Court of Appeals Ruling Is Huge Win for Landlords

| Apr 16, 2020 | landlord & tenant representation |

In June of 2019 the New York State Legislature enacted the Housing Stability and Tenant Protection Act (“HSTPA”). The HSTPA dramatically changed the nature of rent overcharge claims, which are claims by a rent regulated tenant that he or she has been charged more rent than was legally allowed.

The law provides that it is to “take effect immediately and shall apply to any claims pending or filed on and after such date.”

By its plain meaning, these drastic changes would apply to existing claims still working their way through the administrative and judicial systems and to conduct by landlords that preceded the enactment of the HSTPA by months, years, or even decades.

This issue has now been litigated to the highest court in our state, and that court, the Court of Appeals, has just issued a decision: the retroactive effect of the HSTPA on rent overcharge claims is very limited.

The HSTPA substantially changed both the manner in which rent overcharge complaints in rent regulated apartments could be computed and broadened the amount of damages for which a landlord could be liable.

Court of Appeals: HSTPA cannot be applied retroactively

The question decided by the Court of Appeals in its April 2, 2020 decision was whether the law would apply retroactively to claims already filed and to conduct that preceded the enactment of the HSTPA, or if the statute would only apply to new clams brought by tenants after the law was enacted.

The Court, citing due process grounds, ruled it cannot be applied retroactively to claims already filed and to conduct that was done before the HSTPA was law.

The changes to overcharge claims made under the HSTPA primarily affect rent stabilized tenancies. Previously, a four-year “lookback” period limited the period for which the landlord could be held liable for an overcharge.

Landlords were not required to keep records for more than four years and, absent indications of fraud, Courts were not permitted to inquire beyond that time horizon. This had a material impact on how Courts calculated the amount of damages overcharging landlords would be obligated to pay.

Even for the period of liability, there were additional limitations as to damages. For example, treble damages were only available for two years of the four-year period that could be covered by a claim.

The HSTPA did away with the “lookback” limitation, permitting DHCR and courts to go back as far as necessary to determine what the proper “legal rent” should be. It also extended the timeframe for which an overcharge could be recovered from four years to six and made treble damages and attorney’s fees mandatory.

In short, if applied retroactively, the HSTPA would permit a tenant to claim a rent overcharge and obtain treble damages for the last six years’ worth of overcharges (and anything which continued to be collected after the claim was filed), even if the overcharge initially occurred years or even decades earlier. This could have dramatic implications both with respect to issues of evidence and the magnitude of calculations.

The Court found that the retroactive application of the law would punish landlords for actions, which were lawful when done, and which occurred prior to the enactment of the law, so it was unforeseeable that these actions would eventually become unlawful. Therefore, retroactive application of the HSTPA would violate landlords’ due process rights.

For example, in one case, a $10,000 overcharge under pre-HSTPA law would turn into a $285,000 liability to the landlord if HSTPA applied. The Court found that this aspect of the HSTPA did not serve “a legitimate legislative purpose furthered by a rational means,” Specifically, the Court said “the HSTPA cannot deter conduct that has already occurred” – i.e. preventing rent overcharges that occurred in the past.

The Court therefore struck down that part of the HSTPA relating to the retroactive application of overcharge complaints giving a substantial victory to landlords who won’t be exposed to broad retroactive liability for most overcharges which occurred more than four years prior.