Rent Overcharge Cases – Tenants Benefit Again

Yesterday the Appellate Division, First Department released its decision in the case of 72A Realty Associates v. Lucas, 2012 N.Y. Slip Op. 08241 (1st Dept 2012) and in so doing has dramatically reshaped the landscape of rent overcharge cases. The statute of limitations has taken another severe body blow and the setting of a base date for the calculation of overcharges has been radically changed as well.

Let me recap. In 2009 the Court of Appeals (New York’s highest court) issued a decision in a case called Roberts v. Tishman-Speyer in which the Court held that where a landlord had accepted J-51 tax benefits the apartments in the subject building would be subject to rent stabilization and would stay rent stabilized even if the landlord had an otherwise valid reason to deregulate a particular apartment. The decision in Roberts was given retroactive effect. Since that time courts have struggled with several issues as each apartment presents its own unique set of facts. A common scenario is one in which a landlord deregulated an apartment that could not have been deregulated, charged the incoming tenant an amount that far exceeded the legal rent, and then when the tenant challenged the improper increase was met with a defense proffered by the landlord that because the rent was improperly raised more than 48 months ago that the base date for any recalculation or overcharge was during a time when market rent was being charged.

When Judge Wendt decided Lucas he held that the base rent would be 48 months prior to the tenant interposing his/her claim. Other judges in Civil Court and Supreme Court adopted that view. The Appellate Division has now rejected that reasoning. In reversing the Appellate Term and Judge Wendt, the Appellate Division held that the base rent could not simply be set that way. While acknowledging that the calculation was correct under the applicable statute of limitations the Appellate Division held that it still was not proper. The Appellate Division instead held that tenants will have the ability to inquire as to whether the market rent charged after the apartment was improperly deregulated could be justified. In order to survive such challenges the landlord will have to demonstrate that the apartments saw renovations that permitted massive rent increases. In most cases those renovations are not going to justify the increases.

Another remarkable impact of the Lucas decision is that the Appellate Division held that treble damages can be awarded when there have been overcharges like the one described above.

Previous holdings on this subject have been that treble damages are not warranted because the landlord was following what everyone believed to be a correct policy and that there was no willful conduct. The Appellate Division held that there could be willfulness if it was determined that the rent increase was not justified by appropriate renovations (even though the landlord did not believe that renovations were necessary at the time).

Several tenants who did not have a case because of the statute of limitations may now find a lucrative cause of action indeed.