Comments to RSC Amendments

COMMENTS ON THE PROPOSED AMENDMENTS TO THE RENT STABILIZATION CODE, TO BE SUBMITTED AT THE PUBLIC HEARING SCHEDULED FOR NOVEMBER 15, 2022 ON BEHALF OF ROSENBERG & ESTIS, P.C.

Dated as of November 15, 2022

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NEWLY CREATED APARTMENTS - COMMENTS TO RSC AMENDMENTS PROPOSED PART 20 Summary:

By Part 20, DHCR proposes to add to the Rent Stabilization Code (“RSC”) entirely new subdivision 2521.1(m), which includes subsections (1)-(7). This proposal is ultra vires and without statutory authority. Neither the HSTPA, nor any other legislative amendment or appellate court decision, modified the “newly created apartment” or “First Rent” rules since the most recent RSC amendments were promulgated in 2014. In the absence of any legislative amendments or controlling appellate case decisions modifying those issues, DHCR is powerless to amend that substantive law. (New York City Campaign Finance Board v.

Ortiz, 38 A.D. 3d 75, 826 N.Y.S 2d 244 [1st Dept. 2006]). This is particularly true as to the newly created apartment and first rent issues, as the application of the RSL and ETPA statutes to those issues has been settled law at the agency and in the Appellate Division for decades.

When there is a long-standing application of the governing statute by the agency and courts, only the Legislature has authority to amend that well-established substantive law.

Significantly, legislative proposals to amend the substantive application of newly created apartments and first rents have been considered by the Legislature, and to date have never been adopted. DHCR’s proposal to substantively amend the decades-old application of the RSL, ETPA and appellate case law in light of the Legislature’s failure to do so is ultra vires and without lawful authority.

For these reasons, Part 20 should be withdrawn from the SAPA process, and subdivision 2521.1(m) should not be added to the RSC. Additionally, if promulgated, the proposed subdivision 2521.1(m) may be read to apply in a retroactive manner, which could be wrongly used to roll back existing legal rent increases and high rent deregulation for newly created apartments. Subdivision 2521.1(m) would violate the HSTPA which precludes re-regulation of previously deregulated apartmentsand would constitute a violation of building owners’ due process rights. See, Regina Metro. Co., LLC v New York State Div. of Hous. and Community Renewal, 35 NY3d 332 (2020) (“Regina Metro”).

03 First Rent Law is Well-Established: Subdivision 2521.1(m) proposes to promulgate several confusing and ambiguous formulas to establish first rents in certain newly created and combined housing accommodations.

Put simply, Part 20/Section 2521.1(m) proposes to amend existing substantive law regarding first rents for newly created and combined apartments. The proposed first rent formulas have heretofore never existed in the RSL or ETPA statutes or in any DHCR or court decisions. Market first rents that are not subject to challenge for newly created apartments is a more than four decade-old application of the RSL and ETPA. The DHCR's predecessor agency, the New York City Conciliation and Appeals Board, interpreted the RSL and ETPA as requiring a first rent not subject to challenge for newly created apartments.

DHCR continued that interpretation and application of the RSL and ETPA in light of the statutes’ silence as to that issue.

For almost three (3) decades, the appellate courts have considered and validated this agency application of the statutes. In 300 W. 49th St., Assocs. v. New York State Division of Housing and Community Renewal, 212 A.D. 2d 250, 629 NYS 2d 194 (1st Dept. 1995), the court affirmed the agency First Rent Rule. More importantly, the Appellate Division considered the rationale underlying the policy and confirmed that it was a proper application of the relevant rent regulation statutes:

However, in those cases where the prior rent history of the apartment can no longer be utilized because that prior apartment no longer exists, the DHCR has adopted a rational policy under which a "first rent" may then be charged. It must be noted that the DHCR's policy of allowing a first market rent has been implemented by both the Conciliation and Appeals Board and the DHCR on numerous occasions, over many years, and has recently been cited with approval by this Court (Matter of Myers v. D'Agosta, 202 A.D.2d 223; see also, Matter of Asen Bros. Brook v. Leventhal, 54 N.Y.2d 839; Eberhart v. Eimicke, NYLJ, June 29, 1988, at 22, col 5 [Sup Ct, N.Y. County, Silbermann, J.], affd 151 A.D.2d 1052; Matter of Windsor Plaza Co. v. New York State Div. of Hous. Community Renewal, 144 A.D.2d 1046, lv denied 74 N.Y.2d 605 [confirming Matter of Windsor Plaza Co., Off of Rent Admin PAR docket No. ARL 04966-L]).

04 In the decades since 300 W. 49th St. Assocs. was issued by the Appellate Division, the courts have regularly affirmed the First Rent Rule, and more importantly the RSL and ETPA statutes have never been amended with regard to first rents and combined/newly created apartments although the Legislature had the opportunity to do so. Put simply, since 1995 there has been no change in substantive law which authorizes the DHCR to promulgate 2521.1(m). On the contrary, since that time, numerous Appellate Division decisions have reaffirmed the market First Rent rule and articulated clear substantive rules as to when first rents can be charged and which situations do not qualify for a first rent.

See, e.g., Devlin v. New York State Division of Housing and Community Renewal, 309 A.D. 2d 191, 764 N.Y.S. 2d 100 (1st Dept. 2003); Velasquez v. New York State Division of Housing and Community Renewal, 138 A.D. 3d 1045, 15 N.Y.S 3d 95 (1st Dept. 2015); Dixon v. 105 W. 75th St. LLC, 148 AD 3d 623 (1st Dept. 2017).

The substantive law with respect to when first rents can be charged is well-settled and long-standing at the DHCR and in the appellate courts. Therefore, DHCR is without any authority to unilaterally promulgate completely different and far more restrictive First Rent Rules as proposed in 2521.1(m). To the extent DHCR promulgates such rules, it will constitute an ultra vires act and is unlawful.

It is axiomatic that DHCR, and other regulatory agencies, “may not promulgate a regulation that adds a requirement that does not exist under the statute", Kahal Bnei Emunium & Talmud Torah Bnei Simon Israel v. Town of Fallsburg, 78 N.Y. 2d 194, 204, 573 N.Y.S 2d 43, 57 (1991). The courts have invalidated regulatory agency attempts to substantively amend settled law in the absence of any legislative enactment.Put plainly, once the meaning of the statute is settled, the agency is without power to amend that substantive rule without legislative enactment authorizing that change. In New York City Campaign Finance Board v.

Ortiz, 38 A.D. 3d 75, 826 N.Y.S 2d 244 (1st Dept. 2006), the Appellate Division, First Department invalidated the Board's attempt to impose substantive rules which were not contained in the governing statute. Significantly, the City Council had recently revamped the campaign finance framework through legislative amendments and did not include in that legislation the requirements imposed by the Board. As a result, the Board’s attempt to impose conditions not found in the recently amended statute were invalidated. The Appellate Division held:

05 “However, the City Council, in adopting Local Law No. 58 of 2004, adopted many other amendments to the Act proposed by the Board, but omitted such proposed amendment.”

Like the Appellate Division, the Court of Appeals has rejected an agency promulgating rules where the Legislature has excluded a substantive provision and the agency attempts to interpose a requirement that the Legislature did not include in the statute: “the failure of the legislature to include a matter within a particular statute is an indication that its exclusion was intended". Pajak v. Pajak, 56 N.Y. 2d 394, 397, 452 N.Y.S 2d 381. Part 20/proposed subdivision 2521.1(m) is invalid for the same reasons.

DHCR proposes to promulgate substantive First Rent Rules three years after the Legislature enacted HSTPA, without any legislative authority whatsoever. There is no dispute that the HSTPA was intended by the Legislature as a comprehensive assessment and restructuring of rent regulations for New York City rent stabilized housing. As part of that comprehensive reassessment and restructuring, the Legislature chose not to include any change to the decades-old first rent rules that had been reviewed and approved by the courts up to the Appellate Division. Just as the City Council omitted personal liability in its comprehensive legislative amendments to campaign finance laws in Ortiz, the Legislature deliberately did not amend the first rent rule as part of the HSTPA, such that DHCR cannot impose entirely new rules by agency fiat. Notably, these proposed SAPA amendments to the RSC are literally entitled “Rent Stabilization Code Amendments – HSTPA Revisions.”

