It has been 9 years since the Court of Appeals handed down its bombshell opinion in Roberts v Tishman Speyer Properties LP, 13 NY3d 270 (2009)and, amazingly enough, the law is still in turmoil. Roberts held that apartments in buildings receiving “J-51” tax benefits remain rent stabilized even if the legal rent exceeds the high-rent [“luxury”] deregulation threshold [$2774 as of October 1]. This reversed a decade or more of DHCR policy that such units were deregulated.
Incredibly, nearly a decade later, the law is still uncertain as to how to calculate rent overcharges. The biggest area of contention is the “four-year rule.” This rule provides that, absent fraud, a court can only look back at four years of rental history to determine the legal regulated rent. See Thorton v Baron, 5 NY3d 175 (2005)
Practitioners thought the Appellate Division, First Department, had clarified the issue with its decision in Taylor v 72A Realty Associates LP, 151 AD3d 95 (1st Dep’t 2017). Taylor adopted the formula developed by DHCR: ignore the four-year rule and go back to the last registered stabilized rent and then give the landlord all subsequent proper increases.
Now, the Appellate Division has further muddied the waters. In Regina Metro Co. LLC v DHCR, 164 AD3d 420 (1st Dep’t 2018), the First Department has reversed Taylor and adopted a formula that rigidly applies the four-year rule. Under Regina, the legal rent is the rent charged four years prior to filing the complaint – even if it were an unregistered market rent – plus applicable increases. This rewards landlords for improperly deregulating J-51 apartments by allowing them to capture some portion of their illegal gains during the period of unlawful deregulation.
The First Department recently granted leave to appeal Regina and a related case to the Court of Appeals. So, sometime next year we should have resolution. Stay tuned.