Matter of Regina Metro. Co., LLC v New York State Div. of Hous.& Community Renewal

2018 NY Slip Op 05797 [164 AD3d 420]

August 16, 2018

Appellate Division, First Department

As corrected through Wednesday, October 3, 2018

[*1](August 16, 2018)

In the Matter of Regina Metropolitan Co., LLC,Appellant, v New York State Division of Housing and Community Renewal,Respondent, and Leslie E. Carr, Intervenor-Respondent. In the Matter of Leslie E. Carr,Appellant, v New York State Division of Housing and Community Renewal, Respondent, andRegina Metropolitan Co., LLC, Intervenor-Respondent.

Horing, Welikson & Rosen, P.C., Williston Park (Niles C. Welikson of counsel), forRegina Metropolitan Co., LLC, appellant/respondent.

Vernon & Ginsburg, LLP, New York (Darryl M. Vernon of counsel), for Leslie E. Carrand Harry A. Levy, respondents/appellants.

Mark F. Palomino, New York (Christina S. Ossi of counsel), for respondent.

Graubard Miller, New York (Peter A. Schwartz of counsel), for amicus curiae.

Order and judgment (one paper), Supreme Court, New York County (Alice Schlesinger, J.),entered October 24, 2016, denying the petitions to modify a determination of respondent NewYork State Division of Housing and Community Renewal (DHCR), dated May 13, 2015, whichaffirmed an order of the rent administrator, dated February 26, 2014, to the extent that, forpurposes of determining a rent overcharge, it calculated a base date rent by looking back morethan four years from the rent overcharge complaint, and denied petitioner tenants' requests fortreble damages and attorneys' fees, and dismissing the proceedings, modified, on the law, to grantlandlord's petition to the extent of remanding the matter to DHCR to recalculate the base daterent by looking back to four years before the filing of the overcharge complaint, and otherwiseaffirmed, without costs.

This appeal follows in the long wake of Roberts v Tishman Speyer Props., L.P. (13 NY3d 270 [2009]). InRoberts, the Court of Appeals held that apartments in buildings receiving [*2]benefits under the City's J-51 tax incentive program remain subjectto rent stabilization for at least as long as the building continues to enjoy J-51 benefits.^[FN1] In Gersten v 56 7th Ave. LLC (88 AD3d189 [1st Dept 2011], appeal withdrawn 18 NY3d 954 [2012]), this Court held thatRoberts should be applied retroactively.

Rent Stabilization Law (RSL) (Administrative Code of City of NY) § 26-517(a) (2) and CPLR 213-a set a four year limitations period for actions alleging rent overcharge.Therefore, a tenant who prevails on a Roberts claim is entitled to recoup only rentovercharges that accrued in the four years before the filing of the complaint (see e.g. Matterof Gilman v New York State Div. of Hous. & Community Renewal, 99 NY2d 144, 149[2002]). The beginning date for the calculation of recoupment is known as the "base date."

The primary question presented in this appeal is how to determine the proper rent on the basedate.

Petitioner Regina Metropolitan Co., LLC. (landlord) is the owner and landlord of theresidential apartment building located at 27 West 96th Street in Manhattan. Effective during the1999-2000 tax year, landlord began receiving J-51 tax benefits, and it continued to do so until2013. The building was subject to rent stabilization before, and independent of, the receipt ofsuch benefits. In 2003, when the tenant of the subject apartment vacated, the monthly regulatedrent was $2,096.47, above the then applicable $2,000 threshold for vacancy deregulation.Landlord set the market rate rent for the subsequent tenant at $4,500. Petitioner tenants (tenants)moved into the building pursuant to a lease for the period August 1, 2005 to August 1, 2007, at amonthly rent of $5,195. The lease stated on its face that the apartment was not subject to rentregulation.

Landlord could not deregulate the apartment under Real Property Tax Law§ 489 (7) (b) (1) while simultaneously receiving J-51 tax benefits. Landlordmaintains that it deregulated the apartment in 2003 due to a misunderstanding of thelaw—a misunderstanding once widely held in the real estate industry and shared byDHCR—which was later corrected by Roberts (13 NY3d 270 [2009]). It isuncontested that, in light of Roberts and Gersten (88 AD3d 189), the unit wasimproperly deregulated and remains a rent-stabilized apartment. It is also uncontested that anovercharge ensued. What is contested, however, is the calculation of the overcharge and,specifically, the base date rent on November 2, 2005, four years before tenants' filing of theovercharge complaint.

Before DHCR, landlord maintained that the base date rent should be set at the amount thatobtained on November 2, 2005, pursuant to the tenants' lease, which was $5,195. Landlordcontends that in the absence of any evidence of a fraudulent scheme to evade rent regulation,there is no support for avoiding the strict four-year limitations period of RSL§ 26-517 (a) (2) and CPLR 213-a.

Tenants argued before DHCR that there was evidence that landlord had engaged in afraudulent scheme to evade rent regulation of the unit and that the correct rent should be set viathe default formula specified in Thornton v Baron (5 NY3d 175 [2005]) or the similar defaultformulas under Rent Stabilization Code (RSC) (9 NYCRR) § 2522.6 (b) (2) and(3). Additionally, even if a default formula would not be appropriate, tenants asserted that therent should be frozen at $2,096.47 because, as in Jazilek v Abart Holdings, LLC (72 AD3d 529 [1st Dept 2010]),landlord failed to file proper and timely rent registration statements. Tenants also sought trebledamages and attorneys' fees.

