Gather Necessary Documents When Answering Overcharge Complaints

July 1, 2012

Rent-stabilized tenants who think they're paying illegally high rents can file rent overcharge complaints with the Division of Housing and Community Renewal (DHCR). To beat a tenant's overcharge complaint, you must file certain key documents with your “answer.” These documents help you prove that you've properly calculated the tenant's rent.

The penalties for rent overcharges are stiff. The DHCR can roll back the tenant's rent, order a rent refund with interest, and even award the tenant triple damages—that is, three times the amount of the overcharge. That's why it's important to know what documents to submit with your answer and what to do if you're missing those documents.

With the help of attorneys Niles Welikson and Dan Roskoff, we've created a document checklist you can use when preparing to answer a rent overcharge complaint.

DOCUMENT CHECKLIST

When gathering the documents you need, keep in mind that the four-year rule of Rent Stabilization Law §26-516(a), also codified in Civil Practice Law and Rules 213(a), generally limits the documents you'll need to submit.

Most often, to answer the tenant's complaint, you need only submit documents that cover the rent charged or rent increases you collected during the four-year period before the tenant filed the complaint.

However, as a result of a 2010 Court of Appeals decision in Grimm v. DHCR, a court may require you to have documents that go further back in time. This decision carved out an exception to the four-year rule for a “colorable claim of fraud.” Fortunately, according to the court, “a mere allegation of fraud, without more, will not be sufficient to require DHCR to inquire further. What is required is evidence of a landlord's fraudulent deregulation scheme to remove an apartment from the protections of rent stabilization” [Grimm v. DHCR, October 2010]. “It is extremely important to note, in answering rent overcharge complaints or DHCR inquiries where either the tenant or DHCR seek an examination of rent records going back more than four years prior to the filing of the complaint, that in the absence of actual ‘evidence’ of a fraudulent deregulation scheme the owner should not be required to produce any such records,” Welikson points out.

But from a practical standpoint, if the DHCR requests any such records and those records substantiate the owner's position that the rent is, in fact, correct and there is thus no overcharge, the records should be produced, says Welikson.

[ ] Leases

Submit leases going back four years before the date of the tenant's rent overcharge complaint. The DHCR should send you a copy of the tenant's complaint, with a DHCR date-stamp on it showing when it was filed.

[ ] Substitutes for Missing Leases

If you can't come up with all the leases for the period you need, search for other records that show the apartment's rent history. Then, submit them to the DHCR as substitutes for the missing leases. Otherwise, the DHCR will compute the rent using a formula that usually results in a large rent overcharge.

Look for records that show the apartment's rent for the period covered by the missing lease, and that have been kept in the normal course of business or are part of the official record of a current or previous legal case.

You can submit the following documents as lease substitutes:

Rent ledgers. Many owners keep rent ledgers in which they record rent payments for every apartment in their building. The DHCR has accepted these ledger entries as proof of an apartment's rent for a period when the lease was missing. But the ledger must have been kept in the course of business during that period. You can't just prepare a rent ledger after the fact.
Vacancy lease riders. If the lease after the one you're missing is a vacancy lease, you can use it to show the prior tenant's rent. The rider to a vacancy lease must state this information. If you submit a copy of the lease rider to the DHCR, you can prove the rent of the prior, missing lease.

However, the DHCR may not apply this rule in every situation. For example, the rent stated in the vacancy lease must make sense in terms of the apartment's rent history. Rent ledgers are better lease substitutes.
Records from earlier cases. You or a previous owner may already have defended yourself against a rent overcharge complaint filed by the tenant. The rent records from that earlier case could help you with the current one.

[ ] Proof of Apartment Improvement Rent Hikes

If, within the four-year period before the tenant filed the rent overcharge complaint, you collected a rent hike for improvements made to the tenant's apartment, you must submit proof of the cost of the improvements with your answer.

If the tenant's apartment has been stabilized for fewer than four years, you must submit proof of any apartment improvement rent hike taken since the apartment was initially registered.

If you don't submit documents to prove your improvement costs, the DHCR will find that any rent increase you collected based on those improvements was a rent overcharge. To make matters worse, you may also be hit with triple damages based on that overcharge.

