Civil Court of the City of New York, New York County, January 27, 2020

Cullen & Associates, P.C., New York City (Rob Marino of counsel), for petitioner.

Fishman Law, P.C., New York City (Ellery Ireland of counsel), for respondent.

Petitioner's motion and respondent's cross motion are consolidated for disposition purposes only and decided jointly as follows:

3505 BWAY Owner, LLC (petitioner) commenced this holdover proceeding against Amy-Beth McNeely (respondent) based upon the allegation that the unregulated lease between the parties for 3505 Broadway, apartment 33, New York, New York 10031 (premises) expired. Petitioner commenced this proceeding by notice of petition and petition dated January 10, 2019. Respondent served and filed an answer to the proceeding dated February 12, 2019. The answer raises six affirmative defenses and three counterclaims.

By decision and order dated May 16, 2019, this court granted petitioner's motion and dismissed respondent's retaliatory eviction and harassment counterclaims as respondent had already interposed those claims in a previous action (McNeely v 3505 Bway Owner LLC, index No. 656483/18). Petitioner now moves to dismiss respondent's fifth affirmative defense. The defense states in pertinent part that petitioner and/or petitioner's predecessor illegally deregulated the premises and that the premises are therefore subject to the Rent Stabilization Law. Respondent cross-moves for discovery with respect to her fifth affirmative defense.

CPLR 3211 (b) provides "[a] party may move for judgment dismissing one or more defenses, on the ground that a defense is not stated or has no merit." Furthermore, "[s]tatements in a pleading shall be sufficiently particular to give the court and parties notice of the transactions, occurrences, or series of transactions or occurrences, intended to be proved and the material elements of each cause of action or defense" (CPLR 3013).

The standard of review on a motion to dismiss an affirmative defense pursuant to CPLR 3211 (b) is akin to that used under CPLR 3211 (a) (7), i.e., whether there is any legal or factual basis for the assertion of the defense (Matter of Ideal Mut. Ins. {**67 Misc 3d at 585}Co., 140 AD2d 62, 67 [1st Dept 1988]). In moving to dismiss an affirmative defense pursuant to CPLR 3211 (b), the petitioner bears the burden of establishing that the defense is without merit as a matter of law (534 E. 11th St. Hous. Dev. Fund Corp. v Hendrick, 90 AD3d 541, 541 [1st Dept 2011]). The allegations set forth in the answer must be liberally construed and viewed in the light most favorable to the respondent, who is entitled to the benefit of every reasonable inference (id.). Further, "the court should not dismiss a defense where there remain questions of fact requiring a trial" (Granite State Ins. Co. v Transatlantic Reins. Co., 132 AD3d 479, 481 [1st Dept 2015]).

The parties concede the premises were subject to the New York City Rent Control Law prior to respondent's tenancy in 2009, and that respondent was the first tenant in possession of the premises subsequent to its decontrol. The rent registration for the premises on file with the New York State Division of Housing and Community Renewal (DHCR) on October 4, 2019, reflects that the premises were rent controlled until 2009 (respondent surreply, exhibit A). The registration lists "Marybeth McNeely" as the rent-stabilized tenant of record for the premises as of November 1, 2009, at a monthly rent amount of $2,000. (Id.)

Petitioner asserts that after the rent-controlled tenant vacated in 2009, petitioner lawfully rented the premises to respondent at a fair market rate of $2,000 per month. As a result, petitioner was entitled to remove the premises from both rent control and rent stabilization. Petitioner's position is supported by DHCR Fact Sheet No. 6 and Rent Stabilization Law of 1969 (Administrative Code of City of NY) § 26-504.2 (a) (Rent Stabilization Law).

"In NYC, when a tenant moves out of a rent controlled apartment, the apartment becomes decontrolled. If that apartment is in a building built before January 1, 1974, containing six or more units at any [*2]time, it becomes rent stabilized . . .

