Recent High-Income Deregulation Rulings

Here are some DHCR rulings from the past year that illustrate some of the points made about the high-income/high-rent deregulation process in this special issue.

Roommate’s Income Not Considered in Deregulation Proceeding

Landlord applied in 2011 for high-rent/high-income deregulation of tenant’s rent-stabilized apartment. The DRA ruled against landlord because the Department of Taxation and Finance (DTF) was unable to make a tax match for tenant’s roommate for either 2009 or 2010. And tenant’s income for each of those years was under $175,000. Landlord appealed and lost. It was unclear whether the roommate primarily resided in the apartment at the time the Income Certification Form (ICF) was sent to tenant. Building employees claimed that the roommate lived in the building, but tenant claimed that the roommate had a home in Hampton Bays, Long Island. In any event, a tax match was sought and the roommate’s name didn’t appear in DTF records in connection with the apartment address. The DHCR wasn’t required or authorized to make further inquiry.

• 80th Realty LLC: DHCR Adm. Rev. Docket No. CT410018RO, February 2015

Apartment Subject to Deregulation After J-51 Benefits Expire

Landlord applied for high-rent/high-income deregulation of tenant’s rent-stabilized apartment in 2011. Tenants’ monthly rent was over $2,000 per month. Tenants claimed that, because the building had received J-51 tax benefits, their apartment was ineligible for luxury deregulation. The DRA ruled for landlord, finding that tenants’ annual household income exceeded $175,000 in both 2009 and 2010. Tenants appealed and lost. Because the building would have been subject to rent stabilization even without receipt of the J-51 benefits, the apartment continued to be subject to rent stabilization after J-51 expired as if the J-51 benefits had never been received. And, because the building was otherwise rent stabilized, it didn’t matter whether landlord had included J-51 notification riders in each of tenants’ leases.

• Bramwell: DHCR Adm. Rev. Docket No. CT410019RT, February 2015

Editor’s Note: Rent-controlled units in a building receiving J-51 tax benefits have a different fate. The Appellate Division, First Department, ruled in October 2014 that, once a building receives J-51 tax benefits, owners are forever barred from seeking luxury deregulation of rent-controlled apartments, even after the J-51 benefits expire [Ram I v. DHCR, 993 NYS2d 706 (App. Div. 1 Dept. 2014)].

The same court came to the opposite decision concerning rent-stabilized apartments in the earlier case of Shiffrin v. Lawlor [101 A.D.3d 456 (1st Dept. 2012)]. The court explained that the results were different in the Ram I case because, unlike the rent stabilization laws, the rent control laws didn’t contain language stating that once the J-51 benefits expired, the rent-controlled tenants would be subject to regulation as if the J-51 benefits had never applied.

DHCR Relies on Second Income Verification Report from DTF

Landlord applied in 2009 for high-rent/high-income deregulation of tenant’s rent-stabilized apartment. The DRA ruled against landlord, finding that tenant’s total household income didn’t exceed $175,000 in either 2007 or 2008. Landlord appealed and lost. Landlord objected to the fact that the DRA conducted two tax-match inquiries to DTF. DTF originally reported that tenant’s household income was greater than $175,000 for each year in question. But tenant claimed that was a mistake, and the DHCR resubmitted its income verification request to DTF. DTF then reported that tenant’s household income was below $175,000 for both years. Landlord argued that tenant may have filed amended returns to avoid deregulation. But there was no proof of this. And under the current DHCR processing policy, the DRA will conduct a follow-up income verification inquiry to DTF when tenant claims that an initial report is inaccurate and in error.

• SP East 63 LLC: DHCR Adm. Rev. Docket No. CP410013RO, February 2015

Landlord Can’t Submit Proof of Tenant’s Occupancy for First Time with PAR

Landlord applied in 2012 for high-rent/high-income deregulation of tenant’s rent-stabilized apartment. The DRA sent notice of landlord’s application to tenant at the apartment address, but the envelope was returned by the USPS as undeliverable. The DRA dismissed landlord’s application because tenant had moved out of the apartment. Landlord appealed and lost. Landlord claimed that tenant had not moved out of the apartment. But landlord had failed to respond to the DRA’s request for additional information, which asked landlord to confirm tenant’s address after the DRA’s notice to tenant was returned by the Postal Service. Since landlord didn’t present this information to the DRA, the DHCR couldn’t consider it for the first time on appeal.

