whether the determination is without sound basis in reason and... without regard to the facts. (Matter of Pell v. Bd. of Educ. of Union Free School Dist. No. 1 of Towns of Scarsdale & Mamaroneck, Westchester County, 34 N.Y.2d 222, 231 [1974]; Matter of Kenton Assocs., Ltd. v. Div. of Hous. & Community Renewal, 225 A.D.2d 349, 639 N.Y.S.2d 16 [1st Dept 1996]). Moreover, the determination of an administrative agency, acting pursuant to its authority and within the orbit of its expertise, is entitled to deference, and even if different conclusions could be reached as a result of conflicting evidence, a court may not substitute its judgment for that of the agency when the agency's determination is supported by the record. (Matter of Partnership 92 LP & Bldg. Mgt. Co., Inc. v. State of N.Y. Div. of Hous. & Community Renewal, 46 A.D.3d 425, 429 [1st Dept 2007], affd 11 N.Y.3d 859 [2008]) Thomson Reuters. No Claim to Orig. US Gov. Works.

19 2012 WL (N.Y.Sup.) Page 3 As rent overcharge claims are subject to a four-year statute of limitations (Matter of Grimm v. State of New York Div. of Hous. & Community Renewal, 15 N.Y.3d 358, 364 [2010]), examination of an apartment's rental history beyond the fouryear period is precluded (CPLR 213-a; New York City Administrative Code [a][2]). Where an overcharge complaint alleges fraud, however, the DHCR must examine the rental history beyond the four-year period to determine whether a fraudulent scheme to destabilize the apartment tainted the reliability of the rent on the base date. (Matter of Grimm, 15 N.Y.3d at 366, 912 N.Y.S.2d 491, 938 N.E.2d 924). Neither an increase in rent nor a mere allegation of fraud alone is sufficient to state claim of fraud. (Id.). Here, in concluding that there were insufficient indicia of fraud to warrant examination of the rental history for petitioner's apartment beyond the four-year limitations period, the Deputy Commissioner for DHCR's Department of Rent Administration rationally distinguished the building owner's behavior from that of the landlords in Grimm and Thornton v Baron, 5 NY3d 175 (2005). Whereas they engaged in fraudulent deregulation by, inter alia, requiring tenants to sign leases containing a provision that their apartments would not be their primary residences, increasing rent without providing rent stabilized lease riders, and threatening to raise rents if tenants failed to perform repairs at their own expense, the building owner here always registered the apartment as rent stabilized, even when the registered rent exceeded the $2,000 limit for rent stabilized apartments, and provided rent stabilized lease riders. (Affirmation of Jack Kuttner, Esq., in Opposition, dated Nov. 17, 2011, Exh. A). Moreover, the Commissioner noted that, in contrast to the circumstances set forth in Grimm and Thornton, the rent increase at issue occurred after the building owner renovated the apartment for the first time in 32 years and that it would not be difficult for anyone with any experience in this industry to believe that it could have taken $39,000 to do so. (Affirmation of Jack Kuttner, Esq., in Opposition, dated Nov. 17, 2011, Exh. A). He also found that the variance in the registered rent reflected in the rent stabilized lease rider for the previous tenants resulted from a clerical error, not fraud, as it was apparent that the owner had completed the rider using an old version of the form. (Id.). Petitioner's assertions regarding the cost of the repairs provide no basis for disturbing the decision, as the Commissioner evaluated the building owner's proof in light of his experience and expertise in the field, and I may not substitute my judgment for his. Nor does the Commissioner's error as to petitioner's initial rent provide a basis, as it was immaterial to his final determination. Therefore, as the Commissioner made his decision on the basis of the record and the Rent Stabilization Law, it is neither arbitrary nor capricious. II. MOTIONS TO OUASH An application to quash a subpoena should be granted only where the futility of the process to uncover anything legitimate is inevitable or obvious or where the information sought is utterly irrelevant. (Anheuser-Busch, Inc. v. Abrams, 71 N.Y.2d 327, 332 [1988]). As judicial review of an administrative agency's determination is limited to the record before the agency (Matter of Featherstone v. Franco, 95 N.Y.2d 550, 554 [2000]; Matter of Yarbough v. Franco, 95 N.Y.2d 342, 347 [2000]), the information petitioner seeks is irrelevant to the instant proceeding. Accordingly, it is hereby III. CONCLUSION ORDERED and ADJUDGED, that the petition is denied in its entirety and the proceeding is dismissed; and it is further ORDERED and ADJUDGED, that respondent New York State Division of Housing and Community Renewal's motion for an order quashing the judicial subpoena duces tecum served on it is granted; and it is further 2014 Thomson Reuters. No Claim to Orig. US Gov. Works.

20 2012 WL (N.Y.Sup.) Page 4 ORDERED and ADJUDGED, that respondent 232/242 Realty Co. LLC aka Uptown Realty's motion for an order quashing the judicial subpoena duces tecum served on it is granted; and it is further ORDERED, that the stay of the proceeding 232/242 Realty Co. LLC v Kelley Boyd, L&T Index Number 91598/10 (New York City Civil Court, Housing Part) is vacated. ENTER: <<signature>> Barbara Jaffe, JSC DATED: May 11, 2012 New York, New York Boyd v. New York State Div. of Housing and Community Renewal 2012 WL (N.Y.Sup. ) (Trial Order ) END OF DOCUMENT 2014 Thomson Reuters. No Claim to Orig. US Gov. Works.

21 110 A.D.3d 594, 973 N.Y.S.2d 609, 2013 N.Y. Slip Op (Cite as: 110 A.D.3d 594, 973 N.Y.S.2d 609) Page 1 Supreme Court, Appellate Division, First Department, New York. In re Kelley S. BOYD, Petitioner Appellant, v. NEW YORK STATE DIVISION OF HOUSING AND COMMUNITY RENEWAL, et al., Respondents Respondents, C Uptown Realty, et al., Respondents. Oct. 29, Background: Tenant sought review of the decision of the New York State Division of Housing and Community Renewal (DHCR) dismissing tenant's rent overcharge complaint. The Supreme Court, New York County, Barbara Jaffe, J., 2012 WL , denied tenant's petition and dismissed. Tenant appealed. Holding: The Supreme Court, Appellate Division, held that DHCR was required to investigate the legality of the base date rent on tenant's claims of fraud. Reversed, vacated, and remanded. Gische, J., filed dissenting opinion, in which Sweeny, J., joined. West Headnotes [1] Landlord and Tenant Landlord and Tenant 233VIII Rent and Advances 233VIII(A) Rights and Liabilities 233k Actions to Recover Overcharges and Penalties 233k k. Hearing and trial. Most Cited Cases The New York State Division of Housing and Community Renewal (DHCR) was required to investigate the legality of the base date rent, after tenant claimed that landlord's increase in rent based on $39,000 in individual apartment improvements (IAI) was fraudulent, in tenant's rent overcharge complaint, where tenant claimed that the hardwood floors, bathtub, doors, and fixtures were original to the apartment, and that the kitchen had been updated with low-quality appliances estimated to cost less than $1000. [2] Landlord and Tenant Landlord and Tenant 233VIII Rent and Advances 233VIII(A) Rights and Liabilities 233k Actions to Recover Overcharges and Penalties 233k k. Hearing and trial. Most Cited Cases Although the look-back for an apartment's rental history is ordinarily limited to the four-year period preceding the date that the petitioner files the complaint, where fraud is alleged and there is substantial indicia of fraud on the record, the New York State Division of Housing and Community Renewal (DHCR) is obliged to investigate whether the base date rate was legal and acts arbitrarily and capriciously in failing to meet that obligation. ** Kelley S. Boyd, appellant pro se. **610 Gary R. Connor, New York (Jack Kuttner of counsel), for New York State Division of Housing and Community Renewal, respondent. Rappaport, Hertz, Cherson & Rosenthal, P.C., Forest Hills (David I. Paul of counsel), for 232/242 Realty Co., LLC., respondent. MAZZARELLI, J.P., SWEENY, FREEDMAN, FEINMAN, GISCHE, JJ. *594 Judgment, Supreme Court, New York 2014 Thomson Reuters. No Claim to Orig. US Gov. Works.

22 110 A.D.3d 594, 973 N.Y.S.2d 609, 2013 N.Y. Slip Op (Cite as: 110 A.D.3d 594, 973 N.Y.S.2d 609) Page 2 County (Barbara Jaffe, J.), entered May 18, 2012, insofar as appealed from as limited by the briefs, denying the petition and dismissing the proceeding brought pursuant to CPLR article 78 to annul the determination of respondent New York State Division of Housing and Community Renewal ( DHCR ), issued July 19, 2011, which denied petitioner's petition for administrative review (PAR) of the denial of her rent overcharge complaint, reversed, on the law, without costs, the judgment vacated, and the matter remanded to DHCR for further proceedings consistent herewith. Although petitioner filed her overcharge complaint more than four years after the building owner registered the monthly rent, she contends that DH- CR should not have accepted $1,750 as the registered monthly rent on the base date, April 7, 2005, because there are substantial indicia of fraud. The owner increased the registered monthly rent from $572 in July 2004, when a long time tenant vacated the apartment, to $1750 in October More than 90% of the increase reflects an adjustment for individual apartment improvements (IAIs) under the Rent Stabilization Law and Code. To justify that adjustment, the owner would have had to spend about $39,000 to renovate the apartment in Petitioner, who moved into the apartment in 2007, is currently paying rent of over $2000 a month. In a letter to DHCR, petitioner set forth a specific and detailed description of the apartment in 2007, alleging that based on its condition when she moved in, the owner could not have spent $39,000 for improvements to the building, which was constructed in Among other things, petitioner stated that the hardwood floors, bathtub, doors, and fixtures are original to the *595 apartment, and that the kitchen had been updated with low-quality appliances which she estimated cost less than $1000. She described the kitchen as having very inexpensive Home Depot cabinets, slat floors, and a used or recycled sink that did not fit in the cutout in the wall. The owner has never submitted any evidence rebutting petitioner's claim that the IAIs were minimal and cost far less than claimed. [1][2] Under the standard set forth in Matter of Grimm v. State of N.Y. Div. of Hous. & Community Renewal Off. of Rent Admin., 15 N.Y.3d 358, 912 N.Y.S.2d 491, 938 N.E.2d 924 [2010], petitioner made a sufficient showing of fraud to require DH- CR to investigate the legality of the base date rent ( see also Bogatin v. Windermere Owners LLC, 98 A.D.3d 896, 950 N.Y.S.2d 707 [1st Dept.2012] ). Although the look-back for an apartment's rental history is ordinarily limited to the four-year period preceding the date that the petitioner files the complaint (see Matter of Thornton v. Baron, 5 N.Y.3d 175, 180, 800 N.Y.S.2d 118, 833 N.E.2d 261 [2005] ), where fraud is alleged and there is substantial indicia of fraud on the record, DHCR is obliged to investigate whether the base date rate was legal and act[s] arbitrarily and capriciously in failing to meet that obligation (Grimm, 15 N.Y.3d at 366, 912 N.Y.S.2d 491, 938 N.E.2d 924). **611 Thus, we find that DHCR's disparate treatment of the parties' claims was arbitrary. While the agency made no attempt to evaluate the legitimacy of petitioner's claims despite their consistency and degree of detail, DHCR credited the owner's implicit claim that it spent $39,000 to renovate the apartment simply because it would not be difficult for anyone with any experience in this industry to believe it could have taken $39,000 in IAIs to update the appearance and equipment in an apartment which had not changed hands for thirty-two years. This justification for the agency's determination is irrational. Finding that the owner could have spent $39,000 in IAIs, where the owner never submitted any evidence controverting petitioner's claims is not equivalent to finding that the owner actually made improvements costing that much. Accordingly, this matter should be remanded to DHCR to give the parties the opportunity to present evidence in connection with the legality of the base rate rent. Under the circumstances presented, DHCR ac Thomson Reuters. No Claim to Orig. US Gov. Works.