However, there were no revisions in the HSTPA as to first rents for newly created units.

DHCR’s “Regulatory Impact Statement” in support of the Proposed RSC Amendments asserts that “the general tenor of HSTPA with its emphasis on the preservation of units at historically reasonable rent militates against creating or continuing regulations that provide for unreviewable rents.” DHCR’s Regulatory Impact Statement effectively admits that portions of the Proposed Amendment are in fact not implementation of statutory revisions contained in the HSTPA, but rather unilateral changes created by DHCR. Part 20/Subdivision 2521.1(m) is one such a unilateral substantive change, and it is ultra vires, unlawful and unenforceable.

06 Finally, Senate Bill S7213-A, prepared and submitted to committee by Senators Kavanagh and Rivera, proposes to enact first rent formulas substantially similar to those proposed in Part 20. S7213-A has been pending since June 7, 2021 and has not passed as of the date of this writing (Copy annexed). Section 1 of that bill proposes to amend RSL Section 26-511 to add a new paragraph (15), which changes the First Rent Rule in a way substantially similar to Proposed Part 20. S7213-A effectively acknowledges that in order to amend the longstanding First Rent Rules, the Legislature must amend the statute. That means that leaders in the legislature recognize that DHCR is not empowered to change the First Rent Rule by amending the RSC. S7213-A is pending in committee, and has never been enacted as a law by the Legislature. For the reasons cited by the Appellate Division in Ortiz, DHCR cannot usurp the role of the Legislature by promulgating subdivision 2521.1(m).

Proposing subdivision 2521.1(m) as part of SAPA amendments does not insulate the amendment from invalidity. The Court of Appeals has ruled that that SAPA rulemaking power does not give the agency “license to correct whatever societal evils it perceives".

Boreali v. Axelrod, 71 N.Y. 1, 9, 523 N.Y.S 2d 464. The legal test of whether DHCR can promulgate 2521.1(m) is whether the proposed regulation is authorized by the enabling statute, consistent with the substantive rules in the statute and governing case law interpretations of the statute. Whether the agency invokes a rule change by decision, policy statement or even SAPA process, if such rule fails the substantive test, it is ultra vires and will be invalidated by the courts. Proposed subdivision 2521.1(m) would be invalided by the courts because it contradicts the long-standing First Rent law, as applied by the Appellate Division, and lacks statutory authority.

If Promulgated, Retroactive Application Must be Explicitly Prohibited: Proposed subdivision 2521.1(m) completely changes the decades-old First Rent Rules.

Moreover, by definition, notice to regulated property owners of these new rules will be the final promulgation of subdivision 2521.1(m). Therefore, if this new subdivision is promulgated, it must include explicit language that it will only apply to physical alterations to create a new apartment or combined apartments that commenced after the final promulgation of Part 20. Any retroactive application of this new subdivision, either explicitly in the text or by application of the rule, to physical alterations commenced prior to final adoption, would be irrational and unconstitutional.

07 Since its initial 1987 enactment, the RSC has always prohibited Code amendments from being retroactively applied where “undue hardship or prejudice would result therefrom” (see, 9 NYCRR 2529.10). Proposed subdivision 2521.1(m) drastically reduces the first rent that can be charged for newly created apartments. Therefore, any application of the new subdivision to any alterations that commenced prior to the final promulgation of the new subdivision would cause both undue hardship and prejudice to the property owner. For that reason alone, the proposed subdivision should be amended to make explicit that it only applies to newly created apartments where the physical alteration commenced after the final promulgation of the new subdivision.

Moreover, any attempt to retroactively apply the new subdivision to any alterations commenced prior to the final promulgation would be unconstitutional. In Regina Metro, the Court of Appeals invalidated the retroactive provisions of Part F of the HSTPA statute itself because it violated due process. The Court ruled that property owners’ pre-existing vested rights to lawful rent adjustments prohibit statutory or code amendments from being applied retroactively even if related to a rational policy goal. The Court of Appeals invalidated the retroactive provisions of Part F of the HSTPA because they would have impaired real property rights by diminishing, or possibly eliminating, the “constitutionally protected return on investment owners realized in the past related to the use of their properties" (35 N.Y. 3d at 382). This constitutional prohibition against retroactive diminution of a prior investment in a property is particularly applicable to attempts to retroactively re-regulate previously permanently deregulated apartments. For example, the HSTPA corrective statute (chapter 39 of 2019) added to the effective date of the HSTPA that “(i) any unit that was lawfully deregulated prior to June 14, 2019 shall remain deregulated.” Even before Regina Metro, the Legislature recognized the constitutional limits to retroactively applying more restrictive rent regulations, and in the corrective statute ruled out re-regulating lawfully deregulated apartments.

Retroactive application of proposed subdivision 2521.1(m) could drastically reduce rents, or even conceivably be used in an attempt to re-regulate previously lawfully deregulated apartments. That would be an impermissible infringement on the constitutional protected right to a return on the investment to create new apartments where the investments were made by property owners years, or even decades, before 2521.1(m) was promulgated. In short, any retroactive application of the proposed subdivision would be punitive and confiscatory and therefore unconstitutional and unenforceable.

08 RENTS AND LOOKBACK - COMMENTS TO PROPOSED RSC AMENDMENTS PARTS 59 AND 60 DHCR is required by law to promulgate amendments to the Rent Stabilization Code (“RSC”) which reflect changes made by statute and controlling case law since its most recent amendments in 2014. On June 14, 2019, the NYS Legislature enacted the Housing Stability and Tenant Protection Act of 2019 (“HSTPA”). The HSTPA (and its correction laws) were the only significant statutory changes made to the ETPA and RSL since the most recent RSC amendments in 2014.

Part F of the HSTPA, on its face, expressly made significant changes, including expanding the statute of limitations for overcharge claims to 6 years, extending lookback to “6 years or more” to the “last reliable registration statement” and expanding treble damages liability for a full 6 years. On its face, Part F of the HSTPA made itself applicable retroactively, to “all pending cases.”

In April 2020, the Court of Appeals decided Regina Metro, which held, inter alia, that Part F of the HSTPA cannot be applied to overcharges which occurred prior to June 14, 2019 because retroactive application would violate an owner’s constitutional substantive due process. Regina Metro expressly did not address overcharges which occurred on or after June 14, 2019. Accordingly, Part F of the HSTPA can be applied prospectively as of June 14, 2019.

The proposed Code amendments seek to condition the lookback base date on the date the overcharge claim is filed, irrespective of when the overcharge occurred. In fact, Part 60 of the proposed amendments is titled “new section 2526.7 concerning rents ‘where the proceeding is commenced on or after 6/14/19.’”Moreover, the proposed Code amendments seek to make June 14, 2015 the permanent base date, as of right, for lookback purposes with respect to overcharges/legal rents.

This proposed Code amendment is wholly inconsistent with the HSTPA, Regina Metro, controlling case law and even DHCR’s own interpretations.Accordingly, Parts 59 and 60 are ultra vires and must be withdrawn and corrected so as to properly apply the HSTPA and Regina Metro.

09 Since April 2020, courts and DHCR have repeatedly held that, pursuant to Regina Metro, complaints alleging pre-HSTPA overcharges must apply the statute and DHCR policies in place at the time the overcharges occurred, and not apply any conflicting HSTPA provisions.

Notably, the date the claim is filed is not, and has never been, a consideration pursuant to Regina Metro.

In Austin v. 25 Grove St. LLC, 202 A.D.3d 429, 430 (1st Dep’t 2022), a tenant filed an overcharge claim in July 2020. The Appellate Division, First Department found the base date to be July 2016, which, consistent with the law in effect when the overcharges occurred (pre-HSTPA), is four years prior to the date the overcharge claim was filed (“Regina Metro applies to this case insofar as it determined that Part F of the HSTPA governing rent overcharges cannot be applied retroactively to overcharges that accrued before the enactment of the HSTPA”) (emphasis added). The Appellate Division did not condition the base date on when the overcharge claim was filed; all that mattered is when the overcharges occurred.