The Rent Administrator (RA) did not fully agree with either landlord's or tenants' analysis. Inan order dated February 26, 2014, the RA found that the landlord did not engage in a [*3]fraudulent scheme to avoid rent stabilization. He found that therehad been a rent overcharge, but he did not calculate the base date rent according to either of theopposing methods urged by landlord and tenants. Instead, the RA looked back beyond thefour-year limitations period to find the last legal regulated rent, which was the $2,096.47 rentcharged in 2003. To that amount the RA added all subsequent rent increases allowed under rentstabilization, and found the base date rent was $3,325.24. From this amount he calculated a rentovercharge of $207,192.59, plus interest, which came to $283,192.59.^[FN2] The RA offered to hear evidence from thelandlord concerning individual apartment improvements (IAIs) to the unit that could potentiallyincrease the regulated rent. However, the landlord never offered such evidence to the RA. TheRA further found that landlord had demonstrated that the overcharge was not willful and thattreble damages were therefore not warranted. In so finding, the RA cited the general confusionabout the impact of the J-51 program on rent stabilization before Roberts andGersten. Finally, the RA found that tenants were not entitled to attorneys' fees.

Both sides filed Petitions for Administrative Review (PARs). The PARs were consolidated.The Commissioner affirmed the RA's order and denied the PARs. The Commissioner declined tohear landlord's evidence concerning alleged IAIs pertinent to the unit, on the ground that no suchevidence was presented to the RA. Both sides filed CPLR article 78 petitions. Supreme Courtdenied the petitions, affirming DHCR's determination. We now modify.

Courts will not disturb an administrative agency's determination unless it lacks any rationalbasis (see Matter of Gilman v New York State Div. of Hous. & CommunityRenewal, 99 NY2d 144, 149 [2002], supra). An agency's interpretation of its ownregulations "is entitled to deference if that interpretation is not irrational or unreasonable"(Matter of Gaines v New York State Div. of Hous. & Community Renewal, 90NY2d 545, 548-549 [1997]; seeSamiento v World Yacht Inc., 10 NY3d 70, 79 [2008]). However, "where the question isone of pure statutory reading and analysis, dependent only on accurate apprehension oflegislative intent, there is little basis to rely on any special competence or expertise of theadministrative agency and its interpretive regulations" (Roberts, 13 NY3d at 285 [internalquotation marks omitted]).

We do not disturb DHCR's fact-finding. DHCR's determination that landlord did notfraudulently deregulate the unit has a rational basis. An increase in rent, standing alone, does notestablish a fraudulent scheme to evade rent stabilization (see Conason v Megan Holding, LLC, 25 NY3d 1, 16 [2015]).Tenants point to suspicions about landlord's claimed IAIs and its failure to provide arent-stabilized lease at some unspecified time after Roberts. These vague assertionsprovide no basis for disturbing DHCR's finding that there was no evidence of fraud by landlord.As discussed at greater length below, the absence of fraud affects our analysis of how DHCRcalculated the base date rent.

DHCR's denial of tenants' request for treble damages was rational. Landlord demonstratedthat its deviation from rent stabilization was not willful. The Court of Appeals has held that afinding of willfulness "is generally not applicable to cases arising in the aftermath ofRoberts. For Roberts cases, defendants followed the Division of Housing andCommunity Renewal's own guidance when deregulating the units, so there is little possibility of afinding of willfulness" (Borden v 400 E.55th St. Assoc., L.P., 24 NY3d 382, 398 [2014]). DHCR's determination as to attorneys'fees was within its discretion (see RSL § 26-516 [a] [4]).^[FN3] It was [*4]also not arbitrary and capricious for DHCR to decline landlord'srequest to provide documentation of IAIs for the first time at PAR-level review (see Matter ofGilman, 99 NY2d at 150).

The most contentious issue presented in this appeal is how to calculate the base date rent asof November 2, 2005. As described above, DHCR looked beyond the four-year limitations periodto find the last legal regulated rent ($2,096.47 in 2003), and then added subsequent statutoryincreases to arrive at a base date rent of $3,325.24. This method of calculation violates the RentStabilization Law and the applicable statute of limitations. RSL § 26-516 (a) (2)provides: "[N]o determination of an overcharge and no award or calculation of an award of theamount of an overcharge may be based upon an overcharge having occurred more than four yearsbefore the complaint is filed . . . . This paragraph shall preclude examination of therental history of the housing accommodation prior to the four-year period preceding the filing ofa complaint pursuant to this subdivision." RSC § 2526.1 (a) (2) (ii) states: "[T]herental history of the housing accommodation prior to the four-year period preceding the filing ofa complaint . . . shall not be examined." Finally, CPLR 213-a reads, in its entirety:"An action on a residential rent overcharge shall be commenced within four years of the firstovercharge alleged and no determination of an overcharge and no award or calculation of anaward of the amount of any overcharge may be based upon an overcharge having occurred morethan four years before the action is commenced. This section shall preclude examination of therental history of the housing accommodation prior to the four-year period immediately precedingthe commencement of the action."