23 110 A.D.3d 594, 973 N.Y.S.2d 609, 2013 N.Y. Slip Op (Cite as: 110 A.D.3d 594, 973 N.Y.S.2d 609) Page 3 ted within its discretion by resolving the PAR on the merits even though petitioner filed it outside the 35 day statutory time frame (9 NYCRR ), and, contrary to the owner's contention, the record does provide a basis to amend the caption. All concur except SWEENY and GISCHE, JJ. who dissent in a memorandum by GISCHE, J. as follows: GISCHE, J. (dissenting). I respectfully dissent. I do not agree with the majority, *596 that petitioner presented sufficient evidence of a fraudulent increase in the legal registered rent for the subject apartment, justifying the examination of the apartment's rental history beyond the statutory four-year look-back period ( see Rent Stabilization Law of 1969 [Administrative Code of City of N.Y.] [a][2] ). Petitioner, who moved into the subject apartment in March 2007 pursuant to a one year lease at a monthly rent of $2,000, filed a rent overcharge claim with DHCR on April 7, 2009, alleging that the owner had obtained a fraudulent increase in the legal registered rent for the apartment from $ per month in July 2004 to $1,750 per month in October 2004, when a new tenant took occupancy. This allegation of fraud was supported only by a letter containing petitioner's personal observations of the improvements to the subject apartment (IAIs) and her comparison to unidentified fixtures at a big box home improvement store. She estimated that, based upon her research and calculations, the most the improvements could have cost was $5,000. Thus, she maintains that allowing for permissible increases, the legal rent for the first vacancy tenant in October 2004 should have been $974, not $1,750. Petitioner provides no real evidence for her conclusions on value, nor does she account for labor costs or assert that she has any relevant experience qualifying her to opine on the value of the work done. Thus, whether the letter adequately details her complaints about the nature or condition of the IAIs she admits were made to the subject apartment is of no moment in concluding their value. While acknowledging that the look back period for her overcharge complaint was only four years from the filing date, petitioner argues that DHCR should nonetheless have investigated the basis for the IAI increase claimed by the owner before the four year period because of the poor quality of the improvements. After initially issuing an erroneous order dated April 15, 2010, dismissing petitioner's rent overcharge complaint on the basis **612 that the subject apartment was not rent stabilized, DHCR, on its own initiative, reopened the proceeding after the then recent Court of Appeals decision in Roberts v. Tishman Speyer Props., L.P., 13 N.Y.3d 270, 890 N.Y.S.2d 388, 918 N.E.2d 900 [2009], and accepted further submissions by the parties. In its superseding order dated October 4, 2010, DHCR determined that the subject apartment was, in fact, rent stabilized because the building was receiving J 51 benefits (see Roberts, 13 N.Y.3d at , 890 N.Y.S.2d 388, 918 N.E.2d 900). However, using the base date of April 7, 2005, which was four years prior to the filing date of *597 petitioner's rent overcharge complaint, at which time the lease rent was $1,750, DHCR determined that there had been no rent overcharge. Petitioner filed a PAR which was denied by DHCR on July 19, 2011 on the basis that there was no reason to deviate from the four-year look back rule, or put the owner to its proof as to the IAIs made over four years before the overcharge complaint was filed. The court below upheld the agency's determination and dismissed the petition. In general, no determination of an overcharge and no calculation of an award of the amount of an overcharge may be based upon an overcharge having occurred more than four years preceding the filing of an overcharge complaint ( [Rent Stabilization Law of 1969 Administrative Code of City of N.Y.] [a] ). In order to effectuate the purpose of the four-year limitation period, the legal regulated rent is set at the base date, which is four years prior to the filing of the overcharge complaint, plus any 2014 Thomson Reuters. No Claim to Orig. US Gov. Works.

24 110 A.D.3d 594, 973 N.Y.S.2d 609, 2013 N.Y. Slip Op (Cite as: 110 A.D.3d 594, 973 N.Y.S.2d 609) Page 4 subsequent lawful increases ( [Rent Stabilization Code] 9 NYCRR [e], [f][1]; [a][3][i] ). The Court of Appeals culled out a common-law exception to the four-year look back period where the rent was set by the landlord as part of a fraudulent scheme. Only where there is a colorable claim of fraud may the rental history outside the four-year period be examined (see Matter of Grimm v. State of N.Y. Div. of Hous. & Community Renewal Off. of Rent Admin., 15 N.Y.3d 358, 364, 912 N.Y.S.2d 491, 938 N.E.2d 924 [2010]; Thornton v. Baron, 5 N.Y.3d 175, 180, 800 N.Y.S.2d 118, 833 N.E.2d 261 [2005] ). A colorable claim of fraud requires that the tenant present something more than a mere allegation of fraud. It requires some evidence that the owner engaged in a fraudulent act or scheme more than four years prior to the tenant's filing of the rent overcharge claim, justifying the agency's examination of the entire rent history ( Matter of Grimm, 15 N.Y.3d at 367, 912 N.Y.S.2d 491, 938 N.E.2d 924). The fact that there has been a sizeable increase in the rent for the subject apartment prior to the look back period does not, alone, support or establish that the tenant has a colorable claim of fraud. This is true even where, as here, the bump up in rent was based upon the installation of improvements to an apartment which did not require prior DHCR approval (id.). Significantly, the owner complied with all of the rent registration requirements. Accordingly, the information on which petitioner's overcharge claim is based was known to her when she moved into the apartment in 2007, at which time she was within the four-year period permitting a challenge to the rent without having to show a fraudulent predicate. Petitioner's subjective belief that the IAIs could not have cost *598 more than $5,000 does not satisfy her initial burden of showing that the fraud exception to the four-year statute of limitations should be applied, requiring DHCR to review a rent charged more than four years before her overcharge complaint **613(Thornton v. Baron, 5 N.Y.3d at 180, 800 N.Y.S.2d 118, 833 N.E.2d 261). A conclusory claim, without more, is insufficient for the agency to disregard the four-year look back period established in the Rent Stabilization Law, as codified in the Rent Stabilization Code, requiring that an owner retain records relating to rents for housing accommodations for four years prior to the date of the most recent registration (CPLR 213 a; Rent Stabilization Law of 1969 [Administrative Code of City of N.Y.] [a][2]; Rent Stabilization Code [9 NYCRR] [2][ii] ). Thus, DHCR's decision to employ the four-year look back rule rather than the fraud exception in determining the overcharge complaint filed by petitioner had a rational basis in the record and was not arbitrary and capricious or affected by an error of law (see I.G. Second Generation Partners, L.P. v. New York State Div. Of Housing and Community Renewal, 284 A.D.2d 149, 725 N.Y.S.2d 550 [1st Dept.2001] lv. denied 98 N.Y.2d 607, 746 N.Y.S.2d 691, 774 N.E.2d 756 [2002] ). The majority's conclusions that petitioner's letter triggered an inquiry eviscerates the four year statutory rule whenever a tenant alleges fraud, even without any particularity. I do not believe that Grimm has such wide ranging implications. Additionally, contrary to petitioner's argument, it was not arbitrary or capricious for DHCR to draw upon its own expertise and resources in concluding that $39,000 was not an inordinate expenditure to renovate an apartment that had became vacant for the first time in 32 years. N.Y.A.D. 1 Dept.,2013. Boyd v. New York State Div. of Housing and Community Renewal 110 A.D.3d 594, 973 N.Y.S.2d 609, 2013 N.Y. Slip Op END OF DOCUMENT 2014 Thomson Reuters. No Claim to Orig. US Gov. Works.

25 Matter of Boyd v New York State Div. of Hous. & Community Renewal 2014 NY Slip Op Decided on June 26, 2014 Court of Appeals Published by New York State Law Reporting Bureau pursuant to Judiciary Law 431. This opinion is uncorrected and subject to revision before publication in the Official Reports. Decided on June 26, 2014 No. 177 SSM 13 [*1]In the Matter of Kelley S. Boyd, Respondent, v New York State Division of Housing and Community Renewal, et al., Appellants. Submitted by Jack Kuttner, for appellant New York State Division of Housing and Community Renewal. Submitted by David I. Paul, for appellants 232/242 Realty Co. LLC et al. Submitted by Kenneth N. Rosenfeld, for respondent. Association for Neighborhood and Housing Development et al.; CAMBA Legal Services; Bill Perkins et al.; Letitia James et al., amici curiae. On review of submissions pursuant to section of the Rules, order reversed, with costs, judgment of Supreme Court, New York County, reinstated, and certified question answered in the negative. New York State Division of Housing and Community Renewal's determination denying

26 tenant's petition for administrative review was not arbitrary or capricious, as tenant failed to set forth sufficient indicia of fraud to warrant consideration of the rental history beyond the four-year statutory period (see Matter of Grimm v State of N.Y. Div. of Hous. & Community Renewal Off. of Rent Admin., 15 NY3d 358, [2010]). Chief Judge Lippman and Judges Graffeo, Read, Smith, Pigott, Rivera and Abdus-Salaam concur. Decided June 26, 2014

27 Tom, J.P., Sweeny, Acosta, Renwick, Manzanet-Daniels, JJ Cora Cahan Gersten, et al., Index /09 Plaintiffs-Appellants, -against- 56 7th Avenue LLC, et al., Defendants-Respondents, 56 Seventh Avenue Corporation, et al., Defendants. Himmelstein, McConnell, Gribben, Donoghue & Joseph, New York (William J. Gribben of counsel), for appellants. Belkin Burden Wenig & Goldman, LLP, New York (Magda L. Cruz of counsel), for respondents. Order and judgment (one paper), Supreme Court, New York County (Louis B. York, J.), entered July 15, 2010, modified, to declare that the 1999 luxury decontrol order is final, and otherwise affirmed, without costs. Opinion by Renwick, J. All concur. Order filed. 49

