The Court of Appeals, on April 2, 2020, ruled in four separate cases, in a 57 page decision with a 53 page dissent, that with regard to the retroactive application of the Housing Stability and Tenant Protection Act of 2019 (“HSTPA”), “the overcharge calculation amendments cannot be applied retroactively to overcharges that occurred prior to their enactment.“

At issue in the four cases before the Court of Appeals was “what is the proper method for calculating the recoverable rent overcharge for New York City apartments that were improperly removed from rent stabilization during receipt of J-51 benefits prior to our 2009 decision in Roberts v Tishman Speyer Props., L.P. (13 NY3d 270 [2009]).” When leave to appeal to the Court of Appeals was granted in the four cases, the Rent Stabilization Law (“RSL”) mandated that, absent fraud, an overcharge was to be calculated by using the rent charged on the date four years prior to filing of the overcharge complaint as the “base date rent,” adding any legal increases applicable during the four-year lookback period and computing the difference between that legal regulated rent and the rent actually charged to determine if the tenant was overcharged during the recovery period. Consideration of rental history predating the four-year lookback and statute of limitations period was prohibited.

While the four appeals to the Court of Appeals were pending, the HSTPA, was enacted which, among other things, extended the statute of limitations, altered the method for determining the legal regulated rent for overcharge purposes and a substantially expanded the nature and scope of an owner’s liability in rent overcharge cases. Significant to the four cases before the Court of Appeals was the fact that the HSTPA provides that its provisions shall be immediately effective to all matters pending as of the date of its enactment – June 14, 2019. The tenants in the Court of Appeals cases argued that the new overcharge calculation provisions of the HSTPA should be applied to the pending appeals which, in some cases, sought recovery of overcharges that resulted a decade or more before the enactment of HSTPA.

In ruling for the owners in each of these four cases, the Court, in a split 4-3 decision in each of the four cases reasoned that:

“Retroactive application of the overcharge calculation amendments would create or considerably enlarge owners’ financial liability for conduct that occurred, in some cases, many years or even decades before the HSTPA was enacted and for which the prior statutory scheme conferred on owners’ clear repose. Because such application of these amendments to past conduct would not comport with our retroactivity jurisprudence or the requirements of due process, we resolve these claims pursuant to the law in effect when the purported overcharges occurred.”
    

Also significant is the fact that the Court of Appeals clarified certain pre-HSTPA issues; specifically:

• Before the enactment of the HSTPA, overcharge claims were subject to a 4-year statute of limitations that precluded the recovery of overcharges incurred more than 4 years preceding the imposition of a claim; thus, the base date for determining a rent overcharge is the rent charged 4 years prior to the complaint being filed.
• Owners were obligated to retain records for only 4 years.
• Except for certain claims filed shortly after initial registration of a unit, “the legal regulated rent for purposes of determining an overcharge, shall be the rent indicated in the annual registration statement filed four years prior to the most recent registration statement,” i.e., the base date rent, plus “any subsequent lawful increases and adjustments”.
• Under the pre-HSTPA law, the base date rent was the rent actually charged on the base date – i.e., four years prior to the overcharge complaint – even if no registration statement had been filed reflecting that rent.
• If review of the rental history revealed a fraudulent scheme by an Owner to deregulate an Apartment, the default formula should be used to calculate any resulting overcharge; that is, setting the base date rent as “the lowest rent charged for a rent-stabilized apartment with the same number of rooms in the same building on the relevant base date”
• The exception to the 4-year rule was fraud; there cannot be fraud if the action was not willful and because conduct cannot be fraudulent without being willful, the fraud exception to the lookback rule is generally inapplicable to Roberts overcharge claims.
• After Roberts but pre-HSTPA, in overcharge cases where tenants challenged an improper deregulation and initiated an overcharge claim within four years, the tenants would be entitled to monetary damages encompassing the rent increase that occurred when the apartment was moved to the free market. But tenants who commenced a claim more than four years later and could not show fraud would be entitled, by virtue of the interrelated four-year statute of limitations and lookback rule, to recover only the increases added to the market base date rent that were over the legal limits during the recovery period.

We will examine the 110-page decision/dissent of this significant Court of Appeals case more carefully in the days ahead and address same, as necessary, in future blog posts. In the meantime, please know that we remain available to discuss with you any questions you may have regarding this important decision.