While these provisions are detailed and categorical in barring any examination of a unit'srental history beyond the four-year limitations period, the Court of Appeals has carved out anexception for cases where there is evidence that a landlord engaged in a fraudulent scheme toevade rent regulation (Matter of Grimmv State of N.Y. Div. of Hous. & Community Renewal Off. of Rent Admin., 15 NY3d358, 366 [2010]). In Grimm, the landlord raised the rent-stabilized rent uponvacancy in 2000 from $586.86 to $1,450, far in excess of the allowed increase. The tenants werealso given a lease without a rent-stabilized lease rider. In 2004, the petitioner tenant moved intothe apartment pursuant to a lease that did not say that the unit was rent-stabilized. The rentremained at $1,450. When the petitioner brought a rent overcharge complaint with DHCR in2005, the rent administrator applied the four-year limitations period and found the base date rentto be the $1,450 specified in the applicable lease in 2001, and thus found there was noovercharge. The Grimm Court found that there was sufficient evidence that the landlordengaged in a fraudulent scheme to evade rent regulation. In such circumstances, "DHCR has anobligation to ascertain whether the rent on the base date is a lawful rent" (id. at 366). TheCourt of Appeals therefore affirmed this Court's remand to DHCR for further fact-finding.

Grimm invoked the Court's earlier decision in Thornton v Baron (5 NY3d 175 [2005], supra), which heldthat a lease provision was void as against public policy for exempting an apartment from rentstabilization based on an illusory tenant's agreement not to use the apartment as a primaryresidence. Thornton rejected the owner's contention that "the legal regulated rent shouldbe established by simple reference to the rental history" on the date four years before thecommencement of the overcharge action, because the lease and illegal rent [*5]violated public policy (5 NY3d at 180-181).^[FN4]

The Court of Appeals has continued to require a showing of fraud or intentional wrongdoingbefore courts may allow any look back at a unit's rental history beyond the four-year limitationsperiod. In Matter of Boyd v New YorkState Div. of Hous. & Community Renewal (23 NY3d 999 [2014], revg110 AD3d 594 [1st Dept 2013]), a J-51 case, the Court of Appeals reversed this Court'sremand to DHCR for a fact-finding hearing regarding potential fraud and the legality of the basedate rent. The Court, citing Grimm, held that the tenant "failed to set forth sufficientindicia of fraud to warrant consideration of the rental history beyond the four-year statutoryperiod" (id. at 1000-1001). In Conason v Megan Holding, LLC (25 NY3d 1 [2015],supra), the Court of Appeals found evidence that the landlord engaged in a "stratagem" toremove the tenants from the aegis of rent stabilization, and allowed a look back of more than fouryears at the unit's rental history (id. at 16).

Following these precedents, in the absence of evidence of fraud, this Court has declined tolook back more than four years before the filing of the overcharge complaint to set the base daterent (see Stulz v 305 RiversideCorp., 150 AD3d 558 [1st Dept 2017], lv denied 30 NY3d 909 [2018]; Matter of Park v New York State Div. ofHous. & Community Renewal, 150 AD3d 105 [1st Dept 2017], lvdismissed 30 NY3d 961 [2017]; Todres v W7879, LLC, 137 AD3d 597 [1st Dept 2016], lvdenied 28 NY3d 910 [2016]; but seeTaylor v 72A Realty Assoc., L.P., 151 AD3d 95 [1st Dept 2017]; 72A Realty Assoc. v Lucas, 101 AD3d401 [1st Dept 2012]).

In the case at bar, DHCR was not arbitrary and capricious in finding that landlord did notengage in a fraudulent scheme to evade the Rent Stabilization Law. As a consequence, DHCRwas prohibited from looking at the unit's rental history before November 2, 2005.

In looking back beyond the four-year limitations period, the Commissioner relied on RSC§ 2526.1 (a) (2) (ix) and this Court's decision in 72A Realty Assoc. v Lucas (101 AD3d 401 [1st Dept 2012]).Section 2526.1 (a) (2) (ix) is inapposite, as it applies only to apartments that were "vacant ortemporarily exempt from regulation pursuant to section 2520.11" (RSC § 2526.1 [a][3] [iii]). The apartment was not vacant, as tenants resided there during the relevant period. It wasalso not "temporarily exempt." Section 2520.11 lists specific situations where units are exemptfrom rent regulation, none of which fit the facts at bar. 72A Realty Assoc. was decidedbefore the Court of Appeals' decision in Matter of Boyd v New York State Div. of Hous. & CommunityRenewal (23 NY3d 999 [2014]), and it does not discuss Grimm or the need forsome fraudulent behavior by the landlord as a predicate to an examination of rental historybeyond four years.

After Supreme Court issued its decision affirming DHCR, this Court issued Taylor v 72A Realty Assoc., L.P. (151AD3d 95 [1st Dept 2017], supra), another J-51 case, upon which the dissent relies. InTaylor, this Court allowed a look back of more than four years in the absence of fraud.The Taylor Court asserted correctly that the literal application of CPLR 213-a could"allow the owner to collect rent that might be in excess of what it could have otherwise chargedplaintiffs" if the landlord had properly understood the import of J-51 benefits (151 AD3d at 106).The Court in Taylor, and the dissent in this case, cite cogent policy reasons forcalculating the rent using the method DHCR used here.

However, the legislature has made a different policy determination. It not only set afour-[*6]year limitations period, but it also explicitly barred any"examination of the rental history of the housing accommodation prior to the four-year periodpreceding the filing of a complaint" (RSL § 26-516 [a] [2]). The Court of Appealshas found that the purpose of the four-year limitations period is "to alleviate the burden on honestlandlords to retain rent records indefinitely" (Thornton, 5 NY3d at 181). The Court ofAppeals has made what we have called a "limited exception" to the four-year limitations periodin cases where landlords act fraudulently (Matter of Grimm v State of N.Y. Div. of Hous. & Community RenewalOff. of Rent Admin., 68 AD3d 29, 33 [1st Dept 2009], affd 15 NY3d 358[2010]). To expand this exception to landlords who have not engaged in fraud would create amuch broader exception that would appear to negate the temporal limits contained in the RentStabilization Law and the CPLR.

