How to Defend Against Fair Market Rent Appeals

When a tenant passes away or moves out of your rent-controlled apartment without leaving behind any occupants who qualify as tenant-successors, the apartment becomes decontrolled or no longer subject to rent-control laws. If that apartment is in a building built before Jan. 1, 1974, containing six or more units at any time, it becomes rent stabilized. The owner must register the unit with the Division of Housing and Community Renewal (DHCR) by completing the Initial Apartment Registration (DHCR Form RR-1) and must provide the tenant with a copy by certified mail.

For the first stabilized tenant in the apartment, you may have negotiated a free market rent. And if that negotiated rent is $2,500 or more, the apartment is exempt from rent regulation pursuant to high-rent vacancy deregulation. This first deregulated tenant must be served with a DHCR High-Rent Vacancy Deregulation Notice (HRVD-N) and an “exit” apartment registration form, as per the Rent Code Amendments of 2014. Owners are required to use the DHCR annual apartment registration form for this purpose. However, the negotiated rent is subject to the tenant’s right to file a “Fair Market Rent Appeal” (FMRA) with the DHCR within 90 days of service of the high-rent vacancy deregulation notice or service of a copy of the registration statement, whichever occurs first.

The tenant must allege in such an appeal that the initial rent is in excess of the fair market rent and present facts that support that allegation. In deciding a FMRA, the DHCR considers not only the special guidelines issued by the Rent Guidelines Board, but also rents of substantially similar or comparable apartments on the date the complaining tenant moved into the apartment.

So, when you defend against a tenant’s fair market rent appeal, you get the chance to submit registered rent-stabilized rents and unregulated rents of comparable apartments located both in your building and in neighboring buildings. Submitting rents of comparable apartments should help you get the DHCR to set a higher fair market rent for the apartment in question. Here are some guidelines you may find helpful when defending against FMRAs and understanding what the DHCR considers a comparable apartment. 

Note Filing Deadlines

Usually, a FMRA is a challenge to the negotiated first stabilized rent, and it must be filed by a tenant within four years after the vacancy or within 90 days after the owner mails the requisite written notice (Form RR-1) of the initial legal regulated rent by certified mail to the tenant, whichever first occurs. If the tenant challenges this initial legal regulated rent and it is found to be excessive, the rent as adjusted by the DHCR will become the Adjusted Initial Legal Regulated Rent.

Once a FMRA is filed, no subsequent tenant may file such an appeal. If the appeal is denied or not filed in a timely manner, then the negotiated initial legal regulated rent becomes the lawful rent, not subject to challenge. All future rent increases, whether for a renewal or vacancy lease, are subject to limitations provided under the Rent Stabilization Law.

The DHCR has been strict about applying the four-year time limit to fair market rent appeals. In one case, a rent-stabilized tenant filed a fair market rent appeal 33 years after moving into his apartment. The district rent administrator dismissed the complaint as untimely. The tenant appealed and lost. The tenant claimed that he never received an RR-1 initial rent registration form from the owner and that the four-year time limit applied to rent overcharge complaints, not also to fair market rent appeals.

However, the DHCR reiterated that Rent Stabilization Code Section 2522.3 states that no fair market rent appeal may be filed after four years from the date an apartment was no longer subject to rent control under the City Rent Law. And the code also states that a fair market rent appeal will be dismissed if filed more than 90 days after the certified mailing to the tenant of the RR-1 form. The tenant claimed that the four-year limit applied for FMRAs wasn’t authorized by the Rent Stabilization Law, as amended in 1997, which doesn’t mention FMRAs. But the DHCR’s interpretation of the law, applying the four-year rule to FMRAs, has been upheld by two appeals courts. And it didn’t matter that the tenant never received an RR-1 form, because more than four years had passed since the apartment was decontrolled [Roloff, September 2014].

Choose Comparables with Same or Fewer Number of Rooms

In reviewing apartments to submit as comparables, you may find an apartment that has a high rent (for example, because it’s unregulated) but has fewer rooms than the complaining tenant’s apartment. If so, you can use that apartment as a comparable. This is true whether the apartment is in the same building as the tenant’s or in a neighboring building.

In other words, the number of rooms in the comparable apartment may not exceed the number of rooms in the subject apartment. In addition, the rent for a rent-stabilized comparable apartment will be considered only if it is unchallenged, meaning that no challenge to its rent is pending before the DHCR.

For example, in one case, the DHCR reviewed a district rent administrator’s decisions to accept or reject owner-submitted comparability data. Both sides appealed, and the DHCR ruled for the tenant and against the owner. One apartment was rejected because it was registered as a five-room apartment and tenant’s apartment was registered as four rooms. Another comparable apartment was deregulated, but the owner actually charged $1,500 for it. So that amount, not the deregulated rent, was the comparable rent [Rubin/Eisner, May 2004].

Consider Location of Comparables

You can submit for consideration the rent of either a comparable rent-stabilized apartment located outside of the subject building or a comparable unregulated apartment located either within or outside of the subject building.

If you choose a comparable apartment outside of your building, the building must be in the same neighborhood, but it needn’t be on the same block. In one case, an owner successfully submitted comparability data for apartments in the tenant’s line, some other lines in the building, and for other apartments in two neighborhood buildings [Pix Record Co./Kalos, August 2004].

In another case, an owner won his appeal. The owner offered comparability data for an apartment in a neighboring building. The tenant objected, claiming that the comparability data was from a building too far away. The DHCR ruled for the owner and permitted the use of the neighborhood comparable. The DHCR ruled that both apartments were in the neighborhood known as the West Village and were comparable [Goldman, September 2000].

If the owner elects to offer the rent of a comparable rent-stabilized apartment located outside of the subject building, it must be properly registered with the DHCR. The rent for such an apartment will be averaged with the highest registered rent for a comparable apartment in the subject building. The fair market rent will be established as the greater of the average of the comparable rents and the Special Guidelines component, plus lawful increases for individual apartment improvements.

If the owner elects to offer the rent of a comparable unregulated apartment, the fair market rent will be established at the average of the rent for the unregulated comparable and the Special Guidelines component, plus lawful increases for individual apartment improvements.

Can Comparables Have More Amenities?

What if the apartment you want to use as a comparable is the same size or smaller than the tenant’s apartment and is in the same building or a neighboring building that satisfies the DHCR’s requirements, but has a few more amenities than the tenant’s apartment? The DHCR has allowed the use of such an apartment with a few additional amenities as a comparable apartment.

In one case, the DHCR used rents of comparable apartments in the same building as the tenant’s in deciding a fair market rent appeal. The comparable apartments were in the same line and roughly the same size as the tenant’s. The fact that these apartments had sunken living rooms and full bay windows, and the tenant’s apartment didn’t, didn’t prevent them from being comparable [Rose Assocs., Inc., March 2000].