New York Law Review

Tag: Rent Stabilization Code

  • Jazilek v. Abart Holdings LLC, 10 N.Y.3d 943 (2008): Enforceability of Stipulations Violating Rent Stabilization Code

    10 N.Y.3d 943 (2008)

    A so-ordered stipulation between a landlord and a subtenant for an unregulated lease with rent exceeding the legal limit under the Rent Stabilization Code is void as against public policy, even if the subtenant was not the tenant-of-record when the agreement was made.

    Summary

    After the tenant-of-record surrendered possession of a rent-stabilized apartment, the landlord entered into a so-ordered stipulation with the subtenant for an unregulated lease fixing rent above the legal limit. The New York Court of Appeals held that the stipulation violated the Rent Stabilization Code and was void as against public policy. The court emphasized that such agreements undermine the protections afforded by rent stabilization laws, regardless of whether the tenant was the tenant-of-record at the time of the agreement. The tenant was not required to bring their claim in housing court, as the illegal agreement was void from the start.

    Facts

    After the tenant-of-record vacated a rent-stabilized apartment, Roger Jazilek, who had been subletting the apartment, entered into a so-ordered stipulation with Abart Holdings LLC, the landlord.
    The stipulation provided for an unregulated lease with rent exceeding the legal limit under the Rent Stabilization Code.

    Jazilek was not the tenant-of-record when the stipulation was made.

    Procedural History

    The lower courts found that Jazilek should have brought his claim in housing court.
    The Court of Appeals reversed the lower court’s order, holding that the so-ordered stipulation was void as against public policy and the tenant was not required to proceed in Housing Court.

    Issue(s)

    Whether a so-ordered stipulation between a landlord and a subtenant for an unregulated lease, with rent exceeding the legal limit under the Rent Stabilization Code, is void as against public policy when the tenant was not the tenant-of-record at the time the stipulation was made.

    Holding

    Yes, because the so-ordered stipulation violates the Rent Stabilization Code and is void as against public policy, regardless of whether the tenant was the tenant-of-record at the time of the agreement.

    Court’s Reasoning

    The court reasoned that the so-ordered stipulation circumvented the protections afforded by the Rent Stabilization Code, which aims to regulate rents and protect tenants from excessive rent increases.

    The court cited Riverside Syndicate, Inc. v Munroe, 10 NY3d 18 (2008), and Rent Stabilization Code [9 NYCRR] § 2520.13, to support the holding that agreements violating the Rent Stabilization Code are void as against public policy.

    The court stated that the tenant was not required to proceed in Housing Court, citing Teitelbaum Holdings v Gold, 48 NY2d 51, 54 (1979).

    By entering into such an agreement, the landlord attempted to bypass the rent stabilization laws, which are designed to protect tenants from unfair rental practices. The court emphasized that such agreements are unenforceable because they undermine the public policy goals of rent stabilization.

    This decision reinforces the principle that parties cannot contract around rent stabilization laws, and courts will not enforce agreements that violate these laws.

  • Fullan v. 142 East 27th Street Associates, 1 N.Y.3d 211 (2003): Successor Landlord Liability for Rent Overcharges

    Fullan v. 142 East 27th Street Associates, 1 N.Y.3d 211 (2003)

    A current property owner cannot be held liable for a fair market rent appeal (FMRA) award based on excess rents collected by a previous owner if the current owner was not a party to the FMRA and did not have an opportunity to participate in the FMRA process.

    Summary

    Fullan, tenants in a rent-stabilized apartment, filed a fair market rent appeal (FMRA) against the building’s then-owner, Dobro Corporation, alleging excessive rent. The DHCR ruled in favor of the tenants, ordering a rent reduction and refund. While Dobro’s appeal was pending, the building was sold twice, eventually landing with 27 Realty. 27 Realty was unaware of the FMRA. The tenants then sued 27 Realty to recover the FMRA award. The New York Court of Appeals held that 27 Realty was not liable because it was not a party to the original FMRA proceeding and had no opportunity to participate. This case clarifies the limited liability of successor landlords in FMRA cases under the Rent Stabilization Code.

    Facts

    Plaintiffs Fullan and Bates were tenants in a rent-stabilized apartment since 1985, paying $775/month. In 1991, they filed an FMRA with the DHCR against Dobro Corp, the owner at the time, claiming the rent exceeded fair market value. In 1993, DHCR determined the fair market rent was $434.34, resulting in a $37,480.05 refund owed to the tenants. Dobro filed a Petition for Administrative Review (PAR), which was denied in 1997. In 1995, Dobro sold the building to 142 East 27th Street Associates (Associates). Associates then sold the building to 27 Realty in 1997, shortly after the PAR denial. The tenants received no refund. 27 Realty was unaware of the FMRA award.

    Procedural History

    The tenants commenced a plenary action in December 1998 against 27 Realty and others to collect the FMRA award. Supreme Court denied 27 Realty’s motion for summary judgment. The Appellate Division modified, granting summary judgment to the tenants on liability, finding a successor landlord generally liable for prior overcharges. The Appellate Division remanded for calculation of damages. Supreme Court then awarded the tenants $95,158.90. 27 Realty appealed to the Court of Appeals.

