How to Follow the Rent Stabilization Code’s Settlement Rules

It may be to your advantage to settle with a tenant over a complaint he’s filed with the DHCR before the DHCR makes a decision on the complaint. Doing so can save you time and money, and you can avoid concerns over an uncertain result. But you need to be careful about how you settle the complaint. The Rent Stabilization Code (RSC) sets forth some rules on what you must do. If you fail to follow them, the tenant can turn around later and renounce the settlement.

To help you settle a DHCR complaint with a tenant properly, we’ll go over the requirements and the steps you should take. We’ll cover how to get the DHCR to approve the tenant’s withdrawal of a complaint after a settlement agreement has been reached, and we’ll also tell you when you’ll know the settlement becomes final.

RSC Section 2520.13

As a general matter, tenants cannot waive their rights under the Rent Stabilization Law. If that were allowed, owners could require an applicant to waive rent stabilization protections to obtain a lease to an apartment. Thus, lawmakers captioned Section 2520.13 of the Rent Stabilization Code with “Waiver of Benefit Void.” It states in part that “[a]n agreement by the tenant to waive the benefit of any provision of the RSL or this Code is void.”

However, the lawmakers understood that, given the realities of tenant disputes, an absolute “no waiver” rule would be impractical. There needed to be a way to settle disputes, so the lawmakers carved out a safe harbor where rent-stabilized tenants could waive stabilization rights under limited circumstances. According to the RSC, “. . . based on a negotiated settlement between the parties and with the approval of the DHCR, or a court of competent jurisdiction, or where a tenant is represented by counsel, a tenant may withdraw, with prejudice, any complaint pending before the DHCR.”

In other words, the RSC says that a tenant can never agree to give up any of his rights under the rent stabilization laws such as the right to object to an illegal rent. This means that a tenant could settle an overcharge complaint and then months later challenge the rent he agreed upon with you. Fortunately, the exception to the “no waiver” rule allows you to settle a case. If you follow the RSC’s rules for this exception, the tenant gets only a limited right to reject the settlement later on. And once the DHCR issues an order dismissing a tenant’s complaint and 35 days passes, the tenant has no right to reject the settlement.

When the RSC says that a tenant may withdraw a complaint “with prejudice,” it’s saying that the tenant is permanently giving up his right to dispute what he’s complained about. For this to happen, the withdrawal must be based on a negotiated settlement, where the tenant is “represented by counsel,” and which has either the DHCR’s approval or the approval of a court.

Get Settlement in Writing

Your first step is to reach a settlement with the tenant. The RSC says the settlement must be “negotiated,” but gives no indication as to what “negotiated” means. It presumably means that there was “give and take” between you and the tenant.

Make sure you get the settlement in writing. It may prevent future disagreements between you and the tenant over the terms of the settlement. And you’ll be able to show the settlement to the DHCR if it asks for it.

When you have the tenant sign the settlement, you should take two steps. First, you should verify that the tenant doesn’t have any other similar complaints pending with the DHCR, because, oftentimes, tenants will file multiple complaints about the same item with the DHCR. If the tenant has filed more than one complaint, make sure the settlement covers all the complaints.

Second, if there’s more than one tenant named on the lease, make sure both or all of the named tenants sign the settlement agreement. You don’t want to settle a complaint with a tenant only to have a co-tenant turn around and file a similar complaint against you.

Have Tenant Sign Withdrawal Letter

It’s very important that the tenant sign a withdrawal letter at the time of settlement. You don’t want to sign an agreement and perhaps give the tenant money or a rent cut as part of the agreement, without getting him to sign a withdrawal letter. If you wait until later, you may face a tough time getting the tenant to sign a letter. Since he already has his money or rent cut, you won’t have any leverage in getting him to sign. But without the tenant’s withdrawal letter, the DHCR probably won’t approve the settlement and won’t dismiss the complaint.

Get DHCR’s Approval

Your final step is to get the DHCR to approve the tenant’s withdrawal of his complaint. To do so, first, either you or the tenant should send the tenant’s withdrawal letter to the DHCR district rent office that’s processing his complaint. To make sure that the tenant’s letter is actually sent to the DHCR, arrange it so that you, and not the tenant, send the letter. If you send the tenant’s letter, you don’t have to enclose a copy of the settlement agreement. The district rent office ordinarily doesn’t ask for the agreement since it usually doesn’t involve itself with the terms of the settlement.

