by Winnie Shen
Rent Overcharges: Part F of the Housing Stability and Tenant Protection Act
What do early 20th century New York bakers, modern-day tenants, and a City tax benefit program have in common? They are the key elements in the dissent for a recent New York State Court of Appeals decision. On April 2, 2020, the New York State Court of Appeals decided 4-3 on the Matter of Regina Metro Co. LLC v New York State Division of Housing Community Renewal (Regina Metro). The court was sharply divided on how to interpret a specific section of a legislation: part F of the Housing Stability and Tenant Protection Act (HSTPA). However, the majority’s interpretation has the dangerous potential to set back New York’s tenant movement.
As a brief overview, HSTPA was passed June 14, 2019, and represented a sea change for tenants’ rights. Landlord groups quickly began litigation to dismantle the new legislation. The majority in Regina Metro takes pain to note their decision does not engage with the constitutionality of HSTPA as a whole and that it only relates to Part F of the HSTPA. Part F outlines how rent overcharges should be determined. Rent-regulated tenants have the right to challenge their current rent and allege they are being overcharged. If their claims are successful, tenants can have their rents lowered and, sometimes, they can receive triple the amount they had been overpaying.
Under pre-HSTPA rules, tenants were only able to “look back” four years before the filing of their claim. For example, if a tenant believed their present rent represented an overcharge, they could request their rent history and evaluate if, in the last four years, any of the rent increases appear illegitimate. Regardless if they noticed a suspicious increase beyond those four years, they would not be able to use those later years to calculate their base rent. Damages were also limited to the last two years before the complaint was filed, even if overcharges had taken place over the last four years or more.
Following the passage of HSTPA, tenants are now able to look back six years. New York State Homes and Community Renewal (HCR) and the courts were also given the power to consider “all available rent history which is reasonably necessary” to make a determination for what the appropriate regulated rent should be. Tenants no longer need to establish a “sufficient indicia of fraud” for the court to look back further than the last six years. Additionally, tenants could collect treble damages¹ for the entire six-year look-back period. The changes brought by the HSTPA were to “take effect immediately” and applied to “any claims pending or filed on and after” HSTPA’s passage. The state legislature was very clear that pending rent overcharge cases were to be determined according to the new rules.
Regina Metro v DHCR: Can Part F of HSTPA be applied retroactively?
However, on April 2, 2020, the Court of Appeals decided that a retroactive application of HSTPA on pending rent overcharge cases would be a violation of due process. The majority believed the State Legislature had “failed to provide any rational basis for expanding an owner’s liability” for engaging in actions that had been lawful pre-HSTPA.
For a quick background, Regina Metro follows a separate case decided in 2009, Roberts v Tishman Speyer Properties (Roberts), which ruled that apartments in buildings subject to certain tax benefit programs could not be deregulated while the benefits were in effect, even if otherwise permitted by the state government. The tax benefit in Roberts was a J-51, a benefit that the NYC Housing Preservation and Development offers developers who rehabilitate existing multi-family housing. Developers receive a 14- or 34-year tax exemption and all rental units become subject to rent stabilization for the duration of the benefit. Prior to the 2009 Roberts decision, HCR’s interpretation of how the benefit worked with rent stabilization law was that buildings that had rent-stabilized units before receiving J-51 benefits could still be allowed to deregulate units even while receiving those benefits.
The Court of Appeals took the stance that this decision was made erroneously and any building receiving a J-51 should not have been allowed to deregulate units. As a result of this decision, the Court estimates 50,000 apartments have regained their rent-stabilized status (p. 20). The next question for many of these tenants living in newly stabilized apartments is: what their new rent should be, seeing as how they had been overcharged by their landlords for years. With HSTPA, these tenants saw a glimmer of hope that they would be able to have their rents lowered as well as receive a significant amount in damages. However, the Regina Metro decision crushed these hopes and cast a shadow on the future of HSTPA as a whole.
These concerns were echoed by Judge Rowan Wilson, who authored the dissenting opinion. His dissent concludes with: “Our Frankensteinian role in resurrecting Lochner by assembling ill-fitting fragments of moribund doctrines frightens me, because it protends ill for the future.”
Judge Wilson invokes the infamous Lochner decision in Regina Metro because of the similarities between the two cases. Lochner v New York is a 1905 Supreme Court Decision related to a New York State statute that prohibited bakers from working more than 60-hour weeks or 10 hours a day. In a 5-4 decision, the Supreme Court ruled that the statute interfered with the freedom of contract and that the law failed the rational basis test for determining whether government action is constitutional. In the modern era, there is a nearly universal agreement that Lochner was incorrectly decided.
Much like how the statute limiting the working hours for bakers seemingly failed the rational basis test, Part F of HSTPA was deemed to lack the rational basis necessary to justify its retroactive application (p. 40). This represents a departure from standard post-Lochner jurisprudence, which Judge Wilson points out in his dissent: “…using ‘the vague contours of the Due Process Clause to nullify laws which a majority of the Court believe[s] to be economically unwise’ is an abandoned practice” (p. 94). Judge Wilson also cites Williamson v Lee Optical of Oklahoma Inc.: “Courts strike down statutes only as a last resort and only when unconstitutionality is shown beyond a reasonable doubt” (p. 86).
Legislature vs the Courts: Who should win?
Putting aside the legal precedents Regina Metro may be ignoring, the most significant effect of Regina Metro is that any landlord who illegally deregulated an apartment decades ago, will now only need to be worried about being held liable for six years of overcharges. For the 50,000 apartments brought back into regulation, the landlords of those apartments will not have to be concerned about their tenants collecting all of the excess rent money they had been collecting illegally.
Regina Metro wants to paint itself as a decision with limited scope and impact. However, by overturning express legislative intent, the Court has created a precedent that can be used to attack other aspects of HSTPA. The tenant protections ensured by HSTPA were hard-fought and represent years of organizing by tenants statewide. It is certainly not hyperbolic, as the majority asserts, to be deeply worried that an unelected body may render those efforts naught and return the state of tenants’ rights to a pre-HSTPA era.
¹ In United States law, treble damages is a term that indicates that a statute permits a court to triple the amount of the actual/compensatory damages to be awarded to a prevailing plaintiff
Cover Image Source: Constitution Center