Court Strikes HSTPA's Retroactive Application in Overcharge Cases

On April 2, 2020, New York’s highest court issued an important set of decisions in four consolidated cases concerning rent overcharge of rent-stabilized tenants. Here, in Regina Metropolitan Co., LLC v. DHCR et seq., the Court of Appeals had been asked to decide the proper method for calculating the recoverable rent overcharge for NYC apartments that were improperly removed from rent stabilization during receipt of J-51 tax benefits. This issue had come up repeatedly since the Court’s 2009 Roberts v. Tishman Speyer Properties ruling. In many cases following Roberts, the DHCR and court decisions had been both conflicting and confusing as to how overcharges should be calculated. And, by the time the four cases in question reached the Court of Appeals, additional questions were presented concerning the effect of the Housing Stability and Tenant Protection Act of 2019 (HSTPA) on any further rulings.

Because appeals of the four rent overcharge decisions in question were pending when HSTPA was enacted on June 14, 2019, tenants argued that HSTPA now required recalculation of any overcharge liability to conform with the amended Rent Stabilization Law’s application to “pending” cases. The amended law applied a six-year lookback period and treble damage provisions to these overcharge claims, rather than the prior four-year lookback period with a two-year lookback for treble damages.

The Court of Appeals, by majority decision, struck HSTPA’s retroactive application in these cases of the six-year lookback on rent histories and treble damages, and upheld the rent overcharge calculation guidelines determined in the 2018 appellate case of Regina Metropolitan Co., LLC v. DHCR.

The Takeaways

The Court of Appeals struck down application of specified HSTPA overcharge calculation provisions to the cases appealed and clarified what pre-HSTPA rules to apply in calculating the overcharges.

Retroactive application of lookback and treble damage provisions denies due process to owners. While stressing that the general validity of Part F of HSTPA was “not in question here,” the Court struck the retroactive application of the extended lookback provisions, ruling that:

There is no indication here that the Legislature considered the harsh and destabilizing effect on owners’ settled expectations, much less had a rational justification for that result. . . . [N]o explanation has been offered, much less a rational one, for retroactive application of the amendments to increase or create liability for rent overcharges that occurred years – even decades – in the past….Rather than serving any of the policy goals of rent stabilization (which it would not), retroactive application of the overcharge calculation amendments would merely punish owners more severely for past conduct they cannot change – an objective we have deemed illegitimate as a justification for retroactivity.

The Court noted that the retroactive legislation, reaching “particularly far” into the past and imposing significant liability, raised “substantial questions of fairness” and denied due process of law to property owners. The Court concluded that, “the overcharge calculation amendments cannot be applied retroactively to overcharges that occurred prior to their enactment.”

Four-year rent overcharge lookback period applied to cases appealed. The Court of Appeals affirmed that, under pre-HSTPA law, “the four year lookback rule and standard method of calculating legal regulated rent govern in Roberts overcharge cases, absent fraud.” This means that, under the prior law, and as previously ruled in 2018 by the Appellate Division in Regina Metropolitan Co., LLC v. DHCR, an overcharge was to be calculated (absent fraud) by using the rent charged four years prior to the filing of an overcharge claim and then adding any legal increases applicable during the four-year lookback period.

Looking Ahead

The outcome of many pending cases concerning rent overcharge of rent-stabilized tenants will be affected directly by the April 2 Court of Appeals decision. In January 2020 alone, the DHCR remanded to its Rent Administrator at least 40 cases appealed after June 14, 2019, by petitions for administrative review (PARs) that challenged the RA’s rent overcharge determinations. In each of those cases, the DHCR noted that overcharges must be reconsidered with additional information and recalculated as a result of HSTPA. Since HSTPA was enacted last year, application of the amended provisions to pending rent-stabilized overcharge claims also has been raised in countless proceedings before lower courts and the DHCR’s Rent Administrator. These interim decisions and processing directives are now incorrect.

Owners and their representatives should review their files for any cases impacted by the Court of Appeals decision and take steps before a court or the DHCR to seek appropriate relief.  

Editor’s Note: New York Apartment Law Insider will continue to update its readers on further analysis and developments resulting from this far-reaching decision.