Court of Appeals Finds Major Exceptions to Four-Year Rule

On October 19, New York’s Court of Appeals, the state’s highest court, issued two rulings broadening the exceptions to the “four-year rule,” which prohibits state agencies investigating rent-overcharge complaints from looking at what the apartment’s rent was more than four years before the date the complaint was filed.

In the two cases, Grimm v. DHCR and Cintron v. DHCR, the court held that tenants can cite records from more than four years earlier in order to establish that rent increases were fraudulent or illegal.

The rule dates from 1997, when the state Legislature tightened the rent-stabilization law’s statute of limitations to bar any examination of an apartment’s rent history more than four years prior to the tenant’s complaint. But in 2005, in Thornton v. Baron, the Court of Appeals ruled that the rent history more than four years earlier could be examined in order to detect fraud. In that case, the landlord had tried to deregulate an apartment by drawing up an illegal lease with a phony “primary tenant” and then subletting it to a couple who agreed that it would not be their primary residence.

In the Grimm case, the owner had unlawfully raised the rent for a vacant apartment from $587.86 to $2,000 a month in 2000, with a provision that the tenants could pay $1,450 if they made repairs and improvements at their own expense. Sylvie Grimm moved into the apartment in 2004, paying $1,450, and filed an overcharge complaint with the state Division of Housing and Community Renewal in 2005.
The DHCR denied her complaint on the ground that the increases subsequent to the “base date” rent in 2001 had been proper. But in September 2009, the Appellate Division held that DHCR “should not be allowed to turn a blind eye… where, as here, there is an indication of possible fraud that would render the [base date] rent records unreliable.” The Court of Appeals agreed, in a 4-3 decision.
In Cintron, the Court ruled by a 6-1 margin that rent records prior to the base date must be considered when the landlord had disregarded two prior rent-reduction orders. Those orders, based on lack of repairs, were still in effect.

It is unclear how far the expanded mandate to examine illegal rent increases more than four years old will extend. There is language in both decisions which supports the view that any illegal rent increase will make the base-date rent unreliable and allow a closer look. That is the position of Justice Robert Smith, who dissented in both cases.

“The majority opinion can be read to mean either that the four-year limitation has largely ceased to exist,” Smith wrote, “or that any case to which the limit applies on its face must lead to a mini-litigation, in which DHCR tries to figure out whether the overcharge was ‘fraudulent’ enough to escape the time limit.”

“This ruling will allow DHCR to do what it is supposed to do, which is to prevent landlords from evading the rent laws,” Ed Josephson of South Brooklyn Legal Services, who represented Sylvie Grimm, told the New York Law Journal. “There is no magic answer that will end fraud forever and ever, but this is one clear signal that the courts will not tolerate it and DHCR will not tolerate it any longer.”