LITIGATION Up date
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coverage issue by a court of competent jurisdiction, or the issuance of an IMD registration number, whichever is first; and (3) An owner has missed a deadline due to the 2013 amendments, which shortened certain deadlines. All extensions granted will be limited to one year in time and one extension per owner per code compliance deadline.
Non-Conforming Units Owners sometimes find that a registered IMD unit cannot be legalized pursuant to the New York City Building Code due to its size, design, or location in the building. In such circumstances, the Executive Director of the Loft Board can order the owner to apply for a variance to obtain approval from DOB, order the owner to alter the plans to make the unit legal or revoke the unit’s Loft Law coverage if the other two options are unavailing.
The Loft Law has changed a great deal over the past three years. The legal issues relating to which units and which tenants can be covered under the New Loft Law continue to be complex. The adoption of the final rules, which took effect September 12, 2013, has offered some needed clarity on how to treat the new wave of buildings being registered as IMDs as a result of the New Loft Law. Lisa Gallaudet (lgallaudet@bbwg.com) is an associate in BBWG’s Litigation Department, concentrating on regulatory issues confronting NYC loft owners.
ADM INISTRAT IVE L AW Up date
The Importance of Applying to Restore Rent By Alexa Englander Tenant complaints resulting in DHCR’s issuance of a Rent Reduction Order for rent stabilized units run the gamut from minor, easily curable conditions to conditions rendering an apartment uninhabitable. With the exception of conditions on the extreme ends of the spectrum (such as de minimis conditions, which are insufficient to warrant a rent reduction, or immediately hazardous conditions, which trigger more serious penalties), the result of DHCR finding a decreased service is generally the same. DHCR will issue an Order Reducing Rent to the level under the tenant’s lease that was in effect prior to the tenant’s filing of a decreased service complaint. DHCR will also direct the owner to restore the deficient service. Many landlords operate under the mistaken belief that (i) a tenant’s rent is automatically restored when the conditions cited in the Rent Reduction Order are corrected, (ii) a landlord may take rent increases subsequent to DHCR’s issuance of a Rent Reduction
Order, so long as the cited conditions no longer exist, (iii) tenant turnover nullifies a Rent Reduction Order and (iv) a new building owner is not liable for overcharges incurred under former ownership. None of these common misconceptions are true. If a landlord does not apply to restore rent after a Rent Reduction Order issues, the landlord may not take any Rent Guidelines Board (“RGB”) or Major Capital Improvement (“MCI”) increases until an Order Restoring Rent issues—even if the conditions cited in the Rent Reduction Order have been restored for years. If a landlord takes RGB or MCI rent increases under the mistaken belief that the rent has been restored, the landlord could incur liability for rent overcharges. Many landlords are also unaware that Rent Reduction Orders are not “wiped out” by the four-year statute of limitations governing most overcharge complaints. In a 2010 decision, the New York State Court of Appeals held that DHCR should, “in calculating any rent overcharge, honor Rent Reduction Orders that, while issued prior to the four-year limitations period, remained in effect during that period.” Based on this
ruling, DHCR’s finding of an overcharge based on a Rent Reduction Order issued years (or, in some cases, decades) prior can result in significant financial liability for a landlord, including treble damages. In addition, overcharge liability is not affected by a change in ownership. The Rent Stabilization Code provides that, with limited exceptions, “a current owner shall be responsible for all overcharge penalties, including penalties based upon overcharges collected by any prior owner.” When a Rent Reduction Order issues, a landlord should take steps to correct the cited conditions and apply to restore the rent as soon as possible. A prospective purchaser should perform thorough due diligence prior to purchasing a rent regulated multiple dwelling, including review of DHCR records to determine whether there could be exposure to overcharge liability based on Rent Reduction Orders issued well in the past. Alexa Englander (aenglander@bbwg.com) is an associate in BBWG’s Administrative Law Department.
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