Likewise, DHCR policy is consistent with this clear reading of Regina Metro. See, e.g., Matter of Edwin Finney, Adm. Rev. Dkt. No. IS210018RK (7/12/21) (“HSTPA does not apply to PAR proceedings dealing with overcharges allegedly occurring prior to the effective date of the HSTPA, such as the case herein”).

Proposed subsections 2526.7(d) and (e) are equally wrong and, at best, ambiguous.In an apparent attempt to permanently extend the six year base date to June 14, 2015 as a matter of right, subsection (d) provides that DHCR shall examine rent prior to the base date and subsequent to June 14, 2015 to determine any of the following exceptions, including whether the rent charged or registered is reliable in light of “all available evidence,” including whether an “unexplained increase in the registered or lease rents” or a “fraudulent scheme to destabilize” the apartment rendered such rent/registration “unreliable.” This essentially allows lookback to June 14, 2015 in all cases, because the six year base date is not presumed to be “reliable” until the rent increases from June 14, 2015 through the six year base date can be “explained.”

10 Another exception is “longevity.” This, of course, makes little sense considering that (a) longevity increases always require a lookback of at least eight years, and (b) longevity increases were repealed as of June 14, 2019. Therefore, any longevity increases taken between June 14, 2015 and June 14, 2019 had to have been based on a vacancy at least eight years prior.

Another exception is examining the legal rent where an apartment was vacant or temporarily exempt on the date six years prior to the complaint. However, Parts 59 and 60 give no indication as to how to calculate the legal rent in such a scenario; i.e., the Code does not clarify whether the “bridge the gap” formula promulgated in the 2014 Rent Code Amendments still applies.

Subsection 2526.7(e), the “catch-all” subsection, is the most erroneous of them all because it allows lookback past June 14, 2015 pursuant to Section 2526.1, which existed prior to the recent proposed Code amendments and which DHCR proposes to rename this section “Determination of legal regulated rents…where the proceeding is commenced prior to June 14, 2019.” It reads “DHCR shall examine the rent prior to June 14, 2015 pursuant to 9 NYCRR § 2526.1.” Notably, the language does not explain when and under what circumstances DHCR may look past June 14, 2015; rather, it is a catch-all which is bound to be misapplied and cause arbitrary and unlawful results.Moreover, as set forth above, the two sections are problematic because DHCR lacks any statutory or case precedent to condition lookback on when a claim is filed or when a “proceeding is commenced.” Part 59 proposes to add subsection 2526.1(i), which reads “the procedures and rules set forth in this subdivision shall apply only to proceedings initiated prior to June 14, 2019, except as set forth in Section 2526.7 of this Part.”

11 Therefore, according to Part 60, section 2526.7(e) (which only applies to overcharge claims filed after June 14, 2015) allows for lookback prior to June 14, 2015 “pursuant to” section 2526.1. Part 59, however, says that section 2526.1 only applies to overcharge claims filed prior to June 14, 2015. Those inconsistencies will result in absurd results and arbitrary decisions by DHCR and the courts and will frustrate the legislative intent of the HSTPA.The cross-reference between the two proposed subsections is circular, ambiguous, confusing, and contrary to law and statute. Accordingly, these sections must be withdrawn and corrected.

SUBSTANTIAL REHABILITATION - COMMENTS TO RSC AMENDMENTS PROPOSED PART 9 Part 9 of the proposed Rent Stabilization Code (“RSC”) Amendments modifies subdivision 2520.11(e) so as to modify the criteria to establish substantial rehabilitation of a rent stabilized building. Specifically, Part 9 would (a) repeal the long-standing exception for individual systems that would be exempted from replacement by demonstrating good cause, (b) repeal the presumption of a building’s substandard or deteriorated condition if it was lawfully 80% vacant, and (c) would add to subparagraph 10 that the lack of evidence for any reason, including the passage of time, is not a consideration for the owner’s obligation to substantiate the application.

Perhaps most significantly, Part 9 proposes to change the language of the requirements of a substantial rehabilitation from “a specified percentage not to exceed 75% of listed building wide and individual housing accommodations systems must be replaced” to “a specified percentage of at least 75% of listed building-wide and individual housing accommodation systems, must be replaced,” with no upper limit (emphasis added). As such, DHCR could presumably require 100% of building systems to be replaced, or anything in between “at least” 75% and 100%. Part 9 proposes to authorize DHCR to issue an operational bulletin (not subject to SAPA procedure) to broadly expand substantial rehabilitation requirements by requiring replacement of up to all “listed” building-wide systems (by virtue of the criteria being “at least” 75% now). Part 9 also gives broad discretion to DHCR to greatly expand or change the list of required systems by simple issuance of an operational bulletin (which is, Daniel Gallego Reese Miller as explained above, not subject to SAPA).

Product Manager Project Manager

12 Part 9 proposes to materially change the substantial rehabilitation exemption eligibility rules and standards of proof for eligibility. Any retroactive application of those changes to long-standing substantial rehabilitation rules would violate the RSC and controlling case law. Part 9 should be modified to explicitly provide that all changes to eligibility and proof of substantial rehabilitation apply only to building-wide rehabilitation projects commenced after the final promulgation of Part 9.

No Retroactive Application of This Proposed RSC Amendment: If promulgated, the proposed Part 9 creates the risk of being applied retroactively. Such retroactive application could be wrongly used to issue determinations finding that buildings that were lawfully made exempt by substantial rehabilitation pursuant to the rules in affect prior to Part 9’s promulgation no longer qualify under the new rules. Under the current clearly defined standards, there is no requirement that owners obtain an exemption order from DHCR. If Part 9 is promulgated, buildings that were substantially rehabilitated in compliance with the well-established and long-standing agency and court rules but did not obtain an exemption order may be deemed ineligible. Such a retroactive application of the amendments would violate the RSC. Since its initial 1987 enactment, the RSC has always prohibited Code amendments from being retroactively applied where “undue hardship or prejudice would result therefrom" (see, 9 NYCRR §2529.10). On this basis alone, Part 9 should include explicit language prohibiting application of any new rule to substantial rehabilitation projects commenced before Part 9 is fully adopted.

Moreover, any attempt to retroactively apply Part 9 changes to any substantial rehabilitations commenced prior to the final promulgation would be unconstitutional. In Regina Metro, the Court of Appeals invalidated the retroactive provisions of Part F of the HSTPA statute itself because they constituted due process violations. Property owners’ preexisting vested rights to lawful rent adjustments prohibit statutory or code amendments from being applied retroactively, even if it is related to a rational policy goal. The Court of Appeals invalidated the retroactive provisions of Part F of the HSTPA because they would have impaired vested real property rights by diminishing, or possibly eliminating, the “constitutionally protected return on investment owners realized in the past related to the use of their properties" (Regina Metro, 35 N.Y. 3d at 382).

13 This constitutional prohibition against retroactive diminution of a prior investment in a property is particularly applicable to attempts to retroactively re-regulate previously permanently deregulated apartments. For example, the HSTPA corrective statute (chapter 39 of 2019) added to the effective date provision “(i) any unit that was lawfully deregulated prior to June 14, 2019 shall remain deregulated.” Even before Regina Metro, the Legislature recognized the constitutional limits to retroactively applying more restrictive rent regulations, and in the corrective statute ruled out re-regulating lawfully deregulated apartments.

Retroactive application of proposed subdivision 2520.11(e) could drastically reduce rents, or even conceivably be used in an attempt to re-regulate all of the apartments in previously lawfully deregulated buildings. That would be a clear infringement on the constitutional protected right to a return on the investment to substantially rehabilitate entire buildings made by property owners years, or even decades, before proposed Part 9 was promulgated.

In short, any retroactive application of the proposed changes in Part 9 would be punitive and confiscatory and therefore unconstitutional and unenforceable.

