The Legislature's Continued Assault on the Real Estate Industry

By Niles C. Welikson and Jillian N. Bittner

 

In its latest attempt to violate the Regina ruling, the Legislature has proposed retroactively changing the method for calculating rents in apartments affected by the Roberts ruling.

 

In 2018 the Democrats took control of the New York State Legislature. It didn’t take long for them to enact the most draconian changes to the state’s rent regulatory system in history, that being the Housing Stability and Tenant Protection Act of 2019 (“HSTPA”). Among other radical and far from necessary changes, the Act altered the methodology for calculating legal regulated rents and increased overcharge penalties. Adding insult to injury was the requirement that those provisions were to be applied retroactively.

Fortunately, in 2020 the New York Court of Appeals held in Matter of Regina Metropolitan Co. LLC v. New York State Div. of Hous. & Community Renewal, 35 N.Y.3d 332 (2020) (“Regina”) that retroactive application of those particular changes was unconstitutional and thus unenforceable. In effect, the Court implicitly acknowledged the completely unfair legislative attempt at changing the rules in the middle of the game. See also Casey v. Whitehouse Estates, Inc., 2023 NY Slip Op 01351 (2023).

In their latest and, to date, unsuccessful attempt at destroying the regulated rental housing market the Legislature once again took aim at retroactively changing the methodology for calculating rents in overcharge situations. Among the proposals were changes aimed at calculating rents for apartments affected by the 2009 Court of Appeals ruling in Roberts v. Tishman Speyer Props., LP (“Roberts”), which held that apartments in receipt of J-51 tax benefits were not eligible for deregulation despite clear and unequivocal language in the Rent Stabilization Code to the contrary. The Roberts decision did not address the methodology for calculating the rent for apartments affected by the ruling. Thus, that issue played out for over a decade until the Regina ruling.

The Regina decision loudly rejected the Legislature’s unfair attempt at retroactively impacting pending overcharge cases. If it had not done so, many tenants who were favorably impacted by the Roberts ruling would have enjoyed an undeserved windfall on top of the unjust enrichment they had already benefitted from as a consequence of the Court’s finding the Rent Stabilization Code’s provision that owners had justifiably relied upon for years was invalid. In addition, owners who had relied upon the prior Rent Stabilization Law’s four-year record retention requirements and the proscription against utilizing a rent other than the rent charged four years prior to the filing of a complaint would have suddenly been subjected to a six-year, if not open-ended, criteria pursuant to the HSTPA.

Imagine being told the law requires you to retain four years of records and, in reliance on that, you discard those that are older than that, only to be told years later the law is retroactively being changed to require the production of those records that were discarded. That is just one of the unfair, ridiculous aspects of the HSTPA the Legislature attempted to foist upon the industry which, fortunately, the Court of Appeals rejected in Regina.

In its latest attempt to violate the Regina ruling, the Legislature has proposed retroactively changing the method for calculating rents in apartments affected by the Roberts ruling. In doing so, they have conveniently ignored that decision’s clear mandate against retroactive application of amendments pertaining to calculating rents in overcharge situations. In effect, the Legislature is seeking to reverse a court ruling which, under our system of separation of powers, is impermissible.

The proposed bills further seek to legislatively undermine the judicial branch, including long-standing precedent articulated by the Court in Grimm v. New York State Div. of Hous. & Community Renewal, 15 N.Y.3d 358 (2010) and Thornton v. Baron, 5 N.Y.3d 175 (2005), which was reiterated by the Court of Appeals in Regina as establishing the threshold to circumvent the pre-HSTPA statutory scheme that limited the lookback period to four years. In fact, the Legislature intends to wipe out the entire body of case law addressing the criteria necessary to demonstrate fraud in the context of rent regulation by re-defining fraud as “any” violation of “any duty”—in essence, creating per se fraud by removing any requirement of willfulness and/or scienter on the part of owners.

Obviously, the Legislature is out to score points with regulated tenants, many of whom should not be allowed to perpetually retain artificially low rent-stabilized apartments. This is especially so in Roberts situations, where apartments were knowingly rented on a fair market basis by high-income individuals. A technicality imposed regulatory status on those apartments, often resulting in not only financial windfalls in favor of many tenants but also bestowing perpetual lease renewal rights on a class of persons who should not be so entitled, those being the wealthy, many of whom had no difficulty paying market rents. See, for example, Gersten v. 56 7th Ave LLC, 88 A.D.3d 189, 192 (1st Dept 2011) (plaintiffs were “not the typical tenants intended to be protected by rent regulation***.”) (Upholding a final prior deregulation order in the face of a Roberts claim). As a consequence, all too many people who actually need an apartment with an artificially low rent are left out in the cold. None of this makes any more sense than the laws that allow tenants to pass on their apartment to family members as if they were owners; meanwhile, the actual property owner who wants to obtain an apartment in their building is required to litigate to do so, sometimes for years. Unfortunately, lack of logic is no deterrent to our legislators; nor are optics (e.g., consider their voting themselves a 30 percent pay increase last December, well above any inflationary or other cost of living metrics).

We are fortunate to have separation of powers on both the state and federal levels. Clearly, only the courts can control the actions of an irresponsible, so-called “progressive” government. Should the legislature attempt to upend the Regina ruling via any retroactive laws it is reasonable to expect that the courts will stand in their way, and hold that such attempt is impermissible and unconstitutional.

 

Niles C. Welikson, Esq. is a founding member and currently Special Counsel to Horing Welikson Rosen & Digrugilliers, PC. Jillian N. Bittner, Esq. is a member of the firm. The firm successfully represented the owner in the Regina litigation.