There are nearly one million rent-stabilized apartments in New York City, according to the city Rent Guidelines Board, but it’s not uncommon for tenants to be paying market-rate rent on units that should be stabilized. And when it comes to finding out whether your apartment was illegally de-stabilized, you can’t necessarily go by what your lease and your landlord say.
“This is one of the most important things for tenants to know,” says Sam Himmelstein, a lawyer who represents residential and commercial tenants and tenant associations. “The lease could say your apartment is not rent-stabilized, but that really doesn’t matter. It still may be subject to stabilization.”
If you live in a building that has six or more units and was constructed before 1974, your apartment may be rent-stabilized, which entitles you to protections from both steep rent hikes and from your landlord opting not to renew your lease. (Read more about the basics of rent stabilization here.)
Apartments can be de-stabilized a number of ways, including through vacancy increases—rent increases that the Division of Housing and Community Renewal allows landlords to apply to new tenants—and individual apartment improvements, rent increases proportional to the cost of documented, significant renovations to the apartment. If the landlord uses these to raise the rent of an apartment over the current threshold of $2,733.75 a month, and the current tenant moves out of the apartment, then the landlord can legally remove the apartment from rent stabilization.
The applicable deregulation threshold has increased from $2000 to $2500, $2700, and $2733.75 over the years, and will continue to increase in the future by the same percentage that the Rent Guidelines Board sets for one-year leases. Whether a particular apartment is properly deregulated depends upon the date that the legal rent exceeded the then-applicable threshold.
Signs that your apartment may be wrongfully de-stabilized
Just because your landlord claims your apartment has been lawfully de-stabilized doesn’t make it so. Here are the scenarios under which your apartment may have been wrongfully de-stabilized, entitling you to lower rent and repayment of rent overcharges:
- Tax abatements. If your building had a J-51 tax abatement or a 421-a tax abatement in place when you moved in, even if the abatement has expired, you are most likely still rent-stabilized, Himmelstein says. Your apartment can only be de-stabilized when the abatement expires, if there is a rider in your lease stating that this is the case. Otherwise, the apartment remains stabilized until you vacate it. If the building had an abatement when you moved in and you weren’t informed, you should not only be stabilized but also should get back what you overpaid on rent.
- Suspicious rent hikes. The rental history of your apartment may reflect significant hikes in rent that seem unlikely to be justified by a combination of vacancy increases and apartment improvements. “With cases involving apartment improvements, we often don’t know what the landlord is claiming that they did,” Himmelstein says. “There’s a tremendous amount of fraud and misrepresentation of renovation work done on apartments.”
- Wrongful claims of substantial rehabilitation to the building. Rent stabilization status is waived for buildings with six or more units constructed before 1974 if the landlord substantially rehabilitated the property on or after January 1, 1974. “We find that often there was work done but it may not meet the criteria for being substantial,” says William Gribben, partner at HMGDJ Law. “You really have to do a tremendous amount of work, and replace seventy-five percent of building systems, to qualify.”
- Wrongful claims about the size of the building. A landlord may claim their building has fewer than six units, but in reality, it was or is a property of six units or more.
- Building is a horizontal multiple dwelling. A building may appear to be a standalone structure with fewer than six units, but in fact be integrated financially and physically with a neighboring building, and the combined units amount to six or more. A history of common ownership and operation of two adjacent buildings that share a heating system, electrical service or other commonalities can lead to a determination that the buildings should be considered a single building and therefore together have more than six apartments.
Determining whether an apartment should be stabilized
If you suspect your apartment might have been illegally de-stabilized, there is some research you can do on your own. You can check, for instance, whether your building had a J-51 abatement through the city’s Department of Finance, and consult the Department of Buildings' website to see if your building got a new certificate of occupancy after 1974, an indication that substantial rehabilitation was done. You can also request your apartment’s rent history from DHCR, to see when your landlord raised the rent and why. Be sure to request the entire history going back to 1984.
When a tenant who suspects their apartment should be stabilized approaches his firm, Himmelstein says, they begin with an investigation and give an initial opinion as to how strong their argument is.
With a landlord who may be wrongfully claiming that they had enough vacancy increases and apartment improvements to raise the rent over the stabilization threshold, for instance, they will try to obtain documents upon which the landlord relies to establish this..
“If and when we get the documents, we have experts go in and look at the apartment and get an idea of whether the landlord really did spend the amount they’re claiming, given what it would have cost at the time the work was done,” Himmelstein said. “Sometimes the expert tells us they did do some renovations, but the amount the landlord is claiming to have spent is exaggerated.” Also, in order to qualify, the renovations must be new equipment or improvements. Ordinary repairs and maintenance such as painting, plastering, scraping, sanding and shellacking the floors do not qualify; new appliances, cabinets, re-wiring and new windows are examples of items that would constitute improvements.
In this case, the challenge is to figure out whether the landlord did enough work to get the rent over the threshold. On a stabilized apartment with a rent of $1,500 per month, for instance, when a tenant moves out, the landlord can take a 20 percent vacancy increase of $300 per month. To get over the current stabilization threshold, they’d then have to do enough renovations to justify raising the rent by another $933.75—a substantial amount under the DHCR formula, which allows raising the rent by 1/40th or 1/60th the cost of renovations, depending on the size of the building.
“If a tenant claims they are being overcharged, the burden is on the landlord to prove otherwise,” Himmelstein says. “They must justify how they arrived at the rent.”
The four-year rule
Once it’s determined that an apartment should be stabilized, the question becomes what the rent really should be, and how much overcharges and interest the tenant can recover.
A strict limit is placed on what a tenant can recover under the four-year rule, a statute of limitations that prevents the courts from examining an apartment’s rental history further back than four years prior to the date of the tenant’s complaint.