Taylor runs athwart the Court of Appeals' decisions in Grimm andBoyd and the bulk of the authority of this Department, discussed above. These decisionsdo not rest on the factors the dissent uses to distinguish them from the instant appeal. Rather, therelevant body of authority rests upon the presence, or absence, of fraudulent behavior by thelandlord. Where, as here, there are insufficient indicia of a fraudulent scheme to evade rentregulation, there can be no consideration of the rental history beyond four years for the purposeof calculating a rent overcharge.

The dissent attempts to avoid CPLR 213-a's four-year limitation by stating that it is "logical"that CPLR 213-a's reference to the "rental history" means only the rental history found in theannual filings with DHCR. Using this unduly limited definition of "rental history," the dissentthen argues that where, as here, there are no recent filings with DHCR (because the landlordthought that it had properly deregulated the apartment) courts may look back at evidenceconcerning rent charged before the base date, and that no predicate showing of fraud is necessaryto do so. If the legislature had meant "rental history" to mean "rental history found in the annualfilings with DHCR," it could have easily so stated. A far more reasonable interpretation of "rentalhistory" would embrace not just agency records but also the records of the landlord and thetenant, as embodied in ledger books, cancelled checks, rent receipts, expired leases, and the like.Thus, the absence in this case of DHCR rent registrations going back four years does not nullifythe temporal strictures of CPLR 213-a.

The dissent asserts that application of the four-year limitations period specified by thelegislature in the Rent Stabilization Law and the CPLR will leave tenants with "a right without aremedy." To the contrary, we have held that DHCR is not limited to calculating the base date rentaccording to the market rate that obtained pursuant to the parties' lease, and that the agency hasthe discretion to implement other methods of base date rent calculation that do not run afoul ofthe limitations period (see Matter of 160E. 84th St. Assoc. LLC v New York State Div. of Hous. & Community Renewal, 160AD3d 474 [1st Dept 2018]). Additionally, tenants who reside in apartments covered byRoberts are afforded the Rent Stabilization Law's limitations on rent increases, even iftheir apartments would otherwise be subject to luxury decontrol absent the landlord's receipt ofJ-51 benefits.

Accordingly, we remand the matter to DHCR to recalculate the overcharge and proper rentusing a base date rent of four years before the filing of the overcharge complaint.Concur—Friedman, J.P., Kahn, Moulton, JJ.

Gische and Kapnick, JJ., dissent in a memorandum by Gische, J., as follows: I respectfullydissent and would vote to uphold the methodology used by respondent New York StateDepartment of Housing and Community Renewal (DHCR) to calculate the rent overcharge inthis case.^[FN1] It is neitherarbitrary and capricious nor contrary to law. The methodology applies only to those cases inwhich a landlord overcharged the tenant, albeit mistakenly, by removing the apartment from rentstabilization at a time when the building was [*7]receiving J-51tax benefits from the City of New York. In Roberts v Tishman Speyer Props., L.P. (13 NY3d 270 [2009]), theCourt of Appeals made it clear that although the DHCR had endorsed the underlying practice ofluxury decontrolling apartments under these circumstances, it was in contravention of the plainlanguage of the various laws affecting rent stabilization laws. As we have previously recognized,in deciding Roberts, the Court of Appeals left open many important issues resulting fromits decision, some expressly, such as retroactivity and statute of limitations, and some subsilentio, such as how to calculate rents for apartments improperly deregulated (see Taylor v 72A Realty Assoc., L.P.,151 AD3d 95, 101 [1st Dept 2017]). The courts and DHCR have since been working toresolve these issues in a consistent and just manner.

In order to establish a base rent in this Roberts overcharge case, the DHCR looked atthe last rent-stabilized rent publicly registered with the DHCR, which was in 2003, and thenapplied all of the rent-stabilized increases that otherwise would have been allowed during therelevant time. The DHCR methodology effectively establishes a base rent as if the landlord hadadhered to Roberts and not improperly removed the apartment from rent stabilization.The overcharge award was then calculated using only the four-year period immediately precedingthe date on which the overcharge complaint was filed. The gravamen of my disagreement withthe majority's view is that in Roberts overcharge cases, determination of the base rentstrictly prohibits any consideration of the last legally registered regulated rent where the rent wasset more than four years before the filing of an overcharge complaint. As more fully explainedherein, this limitation on the look back period for Roberts overcharge cases, which do notimplicate fraud-based claims, was already rejected by a unanimous bench of this Court inTaylor (151 AD3d at 105). More importantly, the result in Taylor was warranted,if not mandated, by this Court's earlier, unanimous decision in Gersten v 56 7th Ave. LLC (88 AD3d189 [1st Dept 2011], appeal withdrawn 18 NY3d 954 [2012]), givingRoberts retroactive effect. I further disagree with the majority's conclusion that its resultis required by CPLR 213-a.

