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Court of Appeals Puts Landlords on Notice About Rent Control

Court of Appeals Puts Landlords on Notice About Rent Control

Rent control is an issue which bitterly divides landlords and tenants. Litigation is not uncommon between tenants who feel they have been charged more than the legally permissible rent and landlords who feel taken advantage of by tenants who will not honor the terms of their leases. New York's highest court recently threw another log onto the rent-control fire, extending the statute of limitations in some cases where tenants seek to recover alleged rent overcharges.

Conason v. Megan Holding, LLC

The tenants in this case rented an apartment in Manhattan beginning in October 2003. The original rent was $1,800 per month, which increased with renewal leases signed by the tenants in 2005 and 2007. The apartment was subject to rent-control laws, but the tenants did not receive the required notifications from the landlord as to the computation of the base rent.

There was subsequent litigation. The landlord sued the tenants for nonpayment of rent. The tenants countersued, claiming, among other things, their rent exceeded what was permissible under rent control. A Manhattan Civil Court judge sided with the tenants on most of their claims but dismissed the rent overcharge complaint, without prejudice, because they failed to submit sufficient evidence proving the legal rent that should have been charged.

In 2011, the tenants filed a second lawsuit seeking recovery for the rent overcharge, this time presenting evidence the proper rent for their unit was $180.92 per month, not the $1,800 they were charged. Manhattan Supreme Court granted the tenants summary judgment, and the Appellate Division, First Department, affirmed that decision in a September 2013 order.

The Court of Appeals then agreed to hear the landlord's appeal. The key issue was whether the tenants filed their tenants brought their rent overcharge claim within the applicable statute of limitations. Under New York law, “[a]n action on a residential rent overcharge shall be commenced within four years of the first overcharge alleged.” In this case, the tenants were initially overcharged when their lease began in 2003. Accordingly, since they filed their lawsuit in 2011, they only sought recovery for rent overcharges from 2007 forward. But the landlord argued their lawsuit should have been barred entirely, since nearly eight years elapsed from “the first overcharge alleged.”

The Court of Appeals agreed with the two lower courts, however, that the four-year limit did not apply because the landlord had not accidentally overcharged the tenants—it had committed fraud. As the Civil Court found during the initial litigation, the landlord constructed a previous false tenant in order to circumvent the rent-control laws and overcharge the present tenants. Because of this, the Court of Appeals said, it was proper for the tenants to seek restitution even though more than four years had passed since the initial overcharge.

One member of the Court of Appeals dissented. Judge Eugene F. Pigott warned the majority's decision “will have several serious and troublesome ramifications,” even for those landlords who are not committing fraud or doing anything illegal:

“Rent records will be subject to challenge indefinitely. Property owners and buyers will have no certainty as to the value of residential rental property. Landlords will have to keep evidence of rent charges indefinitely, in order to preserve their ability to defend against fraudulent rent overcharge claims. And endless litigation will ensue concerning whether tenants are making [a claim of fraud] before any complaint challenging years-old rents can be dismissed.”

Getting the Right Advice

Judge Spigott's dissent should have all New York landlords on alert. The majority's decision may make it easier for tenants to bring rent overcharge claims years, even decades, after the fact. That is why if you are involved in any sort of residential lease subject to rent control, it is important you seek the counsel of an experienced New York real estate attorney. Contact our office today if you would like to speak with an attorney right away.

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