28 SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT, Peter Tom, John W. Sweeny, Jr. Rolando T. Acosta Dianne T. Renwick Sallie Manzanet-Daniels, J.P. JJ Ind /09 x Cora Cahan Gersten, et al., Plaintiffs-Appellants, -against- 56 7th Avenue LLC, et al., Defendants-Respondents, 56 Seventh Avenue Corporation, et al., Defendants. x Plaintiffs appeal from an order and judgment of the Supreme Court, New York County (Louis B. York, J.), entered July 15, 2010, which th granted defendants 56 7 Avenue LLC and Northbrook Management LLC s motion to dismiss the complaint. Himmelstein, McConnell, Gribben, Donoghue & Joseph, New York (William J. Gribben and Ronald S. Languedoc of counsel), for appellants. Belkin Burden Wenig & Goldman, LLP, New York (Magda L. Cruz of counsel), for respondents. 1

29 RENWICK, J. The Court of Appeals recently rendered a decision with significant ramifications for the real estate industry in New York City. In affirming this court s decision in Roberts v Tishman Speyer Prop. L.P. (13 NY3d 270 [2009], affg 62 AD3d 71 [2009], revg 2007 NYSlip Op 32639[u] [2007]), the Court held that thousands of unregulated market apartments, at two Manhattan building complexes (Stuyvesant Town and Peter Cooper Village), were improperly removed from rent stabilization while the owners, Tishman Speyer and MetLife, received benefits under the City s J Tax Abatement and Exemption Program. The Court agreed with our statutory interpretation, thereby rejecting the Division of Housing and Community Renewal s (DHCR) regulation, which 2 interpreted the Luxury Decontrol Statute as permitting deregulation of rent stabilized apartments in buildings receiving J-51 benefits provided the building was already subject to rent regulation before the receipt of such benefits. 1 Under the Administrative Code of the City of New York (previously J-51), landlords receive tax benefits to offset the costs of renovations. Pursuant to the J-51 program, a landlord s receipt of tax benefits is conditioned on maintaining apartments as rent-stabilized (see 28 RCNY 5-03[f]). 2 The Rent Stabilization Law of 1969 (RSL) provides for deregulation when the rent for a vacant apartment reaches $2000 (vacancy deregulation) or when the household income is $175,000 or more for two consecutive years and the legal regulated rent is $2000 or more (high income rent deregulation) (see RSL [Administrative Code of City of NY] , ). 2

30 The ramifications of Roberts, however, remain uncertain; the case left unresolved a number of issues, including those explicitly noted by the Court: retroactivity, class classification, the statute of limitations and other defenses that may be applicable to particular tenants (13 NY3d at 287). In this unrelated case, we are faced with some of these issues. They arise in a dispute between cotenants and a building owner. The owner took over the subject property in 2009, a decade after the former owner had deregulated the apartment pursuant to a 1999 DHCR luxury decontrol order. Plaintiffs, who are not the typical tenants intended to be protected by rent regulation, commenced this action seeking a declaration that the 1999 DHCR luxury decontrol order is void ab initio pursuant to Roberts. The answer depends on whether Roberts should be applied retroactively, and if so, whether the defense of statute of limitations or administrative finality may be invoked to give preclusive effect to the 1999 DHCR luxury decontrol order. Factual and Procedural Background The pertinent facts are essentially undisputed. Plaintiffs have lived on the 20th floor of a West Village apartment building since The first apartment they rented, #20H, was then rent controlled. Eleven years later, in 1979, plaintiffs rented an adjacent apartment, #20J, under a rent-stabilized lease. For 16 years, from 1979 to 1995, they occupied both apartments, and, in 3

31 the 1980s, they combined the two apartments into one unit. In 1995, plaintiffs rented a third apartment, 20A, under another rent-stabilized lease. With the owner s consent, they combined all three apartments into one, creating an apartment that took up the building s entire 20th floor. The 20th floor apartment is 3,259 square feet in size, and contains four bedrooms, five bathrooms, an office, an eat-in kitchen, separate dining room, and a 20 foot by 34 foot living room. The combined rent for the apartment, under all three leases, was more than $2,000 per month. In 1990, the building s prior owner began to receive J-51 tax benefits, which were to last 20 years. Such benefits officially remained in effect until June 30, In 1998, the building s prior owner filed a luxury deregulation petition with DHCR with respect to the combined 20th floor apartment. On the Income Certification Form that the predecessor owner sent plaintiffs, plaintiffs acknowledged that the collective rent for the combined 20th floor apartment was more than $2,000 per month, and that their annual household income was more than $175,000 for each of the two years preceding the petition. As noted above, at the time of the filing of the petition, the prior owner was receiving J-51 tax benefits. In September 1999, DHCR issued an order deregulating the combined 20th floor apartment. Accordingly, once the rent- 4

32 regulation terms of each of the three leases and the rental agreement expired, the 20th floor apartment became deregulated based on the DHCR decontrol order finding that the collective legal regulated rent exceeded $2,000 per month, and that the tenants income exceeded the statutory threshold (RSL [Administrative Code of City of New York] [c][2]). Notably, plaintiffs never appealed the DHCR decontrol order through an administrative appeal; nor did they commence an article 78 proceeding. On September 30, 1999, plaintiffs and the predecessor owner entered into a four-year lease for the 20th floor apartment. The initial rent was $5,000 per month, for a term ending on November 30, In September 2002, near the expiration of the fouryear lease, plaintiffs and the predecessor owner negotiated terms for an extension of the lease; this next lease was for a nineyear term, beginning on December 1, 2003 and ending on November 30, 2012, with an initial rent of $6,000 per month. In January 2008, defendant 56 7th Avenue LLC acquired the building, and defendant Northbrook Management LLC became the new managing agent (hereinafter defendants). When the new owner bought the building, no tax benefits under the J-51 program were in effect, and the new owner has never applied for any J-51 tax benefits. In December 2009, after the Court of Appeals issued Roberts, 5

33 plaintiffs commenced this action, seeking a declaration that the 1999 DHCR luxury deregulation order was invalid and demanding reimbursement for alleged rent overcharges for the past eleven years. Plaintiffs claimed that their lease should be rescinded, and that in its place, defendants should give them a new rentstabilized lease. Plaintiffs claimed that because the building was receiving J-51 tax benefits in 1999, the predecessor owner was not entitled to deregulate the 20th floor apartment. On July 15, 2010, Supreme Court granted defendants motion to dismiss the action. The court held that DHCR s deregulation order was binding and that the court had no jurisdiction to set it aside 11 years after its issuance. The court stated, Despite the decision in Roberts this court is without jurisdiction to grant [the] declaratory relief as the statute of limitations for Article 78 proceedings has expired and the court must respect the decision of DHCR in this type of proceeding. This appeal ensued. Interplay of J-51 Benefits and RSL To place this matter within its proper context, we must first examine the interplay of J-51 benefits and RSL. The City s J-51 tax incentive program allows property owners who complete qualifying multiple dwelling improvements to receive tax exemptions and abatements for a period of years. In exchange for receiving such benefits, the landlords subject their properties 6

34 to the RSL (Administrative Code ). Accordingly, units not otherwise subject to rent stabilization become rent stabilized. For example, section 5(a)(5) of the Emergency Tenant Protection Act of 1974 (as added by L. 1974, ch. 576, 4) exempts from stabilization housing accommodations in buildings completed or buildings substantially rehabilitated as family units on or after January 1, A building that has been completely renovated for residential use after December 31, 1973, is therefore exempt from stabilization coverage (see e.g. Wilson v One Ten Duane St. Realty Co., 123 AD2d 198, 201 [1987]). Where an owner, however, receives J-51 benefits in connection with such a renovation, the building will indeed be rent stabilized, for a period of time, by virtue of RSL (Administrative Code) (c), which covers [d]welling units in a building or structure receiving the benefits of section (see e.g. Matter of Eastern Pork Prods. Co. v New York State Div. of Hous. & Community Renewal, 187 AD2d 320 [1992]). Where the building only became subject to rent regulation due to its participation in the J-51 program, RSL [Administrative Code] (c) expressly provides that once the tax benefits terminate, the units may be deregulated in one of two ways. One way is for the owner to include a J-51 rider in the lease informing the occupant that the apartment will be deregulated 7

35 upon the termination of the benefit (id.; Rent Stabilization Code (RSC) [9 NYCRR [o]. If the lease does not contain the requisite notice, occupied units remain subject to rent stabilization until a vacancy occurs after the expiration of the J-51 benefits (see East Renovating Co. v New York State Div. Of Hous & Community Renewal, 16 AD3d 166 [2005]; Matter of Lomagno v Division of Hous. & Community Renewal, 38 AD3d 897 [2007]). Owners of rent regulated buildings also frequently apply for and receive J-51 benefits for such routine work as boiler installations, new windows, elevator upgrades and the like. The receipt of J-51 benefits under such circumstances has no effect on the building s rent-regulated status. That is, a rent stabilized building will be rent stabilized before, during and after the receipt of J-51 benefits. This much was clear before Roberts. What was unclear before Roberts was whether individual rentstabilized units may be subject to high-rent/high-income deregulation in buildings receiving J-51 benefits. In 1993, the legislature enacted the Rent Regulation Reform Act (RRRA [as added by L 1993, Ch 253]), which provided for the luxury decontrol or deregulation of rent stabilized apartments if the regulated monthly rent was at least $2,000 and the apartments were either vacant or occupied by occupants with a combined annual income of more than $250,000 (former RSL [Administrative 8

36 Code] ). The income threshold was later lowered to $175,000 (RSL [Administrative Code] ). The RRRA, however, also provided that luxury decontrol would not apply to units which became or become subject to rent stabilization by virtue of receiving J-51 tax benefits (RSL [Administrative Code] , [a]). In 1996, DHCR issued an advisory opinion that participation in the J-51 program precluded luxury decontrol only where the receipt of J-51 benefits was the sole reason for the imposition of rent regulation (Roberts, 13 NY3d at 281 [internal quotation marks omitted]). In 2000, DHCR incorporated that position into the Rent Stabilization Code, stating that luxury decontrol shall not apply to housing units which became or become subject to rent stabilization solely by virtue of the receipt of J-51 tax benefits (id. at 282 [internal quotation marks omitted]). At some point after the enactment of the RRRA, according to Roberts, MetLife began charging market-rate rents in units in the Stuyvesant Town and Peter Cooper Village properties where the conditions for high rent/high income luxury decontrol were met (13 NY3d at 282). In January 2007, nine individuals residing in these apartment complexes sued MetLife on behalf of a putative class of all current and former tenants who were, or would be, charged rents exceeding the rent stabilization limits for any period during which the landlord received J-51 benefits (id.). 9