"Prior to June 14, 2019, when a rent controlled apartment was vacated and the next tenant was charged a rent at or above the deregulation rent threshold, the apartment was exempt from rent regulation" (see DHCR Fact Sheet No. 6, Fair Market Rent Appeals, New York State Division of Housing and Community Renewal [2020],{**67 Misc 3d at 586} https://hcr.ny.gov/system/files/documents/2020/02/fact-sheet-06.pdf [last updated Nov. 2019], cached at http://www.nycourts.gov/reporter/webdocs/fact-sheet-06.pdf).

According to Rent Stabilization Law § 26-504.2 (a), now repealed but effective at the time the premises were deregulated, exempt units included "any housing accommodation which is or becomes vacant on or after the effective date of the rent regulation reform act of 1997 and before the effective date of the rent act of 2011, with a legal regulated rent of two thousand dollars or more per month."

Petitioner maintains that because the rent for the premises reached $2,000 in 2009, it was lawfully entitled to treat the premises as deregulated, rather than subject to rent stabilization. Petitioner concedes that the registration contains an error because it lists respondent as a rent-stabilized tenant in 2009, although the parties understood in 2009 that the premises were deregulated. Petitioner also attaches to its opposition an initial registration form (RR-1) its predecessor filed with DHCR when it removed the premises from rent control (petitioner opp, exhibit A). However, petitioner does not have proof that its predecessor served respondent with the form. Regardless, petitioner argues that respondent is statutorily barred from challenging the deregulation of the premises pursuant to the four year statute of limitations codified in Rent Stabilization Code (9 NYCRR) § 2522.3 (Rent Stabilization Code).

If a landlord removes an apartment from rent control, the landlord is required to file with DHCR and serve the first tenant in possession thereafter with an RR-1 (See DHCR Fact Sheet No. 6). An RR-1 explains the method by which the landlord decontrolled the unit and informs the tenant of his or her right to file a Fair Market Rent Appeal (FMRA) challenging the "first rent" (id.). The first tenant in possession of a decontrolled apartment must file a FMRA within 90 days after receiving the RR-1 (9 NYCRR 2522.3). However, even if the landlord fails to serve an RR-1 on the tenant, the FMRA "shall be dismissed where . . . the appeal is filed more than four years after the vacancy which caused the housing accommodation to no longer be subject to the City Rent Law" (9 NYCRR 2522.3 [c] [2]; see also Matter of Park v New York State Div. of Hous. & Community Renewal, 150 AD3d 105 [1st Dept 2017], lv dismissed 30 NY3d 961 [2017]).

In Matter of Park, the Court upheld the four year statute of limitations and barred a tenant from filing a FMRA, even{**67 Misc 3d at 587} though the landlord did not timely serve an RR-1. Rather, in Park the landlord served an RR-1 on the second tenant in possession, nearly seven years after the apartment was last subject to the rent control laws. The second tenant filed a FMRA within 90 days after being served with the RR-1. The Appellate Division affirmed DHCR's determination that the statute of limitations barred the tenant from filing a FMRA since more than four years had passed since the apartment had been decontrolled (id.).

Respondent argues that she is not barred by the statute of limitations articulated in 9 NYCRR 2522.3 because she is challenging the rent regulated status of the premises rather than the first rent charged after the premises were decontrolled. Respondent relies on Gersten v 56 7th Ave. LLC (88 AD3d 189 [1st Dept 2011]) and East W. Renovating Co. v New York State Div. of Hous. & Community Renewal (16 AD3d 166 [1st Dept 2005]) in which the Appellate Division held that the court may look beyond the statute of limitations for rent overcharge complaints to determine a challenge to the rent regulated status of an apartment (see also 2701 Grand Assn. LLC v Morel, 50 Misc 3d 139[A], 2016 NY Slip Op 50163[U] [App Term, 1st Dept 2016]; Aimco 322 E. 61st St., LLC v Brosius, [*3]50 Misc 3d 10 [App Term, 1st Dept 2015]). Indeed, this court relied on those cases and awarded discovery to tenants who posited a challenge to the rent regulatory status of an apartment, although such discovery would otherwise be barred by the overcharge statute of limitations (see e.g. 87th St. Realty v Mulholland, 62 Misc 3d 213 [Civ Ct, NY County 2018]; Audubon Realty v Michel, NYLJ, Aug. 15, 2018 at 28, 2018 NYLJ LEXIS 2763 [Civ Ct, NY County 2018]; 3440 Broadway BCR LLC v Greenfield, 64 Misc 3d 1217[A], 2019 NY Slip Op 51195[U] [Civ Ct, NY County 2019]). The question is whether this court may apply those cases here, disregard the statute of limitations for challenges to first rents, and permit respondent to challenge the rent regulated status of the premises 10 years after they were decontrolled.