The landlord, DHCR, and the tenants all agree on most of the salient facts in these symbioticCPLR article 78 proceedings, one brought by the landlord, the other by the complaining tenants.It is undisputed that the landlord deregulated apartment 10D at 27 West 96th Street, New York,New York, in 2003, when the rent rose to $2,096.47, which exceeded the threshold required forluxury decontrol at that time. The landlord, however, was simultaneously receiving tax incentivesfor the building under the City's J-51 program (see Administrative Code of City of NY§ 11-243).^[FN2] Those incentives did not expire until sometimein 2013. The landlord's actions at the time were in conformity with the DHCR's 1996administrative interpretation of the applicable laws. Those actions, however, proved to be incontravention of the Rent Stabilization Laws (Roberts, 13 NY3d at 286, 287).

As a consequence of its decision to luxury deregulate the apartment in 2003, the landlordstopped registering the rent with DHCR. The rent for the apartment was last publicly registeredin 2003, before the tenants filed their overcharge complaint. The rent registered was $2,096.47,reflecting the amount the landlord charged an intervening tenant in occupancy before the [*8]complaining tenants. The landlord did not register that interveningtenancy or the rent charged, believing that the apartment was deregulated in 2003.

The complaining tenants first took occupancy of the apartment pursuant to a two-year leaseeffective August 1, 2005, at a monthly market rent of $5,195 per month. The lease wassubsequently twice renewed, each time for a one-year term. The first renewal, effective August 1,2007, was at a monthly rent of $5,700; the next renewal, effective August 1, 2008, was at amonthly rent of $6,150. The tenants subsequently became month-to-month tenants. It isundisputed that the tenants were never offered rent-stabilized leases and that the rents they werecharged were free market rents, bearing no relationship to capped rent increases permitted underrent stabilization.

On November 2, 2009, two weeks after Roberts was decided by the Court ofAppeals, the tenants filed a rent overcharge complaint with DHCR, alleging that the rent of$5,195, charged and collected by the landlord on December 1, 2005, constituted an overcharge.While the overcharge complaint was pending, in 2010, the landlord filed DHCR rentregistrations for the apartment for the years 2005 through 2010. The registrations reflected themarket rents set forth in the non-rent-stabilized leases that were actually charged and collectedfrom the tenants.

There is no dispute that under the authority of Roberts, the apartment should not havebeen luxury decontrolled in 2003 and that the tenants were entitled to a rent-stabilized lease andrenewals for the duration of their tenancy (see also 72A Realty Assoc. v Lucas, 101 AD3d 401, 401-402 [1stDept 2012] [Lucas]). Even though permissible increases (i.e., for a vacancy, major capitalimprovements [MCIs] and IAIs) may have brought the rent over the luxury decontrol threshold in2003, the apartment remained subject to rent regulation until the first vacancy following theexpiration of the J-51 benefits occurred (Matter of Park v New York State Div. of Hous. & CommunityRenewal, 150 AD3d 105 [1st Dept 2017], lv dismissed 30 NY3d 961 [2017]).The landlord would have been allowed to collect the rent, albeit in an amount over the threshold,but the tenants would have had the benefit of capped increases and rent-stabilized leases(Park, 150 AD3d at 111). There is also no dispute that in accordance with the applicablefour-year statute of limitations, no overcharge can be awarded for any period before November 2,2005, which is four years before the tenants' overcharge complaint.

Even if the landlord was simply mistaken in returning the apartment to a free market rent in2003, the fact remains that the landlord did not notify the tenants when they took occupancy in2005 that the apartment was subject to rent stabilization or offer them a rent-stabilized lease.After 2003 (until 2010), there was no public record of the apartment's rent history filed with theDHCR, as otherwise required under the applicable rent stabilization laws.

The rent administrator found the last rent registered with the DHCR in 2003 reliable andused it to computationally determine the rent-stabilized rent that the landlord could have actually,legally, charged from 2003 forward to 2005. In this manner, the DHCR was able to establish thatthe legal regulated rent that the tenants could have been charged for the subject apartment onNovember 2, 2005 was $3,325.24 per month. This base rent consists of the last registered rent in2003 of $2,096.47, plus permissible increases, including an MCI, a longevity bonus, and avacancy increase. Based upon this computation, the rent administrator determined that the rent of$5,195 charged when the tenants first took occupancy in August 2005 was improper and,therefore, an overcharge. The methodology that DHCR applied restores the apartment'srent-stabilized status and puts the parties back in the position they would have been in had thelandlord followed the reasoning of Roberts in the first place.

In Taylor, this Court expressly addressed the issue of how to calculate base rents inRoberts overcharge cases. Although DHCR did not have the benefit of our decision at thetime it made its determination,^[FN3] the methodology we endorsed in Taylor(151 AD3d at 105) is exactly the same methodology used by the DHCR when it affirmed the rentadministrator's order and denied each side's petition for administrative review (PAR) in May2015. The majority's rejection of DHCR's methodology in this case is directly contrary to ourunanimous decision in [*9]Taylor. Although the majoritycites this Court's decision in Stulz v 305Riverside Corp. (150 AD3d 558 [1st Dept 2017], lv denied 30 NY3d 909[2018]), decided just two days before Taylor, Stulz's limited discussion on the importantissue raised by this appeal yields little analysis. More recently, in Matter of 160 E. 84th St.Assoc. LLC v New York State Div. of Hous. & Community Renewal, this Courtsupported Taylor's important, take-away principle, that the illegal market rate rentcharged by a landlord four years before an overcharge complaint is filed cannot serve as the basedate rent, even in the absence of fraud (160 AD3d 474, 474-475 [1st Dept 2018]). Moreimportantly, Taylor's analysis, followed in this dissent, is warranted by cases thatpreceded Stulz. DHCR's methodology is analytically and logically required by ourdecision in Gersten. In Gersten, this court determined that retroactive applicationof Roberts was warranted because Roberts did not establish a new principle oflaw, but rather merely construed a statute that had been in effect for a number of years (88 AD3dat 198). In weighing the equities involved, this Court found that retroactive application ofRoberts would protect tenants from rent increases in excess of those allowed under theRent Stabilization Law. We cautioned that a contrary ruling, that is, applying Robertsonly prospectively, would allow landlords to collect rent in excess of what was allowed by law,based upon a faulty statutory interpretation (id.).

