In Alekna v 207-217 W. 110 Portfolio Owner LLC, the Appellate Division, First Department, addressed the evolving legal standards surrounding rent stabilization and deregulation in New York City. The plaintiffs alleged that their apartments had been improperly deregulated, resulting in rent overcharges and denial of lease renewals. The New York County Supreme Court had granted summary judgment in favor of the plaintiffs, but the appellate court modified that decision, denying summary judgment to both parties and remanding the case for trial.
The central issue was whether the defendants knowingly engaged in a fraudulent scheme to deregulate the apartments. The court emphasized that the recently enacted 2023 and 2024 amendments to the Rent Stabilization Law and Code apply to pending cases, including this one. These amendments introduced a “totality of the circumstances” standard for evaluating fraudulent deregulation. The court held that applying this new standard did not constitute impermissible retroactivity, as landlords never had a lawful right to engage in fraudulent deregulation.
The defendants had argued that earlier case law required proof of common-law fraud, but the court found that such interpretations were only potentially relevant between the 2020 Regina Metro. decision and the 2023 amendments. The court reaffirmed that neither tenants nor landlords have vested interests in regulatory provisions, and thus current law applied even if it altered the legal landscape.
The record showed that the apartments were deregulated based on rent increases unsupported by documented improvements and accompanied by inconsistent registration filings. The defendants acknowledged that deregulation occurred improperly, either before or during the J-51 tax benefit period, and continued to raise rents and deny lease renewals. A key affidavit from a former managing agent described conversations during the building’s 2016 sale, suggesting knowledge of the deregulation scheme and raising the possibility of carryover liability.
The court also rejected the argument that the managing agent could not be held liable, noting that under the Rent Stabilization Code, agents are included in the definition of “owner” and may be held accountable if they participate in fraudulent schemes.
Ultimately, the court concluded that there were sufficient factual disputes to warrant a trial on whether the deregulation constituted a knowing and fraudulent scheme under the totality of the circumstances. The decision underscores a broader judicial and legislative shift toward protecting tenants and enforcing rent stabilization laws with greater scrutiny and flexibility.
Doesn't "totality of the circumstances" sound like a really bad boy-band name?
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DECISION