*1 261, [833 118] NE2d 800 NYS2d al., David L. et v Shlomo Respondents-Appellants, Thornton Defendants, al., et and 390 West Associates, Baron End L.L.C., Appellant-Respondent. 7, 2005; Argued June decided June *2 COUNSEL
POINTS OF City (Magda Wenig LLP, Goldman, & York Belkin Burden New Wenig Berg Jay Belkin, H. of Cruz, and Howard L. Sherwin counsel), regulated appellant-respondent. I. The for prime the subtenants was lease to for the new rent stabilized year properly “the four rule.” in accordance with calculated (Matter Community & YorkState Div. Hous. Gilman v New of of Myers Frankel, 575; v Renewal, 144; AD2d v 292 99 NY2d Zafra Lynch, 213; AD2d Pilkes, 218; AD2d Silver v 283 245 Matter of McCarthy Div. Hous. & Com v New York State Matter of of munity v York Renewal, 313; AD2d Matter Sessler New 290 of Community 262; Renewal, 282 AD2d Mat & State Div. Hous. of Lynch, 325; Kandemir v v AD2d Matter Hatanaka 304 ter of of Community Renewal, 4 & AD3d Div. Hous. New York State of Realty Corp. v New York State Div. Hous. 122; Matter of of AVJ Community Renewal, v 14; AD3d Matter 8 & Brinckerhoff of Community Renewal, 275 Div. Hous. & AD2d New York State of 712.) formula” has no uncodified “default II. The 96 NY2d (Myers Frankel, 2d applicability 608; Misc case. v 184 to this Community Re v Div. Hous. & Co. State Matter Greenthal of of & Miller v Division Hous. newal, 795; 2d Matter 126 Misc of of Spariosu Community v Renewal, 20; New 289 AD2d Matter of Community Renewal, AD2d 649; 285 Hous. & YorkState Div. of Century & v N.Y.Div. Hous. Tower Assoc. State Matter of of of Community v Renewal, Matter Lavanant State 819; 83 NY2d of Community Renewal, 185; 148 AD2d Matter Div. Hous. & of of Community Holding Renewal, & Div. Hous. Co. v State Clear of 430.) apply, is to then III. If a “default formula” AD2d 268 adopt formula at Rent default Court should codified NYCRR) (b) (9 mat remand the 2522.6 and (Mat Community Housing Renewal. the Division ter to Realty Div. Hous. & Com- York State v New ter Cabrini
177 munity Renewal, Zouker, 280; 6 AD3d 390 W.End v Assoc. 302 227.) AD2d Ginsburg, City (Darryl LLP, &
Vernon
New York
M. Vernon
counsel),
respondents-appellants.
and Michael T. Yonker of
I.
prospective
The
rent should be set as of the
commencement
(Simcuski
illusory
Saeli,
442;
the void
v
44
lease.
NY2d
General
Chiappa,
Brooklyn
v
Stencils
18
125;
NY2d
Glus v
Eastern Dist.
Youngstein,
Terminal,
231;
359 US
End
v
W.
Ave. Assoc.
292;
AD2d
Matter
v New
State Div.
York
of Brinckerhoff
Community Renewal,
Hous. &
622;
275 AD2d
Matter
Sessler
Community
v New York
Renewal,
State Div. Hous. &
Baron,
262;
AD2d
390 W.End
v
We asked to establish apartment improperly rent for an removed from rent stabiliza- tion.