DEMOLITION APPLICATIONS -- COMMENTS TO PROPOSED RSC AMENDMENTS PART 51: Part 51 proposes to amend RSC Section 2524.2(e) so as to redefine a qualifying demolition as the removal of the entire building including the foundation. This violates appellate judicial decisions affirming decades-old policy from DHCR and its predecessors that defines a qualifying demolition as one which leaves the foundation in place, but allows one to “stand in the cellar and see the sky.” There has been no amendment of the RSL, ETPA or appellate case law applying those governing statutes which would permit this amendment.

14 In Peckham v. Calogero, 12 NY3d 424 (2009) the Court of Appeals affirmed decades-old agency application of the RSL, ETPA and RSC which define demolition as not requiring the owner to “raze the structure to the ground…an intent to gut the interior of the building, while leaving the walls intact, has been held as sufficient.” The Court of Appeals ruled that governing law defines a qualifying demolition under RSC 2524.2(e) as a gut demolition that does not require demolition and removal of the building foundation. The Part 51 amendments to 2524.4(e) propose to violate the Court of Appeals’ application of governing law. Part 51 is therefore contrary to law and ultra vires and should be withdrawn.

Part 51 also proposes to amend RSC Section 2524.2(e) so as to require owner demolition applications to include proof of financial ability and approved plans, rather than submit prior to issuance of an order. This proposed amendment has already been effectively rejected by the Appellate Division, First Department as contrary to controlling law in Matter of First NY LLC v. DHCR, 2022 NY Slip Op 05269 (1st Dep’t 2022).

The proof of financial ability amendments in Part 51 are ambiguous and could be misapplied so as to require proof of the financial ability to construct the planned new building. The Appellate Division, First Department has recently rejected DHCR’s attempt to expand proof of good faith beyond demolishing the existing building. In Matter of First NY LLC, the First Department ruled that governing law provides that the owner only needs to establish approved plans and financial ability to demolish the existing structure, not to finance construction of the post-demolition new building. The First Department ruled:

In the case at bar, respondent Greg Marshall is the sole remaining tenant in a building, owned by petitioner, which petitioner plans to demolish. The record establishes that petitioner has demonstrated its intention to demolish the building by submitting to DHCR detailed demolition plans, contracts, proof of segregated funds, and the regulatory approval of the New York City Department of Buildings.

Nonetheless, DHCR denied petitioner’s application for permission to decline to renew Marshall’s lease on the stated ground that petitioner “fail[ed] to provide approved post-demolition planning for the site and segregation of the funding for same” (emphasis added). Petitioner then brought this article 78 proceeding to annul DHCR’s determination.

Supreme Court denied the petition. On petitioner’s appeal, we reverse.

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DHCR’s denial of the application was an error of law and was arbitrary and capricious (see CPLR 7803[3]). On this record, DHCR had no rational basis for concluding that petitioner failed to establish “good faith” in seeking not to renew the tenant’s lease for purposes of demolition, given petitioner’s documentation of its plans, contracts, financing, and approvals for the contemplated demolition. Petitioner’s failure to submit similar documentation of its plans for the property after the demolition of the presently existing building does not logically negate petitioner’s proof of its demolition plans.”

As stated above, DHCR, and other regulatory agencies, “may not promulgate a regulation that adds a requirement that does not exist under the statute,” Kahal Bnei Emunium & Talmud Torah Bnei Simon Israel, supra. The Courts have invalidated regulatory agency attempts to substantively amend settled law in the absence of any legislative enactment.

Once the meaning of the statute is settled, the agency is without power to amend that substantive rule without legislative enactment authorizing that change, New York City Campaign Finance Board v. Ortiz, supra.

DHCR has no authority to promulgate Part 51. Indeed, the Appellate Division in Matter of First NY LLC has recently rejected DHCR’s attempt to impose the requirement of proof of financial ability to construct the new building, and the Court of Appeals in Peckham has ruled that a gut demolition leaving the foundation in place qualifies as a demolition. Part 51 is an unlawful attempt to circumvent controlling appellate case law, and it should be withdrawn.

16 LUXURY DEREGULATION / RENT ACT OF 2015 COMMENTS TO REGULATORY IMPACT STATEMENT While the Proposed RSC Amendments make no mention of high rent vacancy deregulation between 2015 and 2019, DHCR’s Regulatory Impact Statement nevertheless addresses and evaluates the issue. Unlike the Proposed RSC Amendments text, the high rent vacancy deregulation policy set forth in DHCR’s Regulatory Impact Statement is clear. However, although clear, the policy is wrong and wholly inconsistent with controlling law. DHCR’s erroneous high rent vacancy deregulation policy requires correction.

A canon of New York jurisprudence is that lower courts and agencies are bound to not only follow statutes, but that they are bound by appellate and otherwise controlling case law.

DHCR is no different and must comply with the governing statute and controlling appellate case law. DHCR violates this controlling law and instead appears to unilaterally deem an appellate-decided issue “not the final word” and instead relies on a single decision of the Housing Court that is no longer binding. There can be nothing more ultra vires than this.

The issue which DHCR erroneously evaluates in its Regulatory Impact Statement is whether, pursuant to the Rent Act of 2015 and during the period from June 2015 through June 2019, high rent vacancy deregulation can be effectuated where the incoming (but not the outgoing) tenant has a legal rent above the deregulation threshold.

One Housing Court judge, in a Kings County case titled People’s Home Improvement v. Kindig, 2019 NY Slip Op 29301 (Civ Ct Kings County 2019), held that in order to effectuate high rent vacancy deregulation pursuant to the Rent Act of 2015, the statute requires an outgoing tenant with a rent above the deregulation threshold.

The Appellate Term, Second Department, however, overruled Kindig in 326 Starr Realty v.

Martinez, 2021 NY Slip Op 21358 (AT2 2022). In 326 Starr, the Appellate Term held that only an incoming tenant with a rent above the deregulation threshold is needed to effectuate high rent vacancy deregulation pursuant to the Rent of 2015 (colloquially, albeit inaccurately, termed by many as the “Altman rule”).

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On Page 24 (subparagraph (i)) of its Regulatory Impact Statement, DHCR writes:

[T]he impact of the changes made by the Rent Act of 2015 has been the subject other litigation. In People’s Home Improvement LL v.

Kindig, the Court held that the rent in effect prior to vacancy controlled whether the rent exceeded the threshold to effect deregulation. More recently in 3265 Starr LLC v. Martinez, 202 N.Y. Misc. Lexis 6681, the Appellate Term 2nd Department reached the opposite conclusion.

DHCR omits many important facts in formulating this unsupported policy. DHCR conspicuously omits the deciding court in Kindig, which of course is a Housing Court (Civ. Ct., Kings County) decision. 326 Starr (incorrectly called “3265 Starr” in the Regulatory Impact Statement) is an Appellate Term, Second Department decision. The Appellate Term, Second Department is the controlling appellate court with respect to Kings County Housing Court and binds all Housing Courts in Kings County by its decisions. Accordingly, 326 Starr preempts Kindig and any other Housing Court, Kings County cases.

Kindig therefore has no precedential value whatsoever. DHCR has no support for its unilateral decision to interpret the Rent Act of 2015 in contravention of 326 Starr, which is the law of the land (at least in the Second Department).

DHCR’s Regulatory Impact Statement compounds this error by failing to cite court decisions that have followed 326 Starr. Even courts outside of the Second Department have correctly followed 326 Starr, such that it is the controlling law. For example, in Perugini v. 162-164 82nd St., LLC, 2022 NY Slip Op 32643(U) (Sup. Ct. NY County 2022), which was issued prior to DHCR’s release of the proposed RSC amendments and Regulatory Impact Statement, the Supreme Court, New York County, cited 326 Starr and held that only an incoming tenant’s rent need exceed the deregulation threshold pursuant to the Rent Act of 2015.

18 DHCR’s Regulatory Impact Statement bases policy on one non-binding Housing Court, Kings County decision instead of an Appellate Term, Second Department decision and a recent Supreme Court, New York County decision. The Impact Statement is therefore contrary to controlling law, and the stated policy itself should and would be invalidated by the courts.