    Issue(s)

    Whether a current owner of a rent-stabilized building can be held liable for a fair market rent appeal (FMRA) award for excess rents collected by a previous owner, where the current owner was not a party to the FMRA and did not have an opportunity to participate in the FMRA process.

    Holding

    No, because under the Rent Stabilization Code and DHCR policy, a current owner who did not have an opportunity to participate in the FMRA proceedings is not liable for an FMRA award based on excess rents charged by prior owners.

    Court’s Reasoning

    The court differentiated between FMRA proceedings (governed by 9 NYCRR 2522.3) and rent overcharge cases (governed by 9 NYCRR 2526.1). FMRAs are appeals of the initial rent, while rent overcharge cases involve rents exceeding the legal regulated rent. The Rent Stabilization Code § 2522.3(d)(1) directs “the affected owner” to make the refund, implying the current owner isn’t automatically liable for the entire FMRA award. The court cited DHCR Policy Statement 93-1, which outlines situations where a current owner is deemed a party to an FMRA (e.g., receiving notice and opportunity to answer). Here, 27 Realty had no opportunity to participate, purchased the property after the PAR denial, and charged legal rent. The court distinguished Matter of Gaines v New York State Div. of Hous. & Community Renewal, 90 NY2d 545 (1997), because that case dealt with rent overcharges under § 2526.1, which explicitly imposes liability on current owners for prior overcharges, but that section does not apply to FMRA proceedings under § 2522.3. The court rejected the argument that commencing a plenary action automatically subjects a party to liability they wouldn’t face in a DHCR proceeding. Absent evidence of fraudulent transfers to evade liability, 27 Realty, lacking the opportunity to participate in the FMRA, cannot be held liable. The court noted, “For liability to attach, the current owner had to have an opportunity to participate in the FMRA process; 27 Realty had no such opportunity.”

  • Muller v. New York State Div. of Hous. & Community Renewal, 154 A.D.2d 835 (1989): Proper Service of Notice by Certified Mail Required to Trigger Time Limit

    154 A.D.2d 835 (1989)

    When a statute or regulation mandates service of a notice by certified mail to trigger a time limit for response, the time limit does not begin to run unless the notice is properly served via certified mail.

    Summary

    The petitioner, an apartment owner, served a DC-2 notice on the first rent-stabilized tenant by regular mail, informing the tenant of the right to file a Fair Market Rent Appeal. The tenant filed an appeal, which the owner challenged as untimely, arguing the appeal should have been filed within 90 days of receipt of the notice. The New York State Division of Housing and Community Renewal (DHCR) rejected the owner’s argument because the notice was not served by certified mail, as required by the Rent Stabilization Code. The court affirmed the DHCR’s decision, holding that the 90-day limitation period did not begin to run because the owner failed to serve the notice by certified mail. The court deferred to the DHCR’s interpretation of the code, finding it neither unreasonable nor irrational.

    Facts

    The petitioner owned a previously rent-controlled apartment.

    The petitioner served a DC-2 notice on the first rent-stabilized tenant by regular mail, informing the tenant of the right to file a Fair Market Rent Appeal.

    The tenant subsequently filed a Fair Market Rent Appeal.

    The petitioner challenged the appeal as untimely, arguing it was filed more than 90 days after the tenant received the DC-2 notice.

    Procedural History

    The DHCR rejected the petitioner’s challenge to the timeliness of the tenant’s appeal.

    The Appellate Division affirmed the DHCR’s decision.

    The Court of Appeals affirmed the Appellate Division’s order.

    Issue(s)

    Whether the 90-day limitation period for filing a Fair Market Rent Appeal begins to run when the DC-2 notice is served by regular mail, rather than by certified mail as required by the Rent Stabilization Code.

    Holding

    No, because Section 26(A) of the former Code explicitly requires the DC-2 notice to be served “by certified mail” to the first rent-stabilized tenant. Since the owner did not comply with this requirement, the 90-day limitations period was not triggered.

    Court’s Reasoning

    The court relied on the specific language of Section 26(A) of the former Rent Stabilization Code, which states that the owner “shall” serve the DC-2 notice upon the first rent-stabilized tenant in occupancy “by certified mail.” The court also noted that Section 25(B) requires the tenant to file its Fair Market Rent Appeal “within ninety (90) days after [it] receives the [DC-2 notice] as required by Section 26 (A).” The DHCR interpreted these provisions to mean that the 90-day limitation period only begins to run when the owner serves the DC-2 notice by certified mail.

    The court deferred to the DHCR’s interpretation, stating, “Inasmuch as this interpretation is neither unreasonable nor irrational, there is no basis for disturbing it (see, Matter of Salvati v Eimicke, 72 NY2d 784, 791).” This reflects the principle that courts generally defer to an agency’s reasonable interpretation of its own regulations.

    The court emphasized the importance of strict compliance with the certified mail requirement to ensure proper notice to the tenant and a clear starting point for the limitation period.