37 The plaintiffs sought a declaration that units in the properties would remain rent stabilized as long as J-51 benefits were received, along with rental overcharges totaling $215 million and attorneys fees (id.). Supreme Court dismissed the complaint, agreeing with DHCR s position that the exception to luxury decontrol did not apply because the properties did not become subject to rent stabilization by virtue of receiving J-51 benefits (2007 NY Slip Op 32639[u]). This Court, however, reversed and reinstated the complaint, concluding that owners who receive J-51 benefits forfeit their luxury decontrol rights even if their buildings were already subject to the RSL (62 AD3d at 71). On appeal, the Court of Appeals affirmed, reasoning that [DHCR s] interpretation of the exception to luxury decontrol for units that became or become subject to rent stabilization 'by virtue of receiving' J-51 benefits conflicts with the most natural reading of the statute's language" (13 NY3d at 286). Such an interpretation, the Court explained, would essentially recognize two categories of J-51 buildings -- those that were already rent stabilized and those that became rent stabilized as a condition of receiving J-51 benefits (id.). But there is no language anywhere in the statute delineating these two supposed categories, and we see no indication that the Legislature ever intended such a distinction," the Court said (id.). Moreover, 10

38 turning to the legislative history, the Court pointed to the RRRA s sponsor s statement that at no point would luxury decontrol be available to buildings receiving J-51 tax benefits (id.). Discussion On this appeal, plaintiffs argue and defendants do not dispute that the 20th floor apartment was deregulated in 1999, while the predecessor owner was still receiving J-51 benefits. According to plaintiffs, under Roberts, that deregulation was actually illegal. Thus, plaintiffs argue, the DHCR order is void ab initio. A. Retroactivity Defendants, however, urge this Court to apply Roberts prospectively only, which we decline to do. In the seminal case of Gurnee v Aetna Life & Cas. Co. (55 NY2d 184 [1982], cert denied 459 US 837 [1982]), the Court of Appeals adopted the three-pronged test announced by the U.S. Supreme Court in Chevron Oil Co. v Hudson (404 US 97 [1971]), for determining whether a ruling should be applied prospectively only. First, the decision to be applied nonretroactively must establish a new principle of law, either by overruling clear past precedent on which litigants may have relied... or by deciding an issue of first impression whose resolution was not clearly foreshadowed (id. at 192, quoting Chevron Oil Co., 404 US at 106). Second, a 11

39 court should consider the history of the prior rule and examine the impact of retroactive application on the rule's purpose (id. at 192). Third, any inequity that would result from retroactive application should be considered (id.). The facts of Roberts do not satisfy even the first prong of the Gurnee three-prong analysis. Courts have consistently held that judicial statutory construction does not create a new principle of law (see e.g. Gurnee v Aetna Life & Cas. Co., 55 NY2d 184, 192 [1982]; Ramirez v Mansions Catering, Inc., 74 AD3d 490, 492 [2010]). For example, in Gurnee, the Court of Appeals held that its decision in Kurcsics v Merchants Mut. Ins. Co. (49 NY2d 451 [1980]), construing Insurance Law 671, should apply to pending cases (55 NY2d at 194). Insurance Law 671 provided that a person injured in a car accident could recover first-party benefits of 80% of lost salary to a maximum of $1,000. In Kurcsics, the Superintendent of Insurance s reading of the statute was that recovery was limited to $800, 80% of a maximum of $1,000 (49 NY2d at ). The Court of Appeals disagreed, holding that the language of the statute permitted recoveries of up to $1,000 if that amount represented 80% of an injured person s lost salary (id. at 458). The Gurnee Court explained that Kurcsics did not represent an abrupt shift in controlling case law; it merely represented the Court s first opportunity to interpret the language of the 12

40 statute (Gurnee, 55 NY2d at 191). Noting that the State Insurance Department had adopted regulations taking a contrary view to the one it adopted in Kurcsics, the Court stated that a decision construing statutory language does not constitute the creation of a new legal principle (55 NY2d at 192). Finally, the Court found that the definitional language of section 671 itself foreshadowed the conclusion this court first had the opportunity to express in Kurcsics (id.). The facts of Roberts are indistinguishable from Gurnee. Although Roberts s interpretation of the statute is inconsistent with regulations promulgated by DHCR, the Court has not enunciated a new principle of law. Instead, as in Gurnee, the decision in Roberts was based on a pure statutory analysis, dependent only on [an] accurate apprehension of legislative intent (Roberts, 13 NY3d at 285, quoting Kurcsics, 49 NY2d at 459 [1980]). As such, Roberts did not establish a new legal principle, but rather merely construed a statute that had been in effect for a number of years (Gurnee, 55 NY2d at 192). Since no new rule was pronounced in Roberts, Gurnee mandates that Roberts must be applied retroactively (see 72A Realty Associates v. Lucas, 28 Misc 3d 585 [Civil Court of the City of New York, New York County] affd 2011 NY Slip Op st [App Term, 1 Dept. 2011] [holding that Roberts must be applied retroactively because [a] judicial decision construing the words 13

41 of a statute [] does not constitute the creation of a new legal principle quoting Gurnee, 55 NY2d at 192]). Nor has defendant presented any basis here for disturbing the presumption that the Roberts holding be accorded retroactive effect (see People v Favor, 82 NY2d 254, [1993]). On the contrary, as in Gurnee, the ruling in Roberts was clearly foreshadowed in view of the clear language of the statute. Moreover, the equities do not favor only prospective application of Roberts. The impact of retroactive application of Roberts would be to protect, where applicable, tenants from rent increases in excess of those allowed by the RSL. A contrary ruling would essentially allow landlords throughout the City to collect rent in excess of those allowed by the RSL based upon a faulty statutory interpretation. B. Statute of Limitations Alternatively, defendants argue that under statute of limitations principles this Court must still preclude the 1999 DHCR luxury decontrol order. Specifically, defendants argue that a challenge to the deregulated status of an apartment is subject to the six-year statute of limitations period set forth in CPLR 213[2], which is applicable to an action upon a contractual obligation or liability. Characterizing plaintiffs claim as essentially seeking a rescission of a contract the 1999 lease defendants argue that the action is time-barred as having been commenced more than six years after the inception of the lease. 14

42 In support of its position, defendants rely exclusively on this Court s decision in Oxford Towers Co., LLC v Wagner (58 AD3d 422 [2009]), which we find inapposite. Oxford Towers involved the application of the six-year statute of limitations to a lease agreement of an apartment that became deregulated. Specifically, the plaintiff-landlord sought to rescind a 1995 written agreement it had entered with the defendant-tenant that provided for successive renewals of the parties residential lease in the event the apartment became deregulated by operation of the RSL (58 AD3d at 422). The tenant moved to dismiss the complaint arguing that the six-year statute of limitations applied. The landlord countered that the agreement was void ab initio as against public policy (id.). We affirmed the Supreme Court s dismissal of the action as barred by the six-year statute of limitations and rejected the landlord s public policy argument (id.). We held that the 1995 agreement was not void ab initio as against public policy because the parties did not deregulate the apartment by the private agreement (id. at ). Here, however, the tenant-landlord dispute arises out of a rent-stabilized lease, and not out of a written agreement outside the lease. A landlord-tenant relationship under a rentstabilized lease is principally defined and governed by statute. When a rent-stabilized tenant's initial lease expires, the tenant 15

43 becomes a so-called statutory tenant. By law, every provision of a tenant s original rental agreement remains part of the landlord-tenant relationship imposed on the parties for the remainder of the tenant s occupancy of the unit. Thus, pursuant to RSL, the rent regulated status of an apartment is a continuous circumstance that remains until different facts or events occur that change the status of the apartment. This Court considers such legislative mandate so sacrosanct as to be impervious to waiver. Accordingly, this Court has held that parties to a rent-stabilized lease may not contract out of rent stabilization, even where their agreement bestows obvious advantages on the tenant (Drucker v Mauro, 30 AD3d 37, 42 [2006], appeal dismissed 7 NY3d 844 [2006]). Under the circumstances, a tenant should be able to challenge the deregulated status of an apartment at any time during the tenancy. Indeed, courts have uniformly held that landlords must prove the change in an apartment s status from rent stabilized to unregulated even beyond the four-year statute of limitations for rent overcharge claims. East Renovating (16 AD3d at 166) illustrates the point (16 AD3d 166). In East Renovating, the apartment became subject to rent stabilization when the owner began to receive J-51 tax benefits. Subsequently, on October 1, 1992, the tenant signed a one-year lease. Because the J-51 benefits were not going to expire until June 30, 1993, 16

44 the law required that the lease include a J-51 notice that the apartment was to become deregulated on or about June 30, 1993 (16 AD3d at 166). After 1993, the tenant entered into various deregulated leases for the apartment. Eight years later, in 2000, the tenant filed a rent overcharge complaint. The owner responded by stating that the apartment had become deregulated when J-51 benefits expired in 1993, more than four years before the overcharge complaint was filed. DHCR found that the landlord failed to prove that it had provided the tenant the J-51 notice. As a result, DHCR found that the apartment did not become destabilized after expiration of the J-51 benefits, and that petitioner willfully overcharged the tenants a free market rent (id. at 167). The landlord then brought an article 78 proceeding to challenge DHCR s determination, asserting primarily the defense that the four-year statute of limitations against rent overcharge complaints barred DHCR from reaching the issue of whether the apartment became destabilized after expiration of the J-51 benefits. Supreme Court dismissed the petition. On appeal, this Court affirmed the dismissal, concluding that the record amply supported DHCR s finding that the landlord failed to provide the J-51 notice that the apartment was to become deregulated (16 AD3d at 167). As for the statute of limitations defense, this Court held: 17

45 In fixing the overcharge, DHCR set a base date of January 20, 1996, four years prior to the filing of the overcharge complaint, and calculated the lawful increases forward from that date based on the free market rent that the tenants were paying immediately prior to the base date. We reject petitioner's argument that by so doing, DHCR improperly considered events surrounding the execution of the 1992 lease more than four years prior to the filing of the rent overcharge complaint in January 2000 in violation of Rent Stabilization Law [Administrative Code of City of NY] (a)(2). DHCR's consideration of events beyond the four-year period is permissible if done not for the purpose of calculating an overcharge but rather to determine whether an apartment is deregulated [id.]. While the statute of limitations defense rejected in East Renovating was the four-year statute applicable to rent overcharge claims, the reasoning for its inapplicability to a rent regulatory status claim extends with equal force to the sixyear statute of limitations applicable to breach of contract actions. In our view, imposing such limitations on determining rent regulatory status subverts the protection afforded by the rent stabilization scheme described above. Indeed, except as to limit rent overcharge claims, the legislature has not imposed a limitations period for determining the rent regulatory status of an apartment. C. Finality of DHCR Order Deregulating Apartment Notwithstanding our retroactive application of Roberts and rejection of the six-year statute of limitations defense, 18