DHCR Policy Statement 90-10 says that you should submit at least one of the following documents to confirm your improvement costs. Make sure each document identifies the apartment to which the improvements were made.

The more evidence you have, the better defense you can establish. So if you can submit more than one of the following documents, do so, even though technically you don't have to. The more proof the DHCR has of your costs, the less chance it will question them. Note also that the DHCR may request extra proof of cost and payment in cases where there's a special relationship between the owner and the contractor. For example, if the contractor is part owner of the building or is the owner's relative, you may be required to submit additional information.

Also, make sure that at least one of your documents proves the type of work you did so you can show that this work qualifies for an improvements increase. For example, if you submit only canceled checks, you'll prove the cost of the work, but not the type of work you did.

Submit one or more of the following documents:

Canceled check(s). DHCR Policy Statement 90-10 says that the check must be “contemporaneous with the completion of the work.” But this doesn't mean that your check must have been issued when the work was physically completed. If you gave the contractor a deposit before the work started or made staggered payments as the work progressed, you can submit the canceled checks as long as there's something to show that these payments are related to the improvement. For example, if you made a deposit before the work started, there should be a note on the check or in a cover letter accompanying the check, indicating that it's a deposit for the improvement.
Invoice marked “paid in full.” DHCR Policy Statement 90-10 says the invoice should be “contemporaneous with the completion of the work.”
A lease rider indicating the work was performed while the apartment was vacant.
Signed contract for the work. If you signed a contract, submit it as evidence.
Contractor's affidavit. Ask the contractor to give you a sworn statement indicating that the improvement was completed and paid in full. The affidavit should name the contractor, identify the tenant's apartment, list all work performed, itemize the costs of each improvement, give the total cost of the work, and state that all work has been completed and paid for.
Tenant's written consent, if improvements were installed while tenant was in occupancy. If you made the improvements while a tenant was living in the apartment, you should have gotten the tenant's written consent, stating that she agreed to let you make the improvements and that she agreed to pay the increase for those improvements. This written consent should specify the improvement(s) made and the exact amount of the improvements' rent increase. You can submit a copy of this written consent with your answer to the tenant's complaint.

[ ] Proof of Other Rent Hikes

Your answer should list any other rent hikes you took in the four years before the tenant filed the complaint, in addition to apartment improvement rent increases and guideline increases for vacancies and renewals. It's smart to submit documents that prove that you were entitled to those rent hikes.

Submit the following if relevant to your case:

Copy of MCI rent increase order.
Copy of hardship rent increase order. If you got a hardship rent increase for the building, say so in your answer, and submit a copy of the DHCR order granting the hardship increase.
Proof of 421-a increase. Owners of buildings constructed under Section 421-a of the Real Property Tax Law are entitled to take nine 2.2 percent rent increases during the 10-year tax abatement period. So point out your right to this increase, and try to include a document with your answer that shows that the building was constructed under the 421-a program. Your original lease with the tenant probably includes a clause stating that the building was constructed under the 421-a program. Or you can ask the Department of Housing Preservation and Development for a letter confirming that the building was constructed under the 421-a program, and submit a copy of this letter with your answer.

[ ] Proof that Initial Registration Was Sent to Tenant

If the tenant claims that you didn't send him an initial registration that you should have sent within the four years before the date that the tenant's complaint was filed, you must submit proof that you sent it.

If the unit was first registered on or after May 1, 1987, you must submit a certified mail receipt from the post office. Pursuant to Rent Stabilization Codes Sections 2523.1 and 2528.2(d) and the DHCR's Instructions for Filing Initial Rent Registration, the tenant must be served by certified mail, says Roskoff. A signed receipt by the tenant acknowledging hand delivery is not valid proof.

