Rich v. East 10th Street Associates LLC

OPINION OF THE COURT Abdus-Salaam, J. [62] In these actions for rent overcharges paid under leases subject to the Rent Stabilization Law of 1969, the motion courts held that rent reduction orders issued prior to the four-year statute of limitations of CPLR 213-a, and remaining in effect during the limitations period, should be used to determine the base rent for purposes of calculating the amount of the overcharges. This was error. The proper legal regulated rent for purposes of determining an overcharge is deemed to be the rent charged on the base date, plus any subsequent lawful increases or adjustments (Rent Stabilization Code [9 NYCRR] § 2526.1 [a] [3] [i]). The base date in these cases is four years before the filing of the overcharge complaint (9 NYCRR 2520.6 [f]). The Legislature clearly recognized that the rent actually charged on the base date may not be the legal regulated rent, but nonetheless imposed a four-year limitations period that deemed the base rent to be the legal rent. CPLR 213-a, which tracks the language of the Rent Stabilization Law (RSL) (Administrative Code of City of NY § 26-516 [a] [2]), precludes, with respect to actions on a residential rent overcharge, “examination of the rental history of the housing accommodation prior to the four-year period immediately preceding the commencement of the action.” Additionally, “the legal regulated rent for purposes of determining an overcharge, shall be the rent indicated in the annual registration statement filed four years prior to the most recent registration statement. . . plus in each case any subsequent lawful increases and adjustments,” and where the amount of rent set forth in that annual rent 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” (RSL § 26-516 [a] [i]). By applying the rent that should have been charged on the base date pursuant to the rent reduction order instead of the actual base date rent, the motion courts ran afoul of the foregoing statutory provisions. The legislative scheme forecloses such an analysis, “even where the prior rental history clearly indicates that an unauthorized rent increase had been imposed” (Matter of Hatanaka v Lynch, 304 AD2d 325, 326 [2003]). While it would have been appropriate, in calculating the overcharge, to take notice of the rent reduction order and freeze the legal base rent during the period when the rent reduction order was extant (see e.g. Matter of Cintron v Calogero, 59 AD3d 345 [2009]), consideration of the rent reduction order issued before [63] the base date for the purpose of readjusting the legal base rent is not permitted. The dissent’s citation to this Court’s decision in Crimmins v Handler & Co. (249 AD2d 89 [1998]) is misplaced because the holding there did not involve the issue before us. Crimmins simply construed the statutory language of CPLR 213-a to mean that an action for an overcharge must be brought within four years of the first month for which damages are sought to be recovered. In other words, damages can only be recovered for the four-year period preceding the commencement of the action, and not, as argued by the defendants in that case, that an overcharge claim is barred where the overcharge has extended for a period in excess of four years. Crimmins did not address the issue here, which is whether the rental history of an apartment prior to the four-year period preceding the filing of the overcharge complaint can be used to calculate the rent overcharge. Therefore, notwithstanding the Second Department’s citing of Crimmins in Matter of Condo Units v New York State Div. of Hous. & Community Renewal (4 AD3d 424 [2004], lv denied 5 NY3d 705 [2005]) to support its conclusion that the DHCR was not precluded from examining the rent history beyond the four-year period preceding the complaint in order to calculate the overcharge, this Court’s decision in Crimmins does not stand for that proposition. Nor does Thornton v Baron (5 NY3d 175 [2005]) support the dissent’s position that the rent reduction order, issued years prior to the four-year period preceding the filing of the complaint, should be used to determine the base date legal rent for purposes of calculating the overcharge. Thornton did not involve a rent reduction order, but the fraudulent creation of an illusory tenancy for the purpose of removing an apartment from the protection of the Rent Stabilization Law. The lease was void at its inception, and the rent registration statement filed four years prior to the complaint was a nullity. In this case, there has been neither a finding of fraud nor a declaration that the lease was void and the rent registration a nullity. Moreover, and most significantly, even where the owner’s actions in Thornton were described as fraudulent, willful and egregious, in establishing the legal regulated rent of the apartment, the Court of Appeals affirmed our holding that a default formula should be used to determine the legal rent as of four years prior to commencement of the action, rather than the eight years before commencement, when the illusory tenancy was first created. [64] We had noted in that case that CPLR 213-a “contains no provision for a toll while a dwelling unit is not subject to rent stabilization, either because it is temporarily exempt or because an unlawful rent is being charged” (4 AD3d 258, 259 [2004]). Nor is there any provision for a toll where a rent reduction order has been violated and remains extant. The dissent argues that calculating the rent overcharge without applying the rent reduction order to reset the proper legal base date rent rewards the owner for flouting the rent reduction order. However, this is similar to the position taken by the dissenters in Thornton (id. at 260), and is no more persuasive in this context, where the owner’s conduct is not fraudulent. Furthermore, while the Court of Appeals noted in Thornton that this was “not a situation where an order issued prior to the limitations period imposed a continuing obligation on a landlord to reduce rent, such that the statute of limitations would be no defense to an action based on a breach of that duty occurring within the limitations period” (5 NY3d at 180), we do not read this to mean that the rent reduction order should be used to calculate the overcharge by reestablishing a new base rent. The concepts of a limitations period and calculation of a rent overcharge are distinctly different. While we have held in Crimmins, consistent with the above-quoted language of Thornton, that the statute of limitations does not bar an overcharge complaint when a rent reduction order was issued prior to the four-year limitations period, we have also held that in calculating a rent overcharge, it was proper for DHCR to take notice of the rent reduction order in effect at the relevant time by freezing the base date rent, but not by reestablishing the base date rent pursuant to the rent reduction order (see Matter of 462 Amsterdam, LLC v New York State Div. of Hous. & Community Renewal, 61 AD3d 553 [2009]; Cintron v Calogero, 59 AD3d at 346). This is premised on the reasoning that a rent reduction order, although a continuing obligation, cannot be applied to reestablish the base date rent, as such an application would run afoul of RSL § 26-516 (a) (i). Contrary to the suggestion of the dissent, we are not, by this holding, contravening the well-settled policy that an administrative order is effectual until vacated by the agency or set aside upon judicial review. Rather, we conclude that a rent reduction order issued beyond the limitations period but still in effect during that period may be considered in overcharge proceedings [65] only insofar as that order is a continuing obligation, freezing the rent as of the base date but not reestablishing the base date rent, because applying the rent reduction order to readjust the base date rent would conflict with the express proscriptions set forth in CPLR 213-a and RSL § 26-516 (a) (i). Accordingly, the order of the Supreme Court, New York County (Michael D. Stallman, J.), entered March 3, 2009, which denied defendant 256 East 10th Street NY’s motion for summary judgment dismissing the complaint, upon the finding, inter alia, that the legal base rent for purposes of calculating the rent overcharge is the rent charged on April 1, 1993, should be modified, on the law, to vacate that finding and substitute therefor a finding that the base rent is the rent charged four years before the filing of the overcharge complaint, and otherwise affirmed, without costs. The order, same court (O. Peter Sherwood, J.), entered July 23, 2009, which, to the extent appealed from, denied defendant Rockaway Pratt’s motion for summary judgment dismissing the complaint, upon the finding, inter alia, that the legal base rent for purposes of calculating the rent overcharge is the rent charged on August 1, 1982, should be modified, on the law, to vacate that finding and substitute therefor a finding that the base rent is the rent charged four years before the filing of the overcharge complaint, and otherwise affirmed, without costs.