• 40 Park Avenue LLC: DHCR Adm. Rev. Docket No. CQ410004RO, January 2015

No Deregulation Where Income Below $200,000

Landlord applied in 2013 for high-rent/high-income deregulation of tenants’ apartment. The DRA ruled against landlord, who appealed and lost. DTF matched information for both tenants for 2011 and 2012 and found that their total annual household income for each of these years was under the $200,000 deregulation threshold. Landlord questioned DTF’s findings, but DTF made a full match that included tenants’ middle initials.

• Greystone Management: DCHR Adm. Rev. Docket No. CR410011RO, January 2015

Deregulated Tenant’s Divorce Didn’t Lower His Household Income

Landlord applied in 2011 for high-rent/high-income deregulation of tenant’s rent-stabilized apartment. Tenant claimed that his household income didn’t exceed $175,000 in 2009. But DTF records showed that tenant’s household income was above the deregulation threshold for both 2009 and 2010. In response, tenant claimed that his wife had moved out in 2009 after their divorce, so the household income was lower. The DRA ruled for landlord and deregulated the apartment. Tenant appealed and lost. The DRA properly relied on DTF tax matching information and wasn’t authorized to conduct an independent investigation of tenant’s household income. It also didn’t matter that tenant made support payments to his wife and children at another residence in 2009. The only relevant annual income is the federal adjusted gross income as reported on tenant’s New York State income tax return.

• Arabian: DHCR Adm. Rev. Docket No. CR410029RT, January 2015

Deregulation Denied for Tenant in Former 421-a Building

Landlord applied in 2011 for high-rent/high-income of tenant’s rent-stabilized apartment. The DRA ruled for landlord based on tenant’s income level and the fact that the legal rent was over $2,000 per month. Tenant appealed, claiming that he wasn’t subject to high-rent deregulation.

The DHCR ruled for tenant and revoked the deregulation order. The building was constructed in 1994 and became subject to rent stabilization because landlord obtained 421-a tax benefits. After those benefits expired, tenant claimed in a prior proceeding that he remained subject to rent stabilization because landlord didn’t include a rider in each of his leases and renewal leases advising him that he would be subject to deregulation when the 421-a benefits expired. The DRA ruled for tenant in that proceeding, so tenant remained subject to rent stabilization. Landlord argued that, because the 421-a benefits had expired before 2011, tenant was subject to luxury deregulation just like any other rent-stabilized tenant. But the DHCR found that Real Property Tax Law Section 421-1(2)(f)(ii) does not provide for high-rent/high-income deregulation for apartments that became subject to the 421-a program after July 3, 1984. The DHCR said that those apartments can be deregulated only upon proper lease notice and expiration of the 421-a benefits or upon a vacancy.

• Anglin: DHCR Adm. Rev. Docket No. CM410031RT, December 2014

Husband’s Income Not Considered in Luxury Deregulation Proceeding

Landlord applied for high-rent/high-income deregulation of tenant’s rent-controlled apartment in 2006. The DRA ruled against landlord, finding that tenant’s household income didn’t exceed $175,000 in either 2004 or 2005. Landlord claimed that the income of tenant’s husband should have been included in the verification and calculation of household income. But the husband wasn’t an apartment occupant at the time that landlord sent tenant the income certification form in 2006. By then, the husband had permanently vacated the apartment due to severe and debilitating medical and health problems. The husband had moved to an assisted living facility in March 2005 and had lived there full time until he died in November 2006. The husband’s doctor also had stated that the move was permanent and based on the husband’s dementia. So the husband’s income was properly excluded from consideration as part of the household income.

• Brookford LLC: DHCR Adm. Rev. Docket No. AM420004RP, November 2014

No Proof of Additional Apartment Occupant

Landlord applied in 2010 for high-rent/high-income deregulation of tenants’ rent-stabilized apartment. The DRA ruled against landlord after finding that tenants’ household income didn’t exceed $175,000 in either 2008 or 2009. Landlord appealed and lost. Landlord claimed that another person also lived in the apartment with tenants and that her income should have been added to the total household income. But there was no proof that the person in question lived in the apartment in 2008 or 2009. The woman’s earnings statements, driver’s license, motor vehicle registration, and divorce judgment all showed that she lived in Mississippi at that time.

