This action arises from alleged rent overcharges on an apartment in a Manhattan building located at 17 West 82nd Street. Chris and Gladys McDonnell bought the building in 1979. (NYSCEF No. 25 at 2.) They resided in apartment 2A from 1979 until January 2015.

At some point before 2015, the McDonnells transferred their interests in the building to defendant, 17 West 82nd Street, LLC, of which the McDonnells are authorized representatives. Plaintiffs, Mauro and Nina Merolle, leased apartment 2A in January 2015. Plaintiffs claim that although defendant had previously registered apartment 2A with the New York State Division of Housing and Community Renewal (DHCR), defendant did not give plaintiffs a rent-stabilized lease at an appropriate rent-stabilized rate or accompanied by an RR-1.^[FN1] (NYSCEF No. 1 at ¶¶ 8, 13, 28, 30.) They further allege that "[e]very registration filed by Defendant-Landlord since Plaintiffs-Tenants took occupancy [is] false and fraudulent." (Id. at ¶ 18.)

Plaintiffs assert claims for a declaratory judgment that apartment 2A is subject to rent stabilization; a declaratory judgment determining the legal rent for apartment 2A; overcharge damages; and attorney fees. (NYSCEF No. 1 at 6-7 [complaint].)

Defendants raise counterclaims for a declaratory judgment that the apartment is not rent stabilized and is exempt from rent regulation and for attorney fees. (NYSCEF No. 17 at 14-15.)

Defendant now moves for summary judgment on its first counterclaim; on its third affirmative defense—that plaintiff's complaint must be dismissed as untimely under Rent Stabilization Code § 2522.3; and to dismiss the complaint. Defendant also seeks attorney fees, costs, and disbursements. The motion is granted. The request for attorney fees, costs, and disbursements is denied.

The parties' dispute revolves around whether the apartment became rent stabilized once plaintiffs rented the apartment.

Defendant argues that from 1979 until January 2015—when plaintiffs moved in—the apartment remained rent controlled. Defendant asserts that "when the first tenant after the vacancy of a rent-controlled unit is charged a rent at or above the rent stabilization deregulation threshold, the apartment would be exempt from all forms of rent regulation." (NYSCEF No. 48 at 16.) Defendant contends that, as new tenants, plaintiffs could have contested the rent by filing a fair market rent appeal (FMRA) within four years of renting the premises but because plaintiffs did not, they cannot now challenge the rent.

Plaintiffs, on the other hand, contend that the apartment was, and is, rent stabilized because the (1) building in which the apartment is located was built before 1971 and contains at least six apartments and (2) defendant registered the apartment with DHCR as rent stabilized (though temporarily exempt) for decades. (NYSCEF No. 50 at 3, 7; NYSCEF No. 89 [DHCR registration].) Plaintiffs argue that "[i]t has long been the law then when an apartment is temporarily exempt from rent stabilization that a landlord can only offer a rent stabilized lease to the first tenant who moves in after the period of temporary exemption." (NYSCEF No. 50 at 8.)

The court agrees with defendant.

The Court of Appeals recently highlighted the "specific process for setting the initial rent of an apartment leaving rent control and entering rent stabilization." (Liggett v Lew Realty LLC, 42 NY3d 415, 420 [2024].) Once "a rent controlled unit becomes vacant, it is automatically . . . subject to the less rigorous provisions of rent stabilization." (Id. at 418 [internal quotation marks omitted].)

Before the passage of the Housing Stability and Tenant Protection Act (HSTPA) in June 2019, the rule was that "the first tenant after the vacancy of the rent controlled tenant is charged a rent at or above the rent stabilization deregulation threshold, the apartment is exempt from all forms of rent regulation." (3505 BWAY Owner LLC v McNeely, 72 Misc 3d 1, 3 [App Term, 1st Dept 2021].) Pre-HSTPA law applies here, because plaintiffs' tenancy began in 2015—before HSTPA's passage.