If Gersten is to have any effect, the majority's adoption of the landlord's argumentslimiting the look back period for establishing the base rent in Roberts overcharge casesmust be rejected. Otherwise the tenants before us now, and others similarly situated, will have aright without a remedy.^[FN4] They will be entitled to the protections of therent regulations, including a rent-stabilized lease and rent-regulated rents, but be unable torecover the full extent of their overcharges. Moreover, the landlords will be able to continue tocharge fair market rents, in complete contravention of a retroactive treatment ofRoberts.

This case illustrates my point. Using the landlord's methodology, which is to use the freemarket rent it charged and the tenant paid four years before the overcharge complaint was filed(i.e., $5,195 on November 2, 2005), results in a total overcharge of only $10,271.40, leaving thecollectible rent at $6,334.12 as of the date of the parties' PARs. The market rent will serve as thebase going forward for all future rent-stabilized tenants. However, using the methodology thatDHCR applied, which is the same as what we endorsed in Taylor, results in anovercharge of $285,390.39 for exactly the same four-year period, using a base rent of $3,325.24.The collectible rent as of the date of the parties' PARs is $4,136.32. DHCR's approach isconsistent with the balancing of the equities in Gersten, gives Roberts itsretroactive effect, and recognizes that these kinds of overcharges are a special category ofovercharge cases, which only emerged in the aftermath of Roberts.

The underpinnings of a Roberts overcharge complaint, unlike the complaints of othertypes of overcharges, is not based on claims of fraud or willfulness (see Borden v 400 E. 55th St. Assoc.,L.P., 24 NY3d 382, 398 [2014] [allegedly illegally deregulated apartments]). A findingof willfulness is generally not applicable to Roberts overcharge cases (see Todres v W7879, LLC, 137 AD3d597 [1st Dept 2016], lv denied 28 NY3d 910 [2016]). I am not suggesting that theDHCR methodology use in this case applies in any overcharge case other than a Robertsovercharge. Given the unique circumstances of Roberts overcharges and theircomplicating factors, this methodology rectifies the erroneously deregulated rent and ensures thatsubsequent [*10]legal regulated rents are based upon a reliablerent. It restores the parties to the lawful position they would have been in had the Robertsinterpretation of the applicable rent stabilization laws been followed at the relevant time.

One of the main issues raised by the landlord is that DHCR's methodology violates thefour-year statute of limitations set forth in CPLR 213-a because the DHCR has impermissiblyconsidered the rental history preceding the base date of November 2, 2005. In its entirety, CPLR213-a provides as follows: "An action on a residential rent overcharge shall be commencedwithin four years of the first overcharge alleged and no determination of an overcharge and noaward or calculation of an award of the amount of any overcharge may be based upon anovercharge having occurred more than four years before the action is commenced. Thissection shall preclude examination of the rental history of the housing accommodation prior tothe four-year period immediately preceding the commencement of the action" (emphasisadded).

The Rent Stabilization Law contains similar language, limiting examination of the rentalhistory to the four-year period preceding the filing of an overcharge complaint (see RentStabilization Law of 1969 [Administrative Code of City of NY] § 26-516 [a] [2]).In relevant part, this section provides that "[w]here the amount of rent set forth in the annualrent registration statement filed four years prior to the most recent registration statement isnot challenged within four years of its filing, neither such rent nor service of any registrationshall be subject to challenge at any time thereafter" (id. § 26-516 [a][emphasis added]).

Although the term "rental history" is not defined in CPLR 213-a, it logically refers to therental history found in the annual filings with DHCR, given the four-year limitation's purpose,which is to alleviate the burden on honest landlords' retention of rent records indefinitely (Matter of Cintron v Calogero, 15 NY3d347, 354 [2010] [citations omitted]; see also Thornton, 5 NY3d at 180-181). Thisinterpretation is also evident from Rent Stabilization Law § 26-516 (a), whichdefines the trigger for the four-year period within which to challenge a rent-stabilized rent as therent set forth in the "annual rent registration statement filed four years prior to the most recentregistration statement." Likewise, Rent Stabilization Law § 26-516 (g) provides thatany owner that has registered a housing accommodation "shall not be required to maintain orproduce any records relating to rentals of such accommodation for more than four years prior tothe most recent registration or annual statement for such accommodation." These statutesstrongly support an interpretation that the reference in the CPLR to a rental history is a referenceto the rental history contained in public filings.

Whereas a rent-regulated apartment has a public, and therefore, discoverable "rental history,"given the public records that must be filed with DHCR (Rent Stabilization Code§ 2528.3), a free market apartment does not have a publicly available rental historybecause the rents for an unregulated apartment do not have to be registered with DHCR. There isno need for such information because freely negotiated market rents are not subject to claims ofovercharge. At bar, when the overcharge complaint was filed, there was no "rental history" forthe apartment that could be used for the four-year look back period due to the landlord'streatment of the apartment as luxury decontrolled.