Defendant 390 End West Associates is the owner Apthorp, building apartment Upper a residential on the West early upon Side In 1990s, of Manhattan. hit owner apartments protect scheme to remove a number its from the taking advantage statutory regulation by of the tions of exemption nonprimary for Rent Stabilization residences §NY] [a] Code of Law of 1969 [1] [f]). Having included its leases provision that the ten- primary apartments residences, as would not use the ants charging of the leases rent far excess offered at least six such apartments were im- rent. Several of these stabilized agree mediately parties to who would also subleased third nearly every apartment. primarily case, In reside subtenant—despite representa- however, the tenant or either contrary—used primary resi- as tions dence. Baron entered into such
In December defendant Shlomo apart- agreed to four-room terms, Baron rent a a lease. Under its paid previous had a stabilized rent which the tenant ment—for monthly per $2,400, month—for initial $507.85 years. beginning im- three Baron then with increases after Cynthia mediately Thorn- and David subleased the increasing per $3,500 after two $3,250 month, ton for $3,750 and then to after three. by daughter represented in his
Baron these transactions Zipora Weber, rent- Bernard themselves son-in-law, and Apthorp. Indeed, the acted as at the Webers stabilized tenants agents of them Baron’s at least two other tenants—one similarly conspired the owner to circumvent son—who leasing nonprimary apartments as resi- rent stabilization regulated rent, then to so as sublease dences above way, higher apartments the owner rents. In this both at even *4 profits prime the far above what Rent tenants earned and the Law allowed. Stabilization judicial arrangements, sanction of these
In an to obtain effort judgments sought declaratory that won in owner and 1993 the exempt apartments, nonprimary residences, from were as these plaintiff, owner, filed an In each the as rent stabilization. case (named defendant) seeking against declara- its tenant as action Filing purported tory instead answer, defendant no the relief. plaintiff agreeing stipulation quickly to the entered into with upholding par- judgment entry terms of the the of consent the controversy actually Although justiciable bargain. no ties’ parties the courts to achieve endeavored to use existed, the thus regulation. joint freeing apartments purpose the their judicial having leases, of the endorsement Further, obtained setting annual rent statements owner then filed agreed-upon listing apartments forth the and rents as (see temporarily exempt from rent stabilization Rent Stabiliza- NY] § tion Law of 1969 Code [a]). provision purporting exempt apartment
A lease
regulation
exchange
agreement
rent
in
for an
not to use the
primary
against public policy
aas
residence is
and
(see
Georgia
Draper
Props.,
void
v
[1999];
In 2000, November Thorntons amended their adding to name the owner a defendant, as a cause action to compel owner to offer them rent-stabilized lease $507.85 per regulated immediately preceding month—the Baron’s illusory tenancy. response, apart- In owner conceded that subject stabilization, ment was but contended legal rent $2,496— be calculated from a base date rent of the rent reflected the annual statement filed plaintiffs complaint. 1996, four their before filed amended Supreme adopted Court, however, Rather, neither view. court ruled that the rent must fixed be based on the default *5 by Housing Community formula of used Division Re- (DHCR) overcharge newal to set base date rent cases 180 are The no rent records available.1
where reliable majority endorsing question, split with the Division over accepting Supreme methodology and the dissent Court’s regulated plaintiffs’ rent should be that view that the illegal Baron lease in 1992 at commencement of the effect ($507.85). now affirm. We legal regulated
Only question is the one is before us: How below to be established? As courts rent of (RRRA) (L Regulation recognized, Act of Reform 1997 Rent 116) four-year of ch reinforced the statute 1997, clarified and (see overcharge applicable claims Rent to rent limitations City NY] of Law of 1969 [a]) history § by limiting examination of the rental 26-516 prior four-year period preceding housing accommodations filing overcharge complaint Matter Gilman v of an Community Renewal, & 99 NY2d New York State Div. Hous. 33). § 144, 1997, 116, L ch “Where the amount [2002]; 149 registration filed in the annual rent statement rent set forth years prior is not recent four to the most filing, challenged neither rent nor within four of its such challenge any any subject service of shall be (Rent [Administra- of 1969 Stabilization Law time thereafter” [a]). City NY] tive 26-516 Code of complaint—which plaintiffs amended named Here, filed their 2000.2 This 390 as a for the first time—in November defendant prior the limitations an order issued is not situation where obligation period continuing imposed on a landlord to reduce no defense to statute of limitations would be rent, such duty occurring within the on a breach of that action based history apartment’s period. Thus, the rental before limitations may rent in examined, not and the $507.85 November 1996 be being the owner so, relevance.3 That effect 1992 is no legal regulated be established should contends that apart- charged for a rent-stabilized 1. This formula uses the lowest rent building on the relevant of rooms in the the same number same ment with base date. against complaint plaintiffs’ their amended reject 2. contention that We complaint against Baron and the original filed relate back should 1996, within were not united in interest in October because defendants Webers [1995]). (b) (see Coupal, Buran v 87 NY2d meaning of CPLR evade the Rent Stabilization 3. defendants’ fraudulent scheme to Because timely action, filing owner plaintiffs induce to refrain Law did not (see Sim- invoking the statute of limitations equitably estopped is [1978]). Saeli, 44 cuski v NY2d *6 by simple history reference to the rental as of November registration which time an annual ing statement had been filed list- charged disagree. $2,496 rent to Baron.4 We attempt Reflecting an to circumvent the Rent Stabilization public policy York, Law in violation of the Baron New inception. Further, lease was at it void its because the rent purported illegal, to establish was therefore the 1996 rent nullity. listing illegal was rent also agree Supreme circumstances, Under those we Court and majority Division that default formula used by set DHCR to the rent where no rent reliable records are appropriate fixing available vehicle for the base date rent here.5 ignore
The dissent would defendants’ fraudulent conduct and likely apartment’s fix the rent anat amount soon to result in the permanent thereby rewarding from stabilization, removal rent wrongdoing. the owner’s rule, Under the dissent’s a landlord years—however whose fraud remains undetected for four willful egregious simply having or the violation—would, virtue of illegal filed a statement, transform an rent into a lawful assessment that would form for all the basis rent future unscrupulous Indeed, increases. an landlord collusion with register wholly tenant long fictitious, could rent and, exorbitant as years, as the fraud not is discovered four render that unchallengeable. surely rent That was not the intention of the Legislature purpose when it enacted the RRRA. Its was to al- leviate burden on honest landlords to retain rent records (see indefinitely 149), Gilman, 99 NY2d at not to immunize dis- compliance honest ones from with the law.
