In the March 2006 edition of our firm's newsletter we reported about the case of Gboizo v. State of New York Division of Housing and Community Renewal, wherein New York County Supreme Court Justice Edward H. Lehner was unable to reconcile two sections of the Rent Stabilization Code. One provision automatically entitles a subtenant to "treble damage" when overcharged by a tenant, while another affords property "owners"--faced with a similar allegation--an opportunity to establish that the conduct was not willful. This latter showing allows owners to have the penalty reduced to the amount of the overcharge plus interest. However, according to the State Division of Housing and Community Renewal ("DHCR"), this "lack of willfulness" demonstration is only available to property owners (rather than overcharging tenants).
In Gboizo, the prime tenant leased a Manhattan apartment to a subtenant for rents ranging from $900 to $1,100 per month. Within a year, the subtenant filed a rent-overcharge complaint with the DHCR claiming that the legal regulated rent was only $225 per month. Ultimately, the claim was successful and the overcharge determination, which totaled $29,631 when trebled, was upheld. The DHCR's position was that when a tenant collects overcharges from a subtenant, the treble-damage penalty was "mandatory" and the issue of "willfulness" could not be considered.
In an Article 78 proceeding started in the New York County Supreme Court, the prime tenant asserted that it had been his belief that the unit was exempt from rent regulation. Despite some unique factual underpinnings as to the unit's status, Judge Lehner was asked to decide whether subleasing tenants could avoid treble-damage liability by establishing the inadvertence of an overcharge. Since there was "nothing in the statute ... that would bar a sublessor from this statutory right to present evidence of the absence of willful conduct," the Court concluded (in a decision dated January 31, 2006) that the agency's sublessor-hostile interpretation of the regulations was "invalid."
In an interesting twist, the DHCR later asked Judge Lehner to reconsider his decision--by way of a process called "reargument"--and, after reviewing the parties' submissions, the judge concluded that he had made a mistake. In a decision released last week, the Court noted as follows:
Having been previously advised by both counsel that no authority had been located supporting the validity of the different treatment provided in the Code between overcharges by an owner as compared to those by a sublessor, and I finding none, I concluded that there was nothing in the RSL authorizing this disparate treatment. That conclusion was in error.Upon further examination, it was discovered that, over two decades ago, Judge David Saxe--now an Associate Justice of the Appellate Division, First Department--had examined the sections in question and concluded that the treatment differential was deliberate. As Judge Saxe observed Kolbert v. Clayton, 127 Misc.2d 1036, 487 N.Y.S.2d 995 (Civ.Ct., N.Y. County, 1985):
On reflection, the reasoning of the Legislature is evident--the procedure in arriving at the legally chargeable amount of rent by a landlord is extremely complicated, and mistakes in calculation are not necessarily always the fault of the landlord. The tenant on the other hand, need not follow any complicated procedure or apply any intricate formulas to discover the amount of rent he may lawfully charge to a subtenant--he need only look to his lease and, if applicable, add a 10% charge. It is for this reason, I am certain, that the Legislature did not believe it necessary to equip the sublessor who overcharges with the same defense that is available to the landlord-owner.Faced with this precedent, and in the absence of a constitutional infirmity, Justice Lehner recalled his prior decision, noting, in part, as follows:
Hence, since the RSL and the Code adopted pursuant thereto clearly provide for different rights between the two classes of lessors, DHCR was correct in applying the treble damages provision of section 2525.6(b) of the Code without considering the issue of willfulness.Was that backpedaling or a flip-flop?
"I as free forgive you
As I would be forgiven...."
Shakespeare, Henry VIII, Act II, Scene I
For a copy of the Supreme Court's September 6, 2006 decision in Gboizo v State of New York Division of Housing and Community Renewal, please click on the following link:
For a copy of the Supreme Court's January 31, 2006 decision, please click on the following link: