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Court of Appeals Rules Against Tenants on Overcharges

On Behalf of | Apr 23, 2020 | Tenants' Rights |

There is bad news for tenants with rent overcharge claims dating prior to June 2019: The NY Court of Appeals has ruled that certain recent amendments to the Rent Stabilization Law (“RSL”) are unconstitutional as applied to past overcharges.

On April 2, 2020, the NY Court of Appeals – the highest court in the State of NY – issued a joint decision in four cases, which has a major impact on tenants with overcharge claims dating from June 2019 or earlier.  The 110-page decision is published under the name Regina Metropolitan Co. LLC v. NYS Division of Housing and Community Renewal.

In a closely divided – some would say bitterly divided – four-to-three decision, the seven-member Court struck down certain aspects of the amendments to the RSL, known as Part F of the Housing Stability and Tenant Protection Act, or HSTPA, which was enacted by the NY State Legislature and became effective June 14, 2019.  Part F of the HSTPA made significant changes to the law regulating recovery of money damages for rent overcharges and determining the legal regulated rent.  The law states that these changes would apply to all pending claims, that is, claims that were previously filed and were not resolved as of June 14, 2019.  However, the Court of Appeals ruled that it would be unconstitutional to apply these provisions retroactively, in other words to overcharges collected prior to the effective date of the law.

Based on the court’s ruling in Regina, the following aspects of the HSTPA may not be applied retroactively to overcharges collected prior to June 14, 2019:  (i) the increase in the recovery period, known as the “statute of limitations,” from four years to six years; (ii) the increase in the period of recovery of treble damages from two years to six years; and (iii) the elimination of the four-year lookback rule, which in most cases prohibited an examination of any rental records more than four years prior to the date the claim is formally filed.  The law in effect prior to June 14, 2019 will have to be applied to overcharges collected prior to that date.

A Divided Decision

In a vigorous dissent, Judge Rowan Wilson, joined by Judges Jenny Rivera and Eugene Fahey, asserted that the majority of the court was, for the first time, striking down, as a violation of due process, remedial legislation that was enacted for the public welfare.  He contended that the prior rent stabilization law never afforded landlords any “clear repose,” i.e. any blanket protection from review of rental history more than four years old; that many court and agency decisions offered differing interpretations about calculating overcharges; and that the legislature had every right to step in to resolve that question.  Judge Wilson further argued that the only “right” that the majority of the court was protecting was the “right” of landlords to retain illegal overcharges wrongfully obtained from thousands of tenants for many years.

While it is up to the legislature to enact the law, the court has the final say as to whether any law enacted is unconstitutional.  It is rare for a court to strike down a law as unconstitutional, especially as relates to economic and social policies such as regulation of rental housing, and the legislature is entitled to a high degree of deference in this area.  Nevertheless, in these cases, a bare majority of the court chose to exercise their judicial authority to declare these laws unconstitutional as to past overcharges.

Who Is Affected?

The Regina decision affects all tenants who believe they were overcharged at any time prior to June 14, 2019.  The affected tenants include so-called “Roberts” tenants who occupy units that were unlawfully deregulated while the landlord was receiving J-51 tax benefits, as well as all other tenants occupying apartments that were unlawfully deregulated, as well as tenants with unexplained increases in their apartments’ rental history or other questionable rental history records.

Tenants who have filed claims of overcharge, or are thinking of filing claims of rent overcharge, as to overcharges collected prior to June 14, 2019, will only be able to recover refunds dating from four years prior to the date their claims are formally filed (or the “base date”); they will only be able to collect treble damages dating from two years prior to the date their claims are formally filed; and in many cases they will not be permitted to examine the rental histories of their apartments more than four years prior to the date their claims are filed.

Tenants who were overcharged prior to June 14, 2019 will still have the right to review their rental histories more than four years prior to the date their claims are filed for the purpose of proving that the landlord committed fraud or engaged in a fraudulent scheme to deregulate their apartments and in those instances where fraud is found, base date rents may be calculated using the “default” formula rather than the rent being charged on the base date.

Thus, tenants and their attorneys who see questionable rental history information dating more than four years ago will have to examine their records carefully for evidence of fraud.  HMGJ attorneys have been successful a number of times in convincing the courts that a tenant’s rental history was unreliable because the landlord engaged in a fraudulent scheme.

What Happens Next

The Regina decision does not apply to overcharges collected after June 14, 2019. As to overcharges collected after June 14, 2019 the HSTPA overcharge provisions described above are fully applicable. Also, the Regina decision seems to keep in place a portion of the HSTPA which states that a tenant who has been overcharged “shall” be awarded their attorneys’ fees, even as to overcharges collected prior to June 14, 2019.

The Regina decision does not apply to so called “status” claims – in other words, claims that tenants are covered by rent stabilization.  Status claims have not been, and still are not, barred by any statute of limitations or period of review.

The Regina decision also does not affect the well-established rule that a DHCR rent reduction order issued more than four years prior to the date a legal claim is filed may still be considered, because the order is still in effect and is therefore part of the rental record that can be reviewed.

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