The Appellate Division Strengthens the Impact of the Roberts Decision

The Appellate Division, First Department has rendered a decision that gives more teeth to the landmark case of Roberts v. Tishman Speyer, 13 N.Y.3d 270 (2009). It is the law that when landlords accept J51 tax benefits in respect of a particular building, those landlords are required to subject their apartments in that building to rent stabilization. The landlords would then seek to deregulate those apartments through high income deregulation or high rent deregulation. The Roberts decision basically held that where landlords had been accepting J-51 tax benefits those landlords were required to keep apartments in their buildings subject to rent regulation even if the apartments would have otherwise been eligible for deregulation. The problem for landlords has been that the effect of Roberts is retroactive.The Roberts decision andd its retroactivity put landlords in a tough spot. Many landlords had deregulated apartments that should have still been subject to rent regulation. Those deregulated apartments saw rents of several thousand dollars/month more than would have been permitted by rent stabilization. Tenants have been anxious to challenge the rents charged in such apartments and have hoped to have the apartments not only subjected to rent stabilization once again but to have their rents rolled back to what they would have been had the landlords not improperly deregulated them.Standing in the way of the tenants has been the statute of limitations. The statute of limitations provides that a tenant can only (with a few exceptions like when there has been fraud) go back 4 years in collecting the overcharge.Understand that the landlords find themselves in a terrible position. They had apartments that were subject to rent stabilization. The apartments became vacant. The landlords then did whatever the law (as they understood it) permitted to raise the legal rent to $2,000/month and believed that once the rent reached $2,000/month that the landlord was permitted to charge anything that the landlord wanted - even a rent far in excess of $2,000/month. After having deregulated so many apartments - and after having charged rents of $6,000/month - the landlords have learned that they should not have done that.Once Roberts was decided it become apparent that there were a tremendous number of apartments that landlords believed to have been deregulated that were actually subject to rent stabilization all along. In defeding lawsuits brought by tenants over these issues the Landlords have sought to take advantage of that four year statute of limitations however they could.Landlords have sought to use the statute of limitations to their advantage by retroactively registering the apartments at the higher (but improper) rent that was actually charged and then defending lawsuits by claiming that the four year statute of limitations bars the inquiry because of those retroactive registrations. In Gordon v. 305 Riverside Corp., 2012 NY Slip Op 02382 (1st Dept. 2012) the Appellate Division has taken some of the sting out of that defense.Landlords want the Courts to believe that when the rent stabilized tenant left the apartment that the landlord then improperly deregulated that the landlord was permitted to charge the new tenant any amount and that new amount would then be subject to rent regulation but with no chance of an overcharge award because whatever the landlord charged would simply be considered the rent stabilized rent. Landlords have theorized that section 2526.1(a)(3)(iii) of the Rent Stabilization Code permits the setting of a base rent in any amount to which the landlord and new tenant agree after there has been a vacancy in a building for which the landlord received J51 tax benefits.Justice Joan Madden and now the Appellate Division have held that this argument will not work. A landlord can no longer claim that the landlord could set any amount as the rent stabilized rent during a vacancy and then claim an inquiry as to that rent would be improper because of the four year statute of limitations. Section 2526.1(a)(3)(iii) of the Rent Stabilization Code necessarily presumes that that the first tenant after a vacancy was offered a rent stabilized lease - the tenant in Gordon and the tenants in almost all of these situations are not offered a rent stabilized lease. Accordingly, the rent set at that vacancy cannot be considered the first rent stabilized rent after that vacancy.When the landlords offered this very high rent to new tenants the landlords did so believing that the apartment was no longer subject to rent stabilization. Accordingly, the landlord would not register the apartment as rent stabilized with DHCR. Additionally, the landlord would not offer renewal leases in the manner required by the Code. Finally, landlords would not be offering the vacancy lease as a rent stabilized lease.As a result, landlords will not escape an overcharge award and will not escape the setting of a lower rent stabilized rent when relying on Section 2526.1(a)(3)(iii) when the tenant taking possession after a vacancy was not offered a rent stabilized lease.