This article was posted on Friday, Jul 01, 2016

New York:  Once again, demonstrating threat that the rent laws have become so complicated that the courts seemingly do not understand how to interpret and apply them, the Appellate Division, First Department, has upheld a lower court’s award of treble damages totaling almost $1 million.

In Altschuler v. Jobman, the deregulated tenant commenced occupancy five years after the apartment was deregulated after having been rent controlled.  The deregulation also occurred 14 years before the overcharge litigation was commenced by the tenant and two years before the J-51 tax benefits were received by the owner.

State Supreme Court Justice Saliann Scarpula had previously ruled for the tenant awarding Altschuler treble damages, totaling $876,619.10.  Remarkably, the Appellate Division affirmed the lower court ruling unanimously.

There are several reasons for concern regarding the Altschuler decision:

  • First, even the tenant did not seek treble damages for the period prior to the Appellate Division ruling in March, 2009, in Roberts v. Tishman Speyer; rather, the tenant sought treble damages only for the period after that ruling.  The Court, ON ITS OWN, went back to the commencement of the tenancy in 2000.  Since the Roberts decisions were issued by the Appellate Division and the Court of Appeals in 2009, no court has applied treble damages in these cases for any time period prior to those decisions.  Until now.
  • Second, the courts in Altschuler failed to take into account the fact that the apartment was deregulated prior to the commencement of the J-51 benefits, when there was no J-51 issue whatsoever with regard to an owner’s ability to deregulate a rent controlled or rent stabilized apartment.  Not only did the deregulation occur five years before the tenant commenced occupancy, there were also three intervening tenancies between the deregulation of the apartment and the commencement of Altschuler’s tenancy.
  • Third, neither the lower court nor the Appellate Division appreciated that the apartment in question became deregulated after having been rent controlled, as opposed to having been rent stabilized.  The fact that no fair market rent appeal was ever filed with DHCR, or that a different set of rules apply for the establishment of a first rent after the vacancy of a rent controlled apartment, was apparently either not understood or not relevant to the Court.

These issues, along with others, resulted in the Appellate Division conclusion that the tenant had “established a colorable claim of fraud,” and the appellate court upheld the lower court’s disregard for the four-year rule, its decision to impose a rent freeze, and finally, its award of treble damages because the owner “failed to establish, by a preponderance of the evidence, that the overcharge was not willful.”

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As discussed above, this case is important for many reasons but one of the primary reasons is that this is the first time that the courts have imposed treble damages in Roberts-type cases for the period prior to Roberts.  Doing so not only conflicts with numerous court rulings since Roberts but also flies in the face of common sense.  How could owners be liable for willful overcharges at the same time that they were following the guidance of the Division of Housing and Community Renewal (DHCR)?  How do any of these circumstances justify piercing the four-year rule on the basis of a “colorable claim of fraud” for the pre-Roberts period when even the tenant did not make that claim?  The potential impact of this case is quite significant.

The owner will be making a motion for re-argument/leave to appeal at the Appellate Division.  RSA will be submitting papers in support of that motion.

Reprinted with permission of the RSA Reporter, New York, New York. The RSA (Rent Stabilization Association of N.Y.C., Inc.) is the largest trade association in New York City exclusively dedicated to protecting and serving the interests of the residential housing industry.