In a massive new decision, Regina Metro Co. LLC v DHCR, the Court of Appeals severely cut back the expanded rent overcharge rules passed just last year in the Housing Security and Tenant Protection Act of 2019. The ruling fundamentally alters the way overcharges are calculated, from overwhelmingly favoring tenants to overwhelmingly favoring landlords.
Before HSTPA, overcharges under rent stabilization were limited by the “4-year rule.” That is, with certain narrow exceptions, overcharges were calculated based on the rent actually charged four years prior to filing an overcharge complaint, whether that rent was otherwise proper. In other words, a landlord could permanently reap the benefits of an illegal rent as long as no tenant challenged it within four years. The pre-HSTPA law also limited the treble damages for willful overcharges to the most recent two years.
HSTPA changed all this. It extended the statute of limitations to six years and explicitly allowed examination of rental history beyond that date if necessary to calculate the legal rent. It also permitted tenants to recover treble damages for the entire six-year period. Crucially, HSTPA made the new rules applicable to all “pending cases.” This meant that landlords would be liable under the new HSTPA rules even for overcharges collected under the old rules.
Regina changed all this back again, at least for overcharges occurring prior to enactment of HSTPA in June 2019. Specifically, the Court of Appeals found that it was unconstitutional to impose liability retroactively. Any overcharges collected under the pre-HSTPA law are now calculated under the old law. The impact is enormous, as demonstrated by one of the tenants in Regina. Using HSTPA calculations, the tenant was entitled to recover over $285,000 in overcharges but under the now mandated old rules, she recovers a mere $10,000.
It’s way too soon to know for certain how Regina will play out going forward, but it seems likely that for the next several years overcharge cases will be bifurcated. Any rents collected prior to July 2019 will be analyzed under the old 4-year rule while rents collected after June 2019 will be analyzed under the new HSTPA rules. This will undoubtedly result in some peculiar outcomes where the “legal” pre-July 2019 rent is actually higher than the post-June 2019 rent. It also means that the full implementation of the HSTPA overcharge regime will not occur until July 2025, when all pre-HSTPA rents will be beyond HSTPA’s six-year statute of limitations.
This is a breathtaking swing of the legal pendulum back to landlords. Expect a forceful political effort from tenants to try to reverse or soften the impact of Regina with new legislation. Stay tuned …