Although given an opportunity to do so, neither side provided this court with a case directly on point. Furthermore, the cases cited by respondent do not apply here because they do not involve apartments that were simultaneously decontrolled and deregulated, a key factor in this proceeding (Gersten, 88 AD3d 189; East W. Renovating Co., 16 AD3d 166; Morel, 2016 NY Slip Op 50163[U]; Brosius, [*4]50 Misc 3d 10). However, in answering{**67 Misc 3d at 588} this question, both 9 NYCRR 2522.3 and DHCR Fact Sheet No. 6 are instructive. Fact Sheet No. 6 provides that a landlord can defend a first rent by establishing that the rent did not exceed that of comparable apartments in the building when the tenant moved in, or that it reached the first rent by applying individual apartment improvements (IAI) and New York City Rent Guidelines Board (RGB) increases. Fact Sheet No. 6 explains how DHCR may determine a FMRA, which method is also codified in 9 NYCRR 2522.3:

"In determining a FMRA, consideration will be given not only to the applicable guidelines promulgated for such purposes by the Rent Guidelines Board, but also rents prevailing for substantially similar ('comparable') accommodations located in the same general area as the subject building on the date the complaining tenant moved into the subject apartment.

"A 'comparable' apartment may be either a rent stabilized or an unregulated unit. The number of rooms in the 'comparable' apartment may not exceed the number of rooms in the subject apartment. The rent for a rent stabilized 'comparable' apartment will be considered only if it is unchallenged (no challenge to its rent is pending before the DHCR).

"The fair market rent will generally be established at the greater of the Special Guidelines component promulgated by the Rent Guidelines Board and the highest registered rent for a comparable rent stabilized apartment in the subject building on the date the complainant moved in, plus lawful increases for individual apartment improvements."

Here, the petitioner not only decontrolled the premises after the last rent controlled tenant vacated, but simultaneously deregulated the premises pursuant to the luxury deregulation provision in effect at the time, now repealed Rent Stabilization Law § 26-504.2 (a). Therefore, respondent cannot challenge the rent regulated status of the premises other than by challenging the legality of the first rent which qualified the premises for deregulation. The only means by which to challenge the first rent is to prove that the rent exceeded the higher of either comparable rents or RGB increases plus IAIs, which is the exact process of a FMRA (id.). Although respondent claims she is challenging the rent regulatory status of the premises in her{**67 Misc 3d at 589} fifth affirmative defense, in substance, she is requesting a FMRA.

The Housing Stability and Tenant Protection Act of 2019, enacted on June 14, 2019 (L 2019, ch 36 [HSTPA]), was a comprehensive and detail oriented overhaul of the landlord-tenant laws, and was enacted "in order to prevent uncertainty, potential hardship and dislocation of tenants" (HSTPA, § 1, part D, § 1). HSTPA enlarged the statute of limitations with respect to overcharge claims. The statute also follows East W. and Gersten with respect to overcharge claims in that it authorizes the court to examine "all available rent history which is reasonably necessary" to determine the legal regulated rent and investigate overcharges, including "any rent registration or other records filed with the state division of housing and community renewal, or any other state, municipal or federal agency, regardless of the date to which the information on such registration refers" (Administrative Code of City of NY § 26-516 [h] [i]; Gersten, 88 AD3d 189; East W. Renovating Co., 16 AD3d 166). However, HSTPA did not alter the statute of limitations with respect to filing a FMRA.