Although brought overcharge the subtenants who complaint principle hands, themselves had unclean we es- apply equally looking tablish here will to innocent renters illusory contrary succeed tenancies. The dissent’s rule would bring rapid many apartments about the removal legal regulated $2,000, 4. Once rent reaches will be altogether removed stabilization if either the becomes (see City vacant Rent Stabilization Law 1969 [a]) $175,000 § NY] 26-504.2 or the total income tenants’ annual exceeds each preceding two calendar Rent Stabilization Law of 1969 [b]). § [Administrative Code of of NY] 26-504.3 Although 5. 390 proposes adopt that we the default of Rent formula (9 NYCRR) (b), provision by plain Stabilization Code 2522.6 that its terms only sales, applies judicial bankruptcy proceedings mortgage foreclo- sure actions. to light leases have come illusory least six such
stabilization—at very the statute’s alone—undermining purpose the Apthorp cannot housing. agree a stock of affordable We preserving intended such a result. Legislature may that one wrongdoer reach this conclusion “so We 183), so (dissenting of another” but op benefit at expense of the public. that no benefit at wrongdoer may expense *7 af- of the Division should be Accordingly, the order in firmed, answered costs, question without and the certified the affirmative. Act Regulation The Rent Reform (dissenting).
R.S. J. Smith, 1969 provide: amended the Rent Law of to registra- in annual rent the amount of rent set forth the “Where registra- filed four to the most recent years prior tion statement filing, four of its years tion statement is not within challenged subject shall be registration neither such rent nor service of any (Rent thereafter” Stabilization Law any to at time challenge [a]). Today, NY] Code of the of rent set forth challenge the a amount majority upholds statement, challenge brought in a the was although registration was filed. than after the statement years more four wondering I now be what statute, If I had written the would my make clearer. meaning I could have used to possibly words the statute on holding The tries to reconcile its majority (entered containing challenged that the lease theory was challenge brought) into than seven before more (ma- in and “void at its public policy inception” violation of was 181). . reasons, “the rent. . Therefore, at the majority jority op list- . . the 1996 rent illegal, [and] was . 181). at nullity” (majority illegal op rent was also ing this of the time four-year This the effectiveness destroys approach rents illegal no it limitation, protects which has unless point will fail illegal, challenge If a rent is not against challenge. unnecessary. limit four-year and the is anyway holding is the majority’s the true basis for Plainly, is This landlord’s conduct this case. outrageousness “will- of adjectives—“fraudulent,” the torrent apparent “exorbitant,” “fictitious,” ful,” “unscrupulous,” “egregious,” room for in a single finds majority “dishonest”—that 181). is Every adjectives one (majority op paragraph the statute. justifies ignoring of them deserved, but none must, by their and similar enactments of limitations Statutes very protect outrageous Many nature, sometimes conduct. wrongs greater gone than the one done this case have unrem- remedy promptly edied enough. not because victim did seek remedy challenge Here, the subtenants’ the rent years, nothing established 1992 lease four within prevented doing them from so. If the landlord had somehow delaying might tricked them into lawsuit, their the landlord be equitably estopped relying lapse time, on the but noth- ing happened. of that sort brought
Indeed, the are subtenants who this case less coconspirators. landlord’s than victims its The subtenants agreed pay some six times the for question, representation and make the false that it was not primary they their residence, for the obvious reason that could get highly apartment any way. desirable other The real conspiracy person victim the who, was the unknown but parties of all case, misconduct to this could have rented Apthorp in the in 1992 for a bit more than $500 per month. *8 acknowledge despite
I subtenants, their unclean challenge they hands, were entitled to the unlawful rent that agreed pay—but they had I four majority’s to do so and no more. good ignore see no reason for the decision to four-year wrongdoer may limitation so that one benefit at expense modify I another. would therefore Division’s order and $2,496 would hold that the set forth may challenged. in the 1996 not be Judges G.B. and Graffeo con- Smith, Ciparick, Rosenblatt Judge Kaye; Judge sep- cur with Chief R.S. Smith dissents opinion Judge arate in which Read concurs. affirmed,
Order etc.