In construing CPLR 213-a's look back period, the courts have been flexible when theovercharge does not fit the typical case. For instance, where there is a rent reduction order ineffect and it was imposed before the four-year limitations period—even if many yearsearlier—the order must be considered in calculating the rent overcharge the landlord owes(Matter of Cintron, 15 NY3d at 356). Other instances where a look-back of more thanfour years is warranted include the calculation of a longevity rent increase (see Matter of H.O. Realty Corp. v State ofN.Y. Div. of Hous. & Community Renewal, 46 AD3d 103, 109 [1st Dept 2007],citing Matter of Ador Realty, LLC vDivision of Hous. & Community Renewal, 25 AD3d 128 [2d Dept 2005]), and todetermine whether an apartment is subject to rent stabilization at all (see East W. Renovating Co. [*11]v New York State Div. of Hous. & Community Renewal,16 AD3d 166, 167 [1st Dept 2005]). This is because the issue of an apartment's regulatedstatus is inseparable from the issue of whether there is an overcharge.

Flexibility in the statute's application is also evident in those circumstances in which anapartment's rental history is unreliable, typically due to its fraudulent deregulation or somewillful attempt to evade the rent regulation laws (see e.g. Conason v Megan Holding, LLC, 25 NY3d 1 [2015]; Matter of Grimm v State of N.Y. Div. ofHous. & Community Renewal Off. of Rent Admin., 15 NY3d 358 [2010];Thornton, 5 NY3d 175). In those circumstances, overcharge claims permit review of anapartment's rental history before the four-year look back period in setting a base rent.

As this Court explained in Taylor, and as the DHCR correctly determined here, thetenants cannot collect more than four years' worth of overcharges, but the rent permitted to becharged beginning four years before the overcharge is filed and in the years thereafter must bemathematically corrected so that it comports with permissible guideline and other increases. Thisis the only way the rent-regulated status of the apartment can truly be effectuated.

The majority's reliance on Matter ofBoyd v New York State Div. of Hous. & Community Renewal (23 NY3d 999[2014]) for a contrary result is misplaced, because Boyd is not a Robertsovercharge case.^[FN5]Although Boyd did involve a rent-stabilized apartment in a building receiving J-51 taxbenefits, the apartment had never been luxury deregulated. The issue in Boyd waswhether an overcharge complaint filed by the tenant more than four years after the firstovercharge claimed was timely. The building owner had registered the monthly rent for theapartment, but the tenant, nonetheless, claimed that the landlord's fraud concerning certainasserted improvements (IAIs) to her apartment warranted disregard of the four-year look backperiod. The Court of Appeals dismissed the complaint because the tenant had not set forthsufficient indicia of fraud to warrant consideration of the registered rental history beyond thestatutory four-year period allowed by CPLR 213-a.

A significant difference between Boyd, which was a fairly straightforward overchargecase, and the case before us is that the landlord in Boyd continued to file rent registrationswith DHCR throughout, allowing the tenant to avail herself of such public information so shecould have filed a timely complaint. Contrast that with the situation here, where the landlordstopped filing rent registrations with the DHCR in 2003, so there was no public record of theapartment's rental history available for the tenants to inspect before they filed a complaint (see Matter of Sun v Lawlor, 96 AD3d685, 687 [1st Dept 2012] [tenant could have timely proceeded on his claim [*12]because DHCR's order was part of its public record]).

Since the retroactive application of Roberts is intended to protect tenants fromincreases in excess of those permissible under the Rent Stabilization Law, the importance ofsetting a correct rent for this apartment is apparent not only for determining the overcharge duethe complaining tenants but also for purposes of future rent calculations (see Mon-RoseRealty Corp. v New York State Div. of Hous. & Community Renewal, 255 AD2d 154[1st Dept 1998]). Here, as in Taylor, although the base date rent is not tainted by fraud, orsome fraudulent scheme, it is clearly an incorrect rent for this rent-regulated apartment. As thisCourt explained in Taylor, and as the DHCR correctly determined, the base date shouldbe adhered to. Although the tenants cannot collect more than four years' worth of overcharges,the overcharges must be based on a mathematically recomputed base date rent that comports withpermissible guideline increases. This is the only way that the rent- regulated status of theapartment can be truly effectuated.

We did not, in Taylor, disregard or extend the statute of limitations, nor do I proposedoing so now (151 AD3d at 102 ["challenges to the level of rent charged must be made within(the) four-year limitations period . . . immediately preceding the filing of acomplaint"]). We cannot, however, blindly use the free market rent charged on the date fouryears prior to the filing of the rent overcharge claim without further investigation (seeLucas, 101 AD3d at 402). While there may be no fraudulent deregulation here, the landlord'serror, albeit non-venal, still resulted in increasing a rent-stabilized rent to a free market rent wellbeyond what was legally permissible. As we observed in Gersten, "a tenant should beable to challenge the deregulated status of an apartment at any time during the tenancy" (88AD3d at 199). The issues of whether an apartment is rent-regulated and, if so, whether the rentcharged was legal under the applicable rent laws cannot be teased apart, because they areinseparable issues. In putting the apartment back onto its rent stabilization track, further reviewof the rents charged after 2003, when the landlord deregulated the apartment, is unavoidable(Taylor, 151 AD3d at 105). It is the only way to determine the legally permissiblerent-stabilized rent that the tenants should have been charged during the four-year period ofovercharged rent.