If you submit the tenant’s letter, the district rent office will try to contact the tenant to make sure that he really wanted to settle and withdraw his complaint. If the tenant submits the letter, the district rent office may or may not contact him. The tenant is free to renounce the settlement agreement at this point, if he chooses to do so. But if he tells the rent office that he freely entered into the agreement and isn’t renouncing it, the district rent office will issue an order dismissing the complaint.

If you send the tenant’s letter, send a cover letter attached to it. In the cover letter inform the DHCR that the case has been settled and enclose the tenant’s withdrawal letter. For an example of language you can use, see our Model Letter: Send Cover Letter When Submitting Tenant’s Request to Withdraw DHCR Complaint. If the tenant is represented by an attorney, and you’re sending the withdrawal letter to the DHCR, tell the DHCR in your cover letter that the tenant is represented by an attorney and give the attorney’s name, address, and telephone number. That way the district rent office will verify the settlement with the tenant’s attorney instead of the tenant. That’s preferable, since there’s less likelihood that the tenant will withdraw his consent to the settlement.

Consider hand-delivering the letter to the DHCR so that you’ll know the DHCR received it. Have the DHCR date-stamp a copy of the letter that you can keep in your files. And if you know the name of the DHCR caseworker handling the case, direct the letter to his or her attention, when you hand-deliver it.

When Settlement Becomes Final

Once the district rent office issues its order dismissing the complaint, the tenant can still renounce the settlement and ask the DHCR to decide his complaint. The tenant has 35 days from the issuance date of the district rent office’s dismissal order to appeal the order. But once the 35 days passes, the settlement becomes final.

Settling in Court

Often settling a tenant’s pending DHCR complaint occurs as part of a settlement of a lawsuit in court. The tenant may have filed a rent overcharge complaint and started to withhold part of his rent. You then go to court to seek his eviction for nonpayment. Or you may seek to evict the tenant on one of any number of grounds, and the tenant then files some complaint with the DHCR. If you settle the lawsuit in court with the tenant, you’ll also want to settle his DHCR complaint at the same time, since the lawsuit and the complaint are connected. How you settle a DHCR complaint as part of a lawsuit in court depends on whether the tenant is represented by an attorney.

Tenant has attorney. If the tenant is represented by an attorney in the lawsuit, settling the DHCR complaint is no problem. As part of the settlement of the court action, have the tenant agree to the dismissal of the DHCR complaint. Make sure you indicate the docket number of the DHCR complaint in the agreement. Then, you can have the judge handling the lawsuit “so order” the settlement. This will indicate that the court has approved the settlement and will satisfy the RSC requirement that says court approval is necessary to make the in-court settlement of the DHCR complaint valid.

Once this is done, send a copy of the settlement agreement to the district rent office. In this situation, the tenant doesn’t have to send a withdrawal letter to the rent office. The rent office will then issue an order dismissing the complaint. The tenant may then try to reject the settlement and appeal the district rent office dismissal order. But since a court has approved the settlement, and the tenant was represented by an attorney in the lawsuit, the DHCR should dismiss the appeal.

If the tenant is represented by an attorney in the court action, have both the tenant and his attorney sign the court settlement. This way, when you send a copy of it to the district rent office requesting dismissal of the tenant’s complaint, the district rent office will know for sure that the tenant was represented by an attorney and that the settlement is therefore binding on him.

Tenant has no attorney. Settling a DHCR complaint with the tenant in court is a bit trickier if he has no attorney, because under the code, a settlement of a DHCR complaint approved by a court is binding only if the tenant is represented in court by an attorney.

You can get around this by having the tenant agree to sign a letter asking the district rent office to withdraw his complaint as part of the court settlement. Then, go through the same procedure as if you were settling the complaint out of court. That is, send the tenant’s letter of withdrawal to the DHCR. Then, wait for the district rent office to issue an order dismissing the tenant’s complaint.