DHCR continues:

DHCR does not believe that the 3265 Starr decision will necessarily be the final word from the courts nor is it yet ripe for resolution by regulation. DHCR shall instead for the time being makes (sic) its own assertion in cases that come before it which will be subject to judicial review.

DHCR cannot, as a matter of law, disregard controlling appellate decisions applying the controlling statutes and impose an erroneous interpretation of the governing statutes by fiat. That is the very definition of ultra vires. For these reasons, DHCR’s Regulatory Impact Statement must be withdrawn and corrected consistent with 326 Starr which is the controlling judicial application of the statute. See Matter of KSLM-Columbus Apts., Inc. v.

DHCR, 2005 NY Slip Op 04989 (2005).

Addendum: Senate Bill S7213A

STATE OF NEW YORK ________________________________________________________________________ 7213--A 2021-2022 Regular Sessions

IN SENATE June 7, 2021 ___________ Introduced by Sens. KAVANAGH, RIVERA -- read twice and ordered printed, and when printed to be committed to the Committee on Rules -- committee discharged, bill amended, ordered reprinted as amended and recommitted to said committee AN ACT to amend the administrative code of the city of New York, in relation to establishing the legal regulated rent for the combination of two or more vacant apartments; to amend the public housing law, in relation to defining permanently vacated; to amend the emergency tenant protection act of nineteen seventy-four, in relation to exemptions from rent stabilization on the basis of substantial rehabilitation; and to repeal paragraph 9 of subdivision a of section 26-405 of the administrative code of the city of New York, in relation to public hearings by the city rent agency (Part A); to amend the administrative code of the city of New York, chapter 576 of the laws of 1974, constituting the emergency tenant protection act of nineteen seventy-four, and chapter 274 of the laws of 1946, constituting the emergency housing rent control law, in relation to major capital improvements (Part B); to amend the multiple dwelling law, in relation to rent impairing violations; and to amend the real property actions and proceedings law, in relation to eviction proceedings (Part C); and to apply the Housing Stability and Tenant Protection Act of 2019 to rent calculations and rent records maintenance and destruction (Part D) The People of the State of New York, represented in Senate and Assembly, do enact as follows: 1 2 3 4 5 6

Section 1. This act enacts into law components of legislation relating to rent regulation and tenant protection. Each component is wholly contained within a Part identified as Parts A through D. The effective date for each particular provision contained within such Part is set forth in the last section of such Part. Any provision in any section contained within a Part, including the effective date of the Part, which EXPLANATION--Matter in italics (underscored) is new; matter in brackets [ ] is old law to be omitted.

LBD11064-05-1

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1 2 3 4

makes reference to a section "of this act", when used in connection with that particular component, shall be deemed to mean and refer to the corresponding section of the Part in which it is found. Section three of this act sets forth the general effective date of this act.

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PART A

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Section 1. Paragraph 9 of subdivision a of section 26-405 of the administrative code of the city of New York is REPEALED. § 2. Subdivision c of section 26-511 of the administrative code of the city of New York is amended by adding a new paragraph 15 to read as follows: (15) where an owner combines two or more vacant apartments formerly subject to this section, the legal regulated rent for the combined unit may not exceed the sum of the rents of the formerly separate units.

Where an owner reduces the dimensions of a rent stabilized unit, or combines part of that unit with a neighboring unit, the legal regulated rent for the reduced unit shall be the prior rent, reduced in proportion to the reduction in floor area; the rent for any expanded neighboring unit may not exceed the former rent for that unit. § 3. The opening paragraph of paragraph (a) of subdivision 4 of section 14 of the public housing law, as added by chapter 116 of the laws of 1997, is amended to read as follows: that unless otherwise prohibited by occupancy restrictions based upon income limitations pursuant to federal, state or local law, regulations or other requirements of governmental agencies, any member of the tenant's family, as defined in paragraph (c) of this subdivision, shall succeed to the rights of a tenant under such acts and laws where the tenant has permanently vacated the housing accommodation and such family member has resided with the tenant in the housing accommodation as a primary residence for a period of no less than two years, or where such person is a "senior citizen" or a "disabled person," as defined in paragraph (c) of this subdivision, for a period of no less than one year, immediately prior to the permanent vacating of the housing accommodation by the tenant, or from the inception of the tenancy or commencement of the relationship, if for less than such periods.

For the purposes of this paragraph, "permanently vacated" shall mean the date when the tenant of record physically moves out of the housing accommodation and permanently ceases to use it as their primary residence, regardless of subsequent contacts with the unit or the signing of lease renewals or continuation of rent payments. The minimum periods of required residency set forth in this subdivision shall not be deemed to be interrupted by any period during which the "family member" temporarily relocates because he or she: § 4. Paragraph 5 of subdivision a of section 5 of section 4 of chapter 576 of the laws of 1974 constituting the emergency tenant protection act of nineteen seventy-four, is amended to read as follows: (5) housing accommodations in buildings completed or buildings substantially rehabilitated as family units on or after January first, nineteen hundred seventy-four; provided that an owner claiming exemption from rent stabilization on the basis of substantial rehabilitation shall seek approval from state division of housing and community renewal within one year of the completion of the substantial rehabilitation, or for any building previously alleged to have been substantially rehabilitated before the effective date of the chapter of the laws of two thousand twenty-one that amended this paragraph, within six months of such effec-

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

tive date, and ultimately obtain such approval, which shall be denied on the following grounds: (a) the owner or its predecessors in interest have engaged in harassment of tenants in the five years preceding the completion of the substantial rehabilitation; (b) the building was not in a seriously deteriorated condition requiring substantial rehabilitation; (c) the owner's or its predecessors in interest's acts or omissions in failing to maintain the building materially contributed to the seriously deteriorated condition of the premises; or (d) the substantial rehabilitation work was performed in a piecemeal fashion and was not completed in a reasonable amount of time, during which period the building was at least eighty percent vacant; § 5. This act shall take effect immediately and shall apply to all pending proceedings on and after such date; provided that the amendments to section 26-511 of chapter 4 of title 26 of the administrative code of the city of New York made by section two of this act shall expire on the same date as such law expires and shall not affect the expiration of such law as provided under section 26-520 of such law.

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PART B

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Section 1. Subparagraph (g) of paragraph 1 of subdivision g of section 26-405 of the administrative code of the city of New York, as amended by section 27 of part Q of chapter 39 of the laws of 2019, is amended to read as follows: (g) There has been since July first, nineteen hundred seventy, a major capital improvement essential for the preservation energy efficiency, functionality, or infrastructure of the entire building, improvement of the structure including heating, windows, plumbing and roofing but shall not be for operational costs or unnecessary cosmetic improvements. The temporary increase based upon a major capital improvement under this subparagraph for any order of the commissioner issued after the effective date of the chapter of the laws of two thousand nineteen that amended this subparagraph shall be in an amount sufficient to amortize the cost of the improvements pursuant to this subparagraph (g) over a twelve-year period for buildings with thirty-five or fewer units or a twelve and one-half year period for buildings with more than thirty-five units, and shall be removed from the legal regulated rent thirty years from the date the increase became effective inclusive of any increases granted by the applicable rent guidelines board. Temporary major capital improvement increases shall be collectible prospectively on the first day of the first month beginning sixty days from the date of mailing notice of approval to the tenant. Such notice shall disclose the total monthly increase in rent and the first month in which the tenant would be required to pay the temporary increase. An approval for a temporary major capital improvement increase shall not include retroactive payments. The collection of any increase shall not exceed two percent in any year from the effective date of the order granting the increase over the rent set forth in the schedule of gross rents, with collectability of any dollar excess above said sum to be spread forward in similar increments and added to the rent as established or set in future years.

Upon vacancy, the landlord may add any remaining balance of the temporary major capital improvement increase to the legal regulated rent.