The majority's reliance on Matter ofPark v New York State Div. of Hous. & Community Renewal (150 AD3d 105 [1stDept 2017], lv dismissed 30 NY3d 961 [2017]) and Todres v W7879, LLC (137 AD3d 597 [1st Dept 2016], lvdenied 28 NY3d 910 [2016], supra) for its result is misplaced. Todres was astraightforward fraud case where the court found that there was no fraudulent deregulationscheme; it did not involve an impermissible deregulation of the apartment during the landlord'sreceipt of J-51 tax benefits. Matter of Park illustrates a situation in which an apartmentmight have been improperly deregulated, but because of an intervening vacancy, the tenantasserting the overcharge had no standing to do so.

Taylor is not only completely harmonious with those cases, it also builds onprinciples this Court first explored in Lucas (101 AD3d 401), an even earlier case.Lucas was a Roberts overcharge case that involved an apartment's ongoing statusas rent-regulated. The landlord in Lucas claimed that the IAIs were the reason for therent's precipitous jump to more than $2,000 and its luxury deregulation. This Court rejected theapplication of CPLR 213-a's four-year look back period "in light of the improper deregulation ofthe apartment and given that the record does not clearly establish the validity of the rent increasethat brought the rent-stabilized amount above $2,000" (Lucas, 101 AD3d at 402).Lucas remains viable and, contrary to the majority's analysis, neither Grimm norBoyd affect its authority. Lucas is a Roberts overcharge case, not afraud/fraudulent scheme case, so the Grimm analysis was not implicated, andBoyd involved an overcharge case not premised on Roberts luxuryderegulation.

In sum, although the landlord's overcharge was not willful, and penalties are not warranted isthis case, the tenants' recovery of the base amount of the rent overcharge is their actual,compensatory damages (see Borden, 24 NY3d at 389). Permitting a base rent fixed as a[*13]market rent would render Roberts and its progeny anullity. This is not a policy-driven result, as the majority suggests, but warranted by a full andproper application of the applicable rent stabilization laws as interpreted by the courts of thisState.

Footnote 1:See Administrative Codeof City of NY § 11-243 (formerly § J51-2.5). The City's "J-51"program, authorized by Real Property Tax Law § 489, allows property owners whocomplete eligible projects to receive tax exemptions and/or abatements that continue for a periodof years (see Administrative Code § 11-243 [b] [2], [3], [8]; 28 RCNY 5-03[a]).

Footnote 2:By contrast, landlord contendsthat had the RA calculated the overcharge using its method, the overcharge would have been$10,776.50, plus interest.

Footnote 3:Tenants' reliance on RealProperty Law § 234 in support of their argument for attorneys' fees is misplaced.That provision does not apply to an administrative proceeding before DHCR (Paganuzzi vPrimrose Mgt. Co., 268 AD2d 213 [1st Dept 2000]).

Footnote 4:In setting the base date rent, theCourt held that it was not arbitrary and capricious for DHCR to use the default formula that itemploys when reliable records are unavailable (Thornton, 5 NY3d at 181). InGrimm, the Court stated that its holding should not be construed to mean "that the defaultformula should be used in this case," only that "DHCR acted arbitrarily in disregarding the natureof petitioner's allegations and in using a base date without, at a minimum, examining its ownrecords to ascertain the reliability and the legality of the rent charged on that date" (15 NY3d at366-367).

Footnote 1:I agree, however, with themajority on the collateral issues of penalties and attorneys' fees.

Footnote 2:In New York City, multipledwellings may qualify for tax incentives designed to encourage rehabilitation and improvements(see Administrative Code § 11-243 [formerly § J51-2.5]). TheCity's J-51 program, authorized by Real Property Tax Law § 489, allows propertyowners who complete eligible projects to receive tax exemptions and/or abatements that continuefor a period of years (see Administrative Code § 11-243 [b] [2], [3], [8]; 28RCNY 5-03 [a]). Rental units in buildings receiving these exemptions and/or abatements must beregistered with the Division of Housing and Community Renewal, and are generally subject torent stabilization for at least as long as the J-51 benefits are in force (see 28 RCNY 5-03[f]).

Footnote 3:Taylor was issued a yearlater, on May 25, 2017.

Footnote 4:The majority, citing Matter of 160 E. 84th St. Assoc. LLC vNew York State Div. of Hous. & Community Renewal (160 AD3d 474 [2018]),asserts that the DHCR is not limited to calculating a base date rent according to the market ratecharged, but does not explain how under its interpretation of the relevant statutes that is possible.Moreover, the sampling method referred to in Matter of 160 E. 84th St. Assoc. istypically used where, because of fraud or other circumstances, the registered rental history for thesubject apartment is unavailable or unreliable, which is not the situation here (see RentStabilization Code [9 NYCRR] § 2522.6 [b] [2]; Thornton v Baron, 5 NY3d 175,181 n 5 [2005]).

Footnote 5:The Court of Appeals reversedthis Court (Matter of Boyd v New YorkState Div. of Hous. & Community Renewal, 110 AD3d 594 [1st Dept 2013]) andreinstated the judgment of Supreme Court, New York County (Matter of Boyd v New YorkState Div. of Hous. & Community Renewal, 2012 NY Slip Op 31260[U] [2012]). TheSupreme Court's and this Court's decisions provide useful facts not articulated in the Court ofAppeals' decision.