If The ‘Poor Tax’ Was Overturned, Where’s My Refund?

Two state courts have struck down the “poor tax” rent increases set by the city Rent Guidelines Board in 2008 and 2009, but many tenants affected remain in limbo. The status of refunds is unresolved, and some landlords continue to claim the increases imposed on long-term rent-stabilized tenants.

The story began in 2008, when the RGB voted minimum increases for tenants paying less than $1,000 a month who had lived in their apartments for at least six years. The board allowed increases of 4.5 percent for one-year lease renewals and 8.5 percent for two years—but for long-term, lower-rent tenants, they let landlords charge minimum increases of $45 for one year and $85 for two years. This means that a tenant paying $500 and renewing their lease for two years would be hit with a 17 percent rent hike.

The RGB called these “alternative minimum” increases. Tenant groups dubbed them a “poor tax,” as they imposed higher-percentage increases on the oldest and lowest-income class of tenants. In 2009, the RGB did it again, setting $30 and $60 minimums to go along with overall increases of 3 and 6 percent.

The Legal Aid Society and South Brooklyn Legal Services filed a suit in 2008, claiming in Casado v. Markus that the RGB overstepped its authority by arbitrarily separating out long-term tenants and treating them differently. Last January, the state Supreme Court—New York’s lowest court—ruled that the minimum increases were illegal. The city appealed that decision, but the Appellate Division agreed with the lower court, in a ruling handed down in June.

That leaves many tenants uncertain of their status. Will their rents be lowered? Will they be entitled to refunds?

Unfortunately, the saga is not yet over. The Bloomberg administration is still seeking to overturn the decision and has asked the state’s highest court, the Court of Appeals, to hear the case. Until the legal process is finished, there will be no definitive resolution.

Some tenants signed renewal leases that included these minimum increases before the lower courts ruled that they were illegal. Some landlords have defied the court orders invalidating the minimum increases and sought them anyway, leaving tenants confused as to what they should do. Other landlords have sent tenants renewal leases where the amount including the minimum increase was called the “legal rent” and the amount calculated by the lower percentage increase was offered to tenants as a temporary “preferential rent.”

If this baffles you, you’re not alone. We can’t advise tenants what to do with any certainty until the legal battle is over. If the Court of Appeals decides to take the case, it may find the minimum increases to be legal. But if tenants prevail, most experts believe that a process will have to be established by which rents can be adjusted downward to the percentage increase, and tenants can be refunded the amounts they were overcharged.

Tenants who are already in court for nonpayment of rent because they simply cannot afford to pay can raise the illegal overcharges as a defense. But for tenants who signed leases with the higher amounts and can afford to pay them while the legal process runs its course, it’s not advisable to withhold rent just on principle. There are various consequences—from missing a court date and having an eviction ordered, to ending up on the tenant “blacklists,” to unwittingly signing a dangerous stipulation—that can happen to tenants who are defendants in an eviction case in Housing Court.

Tenants may also file rent-overcharge complaints with the state Division of Housing and Community Renewal, but the DHCR has not developed a process for dealing with overcharge complaints based on the minimum increases. It may wait to see if tenants prevail in court before doing so.

As the RGB didn’t impose a minimum increase this year, tenants renewing leases that take effect after Oct. 1 do not have to worry about this issue.