Notwithstanding any other provision of the law, for any renewal lease commencing on or after June 14, 2019, the collection of any rent

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increases due to any major capital improvements approved on or after June 16, 2012 and before June 16, 2019 shall not exceed two percent in any year for any tenant in occupancy on the date the major capital improvement was approved[,]; provided, however, no application for a major capital improvement rent increase shall be approved by the division of housing and community renewal unless the owner of the property has filed all copies of permits pertaining to the major capital improvement work with such application. Any application submitted with fraudulent permits or without required permits shall be denied; or § 2. Paragraph 6 of subdivision c of section 26-511 of the administrative code of the city of New York, as separately amended by section 12 of part K of chapter 36 and section 28 of part Q of chapter 39 of the laws of 2019, is amended to read as follows: (6) provides criteria whereby the commissioner may act upon applications by owners for increases in excess of the level of fair rent increase established under this law provided, however, that such criteria shall provide (a) as to hardship applications, for a finding that the level of fair rent increase is not sufficient to enable the owner to maintain approximately the same average annual net income (which shall be computed without regard to debt service, financing costs or management fees) for the three year period ending on or within six months of the date of an application pursuant to such criteria as compared with annual net income, which prevailed on the average over the period nineteen hundred sixty-eight through nineteen hundred seventy, or for the first three years of operation if the building was completed since nineteen hundred sixty-eight or for the first three fiscal years after a transfer of title to a new owner provided the new owner can establish to the satisfaction of the commissioner that he or she acquired title to the building as a result of a bona fide sale of the entire building and that the new owner is unable to obtain requisite records for the fiscal years nineteen hundred sixty-eight through nineteen hundred seventy despite diligent efforts to obtain same from predecessors in title and further provided that the new owner can provide financial data covering a minimum of six years under his or her continuous and uninterrupted operation of the building to meet the three year to three year comparative test periods herein provided; and (b) as to completed buildingwide major capital improvements, for a finding that such improvements are deemed depreciable under the Internal Revenue Code and that the cost is to be amortized over a twelve-year period for a building with thirty-five or fewer housing accommodations, or a twelve and one-half-year period for a building with more than thirty-five housing accommodations, for any determination issued by the division of housing and community renewal after the effective date of the [the] chapter of the laws of two thousand nineteen that amended this paragraph and shall be removed from the legal regulated rent thirty years from the date the increase became effective inclusive of any increases granted by the applicable rent guidelines board. Temporary major capital improvement increases shall be collectible prospectively on the first day of the first month beginning sixty days from the date of mailing notice of approval to the tenant.

Such notice shall disclose the total monthly increase in rent and the first month in which the tenant would be required to pay the temporary increase. An approval for a temporary major capital improvement increase shall not include retroactive payments. The collection of any increase shall not exceed two percent in any year from the effective date of the order granting the increase over the rent set forth in the schedule of gross rents, with collectability of any dollar excess above said sum to

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be spread forward in similar increments and added to the rent as established or set in future years. Upon vacancy, the landlord may add any remaining balance of the temporary major capital improvement increase to the legal regulated rent. Notwithstanding any other provision of the law, for any renewal lease commencing on or after June 14, 2019, the collection of any rent increases due to any major capital improvements approved on or after June 16, 2012 and before June 16, 2019 shall not exceed two percent in any year for any tenant in occupancy on the date the major capital improvement was approved or based upon cash purchase price exclusive of interest or service charges. Where an application for a temporary major capital improvement increase has been filed, a tenant shall have sixty days from the date of mailing of a notice of a proceeding in which to answer or reply. The state division of housing and community renewal shall provide any responding tenant with the reasons for the division's approval or denial of such application. The division of housing and community renewal shall require the submission of copies of all permits pertaining to major capital improvement work with any application for a major capital improvement rent increase. Any application submitted with fraudulent permits or without required permits shall be denied. Notwithstanding anything to the contrary contained herein, no hardship increase granted pursuant to this paragraph shall, when added to the annual gross rents, as determined by the commissioner, exceed the sum of, (i) the annual operating expenses, (ii) an allowance for management services as determined by the commissioner, (iii) actual annual mortgage debt service (interest and amortization) on its indebtedness to a lending institution, an insurance company, a retirement fund or welfare fund which is operated under the supervision of the banking or insurance laws of the state of New York or the United States, and (iv) eight and one-half percent of that portion of the fair market value of the property which exceeds the unpaid principal amount of the mortgage indebtedness referred to in subparagraph (iii) of this paragraph. Fair market value for the purposes of this paragraph shall be six times the annual gross rent. The collection of any increase in the stabilized rent for any apartment pursuant to this paragraph shall not exceed six percent in any year from the effective date of the order granting the increase over the rent set forth in the schedule of gross rents, with collectability of any dollar excess above said sum to be spread forward in similar increments and added to the stabilized rent as established or set in future years; § 3. Paragraph 3 of subdivision d of section 6 of section 4 of chapter 576 of the laws of 1974, constituting the emergency tenant protection act of nineteen seventy-four, as amended by section 26 of part Q of chapter 39 of the laws of 2019, is amended to read as follows: (3) there has been since January first, nineteen hundred seventy-four a major capital improvement essential for the preservation, energy efficiency, functionality, or infrastructure of the entire building, improvement of the structure including heating, windows, plumbing and roofing, but shall not be for operation costs or unnecessary cosmetic improvements. An adjustment under this paragraph shall be in an amount sufficient to amortize the cost of the improvements pursuant to this paragraph over a twelve-year period for a building with thirty-five or fewer housing accommodations, or a twelve and one-half period for a building with more than thirty-five housing accommodations and shall be removed from the legal regulated rent thirty years from the date the increase became effective inclusive of any increases granted by the applicable rent guidelines board, for any determination issued by the

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division of housing and community renewal after the effective date of the chapter of the laws of two thousand nineteen that amended this paragraph. Temporary major capital improvement increases shall be collectable prospectively on the first day of the first month beginning sixty days from the date of mailing notice of approval to the tenant.

Such notice shall disclose the total monthly increase in rent and the first month in which the tenant would be required to pay the temporary increase. An approval for a temporary major capital improvement increase shall not include retroactive payments. The collection of any increase shall not exceed two percent in any year from the effective date of the order granting the increase over the rent set forth in the schedule of gross rents, with collectability of any dollar excess above said sum to be spread forward in similar increments and added to the rent as established or set in future years. Upon vacancy, the landlord may add any remaining balance of the temporary major capital improvement increase to the legal regulated rent. Notwithstanding any other provision of the law, the collection of any rent increases for any renewal lease commencing on or after June 14, 2019, due to any major capital improvements approved on or after June 16, 2012 and before June 16, 2019 shall not exceed two percent in any year for any tenant in occupancy on the date the major capital improvement was approved[,]; provided, however, no application for a major capital improvement rent increase shall be approved by the division of housing and community renewal unless the owner of the property has filed all copies of permits pertaining to the major capital improvement work with such application. Any application submitted with fraudulent permits or without required permits shall be denied; or § 4. Subparagraph 7 of the second undesignated paragraph of paragraph (a) of subdivision 4 of section 4 of chapter 274 of the laws of 1946, constituting the emergency housing rent control law, as separately amended by section 25 of part Q of chapter 39 and section 14 of part K of chapter 36 of the laws of 2019, is amended to read as follows: (7) there has been since March first, nineteen hundred fifty, a major capital improvement essential for the preservation, energy efficiency, functionality, or infrastructure of the entire building, improvement of the structure including heating, windows, plumbing and roofing, but shall not be for operational costs or unnecessary cosmetic improvements; which for any order of the commissioner issued after the effective date of the chapter of the laws of two thousand nineteen that amended this paragraph the cost of such improvement shall be amortized over a twelveyear period for buildings with thirty-five or fewer units or a twelve and one-half year period for buildings with more than thirty-five units, and shall be removed from the legal regulated rent thirty years from the date the increase became effective inclusive of any increases granted by the applicable rent guidelines board. Temporary major capital improvement increases shall be collectible prospectively on the first day of the first month beginning sixty days from the date of mailing notice of approval to the tenant. Such notice shall disclose the total monthly increase in rent and the first month in which the tenant would be required to pay the temporary increase. An approval for a temporary major capital improvement increase shall not include retroactive payments. The collection of any increase shall not exceed two percent in any year from the effective date of the order granting the increase over the rent set forth in the schedule of gross rents, with collectability of any dollar excess above said sum to be spread forward in similar increments and added to the rent as established or set in future years.

