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DHCR Rent Reduction Orders and the Four-Year Statute of Limitations

April 19, 2016:  This Q&A post originally appeared on the LandlordsNY blog, where Michelle Maratto Itkowitz is the "Legal Expert".


Question:  “I wanted to get your opinion on a situation I have at an 8 family building in Brooklyn.  The former owner had passed away and her daughter didn't want to manage the building, thus it was nearly impossible to obtain proper records prior to 2012.  We recently found out that there was a rent reduction order approved by the DHCR back on in 1997 at a rent of $718.  There have been several vacancies in that unit since that time and the current tenant has been paying $1,450 as a preferential rent (current max legal rent listed on 2014 DHCR report is $1743.72).  Given that the current tenant has lived in the unit for 5 years, are we protected by the 4 year statute of limitations on DHCR.  I don't believe that the current tenant could prove that fraudulent acts took place.”

Answer:

I hate being the bearer of bad news.

New York State’s highest court ruled on this issue in 2010, however.  In Cintron v. Calogero, 15 N.Y.3d 347 (2010), a tenant commenced an article 78 proceeding seeking to annul final order of Division of Housing and Community Renewal (“DHCR”) insofar as it limited rent overcharges recoverable by tenant to four years prior to filing of overcharge complaint, and limited treble damages to two years prior to filing of complaint.  The Court of Appeals (NYS’s highest court) held that DHCR must consider rent reduction orders entered outside of four-year limitations period in determining amount of overcharge.

In 1986, the tenant in Calogero became a tenant of 2975 Decatur Avenue, apartment 5C, in the Bronx, at an initial stabilized rent of $348.91 per month.  The following year, the tenant filed a complaint with DHCR against the building’s then owner, alleging a decrease in services related to, among other things, the apartment’s refrigerator, door lock and fire escape window.  As a result of the complaint, DHCR issued an order reducing petitioner’s rent and providing that the owner could not collect any rent increase until a rent restoration order was issued.  

In 1989, the tenant filed another complaint with DHCR, alleging a roach infestation of the apartment’s stove.  DHCR issued another rent reduction order.  Despite the 1987 and 1989 rent reduction orders, however, the owner failed to make any repairs and continued to charge tenant the unreduced rent.

In 1991, when the current owner purchased the building, tenant allegedly advised him of the rent reduction orders.  Although the current owner apparently also failed to make any repairs, tenant continued to pay the unreduced rent and entered into a series of leases requiring tenant to pay greater rents.

On December 11, 2003, tenant filed a complaint alleging a rent overcharge based on the current and prior owners’ failure to comply with the 1987 and 1989 rent reduction orders.  A DHCR Rent Administrator determined that the base date to be used was the date four years prior to the filing of the overcharge complaint (December 11, 1999).  Although taking notice of the 1987 and 1989 rent reduction orders, the Rent Administrator in establishing the legal stabilized rent calculated the overcharge using the base date of December 11, 1999.  

Tenant sought administrative review of the Rent Administrator’s order and DHCR affirmed its earlier decision. Tenant commenced a CPLR article 78 proceeding seeking to annul DHCR’s order and the Supreme Court denied the petition and dismissed the proceeding, concluding that DHCR’s determination was not arbitrary or capricious and had a rational basis.  Tenant appealed again and the Appellate Division affirmed the Supreme Court and the DHCR.  Tenant finally appealed to the Court of Appeals (NYS’s highest court).  The Court of Appeals held as follows.

The Court of Appeals acknowledged that a rent overcharge claim is subject to a four-year statute of limitations (see Rent Stabilization Law of 1969 [Administrative Code of City of NY] § 26–516 [a][2]; CPLR 213–a), and that he Rent Regulation Reform Act of 1997 “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 of an overcharge complaint”.  The Court of Appeals noted that purpose of the four-year limitations or look-back period is to “alleviate the burden on honest landlords to retain rent records indefinitely” 

The Court of Appeals also acknowledged, however, that Rent Stabilization Law § 26–514, which addresses rent reduction orders, states:

“[A]ny tenant may apply to [DHCR] for a reduction in the rent to the level in effect prior to its most recent adjustment and for an order requiring services to be maintained as provided in this section, and [DHCR] shall so reduce the rent if it is found that the owner has failed to maintain such services.  The owner shall also be barred from applying for or collecting any further rent increases. The restoration of such services shall result in the prospective elimination of such sanctions” (emphasis added).

The Court had to reconcile these two statutes.  The Court concluded that Rent Reduction Orders impose a continuing obligation on a landlord and, if still in effect during the four-year period, are in fact part of the rental history which DHCR must consider.

Thus, the Court of Appeals held that Rent Reduction Orders place a “continuing obligation upon an owner to reduce rent until the required services are restored or repairs are made.”

Finally, I am obligated to say that this email is for general informational purposes only, does not constitute legal advice, and does not create an attorney and client relationship between us or between you and LandlordsNY.  

Let me know if you need anything else.

Thanks,

Michelle Maratto Itkowitz
Itkowitz PLLC
mmaratto@itkowitz.com

http://www.itkowitz.com

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