The “Rent Regulation Reform [sic] Act of 1997” was a travesty for rent-stabilized tenants, removing or curtailing many rights. One of the worst elements of the law was implementation of the “four-year rule.” See Civil Practice Law and Rules §213-a. This new statute purported to impose a “hard” statute of limitations for rent overcharge claims. Previously, the law had been construed to limit a tenant’s recovery for a rent overcharge to the most recent four years but a tenant could go back in time as far as she needed in order to prove a rent overcharge. The RRRA, however, precluded the Division of Housing and Community Renewal or courts from even examining the rent history more than four years prior to the date the tenant filed the complaint. Thus, if a landlord collected an unlawful increase he would be forever shielded from any claim – and be able to continue collecting illegal rents – as long as it was not challenged within four years.
As if often the case with new laws, once cases started to work their way through the courts, judges found that literal application of the law would result in manifest injustice, especially since if a landlord managed to get a rent over $2000 per month [now, $2500], the apartment was subject to possible deregulation. That is, landlords were using the four-year rule to improperly remove apartments from rent regulation. The result was judicial pushback against strict application of the four-year rule.
The leading case was Thorton v. Baron, 5 NY3d 175 (2005), a case involving an illusory tenancy scheme in which a landlord and prime tenant colluded to remove an apartment from stabilization and overcharge the subtenants. The Court of Appeals found that this constituted fraud and, although the first overcharge occurred more than four years before the case commenced, the subtenant – who was really the legitimate tenant – could challenge the rent under the “default formula.” The latter is a procedure established by DHCR to set the rent when the rent history is “unreliable,” as it was in Thorton owing to the landlord’s fraudulent effort to raise the rent over $2000 per month and, hence, deregulated the unit. Thorton thus opened the door to challenges to the four-year rule if there were some indicia of fraud. [Side note: the victimized subtenants in Thorton were Cindi Lauper and her husband.]
The vexing question since Thorton has been: what constitutes fraud? In Matter of Grimm, 15 NY3d 358 (2010), the court found evidence of fraud where the landlord increased the rent from $579 to $1450 without explanation and the landlord required the tenants to perform their own improvements in return for not charging an even higher rent. Yet in Matter of Boyd, 23 NY3d 999 (2014), the Court of Appeals reversed the Appellate Division and found insufficient evidence of fraud where between July 2004 and October 2004 the “legal” rent jumped from $572 to $1750 based upon a dubious claim that the landlord spent nearly $40,000 in improvements.
The outcomes in Grimm and Boyd were difficult to reconcile. The court recently had another opportunity to address the intersection of fraud and the four-year rule in Conanson v. Meghan Holding LLC, 2015 NY Slip Op 01553 (2015), but has only succeeded in further muddying the waters. In Conanson, there was overwhelming evidence of fraud developed in a prior Housing Court proceeding. There was, for example, an undisputed finding that the landlord had simply fabricated a lease to justify an interim rent increase – known as “laundering” the rent. Not surprisingly, the court ruled for the tenant and allowed her to rely on rent history beyond the four-year period to prove her overcharge.
What’s frustrating about Conanson, however, is that the court refused to establish a reliable rule for future cases, saying only there was enough evidence in that case. The court noted that a “generalized” claim of fraud is not enough to permit consideration of rent history beyond the four-year period, but that a “colorable” claim of fraud is. The difference between these two terms is far from clear. Trying to reconcile Grimm and Conanson, where there was sufficient evidence of fraud, with Boyd, where there wasn’t, is difficult. The only rule that can be divined is that the tenant must have something more than an unexplained or unreasonable rent increase. In Grimm, the landlord coupled an unexplained rent increase with the bizarre requirement that the tenants do their own improvements. In Conanson, the tenants had a concededly fabricated lease to go with the rent increase. In Boyd, the tenants had only an unexplained and seemingly unjustifiable rent increase, but nothing tangibly indicating fraud. The problem with this distinction is that tenants are frequently in no position to gather tangible proof of fraud before bringing their claims. So, while the tenant may have won in Conanson, it remains to be seen if the case will ultimately be a boon to tenants.