However, says Ronald Languedoc, a partner at HMGDJ Law, there are exceptions to the four-year rule. “If the rental history shows a high rent vacancy deregulation more than four years ago, you can review those records and challenge them, in order to establish the rent stabilized status of the apartment, as opposed to recovering overcharges; there is no statute of limitations on status claims,” he says.
The four-year rule on overcharge claims can also be suspended if the landlord has committed fraud to de-stabilize the apartment. This might be demonstrated by a suspiciously large bump in rent, or the landlord’s failure to file proper registration and notices.
Languedoc cites one case in which a landlord was found to have created a fictitious tenant on their rental history; in another, a landlord and contractor both falsely testified that certain renovations had been made.
“We often see, especially in gentrifying neighborhoods, landlords who completely make up information on apartment registrations,” Himmelstein says. “Tenants can get some information on their own, but the information contained in DHCR apartment registrations is supplied by landlords, and the DHCR doesn’t do any independent verification on that. There’s no way to know until we challenge it in court.”
How much money you should expect to get back
Even if the court finds that the landlord has committed fraud, the four-year rule is still important, Gribben says. The date four years prior to the tenant’s complaint becomes the base date from which overcharges are calculated. If the court finds that an apartment was supposed to be stabilized, it then determines what the tenant’s rent should have been legally on that date. In addition, even if the court were to examine the apartment’s history prior to the base date, collection of any resulting overcharges is limited to four years.
What the tenant receives depends upon the difference between what they paid and what their landlord was legally entitled to, based on the base date rent and the allowable rent increases over the ensuing years.
And if the landlord is found to have committed fraud, then the rent for the base date is established under what is known as the “default formula.”
The first option for this formula is the lowest stabilized rent for an apartment in the building comparable to the tenant’s apartment when the tenant moved in, moved to the base date and then calculated. The second option is calculated based the rent on the tenant’s move-in date and then reduced by 20 percent, and the third is calculated based on the rent charged to the prior tenant. In cases of landlord fraud, the court picks the lowest of these three options as the basis for the award to the tenant.
If the landlord’s rent overcharge is proven to have been “willful,” a tenant can be awarded treble damages for the two most recent years of the four years of overcharges. Tenants also receive a mandatory nine percent annual interest for each month of the untrebled portion of their overcharges.
Gribben calculates, for instance, that a tenant who was overcharged by $1,000 per month can be awarded as much as $102,480, factoring in treble damages and interest over four years. This is in addition to that tenant’s rent being lowered to the correct, stabilized rate. Tenants also may be entitled to recover their attorney’s fees.
Where to litigate
Tenants have three options for litigating their claims of wrongful rent de-stabilization. The first, going to state Supreme Court, Himmelstein says, has the advantage of allowing attorneys broad discovery, which means landlords must turn over all documents and be deposed and produce their witnesses, such as contactors who performed the improvements, for depositions. .
“We find out a lot more as the case is being litigated, but it’s more expensive in terms of legal fees,” he says.
Tenants can also file an overcharge complaint with the DHCR, a more affordable process that is easier to do without an attorney, but can also take longer. These cases are typically litigated on paper, without a hearing or live testimony. In addition, the DHCR does not award attorney’s fees if the tenant wins the case, but the courts generally do.
Finally, a tenant can withhold rent and force their landlord to sue them in housing court, or stay in their apartment after the lease is expires and force their landlord to bring a holdover proceeding against them. They can then litigate the status and overcharge claims in defending those cases and will likely be granted some pre-trial discovery.
On the downside, the tenant will have to wait for their landlord to sue, and a visit to housing court may land them on the tenant blacklist.
Success stories: 3 real life examples
Example 1: $55,000
Three tenants in a building on the Upper West Side were told by their landlord that he would not be renewing their leases and they had to move out.
It turned out that their building had had a J-51 tax abatement when the tenants moved in. After Himmelstein sent the landlord a letter, the landlord conceded that the tenants were stabilized, but claimed that he had taken over for a previous landlord and had not known about the abatement. He settled with all three tenants, rolling back their rent significantly and compromising on their overcharges.
Three months later, a fourth tenant approached the firm. Although the landlord was now fully aware that the building was rent-stabilized, he was not renewing this tenant’s lease either. “I was not as kind in my negotiations that time,” Himmelstein says. That tenant recovered $55,000 in overcharges and had her monthly rent reduced from $3,200 to $2,200. Himmelstein has now been retained on a fifth case for the same building.
Example 2: $80,000
At a trial in Brooklyn, the landlord claimed he had done $46,000 worth of renovations to achieve the rent he was suing for, which was over the stabilization threshold. HMGDJ Law's Gribben moved for discovery and although documentation alleged that substantial work had been in the apartment, actually very little of the work had been performed. After hearing the tenant’s expert, which established that the landlord had given false testimony, the judge strongly suggested that the parties settle, and the landlord agreed to lower the tenant’s rent by about $1,000 and paid him overcharges of about $80,000 plus the tenant’s legal fees.
Example 3: $200,000
In another case, it was found that the city had issued a rent freeze on a building in 1988 because the landlord had harassed his tenants for years, by cutting off essential services to them. The client received $200,000 back in illegal rent overcharges, as the landlord had ignored the rent freeze, and the tenant’s rent was rolled back from $1,700 to $330.
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Sam Himmelstein, Esq. represents NYC tenants and tenant associations in disputes over evictions, rent increases, rental conversions, rent stabilization law, lease buyouts, and many other issues. He is a partner at Himmelstein, McConnell, Gribben, Donoghue & Joseph in Manhattan. To submit a question for this column, click here. To ask about a legal consultation, email Sam at [email protected] or call (212) 349-3000.