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Upon vacancy, the landlord may add any remaining balance of the temporary major capital improvement increase to the legal regulated rent.

Notwithstanding any other provision of the law, for any renewal lease commencing on or after June 14, 2019, the collection of any rent increases due to any major capital improvements approved on or after June 16, 2012 and before June 16, 2019 shall not exceed two percent in any year for any tenant in occupancy on the date the major capital improvement was approved; provided, however, where an application for a temporary major capital improvement increase has been filed, a tenant shall have sixty days from the date of mailing of a notice of a proceeding in which to answer or reply. The state division of housing and community renewal shall provide any responding tenant with the reasons for the division's approval or denial of such application; provided, however, no application for a major capital improvement rent increase shall be approved by the division of housing and community renewal unless the owner of the property has filed all copies of permits pertaining to the major capital improvement work with such application.

Any application submitted with fraudulent permits or without required permits shall be denied; or § 5. This act shall take effect immediately; provided that the amendments to section 26-405 of the city rent and rehabilitation law made by section one of this act shall remain in full force and effect only as long as the public emergency requiring the regulation and control of residential rents and evictions continues, as provided in subdivision 3 of section 1 of the local emergency housing rent control act; provided, further, that the amendments to section 26-511 of the rent stabilization law of nineteen hundred sixty-nine made by section two of this act shall expire on the same date as such law expires and shall not affect the expiration of such law as provided under section 26-520 of such law, as from time to time amended.

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PART C

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Section 1. Subdivision 3 of section 302-a of the multiple dwelling law, as added by chapter 911 of the laws of 1965, is amended to read as follows: 3. a. If (i) the official records of the department shall note that a rent impairing violation exists or existed in respect to a multiple dwelling and that notice of such violation has been given by the department, by mail, to the owner last registered with the department and (ii) such note of the violation [is] was not cancelled or removed of record within [six] three months after the date of such notice of such violation, then for the period that such violation remains uncorrected after the expiration of said [six] three months, no rent shall be recovered by any owner for any premises in such multiple dwelling used by a resident thereof for human habitation in which the condition constituting such rent impairing violation exists, provided, however, that if the violation is one that requires approval of plans by the department for the corrective work and if plans for such corrective work shall have been duly filed within [three months] one month from the date of notice of such violation by the department to the owner last registered with the department, the [six-months] three month period aforementioned shall not begin to run until the date that plans for the corrective work are approved by the department; if plans are not filed within said [threemonths] one month period or if so filed, they are disapproved and amendments are not duly filed within thirty days after the date of notifica-

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tion of the disapproval by the department to the person having filed the plans, the [six-months] three month period shall be computed as if no plans whatever had been filed under this proviso. If a condition constituting a rent impairing violation exists in the part of a multiple dwelling used in common by the residents or in the part under the control of the owner thereof, the violation shall be deemed to exist in the respective premises of each resident of the multiple dwelling. b. The provisions of subparagraph a shall not apply if (i) the condition referred to in the department's notice to the owner last registered with the department did not in fact exist, notwithstanding the notation thereof in the records of the department; (ii) the condition which is the subject of the violation has in fact been corrected within the three month period required by subparagraph a of this subdivision, though the note thereof in the department has not been removed or cancelled; (iii) the violation has been caused by the resident from whom rent is sought to be collected or by members of his family or by his guests or by another resident of the multiple dwelling or the members of the family of such other resident or by his guests, or (iv) the resident proceeded against for rent has refused entry to the owner for the purpose of correcting the condition giving rise to the violation. c. To raise a defense under subparagraph a in any action to recover rent or in any special proceeding for the recovery of possession because of non-payment of rent, the resident must affirmatively plead and prove the material facts under subparagraph a[, and must also deposit with the clerk of the court in which the action or proceeding is pending at the time of filing of the resident's answer the amount of rent sought to be recovered in the action or upon which the proceeding to recover possession is based, to be held by the clerk of the court until final disposition of the action or proceeding at which time the rent deposited shall be paid to the owner, if the owner prevails, or be returned to the resident if the resident prevails. Such deposit of rent shall vitiate any right on the part of the owner to terminate the lease or rental agreement of the resident because of nonpayment of rent]. d. If a resident voluntarily pays rent or an installment of rent when he or she would be privileged to withhold the same under subparagraph a, he or she shall [not thereafter] have [any] a claim or cause of action to recover back the rent or installment of rent so paid.

A voluntary payment within the meaning hereof shall mean payment other than one made pursuant to a judgment in an action or special proceeding. e. [If upon the trial of any action to recover rent or any special proceeding for the recovery of possession because of non-payment of rent it shall appear that the resident has raised a defense under this section in bad faith, or has caused the violation or has refused entry to the owner for the purpose of correcting the condition giving rise to the violation, the court, in its discretion, may impose upon the resident the reasonable costs of the owner, including counsel fees, in maintaining the action or proceeding not to exceed one hundred dollars.] The department shall notify the resident and owner when a rent impairing violation has been placed in their apartment. The notification shall include a list of the rent impairing violations placed and an explanation of the resident's right to raise the rent impairing violations as a defense in any action to recover rent or in any special proceeding for the recovery of possession because of non-payment of rent. § 2. Subdivisions 10 and 11 of section 713 of the real property actions and proceedings law, subdivision 10 as amended by chapter 467 of

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the laws of 1981 and subdivision 11 as added by chapter 312 of the laws of 1962, are amended to read as follows: 10. The person in possession has entered the property or remains in possession by force or unlawful means and he or she or his or her predecessor in interest was not in quiet possession for three years before the time of the forcible or unlawful entry or detainer and the petitioner was peaceably in actual possession at the time of the forcible or unlawful entry or in constructive possession at the time of the forcible or unlawful detainer. Any lawful occupant, physically or constructively in possession, who has been evicted or dispossessed without the court process mandated by section seven hundred eleven of this article, may commence a proceeding under this subdivision to be restored to possession, and shall be so restored upon proof that their eviction was unlawful; no notice to quit shall be required in order to maintain a proceeding under this subdivision.

11. The person in possession entered into possession as an incident to employment by petitioner, and the time agreed upon for such possession has expired or, if no such time was agreed upon, the employment has been terminated[; no notice to quit shall be required in order to maintain the proceeding under this subdivision]. § 3. Subdivisions 2 and 3 of section 732 of the real property actions and proceedings law, as amended by section 14 of part M of chapter 36 of the laws of 2019, are amended to read as follows: 2. If the respondent answers, the clerk shall fix a date for trial or hearing not less than three nor more than eight days after joinder of issue, and shall immediately notify by mail the parties or their attorneys of such date. If the determination be for the petitioner, the issuance of a warrant shall not be stayed for more than five days from such determination, except as provided in section seven hundred fifty-three of this article. If the respondent fails to appear on such date, the court, after making an assessment, pursuant to section three thousand two hundred fifteen of the civil practice law and rules, may issue a judgment in favor of the petitioner and the issuance of the warrant shall be stayed for a period not to exceed ten days from the date of service, except as provided in section seven hundred fifty-three of this article.

3. If the respondent fails to answer within ten days from the date of service, as shown by the affidavit or certificate of service of the notice of petition and petition, [the judge shall render judgment in favor of the petitioner and] the petitioner may make an application for a default judgment. Upon this application, the clerk shall fix a date for inquest and immediately notify by mail the parties or their attorneys of such date. If the respondent fails to appear on such date, the court, after making an assessment, pursuant to section three thousand two hundred fifteen of the civil practice law and rules, may issue a judgment in favor of the petitioner and may stay the issuance of the warrant for a period of not to exceed ten days from the date of service, except as provided in section seven hundred fifty-three of this article. § 4. This act shall take effect immediately and shall apply to all pending proceedings on and after such date.