46 defendants argue that we must still give preclusive effect to the 1999 DHCR deregulation order under administrative finality principles. On this issue, we agree with defendants. We must give preclusive effect to the 1999 DHCR luxury decontrol order to the extent we find that collateral estoppel precludes plaintiffs from raising the issue of whether the 20th floor apartment was improperly removed from rent stabilization under the luxury decontrol statute 11 years prior to the commencement of this action. Collateral estoppel applies when (1) the issues in both proceedings are identical; (2) the issue in the prior proceeding was actually litigated and decided; (3) there was a full and fair opportunity to litigate in the prior proceeding; and (4) the issue previously litigated was necessary to support a valid and final judgment on the merits (Ryan v New York Tel. Co., 62 NY2d 494, [1984]; Gramatan Home Invs. Corp. v Lopez, 46 NY2d 481, 485 [1979]). Collateral estoppel is equally applicable to confer conclusive effect to the quasi-judicial determination of an administrative agency (Ryan, supra, 62 NY2d at 499). While the proponent of collateral estoppel has the burden of demonstrating that the issue in question is identical and decisive, it is the opponent's burden to show the absence of a full and fair opportunity to litigate the issue in the prior determination (id. at 501). 19

47 Three of the elements necessary for the application of collateral estoppel cannot be seriously disputed here because (1) the issue before DHCR, whether the subject apartment was properly removed from rent stabilization by luxury decontrol, is identical to the issue before the motion court and this Court, and (2) the issue was fully litigated and (3) decided in the DHCR proceeding. Significantly, courts have consistently held that, unless a party can demonstrate the absence of a full and fair opportunity to litigate the issue of the rent-stabilized status of an apartment before DHCR, the agency s determination on this issue is entitled to collateral estoppel effect precluding the relitigation in court of the same issue determined before the agency (see e.g Alden Place v Chen, 279 AD2d 618 [2001]; Grassini v Paravalos, 270 AD2d 52 [2000]; see also Lorcorp, Inc. v Burke, 185 Misc 2d 720, [2000]). That is precisely the finding of Grassini where this Court held that Supreme Court had properly invoked collateral estoppel to resolve the plaintiff s claim that she was entitled to possession of an apartment as a rent-stabilized tenant, since the defendant failed to show that it did not have a full and fair opportunity to litigate the plaintiff s status as a rent-stabilized tenant in the prior rent overcharge proceeding before DHCR (270 AD2d 52-53). Similarly, in 9-10 Alden Place (279 AD2d at ) the 20

48 Second Department held that the DHCR determination, that the defendant tenant s lease for a rent-stabilized apartment was not the product of fraud, was entitled to collateral estoppel effect since the plaintiff landlord failed to establish that it did not have a full and fair opportunity to litigate the fraud issue before DHCR (279 AD2d 618). Accordingly, the Second Department affirmed the motion court s dismissal of the complaint on the ground that the action was barred by the doctrine of collateral estoppel (id.). Collateral estoppel is also proper in the instant case because we are convinced that plaintiffs had a full and fair opportunity to litigate before DHCR whether their apartment was subject to luxury decontrol. The RSL sets forth an elaborate procedure for luxury deregulation (see RSL [Administrative Code of City of NY] ). The deregulation process begins when the owner of a rent-stabilized apartment, having a legal regulated rent of at least $2,000 per month, furnishes the tenant with an income certification form, triggering the tenant s duty to certify whether the combined household income was above $175,000 for each of the two previous years (id. at [b]). If the tenant certifies that the income was below the threshold amount and the owner contests such certification, the owner may ask DHCR to verify the household income (id. at [c][1]). DHCR must then request the necessary 21

49 information from the tenant to allow NY State Department of Taxation and Finance (DTF) to verify the household income (id.). In the event DTF determines that the income surpasses $175,000 for each of the two previous years, DHCR must notify the parties and allow them 30 days to comment on the results (see [c][2]). Thereafter, [w]ithin forty-five days after the expiration of the comment period, the division shall, where appropriate, issue an order providing that such housing accommodation shall not be subject to the provisions of this law upon the expiration of the existing lease (id.) A tenant aggrieved by a DHCR deregulation order may challenge it first in a Petition for Administrative Review (PAR) before DHCR, and if still dissatisfied with the result, the tenant may seek review before Supreme Court in a proceeding under article 78 of the CPLR. In light of this elaborate statutory scheme, it is abundantly clear that plaintiffs here had ample opportunity to challenge the prior owner s application for luxury decontrol as being precluded by the receipt of J-51 benefits. That DHCR never held a hearing on the luxury decontrol application is of no moment. While the Rent Administrator had the authority to order a hearing (RSC [9 NYCRR] [h]), plaintiffs never asked DHCR for one. Thus, it can reasonably be inferred that the decision by DHCR not to hold a hearing was the result of 22

50 plaintiffs failure to raise factual issues regarding the prior owner s luxury decontrol application. Nor can plaintiffs now shift the blame to defendants for any lack of knowledge of the J- 51 benefits. The receipt of J-51 benefits is a matter of public record. In addition, landlords have no affirmative duty to provide such written disclosure except to tenants who are subject to rent stabilization solely because of the receipt of J-51 benefits (RSL [Administrative Code] [c]; RSC [9 NYCRR] [o]), which is not the situation here. In any event, DHCR made public its policy on the issue namely that J-51 benefits had no bearing on a landlord s right to apply for luxury decontrol when it issued an advisory opinion in 1996, which it incorporated into the RSC in Thus, since it appears that nothing prevented plaintiffs from raising the J-51 benefits issue before DHCR, plaintiffs are now estopped from relitigating the issue 11 years later. We are, however, mindful of the fact that, notwithstanding the general rule of administrative finality giving res judicata or collateral estoppel effect to an administrative agency ruling DHCR has the discretion to reconsider its determinations under certain circumstances. For instance, RSC (9 NYCRR) provides that [t]he DHCR, on application of either party, or on its own initiative, and upon notice to all parties affected, may issue a superseding order modifying or revoking any order issued 23

51 by it under this or any previous Code where the DHCR finds that such order was the result of illegality, irregularity in vital matters or fraud. The Court of Appeals has confirmed DHCR s broad powers and authority to alter its prior determinations on remission (see e.g. Matter of Alamac Estates v McGoldrick, 2 NY2d 87, [1956]; Matter of Yasser v McGoldrick, 306 NY 924 [1954]; see also Matter of Alcoma Corp. v New York State Div. of Hous. & Community Renewal, 170 AD2d 324 [1991], affd 79 NY2d 834 [1992]). In addition, this Court has held that the DHCR may reverse a prior determination, even long after the time to appeal has expired, where the initial order resulted from illegality, irregularity in vital matters, or fraud (Matter of Sherwood 34 Assoc. v New York State Div. of Hous. & Community Renewal, 309 AD2d 529, 531 [2003] quoting Luchetti v Office of Rent Control, Dept. of Rent & Hous. Maintenance, Hous. & Dev. Admin. of City of NY, 49 AD2d 532, 532 [1975]). However, [o]nce an administrative agency has decided a matter, based upon a proper factual showing and the application of its own regulations and precedent, the parties to that matter are entitled to have the determination treated as final (Matter of Peckham v Calogero, 54 AD3d 27 [2008], affd 12 NY3d 424 [2009]). Although, as noted above, a remand may be appropriate where the agency has made the type of substantial error that constitutes an irregularity in vital matters (Matter of Porter 24

52 v New York State Div. of Hous. & Community Renewal, 51 AD3d 417 [2008], lv denied 11 NY3d 703 [2008] [internal quotation marks omitted]), a final administrative determination cannot be reopened to give a party an opportunity to make a new argument based on the existing administrative record (Matter of Pantelidis v New York City Bd. of Stds. & Appeals, 43 AD3d 314, 315 [2007], affd 10 NY3d 846 [2008] [no remand is appropriate where a party is merely seeking a second chance to reach a different determination on the merits ] [internal quotation marks omitted]). That is simply not one of the recognized exceptions to the principle of administrative finality. Thus, having failed to raise the new legal challenge to the former owner s initial application with DHCR, that theory cannot be made the basis of an administrative reconsideration eleven years later. The Court of Appeals made this exact point more than 30 years ago in Matter of 54/55 Sixth Realty Corp. v Leventhal (42 NY2d 935 [1977]), a case with facts strikingly similar to this case. In Matter of 54/55 Sixth Realty Corp, the Court affirmed the annulment of respondent s determination to revoke a prior administrative order decontrolling the rent on an entire penthouse apartment pursuant to the luxury apartment rent decontrol provisions of the New York City Rent, Eviction and Rehabilitation Regulations (42 NY2d at ). The stated basis for the respondent s revocation of the rent decontrol order 25

53 was the landlord s failure to disclose that for 30 years the penthouse had been separately occupied as two self-contained apartments, in conflict with the certificate of occupancy (42 NY2d at 360. Under the express provisions of the Administrative Code of the City of New York and the Rent, Eviction and Rehabilitation Regulations then in force, luxury apartment rent decontrol was only available to premises occupied for single-family occupancy and thus, as the respondent argued, the original decontrol order was violative of the law. Here, plaintiffs similarly argue that the DHCR luxury decontrol order should be revoked as the landlord s receipt of J-51 benefits was not previously revealed. The rent control regulations in effect in Matter of 54/55 Sixth Realty Corp. incorporated the New York common-law standard of finality of administrative determinations, previously discussed, permitting revocation of a prior order only upon a showing of illegality, irregularity in vital matters, or fraud (51 AD2d at 715 [internal quotations omitted]). In that case, the majority in the Appellate Division held that the [r]espondent s failure to discover facts [regarding the dual occupancy of the penthouse apartment] within its own files did not amount to such illegality, irregularity in vital matters, or fraud (id. at 715 [internal quotations omitted]). The Court of Appeals agreed that the belated discovery of facts within the 26