• 93rd Street, LLC: DHCR Adm. Rev. Docket No. BT410034RO, October 2014

Tenant Default Excused in Luxury Deregulation Proceeding

Landlord applied for high-rent/high-income deregulation of tenant’s rent-stabilized apartment in 2011. The DRA ruled for landlord based on tenant’s failure to respond to the application. Tenant appealed, and the case was reopened. Tenant claimed that his income was so low that he didn’t file federal or state income tax returns, and that he didn’t remember ever receiving an Income Certification Form from landlord or any DHCR notice of the luxury deregulation application. Tenant also was 97 years old and suffered from degenerative physical and mental conditions that may have resulted in his inadvertent failure to respond.

The DHCR reopened the case and sent it back to the DRA for further processing. Tenant denied receipt of the key documents, and, at his building, landlord’s employees received and distributed the mail. So there could be no presumption of delivery of the mail. Further, tenant’s age and infirmities presented good cause to excuse his default. His conditions were supported by a letter from his doctor, who outlined tenant’s conditions and medications. The doctor stated his opinion that tenant suffered from gaps in memory and recollection. Tenant also had answered prior years’ luxury deregulation applications, which were denied.

• Lehmann: DHCR Adm. Rev. Docket No. BO420013RT, October 2014

DHCR Didn’t Verify Income of Both Household Members

Landlord applied in 2011 for high-rent/high-income deregulation of tenant’s rent-stabilized apartment. The DRA ruled against landlord and dismissed the application. Landlord appealed, and the case was reopened. Tenants admitted that there were two household occupants in the apartment. But the DRA asked DTF for income verification for only one of the tenants. The DRA’s finding that tenants’ annual household income was under $175,000 for 2009 and 2010 was therefore based on error. The DRA must resubmit an income verification request to DTF for both tenants.

• Empire International Realty: DHCR Adm. Rev. Docket No. CP410014RO, July 2014

Tenant’s Household Income Below Deregulation Threshold

Landlord applied for high-rent/high-income deregulation of tenant’s rent-stabilized apartment in 2010. The DRA dismissed the application after DTF was unable to match its tax records to any records for tenant’s daughter for 2008 and otherwise found that tenant’s total annual household income was below the deregulation threshold for 2008 and 2009.

Landlord appealed and lost. Landlord claimed that tenant’s daughter lived in the apartment at all times relevant to the proceeding and that her income must be included in the DHCR’s consideration of deregulation. Tenant claimed that her daughter lived in Florida during 2008 and that, in any event, she lived with tenant only temporarily, not as her primary residence. The DHCR noted that, in order to have the daughter’s income considered, what mattered was where she lived in March 2010 when the ICF was served. Whether the daughter lived in the apartment during 2008 and 2009 wasn’t relevant to determining whether her income should be included in the household income for purposes of luxury deregulation. And the DHCR was required to rely on DTF’s income findings.

• 220 East 72nd Street LLC: DHCR Adm. Rev. Docket No. BM410029RO, June 2014

Tenant Had No Proof of Answering Deregulation Application

Landlord applied for high-rent/high-income deregulation of tenant’s rent-stabilized apartment. The DRA ruled for landlord based on tenant’s failure to answer the application. Tenant appealed and lost. Tenant claimed that he had answered the application and that his income was below the deregulation threshold. But the DRA sent tenant four separate notices of landlord’s application, and retained proof of mailing of each one. The DHCR had no record of tenant ever answering, and tenant had no proof of mailing any answer to the DHCR. The DHCR noted that a New York State appeals court had upheld DHCR regulations requiring tenants to retain proof of answering a luxury deregulation application.

• Kiros: DHCR Adm. Rev. Docket No. BQ410033RT, May 2014

No DTF Records Match Tenant’s Tax Returns

Landlord sought high-rent/high-income deregulation of tenant’s rent-controlled apartment in 2010. Tenant claimed that his total household income was below $175,000 for both 2008 and 2009, and submitted copies of his tax returns for both years. But DTF found no matching information for tenant for either year. The DRA ruled against landlord after giving both sides the chance to submit additional information. Landlord appealed, and the case was reopened. Landlord argued that the DRA should have investigated why DTF couldn’t make a match with its tax records. The DHCR agreed with landlord and reopened the case. A court had ruled in another case that, in similar circumstances, the DHCR should have made further inquiries concerning DTF’s failure to make a tax match for tenant.

• Diamond 530 Park Avenue Owner LLC: DHCR Adm. Rev. Docket No. BP410004RO, May 2014