If the unit was first registered before May 1, 1987, DHCR Policy Statement 92-3 says you must submit one of the following documents:

An original receipt signed by the tenant. The receipt must acknowledge hand-delivery of the initial registration form and have been signed at the time you or your agent delivered the form to the tenant.
Receipts from mailing house mailing. If a bonded mailing house mailed the initial registration, you'll need a post office receipt verifying the date and number of pieces of mail to the building included in a “Carrier Route Pre-Sort” service, and a list of the mailing addresses the RSA or mailing house furnished.
Post office Form #P03877. A signed and dated copy of this form, called an “Acceptance of Registered, Insured, C.O.D., and Certified Mail,” proves delivery of first-class mail to the post office.

[ ] Proof that Annual Registration Was Sent to Tenant

If a tenant claims that you didn't send him an annual registration that you should have sent within the four years before the date that the tenant filed his complaint, you must submit proof that you did send the annual registration to the tenant.

The DHCR's Policy Statement 92-3 tells owners what kinds of documents to submit to prove that they sent the annual registration for a particular year. The proof you must submit to show that the tenant got the annual form is the same for all years.

But some documents are better proof than others. You must submit at least one of the following:

A certified mail receipt. The DHCR considers this conclusive proof of delivery. No other proof is required.
A post office proof of mailing to the tenant. The DHCR considers this conclusive proof of delivery. No other proof is required.
An original receipt signed by the tenant. If you submit the tenant's original receipt acknowledging hand-delivery of the annual registration form, the DHCR will consider it conclusive proof of delivery. No other proof is required.
Evidence from whoever did the mailing. You can submit any receipts, bills, affidavits, or other proof of service from the person who actually mailed the registration form. The DHCR considers these documents to be helpful, but not conclusive proof of delivery.
Affidavits from other tenants. Other tenants in the building may be willing to give you affidavits stating that they got their annual registration forms on time. The DHCR considers this to be helpful, but not conclusive proof of delivery. So try to submit other documents as well.
Other evidence. Look for other evidence, such as a copy of the lease or registration form from a prior year, showing that the rent and information listed in the copy of the disputed annual registration form you filed with the DHCR was the legal amount. The DHCR considers this to be helpful, but not conclusive proof of delivery.

[ ] Proof that Either Annual or Initial Registration Was Filed with DHCR
(if Either Is Challenged)

Proof of delivery of the registration form to your tenant may not be enough. If the tenant claims that you didn't file an annual or initial registration with the DHCR, and the agency's records don't show that you filed them, you must submit proof that you in fact filed them.

Submit at least one of the following documents:

A DHCR registration receipt. These receipts, issued by the rent registration unit, weren't consistently available to owners until 1988. The DHCR considers this conclusive proof that you filed an initial or annual registration with the DHCR. No other proof is required.
A DHCR date-stamped copy of the registration form. The DHCR considers this conclusive proof that you filed an initial or annual registration with the DHCR. No other proof is required.
An original affidavit of service from the person who mailed the registration to the DHCR or supervised the mailing. The affidavit must have been signed at the time the filing was made. The DHCR considers this conclusive proof that you filed an initial or annual registration with the DHCR. No other proof is required.
A certified mail receipt. The DHCR will consider a certified mail receipt showing that the registration was mailed to the DHCR rent registration unit to be helpful, but not conclusive proof of filing. And it will consider this document only if you're trying to prove filing for years before 1988. That's because, beginning in 1988, the DHCR registration receipts, which are conclusive proof, were uniformly available.
A post office proof of mailing. The DHCR will consider a post office proof of mailing to the DHCR rent registration unit to be helpful, but not conclusive proof of filing. And it will consider this document only if you're trying to prove filing for years before 1988.
A notarized rent registration summary form. The DHCR will consider this to be helpful, but not conclusive proof of filing. And it will consider this document only if you're trying to prove filing for years before 1988.
Evidence from whoever did the mailing. You can submit an affidavit of service that the person who actually mailed or supervised the mailing to the DHCR swore to immediately after the filing. The DHCR will consider this to be helpful, but not conclusive proof of filing. And it will consider this document only if you're trying to prove filing for years before 1988.
Statements from other tenants. If other tenants have given you statements acknowledging that they got the registration or proof that the registration forms were delivered to tenants, the DHCR will consider this to be helpful, but not conclusive proof of filing. And it will consider this document only if you're trying to prove filing for years before 1988.

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