54 agency s own files was not the type of irregularity contemplated by... the regulations" (42 NY2d at 937). In our view, Matter of 54/55 Sixth Realty Corp. is, a fortiori, controlling. Here, as in Matter of 54/55 Sixth Realty Corp., the facts required for revocation of the original DHCR determination (the receipt of J-51 benefits) were available from the public record, and explicitly disregarded by DHCR as irrelevant to luxury decontrol because, pursuant to the DHCR policy discussed above, the receipt of J-51 benefits was not the sole reason for the imposition of rent regulation. Consequently, we find no inherent power on the part of DHCR, in the instant case, to revoke its previous acceptance of the former owner s petition for luxury decontrol. Most recently, in Matter of Peckham v Calogero (12 NY3d 424 [2009], affg 54 AD3d 27 [2008], revg 2007 NY Slip Op 32087[u] [2007]), the Court of Appeals reiterated the point applicable here -- that where the administrative record is complete, the courts may not order a remand in order to provide the agency with a second chance to reach a different decision on the merits. In Peckham, the predecessor landlord filed an application with DHCR requesting permission not to renew the tenant s rent stabilized lease because it was going to demolish the building (12 NY3d at 428). The Rent Administrator granted the landlord s application and DHCR denied the tenant s PAR (id. at ). The tenant 27

55 argued before the Rent Administrator that the landlord s project was not a demolition because its application with Department of Buildings listed it as a reconstruction or alteration rather than a demolition (54 AD3d at 429). In his PAR, petitioner-tenant abandoned this argument; his only demolition-related argument was that the landlord had performed demolition before its application was approved. In his article 78 proceeding, the tenant made a legal argument, for the first time, that DHCR lacked appropriate standards for what constitutes a demolition (12 NY3d at 429). Supreme Court granted the petition to the extent of remanding the matter to DHCR to clarify the standard used to determine a demolition and whether this project is a demolition, and to clarify the financial ability of Chelsea [Partners] to complete the project (2007 NY Slip Op 32087[u]). In a split decision, the Appellate Division reversed (54 AD3d at 28). We found that the record before DHCR was quite sufficient to permit it to determine whether the owner had demonstrated financial ability to complete the project and whether the planned work constituted a demolition (id.). In addition, this Court found that the agency s determinations of those issues were rational and completely in accord with well established principles (id). Under the circumstances, this Court found, there was no legitimate ground for the remand by the motion court (id. at 29). The Court of Appeals agreed, 28

56 explaining, inter alia, that the role of a court in an article 78 proceeding is simply to determine whether DHCR s action is arbitrary and capricious, that is, whether it is taken without sound basis in reason or regard to the facts (12 NY3d at 431). If the court finds that the determination is supported by a rational basis, it must sustain the determination even if the court concludes that it would have reached a different result than the one reached by the agency (id.). Here, similarly, a remand to DHCR is inappropriate for it would be tantamount to allowing plaintiffs to seek a different result than the one reached by DHCR on a new legal theory never advanced before the agency prior to the commencement of this action. Conclusion The outcome of this case hinges on whether Roberts renders the 1999 DHCR luxury decontrol order void ab initio. Preliminarily, we reject defendants argument that Roberts should be given only prospective application. Nor do we find any merit to defendants argument that we must give preclusive effect to the 1999 DHCR luxury decontrol order because the action was commenced well beyond the six-year statute of limitations applicable to claims arising from strictly contractual obligations. Nevertheless, we do find meritorious and dispositive defendants argument that we must treat the 1999 DHCR luxury decontrol order as final under collateral estoppel 29

57 principles. Finally, we find a remand to DHCR inappropriate here because a final administrative determination cannot be reopened to give a party an opportunity to make a new argument, based on the existing administrative record, 11 years later. We modify solely to declare in defendants favor (see Lanza v Wagner, 11 NY2d 317, 334 [1962], app dismissed 371 US 74 [1962], cert denied 371 US 901 [1962]). Accordingly, the order and judgment (one paper) of the Supreme Court, New York County (Louis B. York, J.), entered July 15, 2010, which granted defendant s motion to dismiss the complaint, should be modified, on the law, to declare that the 1999 luxury decontrol order is final, and otherwise affirmed, without costs. All concur. THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT. ENTERED: AUGUST 18, 2011 CLERK 30

58 ================================================================= This opinion is uncorrected and subject to revision before publication in the New York Reports No. 171 In the Matter of Sylvie Grimm, Respondent, v. State of New York Division of Housing and Community Renewal Office of Rent Administration, Appellant, 151 Owners Corp., Intervenor-Appellant. Martin B. Schneider, for appellant. Magda L. Cruz, for intervenor-appellant. Edward J. Josephson, for respondent. Rent Stabilization Association of NYC, Inc.; Community Housing Improvement Program of New York, Inc., amici curiae. CIPARICK, J.: On this appeal, we are asked to determine whether the rationale employed in Thornton v Baron (5 NY3d 175 [2005]), which allowed the parties to look back farther than four years, applies in a situation where it is alleged that the standard base date rent is tainted by fraudulent conduct on the part of a landlord

59 - 2 - No. 171 We conclude that it does, and that such base date rent may not be used as a basis for calculating subsequent regulated rent if fraud is indeed present. I. In 1999, prior to the tenancy of petitioner Sylvie Grimm, the rent-stabilized apartment at issue here was registered with the Department of Housing and Community Renewal ("DHCR") at a monthly rent of $ In 2000, upon a vacancy in the apartment, rather than using the required rent-setting formula to determine the rent that it could legally charge the next tenants of the apartment, the owner notified prospective tenants that the rent for the subject apartment was $2,000 per month. However, the owner informed the prospective tenants that, if they agreed to make certain repairs and improvements to the apartment at their own expense, the rent would be reduced to $1,450. Both sums were unlawful because of the rent-stablized status of the apartment. The tenants accepted the offer, and signed a written lease agreement without a rent stabilized lease rider. The owner apparently did not provide those tenants with a statement showing the apartment was registered with DHCR. In 2004, petitioner moved into the apartment, agreeing to the rental rate of $1,450. Her initial lease did not specify that the apartment was rent stabilized. Thereafter, in July 2005, petitioner filed a rent overcharge complaint with DHCR. The landlord, intervenor 151 Owners Corp., soon after receiving - 2 -

60 - 3 - No. 171 the overcharge complaint, sent petitioner revised versions of her 2004 and 2005 leases which advised that the apartment was subject to rent stabilization. In its answer to the overcharge complaint, 151 Owners Corp. admitted that the apartment had not been registered with DHCR since At the same time it filed the answer to the overcharge complaint, 151 Owner's Corp. filed registration statements with DHCR for the years 2001 through In an order dated June 21, 2006, the DHCR Rent Administrator denied petitioner's overcharge complaint on the ground that the rent on the "base date" -- i.e., the date four years prior to the filing of the complaint -- was $1,450, and the rent adjustments subsequent to the base date had been lawful. The Rent Administrator did not address the issue whether the registration statement in effect on the base date was reliable or set forth a lawful rent. DHCR denied petitioner's request for administrative review of the Rent Administrator's determination, and denied her request for reconsideration. Petitioner thereafter commenced this CPLR article 78 proceeding challenging DHCR's determination denying administrative review. The petition sought (1) a declaration that she was the legal rent-stabilized tenant of the apartment and (2) remand to DHCR "with the direction that the rent for the subject apartment should be frozen at the 1999 amount, because owner failed to register the subject apartment for 2000, and - 3 -

61 computing the rent overcharge amount." No. 171 Supreme Court granted the petition, vacated DHCR's determination and "remanded the matter for reconsideration in accordance with [the court's] decision." Supreme Court noted that DHCR's determination simply calculated the rent by assuming, without actually determining, that the registration in effect on the base date was reliable. The court also noted that DHCR did not specifically reject petitioner's allegations of fraud. The court reasoned, under Thornton v Baron (5 NY3d 175, 181 [2005]), that DHCR's failure to consider petitioner's allegations of fraud and the reliability of the rent charged on the base date warranted remand to the agency for de novo review of the overcharge complaint. DHCR and 151 Owners Corp. separately appealed. The Appellate Division affirmed, with two Justices dissenting (Matter of Grimm v State of N.Y. Div. of Hous. & Community Renewal Off. of Rent Admin., 68 AD3d 29 [1st Dept 2009]). The court reasoned: "Given the specific facts of this case, DHCR should not be allowed to turn a blind eye to what could be fraud and an attempt by the landlord to circumvent the Rent Stabilization Law... [W]here, as here, there is an indication of possible fraud that would render the rent records unreliable, it is an abuse of discretion for DHCR not to investigate it" (id. at 33). The two dissenting Justices voted to reverse and "would [have found] that [DHCR] acted rationally in complying with the legislative intent expressed in the statute of limitations set - 4 -

62 - 5 - No. 171 forth in CPLR 213-a and [the] Rent Stabilization Law" (id. at 34 [Buckley, J., dissenting]). DHCR and 151 Owners Corp. appealed by permission of the Appellate Division, which certified the following question: "Was the order of Supreme Court, as affirmed by this Court, properly made?" We now affirm and answer the certified question in the affirmative. II. As we have previously explained, rent overcharge claims are generally subject to a four-year statute of limitations. Specifically, Rent Stabilization Law of 1969 (Administrative Code of City NY) (hereinafter "Rent Stabilization Law"), as amended by the Rent Regulation Reform Act ("RRRA") of 1997, states: "[A] complaint under this subdivision shall be filed with [DHCR] within four years of the first overcharge alleged and no determination of an overcharge and no award or calculation of an award of the amount of an overcharge may be based upon an overcharge having occurred more than four years before the complaint is filed... [t]his paragraph shall preclude examination of the rental history of the housing accommodation prior to the four-year period preceding the filing of a complaint pursuant to this subdivision" (Rent Stabilization Act [a] [emphasis added]; see also CPLR 213-a). The RRRA "clarified and reinforced the four-year statute of limitations applicable to rent overcharge claims... by limiting examination of the rental history of housing accommodations prior to the four-year period preceding the filing - 5 -

63 - 6 - No. 171 of an overcharge complaint" (Thornton, 5 NY3d at 180, citing Matter of Gilman v New York State Div. of Hous. & Community Renewal, 99 NY2d 144, 149 [2002]; see also Matter of Cintron v Calogero, NY3d [decided today]; Governor's Approval Mem, L 1997, ch 116). To effectuate the purpose of the four-year limitations period, in rent overcharge cases DHCR regulations, as relevant here, set the "legal regulated rent" as the rent charged on the "base date," which is the "date four years prior to the date of the filing of [the overcharge] complaint" plus any subsequent lawful increases (9 NYCRR [e], [f]; 9 NYCRR [a] [3] [I]). The four-year limitations period was explained in our decision in Thornton (5 NY3d 175), where we held that a lease provision purporting to exempt an apartment from the Rent Stabilization Law in exchange for an agreement not to use the apartment as a primary residence was void as against public policy (see id. at ). Our ruling was made in connection with a scheme between a landlord and an illusory tenant to agree that an apartment would not be used as the named tenant's primary residence, resulting in the elimination of the rent stabilized status of the apartment. Acknowledging that the apartment's prior rental history could not be examined, and that the stabilized rent before the fraudulent scheme was of no relevance, we nonetheless rejected the owner's contention that "the legal regulated rent should be established by simple reference to the - 6 -