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Part D

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Section 1. Legislative findings. declares that:

The

legislature

hereby

finds

and

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(a) the pool of rent regulated apartments in New York state contains an unacceptably high number of apartments in which the current rents are based on prior rents that exceeded the legal regulated rent at the time they were charged, but for which remedies were limited under the law in effect before the effective date of the Housing Stability and Tenant Protection Act of 2019 (HSTPA); (b) it is public policy prospectively to reduce, insofar as possible, those rents to a level in line with what they would have been in the absence of the unlawful rent setting and deregulations that were permitted under prior law to go unremedied, and therefore to impose the rent calculation standards of the HSTPA prospectively from the date of its enactment, including in cases where the pre-HSTPA rent has already been established by a court or administrative agency; (c) the purpose of the prospective application of the penalty and record review provisions of the HSTPA is to prevent the perpetual collection of unlawful and inflated rents, and to encourage the voluntary registration of any rent stabilized apartment for which any prior annual registration statement has not been filed, and to encourage the voluntary recalculation of unreliable pre-HSTPA rents; (d) in light of court decisions arising under the HSTPA, including Regina Metro v. DHCR, it is public policy that the legislature define clearly the prospective reach of that law, and limit, to the extent required by the constitution, the retroactive reach of that law; (e) despite Regina, the scope of the fraud exception to the pre-HSTPA four-year rule for calculating rents remains unsettled and the subject of litigation, and it is therefore public policy that the legislature codify, without expanding or reducing the liability of landlords under pre-HSTPA law, the standard for applying that exception; (f) the New York state division of housing and community renewal (DHCR) misinterpreted the rent stabilization law for a significant period of time with respect to the regulatory obligations arising from the receipt of J-51 and 421-a tax benefits resulting in the unlawful deregulation of tens of thousands of rent-stabilized apartments, the setting of unlawful rents, and the collection of millions of dollars of rent overcharges, during a housing emergency. Both landlords and tenants relied upon the DHCR's misinterpretation of the law. In Regina, the Court of Appeals settled many of the issues arising from overcharge claims by tenants who were misled into refraining from filing overcharge cases during the period when DHCR's erroneous interpretation of the law was in effect, but left open the issue of whether a landlord's ongoing collection of overcharges and failure to return apartments to rent-stabilization, after the law was clarified, should be treated as fraud; (g) the integrity of the registration system for rent regulated housing has been eroded by the use of base date rents, rather than the service and filing of reliable registration statements, to set rents under the law in effect between the enactment of the Rent Regulation Reform Act of 1997 and the HSTPA. It is therefore public policy to impose, prospectively from the date of the enactment of the HSTPA, a rent calculation formula that, insofar as possible, derives the legal regulated rents for apartments from reliable registration statements served upon tenants and made available to the public; and (h) because pre-HSTPA law with respect to the maintenance by landlords of rent records was complex, and has an ongoing impact upon the calculation of post-HSTPA rents, it is necessary to codify the pre-HSTPA law that applied to the destruction of rent records prior to the enactment

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of the HSTPA, and to define clearly the impact of such law upon the prospective calculation of rents under the HSTPA. § 2. (a) The legal rent for all rent stabilized apartments for the period from July 1, 2019 and thereafter shall be determined in accordance with Part F of the HSTPA. Where the legal regulated rent for a rent stabilized apartment for the period prior to June 14, 2019 has been determined by any court or administrative agency, that determination shall not foreclose a recalculation of the post-HSTPA rent, except that any pre-HSTPA rent that, as of June 14, 2019, is lower than the rent that would be permitted to be charged under the HSTPA, shall be deemed to be the lawful rent under the HSTPA on June 15, 2019, and shall be used as the basis for calculating subsequent rents under the HSTPA; (b) Subdivision (a) of this section shall apply to all cases, including those pending as of June 14, 2019 before any court, appellate tribunal, or administrative agency in which a claim for rent overcharges or rent arrears has been asserted with respect to rent stabilized housing, the legal regulated rent for the period from June 14, 2019 and thereafter shall be determined in accordance with Part F of the HSTPA. The legal regulated rent for the portion of any overcharge claim involving rents paid prior to June 14, 2019 shall be determined under pre-HSTPA law, including the default formula in cases of fraud, as codified herein. (c) Nothing in this act, or the HSTPA, or prior law, shall be construed as restricting, impeding or diminishing the use of records of any age or type, going back to any date that may be relevant, for purposes of determining the status of any apartment under the rent stabilization law; (d) The legal regulated rent payable for the period prior to June 14, 2019 shall be calculated in accordance with the law in effect prior to the HSTPA, including the prior four-year limitation on the consideration of rent records, and including the fraud exception to such limitation and such other exceptions as existed under prior law and under the regulations of the New York state division of housing and community renewal.

Nothing in this act shall be construed as limiting such exceptions or as limiting the application of any equitable doctrine that extends statutes of limitations generally. With respect to the calculation of legal rents for the period prior to June 14, 2019, an owner shall be deemed to have committed fraud if the owner shall have committed a material breach of any duty, arising under statutory, administrative or common law, to disclose truthfully to any tenant, government agency or judicial or administrative tribunal, the rent, regulatory status, or lease information, for purposes of claiming an unlawful rent or claiming to have deregulated an apartment. The following conduct shall be presumed to have been the product of such fraud: (1) the unlawful deregulation of any apartment, including such deregulation as results from claiming an unlawful increase such as would have brought the rent over the deregulation threshold that existed under prior law, unless the landlord can prove good faith reliance on a directive or ruling by an administrative agency or court; or (2) beginning October 1, 2011, failing to register, as rent stabilized, any apartment in a building receiving J-51 or 421-a benefits; (e) In accordance with the practice of the New York state division of housing and community renewal prior to June 14, 2019, where fraud is not established, base rents of apartments unlawfully deregulated shall be calculated as the average of rents for comparable rent stabilized apartments in the building, rather than the default formula applicable to cases involving fraud;

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(f) For the period prior to June 14, 2019, neither the version of subdivision g of section 26-516 of the administrative code of the city of New York then in effect, nor the version of section 2523.7 of the rent stabilization code (9 NYCRR 2523.7) then in effect shall be construed as permitting the destruction of rent records for units that have not been properly and timely registered. Where records have been permitted to be destroyed by virtue of proper registration, and no other law required the maintenance of such records, and where the owner has proven that such records were actually destroyed in accordance with prior law and that such destruction took place prior to June 15, 2019, the registration served and filed prior to such lawful destruction of records shall be presumed to be reliable, for purposes of any post-HSTPA calculation of the rent, but that presumption shall be rebuttable. The parties shall be entitled to discovery of any evidence found to be reasonably necessary to demonstrate the legal rent. Nothing in this subdivision shall be interpreted as authorizing the destruction of any record, that under prior law was relevant to establishing (1) the status of an apartment as regulated or unregulated; (2) the presence or absence of fraud with respect to renting any housing accommodation; (3) the presence or absence of willfulness in the collection of overcharges; (4) the useful life of any item, the replacement of which is claimed by the owner to qualify an apartment for a rent increase; (5) the duration of any tenancy, such as would establish whether an owner was entitled under prior law to a longevity increase; or (6) compliance with any law that, independently of the rent stabilization law, required or requires the maintenance of such records. Where the calculation of the rent is dependent upon records that the owner has improperly destroyed, including where the records were destroyed without the apartment having been registered, the rent shall be calculated in accordance with the default formula. § 3. This act shall take effect immediately. § 2. Severability. If any clause, sentence, paragraph, section or part of this act shall be adjudged by any court of competent jurisdiction to be invalid and after exhaustion of all further judicial review, the judgment shall not affect, impair, or invalidate the remainder thereof, but shall be confined in its operation to the clause, sentence, paragraph, section or part of this act directly involved in the controversy in which the judgment shall have been rendered. § 3. This act shall take effect immediately provided, however, that the applicable effective date of Parts A through D of this act shall be as specifically set forth in the last section of such Parts.

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