Since the new laws expressly and clearly provide that the court may examine rent histories beyond the statute of limitations in overcharge claims, but not for FMRAs, the court must draw an "irrefutable inference" that the legislature intended to omit or exclude FMRAs from its "lookback" provisions (Myers v Schneiderman, 30 NY3d 1, 12 [2017]; Matter of Shannon, 25 NY3d 345, 352 [2015]; Matter of Raynor v Landmark Chrysler, 18 NY3d 48, 56 [2011]; Matter of Town of Riverhead v New York State Bd. of Real Prop. Servs., 5 NY3d 36, 42-43 [2005]). Therefore, the statute of limitations for filing a FMRA must be enforced here and bars respondent from challenging the rent regulatory status of the premises.^[FN*]

Respondent argues that regardless, the premises were not properly deregulated because the DHCR rent registration lists her as a rent-stabilized tenant in 2009. However, respondent acknowledges that she signed a "Deregulation Rider for First Unregulated Tenant" (rider) when she signed the original lease for the premises (respondent aff, exhibit B; see Rent Stabilization Law § 26-504.2 [b]; Rent Stabilization Code § 2522.5 [c] [3]). The rider provides "this apartment is not regulated under {**67 Misc 3d at 590}the rent control or rent stabilization laws of New York State because the legal rent was or became $2000 or more on vacancy . . . this information may be verified by contacting the lessor or the New York State Division of Housing and Community Renewal." The rider explains that the rent increased to $2,000 or more based upon improvements performed to the premises in addition to a vacancy. Therefore respondent was informed and conceded in writing that the premises were deregulated prior to her moving into the premises.

Respondent argues that unlike an RR-1, the rider does not state the prior maximum base rent (MBR) for the premises, describe what improvements, if any, were made to the premises, nor explain that respondent has the right to file a FMRA. Indeed, petitioner asserts it was not able to obtain proof of service of the RR-1 on respondent. However, the prior owner filed a proper form RR-1 and "Owner's Report of Vacancy Decontrol for a New York City Apartment Subject to Rent Control" (Report of Vacancy Decontrol) with DHCR in 2009. In the Report of Vacancy Decontrol, DHCR concluded that "the described housing accommodations are not subject to rent control" (petitioner opp, exhibit A). Accordingly, it was accepted by petitioner's predecessor, respondent and DHCR that the premises were not subject to rent control when respondent moved into the premises.

In 430 Realty Co. v Heftler, the court determined that an error on a rent registration was de minimis and did not affect the actual rent regulated status of an apartment where the owner and tenant had understood that the apartment was deregulated (430 Realty Co. v Heftler, 185 Misc 2d 450 [Civ Ct, NY County 2000]). In Heftler, as here, a rider [*5]to the original lease specified that the apartment was deregulated; however, the registration on file with DHCR erroneously listed the apartment as rent-stabilized. Finding that the apartment was deregulated, the Heftler court stated:

"No fair reading . . . can result in any other interpretation and the tenant[ ] could not have been prejudiced or misled by this registration especially in light of the original lease rider which unequivocally states petitioner's intention to exempt the unit from rent regulation based upon the legal rent exceeding $2,000 per month" (430 Realty Co. v Heftler, 185 Misc 2d 450, 460 [Civ Ct, NY County 2000]; see also Ruiz v Chwatt Assoc., 247 AD2d 308 {**67 Misc 3d at 591}[1st Dept 1998] [rent stabilization coverage is a matter of statutory right and cannot be created by waiver or estoppel]).

Here, as in Heftler, the error on the rent registration is de minimis and does not support respondent's challenge to the rent regulatory status of the premises.

Accordingly, the petitioner's motion is granted and respondent's fifth affirmative defense is dismissed. The cross motion, which seeks discovery based on the dismissed fifth affirmative defense, is denied as moot.