64 - 7 - No. 171 rental history" on the date four years prior to the commencement of the overcharge action (id. at ). We explained that the lease was "void at its inception" because its "circumvent[ion of] the Rent Stabilization Law" violated public policy (id. at 181). As a result, the rent registration statement in effect on the base date "listing the illegal rent was also a nullity" (id.). Rather than using the registration statement to ascertain the rent on the base date, we instructed DHCR to use the so-called default formula to calculate the rent on the base date, as it does when no reliable records are available (see id.; see also Levinson v 390 W. End Assocs., LLC, 22 AD3d 397, [1st Dept 2005]). 1 DHCR contends that our holding in Thornton should be constrained to the narrow set of circumstances described in that case and that we should limit its application to cases involving illusory tenancies. We disagree and conclude that, where the overcharge complaint alleges fraud, as here, DHCR has an obligation to ascertain whether the rent on the base date is a lawful rent. Accordingly, here, as the Appellate Division concluded, DHCR acted arbitrarily and capriciously in failing to meet that obligation where there existed substantial indicia of fraud on the record. 1 The default formula "uses the lowest rent charged for a rent-stabilized apartment with the same number of rooms in the same building on the relevant base date" (Thornton, 5 NY3d at 180 n 1; Levinson, 22 AD3d at )

65 - 8 - No. 171 In particular, here it is alleged that the tenants immediately preceding petitioner paid significantly more than the previously registered rent, and were not given a rent stabilized lease rider. 2 Moreover those tenants were informed that their rent would be higher, but for their performance of upgrades and improvements at their own expense. Almost simultaneously with the substantial increase in the rent for the affected unit, the owner ceased filing annual registration statements (see Rent Stabilization Code [9 NYCRR] [a] [requiring annual registration statements be filed with DHCR]) and later filed several years' registration statements retroactively after receiving petitioner's overcharge complaint. Finally, petitioner's initial lease did not contain a rent stabilized rider. The combination of these factors should have led DHCR to investigate the legality of the base date rent, rather than blindly using the rent charged on the date four years prior to the filing of the rent overcharge claim. Our holding should not be construed as concluding that fraud exists, or that the default formula should be used in this case. Rather, we merely conclude that DHCR acted arbitrarily in 2 The Rent Stabilization Code requires that, for each vacancy or renewal lease for premises subject to the Rent Stabilization Law, the landlord "shall furnish to each tenant signing a vacancy or renewal lease, a rider in a form promulgated or approved by the DHCR, in larger type than the lease, describing the rights and duties of owners and tenants as provided for under" the Rent Stabilization Law (Rent Stabilization Code [9 NYCRR] [c] [1])

66 - 9 - No. 171 disregarding the nature of petitioner's allegations and in using a base date without, at a minimum, examining its own records to ascertain the reliability and the legality of the rent charged on that date. DHCR also argues that, under the Appellate Division's holding, any "bump" in an apartment's rent -- even those authorized without prior DHCR approval, such as rent increases upon installation of improvements to an apartment (see Rent Stabilization Law [c] [13]) -- will establish a colorable claim of fraud requiring DHCR investigation. Again, we disagree. Generally, an increase in the rent alone will not be sufficient to establish a "colorable claim of fraud," and a mere allegation of fraud alone, without more, will not be sufficient to require DHCR to inquire further. What is required is evidence of a landlord's fraudulent deregulation scheme to remove an apartment from the protections of rent stabilization. As in Thornton, the rental history may be examined for the limited purpose of determining whether a fraudulent scheme to destabilize the apartment tainted the reliability of the rent on the base date. In sum, the Appellate Division correctly applied Thornton to this rent overcharge proceeding and properly concluded that DHCR has an obligation to ascertain whether petitioner's allegations of fraud warrant the use of the default formula when calculating any rent overcharge that may have - 9 -

67 No. 171 occurred. Accordingly, the order of the Appellate Division should be affirmed, with costs, and the certified question answered in the affirmative

68 Matter of Sylvie Grimm v State of New York Division of Housing and Community Renewal Office of Rent Administration No. 171 SMITH, J. (dissenting): In Thornton v Baron (5 NY3d 175 [2005]) and Matter of Cintron v Calogero (decided today), the Court carved out exceptions to the command of the Rent Regulation Reform Act of 1997 that a rent charged more than four years before a tenant complains may not be considered in deciding an overcharge claim. But in this case, the majority goes far beyond making an exception. The majority has, in substance, largely repealed the statute -- or, perhaps, has turned it into a source of endlessly complex litigation. I am not sure which it has done, and I am not sure which is worse. The statute, and the regulations implementing it, are unequivocal. "[N]o determination of an overcharge and no award or calculation of an award of the amount of an overcharge may be based upon an overcharge having occurred more than four years before the complaint is filed.... This paragraph shall preclude examination of the rental history of the housing accommodation prior to the four-year period preceding the filing of a complaint pursuant to this subdivision" (Rent Stabilization Law [RSL] of 1969 [Administrative Code of the City of NY] [a] [2]; see also id., [a] ["Where the amount of - 1 -

69 - 2 - No. 171 rent set forth in the annual rent registration statement filed four years prior to the most recent registration statement is not challenged within four years of its filing, neither such rent nor service of any registration shall be subject to challenge at any time thereafter"]; Rent Stabilization Code [9 NYCRR] [a] [2]). Thornton and Cintron presented special situations in which, for understandable reasons, a majority of the Court decided that this language should not be taken literally. Thornton involved an elaborate fraudulent scheme, in which illusory leases containing false representations were created, collusive lawsuits brought and a court misled into entering orders that made it possible to collect illegal rents; the Court held that such an extreme form of misconduct should not be protected by the four-year time bar. Cintron presented the problem of how to reconcile the four-year limitation with another section of the statute providing for rent reduction orders of indefinite duration. But this is a garden-variety overcharge case -- perhaps the paradigm of the situation for which the four-year limitation was intended. The landlord charged an illegal rent, and the illegality went undetected for more than four years. The statute says plainly that in such a case, the rent charged four years previously "shall not be subject to challenge." But the majority holds that a challenge is allowed

70 - 3 - No. 171 The majority's justification for this result is that "the overcharge complaint alleges fraud" and that there are "indicia of fraud" -- consisting essentially of allegations that the landlord lied to previous tenants about what the legal maximum rent was (majority op at 7-8). In other words, the majority seems to equate "fraud" with a wilful overcharge -- as though the four year limit were applicable only to landlords who overcharge by mistake. In fact, the statute contains its own remedy for wilful overcharges: treble damages (RSL [a]). It does not make the four-year limitation inapplicable in wilful overcharge cases -- cases which, as the Legislature certainly knew, are a large number of the cases to which the limitation on its face applies. The majority seemingly tries to temper its holding by saying that "an increase in the rent alone will not be sufficient to establish a 'colorable claim of fraud'" and that "a mere allegation of fraud alone, without more, will not be sufficient to require DHCR to inquire further" (majority op at 9). But obviously it does not take much "more" than an allegation of fraud -- there is practically nothing more in this case. The majority adds that what DHCR is supposed to "inquire" about is whether there was a "fraudulent scheme to destabilize the apartment" (id.). It does not say what it takes to prove such a "fraudulent scheme." Simply a wilful overcharge? A wilful overcharge coupled with the hope that the overcharge will - 3 -

71 - 4 - No. 171 eventually result in the apartment's escape from rent stabilization? If the majority opinion does not simply nullify the four-year limit in every case where the overcharge was not a good-faith error, it requires DHCR to undertake an inquiry that the majority leaves wholly undefined. And what if DHCR's inquiry shows that, though there was a wilful overcharge, there was no "fraudulent scheme"? Does this mean that, if the landlord has been charging an illegal rent for more than four years, it may continue to do so? The majority opinion can be read to mean either that the four-year limitation has largely ceased to exist, or that any case to which the limit applies on its face must lead to a minilitigation, in which DHCR tries to figure out whether the overcharge was "fraudulent" enough to escape the time limit. If the former, the majority has simply tossed aside the Legislature's command. If the latter, I do not envy DHCR its task. * * * * * * * * * * * * * * * * * Order affirmed, with costs, and certified question answered in the affirmative. Opinion by Judge Ciparick. Chief Judge Lippman and Judges Pigott and Jones concur. Judge Smith dissents in an opinion in which Judges Graffeo and Read concur. Decided October 19,

72 Meyers v Four Thirty Realty 2015 NY Slip Op Decided on April 14, 2015 Appellate Division, First Department Published by New York State Law Reporting Bureau pursuant to Judiciary Law 431. This opinion is uncorrected and subject to revision before publication in the Official Reports. Decided on April 14, 2015 Gonzalez, P.J., Tom, Richter, Manzanet-Daniels, Kapnick, JJ / [*1] Marcia Meyers, Plaintiff-Respondent, v Four Thirty Realty, Defendant-Appellant. Horing Welikson & Rosen, P.C., Williston Park (Niles C. Welikson of counsel), for appellant. Sokolski & Zekaria, P.C., New York (Daphna Zekaria of counsel), for respondent. Order, Supreme Court, New York County (Anil C. Singh, J.), entered October 15, 2013, which, to the extent appealed from as limited by the briefs, granted plaintiff's cross motion to renew, and upon renewal, vacated those parts of a prior order, same court and Justice, entered June 25, 2012, which dismissed plaintiff's claim for treble damages and set the base date rent for plaintiff's rentstabilized lease at $3,700 per month, plus permissible annual increases, unanimously affirmed, without costs. Order, same court and Justice, entered June 25, 2012, which, to the extent appealed from as limited by the briefs, denied defendant's motion for summary judgment dismissing plaintiff's overcharge causes of action as barred by the statute of limitations, unanimously affirmed, without costs.

73 Plaintiff tenant brought this action alleging that defendant landlord improperly and fraudulently removed the subject apartment from rent stabilization. Defendant registered the apartment with the Division of Housing and Community Renewal (DHCR) as permanently exempt from rent stabilization due to high rent vacancy deregulation, and did so at a time the building was receiving J-51 tax benefits. Plaintiff seeks, among other things, a declaration that the apartment is rentstabilized, an injunction directing that she be given a rent-stabilized lease with the proper lawful rent, treble damages for overcharges, and attorneys' fees. As defendant concedes, plaintiff is entitled to a rent-stabilized lease because the building was receiving J-51 tax benefits at the time the apartment was deregulated (see Roberts v Tishman Speyer Props., L.P., 13 NY3d 270 [2009]; Gersten v 56 7th Ave. LLC, 88 AD3d 189, 198 [1st Dept 2011] [giving retroactive effect to Roberts]). The motion court properly declined, at this early stage in the proceedings, to determine the base date rent (see 72A Realty Assoc. v Lucas, 101 AD3d 401, 402 [1st Dept 2012]). As the motion court found, the DHCR rent history reveals that defendant had previously registered a rental increase from $ to $2, Defendant contends that this increase was lawful because it reflected the agreed-upon lease rent after the apartment moved out of rent control and into rent stabilization (see Rent Stabilization Code [9 NYCRR] ). However, the DHCR rent history also contains a notation that this change in rent was the result of, at least in part, unspecified improvements. Further, the record below contains neither the lease from the earlier [*2]period nor any other documents explaining the significant increase. Finally, plaintiff alleges that defendant fraudulently removed the unit from rent stabilization while receiving J-51 tax benefits and thereafter failed to file the required annual rent registrations with DHCR. Under all these circumstances, a determination of the proper base date rent would be premature and must await further discovery "for the limited purpose of determining whether a fraudulent scheme to destabilize the apartment tainted the reliability of the rent on the base date" (Matter of Grimm v State of N.Y. Div. of Hous. & Community Renewal Off. of Rent Admin., 15 NY3d 358, 367 [2010]; seecplr 3212[f]). Likewise, absent a fuller record on the fraud issue, it cannot be determined whether plaintiff's overcharge claims are barred by the statute of limitations and whether any such overcharge was willful, entitling plaintiff to treble damages (see Conason v Megan Holding, LLC, NY3d, 2015 NY Slip Op [2015]; 72A Realty Assoc., 101 AD3d at ). THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT. ENTERED: APRIL 14, 2015 CLERK

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110 STATE OF NEW YORK DIVISION OF HOUSING AND COMMUNITY RENEWAL OFFICE OF RENT ADMINISTRATION GERTZ PLAZA UNION HALL STREET JAMAICA, NEW YORK X IN THE MATTER OF e~dministrative ADMINISTRATIVE REVIEW APPEAL OF: DOCKET N0: PETITIONER X RENT ADMINISTRATOR'S DOCKET NO: ~-- ORDER AND OPINION DENYING OWNER'S PETITION FOR ADMINISTRATIVE REVIEW On June 18, 2014, the above-named Petitioner-owner filed a Petition for Administrative Review (PAR) of an Order issued by the Rent Administrator on May 22, 2014, concerning the housing accommodations known as - IVew York, NY The Rent Administrator's Order that is the subject of this appeal tound that the proceeding had been remanded to the Rent Administrator to address the owner's request to determine the tenant's legal regulated rent; that the apartment was vacant on December 11, 2005, the base date in this case; that the base date rent was therefore the prior legal regulated rent plus various legal rent increases; that, including all of these legal increases in the rent, the owner was entitled to collect a legal rent of $2, per month; that the owner failed to preserve this legal rent in the tenant's vacancy lease; that the legal regulated rent on the base date is therefore the $1, per month set forth in the tenant's vacancy lease; that this is not a preferential rent; that the legal regulated rent is $1, per month from 2/17/06 to 2/29/08, $1, from 3/1/08 to 2/28/10, and $1, from 3/1/10 to 2/29/12; that said Order supersedes the previous Order issued on February 14, 2013 under Docket Number ZC410007R0; and that the owner should refund to the tenant overcharges, interest, and excess security deposit totaling $2, In the PAR the owner alleges that the Rent Administrator properly found that, following the vacatur of the last rent stabilized tenant in 2005, the owner was entitled to increase the prior legal rent of $ per month by a vacancy increase, by a longevity increase, and by 1/40 th of the cost of individual apartment improvements (IAIs) performed while the apartment was vacant, resulting in a legal rent at the time the complaining tenant took occupancy in February of 2006 of $2, per month; that the complaining tenant has always paid less than $2, per month and has always been charged and paid a preferential rent; and that the owner believed, based upon DHCR regulations in effect at that time, that the apartment was exempt from rent stabilization because the

111 Administrative Review Docket No. CR410022R0 rent was in excess of $2, per month after a vacancy, regardless of what the next tenant actually paid The owner further alleges that, as a result of Roberts v. Tishman Speyer Properties, LP, 13 NY3d 270 (2009), the apartment did not become exempt from rent stabilization in February of 2006 because the building was receiving J-51 tax benefits at that time; that the Rent Administrator erroneously found that the tenant was overcharged beginning in March of 2008 when the tenant renewed her lease because the owner charged an increase greater than the guideline rent increase allowable at that time, even though said increase was less than the prior legal rent of $2, per month and less than the deregulation threshold of $2, per month; that the Rent Administrator found that the owner failed to preserve the $2, per month rent in the tenant's vacancy lease, when he should have found that the complaining tenant was charged and paid a preferential rent; that Section of the Rent Stabilization Code (RSC) states that a preferential rent is established when a tenant is put on notice that an amount less than the legal regulated rent is being charged; that in this case the tenant's vacancy lease specifically notified the tenant that the apartment was not subject to rent stabilization, so the tenant knew that the legal regulated rent had to be at least $2, per month; and that the legal regulated rent in the vacancy lease should have been set at an amount no less than $2, per month (actually at the $2, per month determined by the Rent Administrator). Finally, the owner alleges that, in light of the Roberts decision, the owner filed amended registrations for , which were served on the tenant and filed with DHCR during processing of the tenant's complaint, and which indicated that the apartment was in fact subject to rent stabilization; that, because the legal rent at the inception of the tenant's occupancy was $2, per month, these registrations properly reflect the fact that the tenant has always paid a preferential rent; that the tenant has never paid more than this amount and was therefore not overcharged; that Agency Order XK410110R held that a tenant who occupied an apartment that was re-regulated pursuant to Roberts, whose lease did not contain a preferential rider because the parties thought the apartment was exempt from rent regulation, and whose initial legal rent after lawful increases was over the $2, per month threshold for deregulation, paid a preferential rent of $1,605.00, which are substantially the same facts as the case herein; and that the tenant's expectations when beginning her occupancy was that the owner could raise the rent by any amount after the end of the first lease.

112 Administrative Review Docket No. CR410022R0 The tenant responded to the owner's PAR by alleging that the owner did not set forth both the legal rent and a preferential rent in her vacancy lease as required to establish a preferential rent; that the erroneous and unlawful statement by the owner in the vacancy lease that the apartment is not subject to rent stabilization does not create a preferential rent as the owner argues; that it is established that, when a vacancy lease sets forth only one rent, said rent becomes the legal regulated rent; that the filing of rent registrations years after the unlawful deregulation of the apartment does not change the fact that the vacancy lease only contained one rent; that said registrations are in fact invalid as they set forth illegal rents; that Order XK410110R is either not analogous or was incorrectly decided; and that the owner cannot pick and choose which provisions of the RSC apply. The Commissioner is of the opinion that this PAR should be denied and that the Rent Administrator's Order at issue should be affirmed. Section (b) of the RSC states that, to establish a preferential rent, the "legal regulated rent shall be set forth in the vacancy lease or renewal lease pursuant to which the preferential rent is charged." The Rent Administrator properly found that the owner failed to preserve the higher legal regulated rent in the tenant's vacancy lease. The lawful stabilized rent was therefore the $1, per month charged from February 17, 2006 to February 29, 2008, and all subsequent lawful increases were based upon this rent as explained and set forth in the Rent Administrator's Order. Agency Order XK410110R was not appealed, and the Commissioner has not had the opportunity to review this issue until now. For the reasons i set forth below, the Commissioner declines to apply the finding in that order to the instant case. first; contrary to the owner's assertions, one cannot impute any knowledge to the tenant as to the legal regulated rent. The tenant cannot be found to have been put on notice that the owner was entitled to charge a higher rent merely because her initial lease contained boilerplate stating that the apartment was not subject to rent stabilization. Nor was the tenant required to investigate the rental history of the apartment.,second' given that the tenant was not made aware of any higher legal rent that could be charged, it would not be fair to allow the owner to increase the rent set forth in the tenant's initial lease by more than the legal guidelines allowed by law. Further, the tenant~vas~ entitled to rely on the rent set forth in the initial lease. (Third,; although the owner may have relied on the Agency's misinterpretations, the duty to properly charge a tenant, and to preserve a legal regulated rent when charging a preferential rent, Linally rests with the owner.., a

113 Administrative Review Docket No. CR410022R0 The Commissioner has found that the owner has collected from the tenant rent overcharges, including interest and excess security, of $2, This Order and Opinion may, after expiration of the period set forth in Article 78 of the Civil practice Law and Rules for seeking review by the Supreme Court, be filed and enforced as a judgment. The county clerk may add interest, at the rate payable on a judgment under section 5004 of the Civil Practice Law and Rules, for the period after issuance date of the Rent Administrator`s Order. `THEREFORE, in accordance with the provisions of the Rent Stabilization Code it is ORDERED, that the Rent Administrator's Order docketed under Docket Number BN410005RP is affirmed, and that the owner's PRR is denied. ISSUED: ~~~'~~015 Woody Pascal Deputy Commissioner 4

114 ~ State of IVe~v Yurk ~`~,.~~ Uiyision of fiousinfi and Community Itene~val r ~~Z~T:.~.~,;~ Ot~tice of Rent ;~drninistr~itioii 1~~ ~~,s'=''",~,~~ s. <;,y~ Gci t2 Plaza, Union Hall Street `:"' Jamaica, NY 1 t~33 1l'ah SitC: ti~t.~tt.dh~r.:ta~e.ne us Ri;;ht to Court.~~~~~e:~l in ~relcr to appeal this Orcicr to the ~,'e~v York Supreme Court, within sixty (6U) ~luys of the elute this Urdc:c is i ~~urcl, y~~u must save pape~:y ro ro nmcnec a pruceeclin~ uncicr ~\rticic 73 uf the Civi( Practice La~v and t~ul~ s. ~`i~ ajclitional time can or wilt be ~ivcn. In preparing your E~apers, please cite the :\clministrative [tevietiv Docket Number which appears un the first pale of the :~tta~hcel Order. C u~n-t appeals fi~orn the Commissioner's or~crs xhoula he strv~cl at Cuuns~l'` Office. Room 707, 3~ Eieaver ~u-c~t, V~~v Yurk, ~lc~v Yurk IOOQ 1. [n ;ut~lition, the f\ttorncy Gcne:ral must be serve~t at l?o [3ruadway, ~-tth Floor, New Ynrk, New York (0 71. Sind ~\rticle 73 prucce~liii~s t:tkc place iii the Suprc:ine; Court. you ii~: y ~~cyuire the professional help of ;iii uttornc:y. Tlicre is Rio othrr method of appe,~l.

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