Former 9 NYCRR 2521.1 (a) (1) provides that for housing accommodations initially subject to rent control and now subject to rent stabilization, "the initial legal regulated rent shall be the rent agreed to by the owner and the tenant and reserved in a lease or provided for in a rental agreement subject to the provisions of this Code, and subject to a tenant's right to a Fair [*2]Market Rent Appeal to adjust such rent." In other words, "the owner is free to charge an initial fair market rent that is 'agreed to by the landlord and the tenant and reserved in a lease or provided for in a rental agreement.'" (Park, 150 AD3d at 113, quoting former 9 NYCRR 2522.3 [a].) The "initial rent is then registered and a RR—1 notice is served on the tenant, triggering the tenant's right to challenge the rent by filing a FMRA with DHCR." (Id.; see also NYSCEF No. 40 at 1 [DHCR Fact Sheet #6] ["The owner must register the unit with the NYS Division of Housing and Community Renewal [DHCR] by completing the Initial Apartment Registration (DHCR Form RR-1) and must provide the tenant with a copy by certified mail."].) If landlord does not serve the notice, "the FMRA must be filed no later than four years after the time the rent controlled unit is originally removed from the City's rent laws." (Park, 150 AD3d at 114, citing former 9 NYCRR 2522.3 [a], [b] [1], [2].)

Notwithstanding a tenant's failure to file an FMRA, a "tenant may challenge the ostensibly deregulated status of a dwelling at any time during their tenancy." (Malkiewicz v Acquisition Am. XI LLC, 233 AD3d 587, 588 [1st Dept 2024] [internal quotation marks omitted].) If a rent-stabilized apartment is temporarily exempted from that status (e.g., by being owner occupied), the landlord must give the new incoming tenant with a lease reflecting legal regulated rent calculated as the "prior legal regulated rent" plus appropriate increases permitted under the Rent Stabilization Code. (Gordon v 305 Riverside Corp., 93 AD3d 590, 592-593 [1st Dept 2012], citing former 9 NYCRR 2526.1 [a] [3] [iii].) The landlord must offer a rent-stabilized lease to the incoming tenant if the apartment was rent stabilized before the exemption took effect and then returned to rent-stabilized status. (See e.g. AEJ 534 E. 88th, LLC v New York State Div. of Hous. & Community Renewal, 194 AD3d 464, 470 [1st Dept 2021].)

The court concludes that plaintiff has raised no issue of fact about whether the apartment is or was rent stabilized. Plaintiffs provide no evidence that the apartment was ever subject to rent-stabilization, as opposed to being exempt from rent-stabilization because it was rent controlled. (See former 9 NYCRR 2520.11 [a] [providing that housing accommodations subject to the City Rent Law, i.e., rent control, are not subject to rent stabilization].)

Additionally, the court is unpersuaded by plaintiffs' contention that defendant fraudulently registered the apartment with DHCR during plaintiffs' tenancy. The DHCR registration reflects that defendant did not register the premises from 2015-2020. (NYSCEF No. 83 at 4 [pdf pagination] [DHCR registration].) That registration also reflects that defendant incorrectly registered the apartment as rent-stabilized-but-exempt in 2021. (Id.) But plaintiffs provide no evidence to support the presence of fraud as opposed to mere error.^[FN2] (See Ruiz v Chwatt Assocs., 247 AD2d 308, 308 [1st Dept 2007] [holding that landlord "mistakenly registering the apartment as stabilized" and asking "for rent increases that conformed to stabilization guidelines" do not render an apartment rent stabilized as a matter of waiver or estoppel].)

Plaintiffs had four years from that time (until 2019) to challenge the rent—assuming that plaintiffs received no RR-1 from defendant. But plaintiffs did not do so until they filed this action in 2023. Accordingly, when plaintiffs signed the lease with defendant at a rate which [*3]exceeded the deregulation threshold, the apartment was deregulated.

Defendant's motion for summary judgment is granted.^[FN3]

Defendant seeks attorney fees, costs, and disbursements incurred in defending this action. It asserts that if it prevails in this action—as it has—it is entitled to attorney fees under the lease. The lease, however, provides that defendant may recover "any legal fees and disbursement for legal actions of proceedings brought by Owner against [tenant] because of a lease default by [tenant] or for defending lawsuits brough against Owner because of [tenant's] actions." (NYSCEF No. 28 at ¶19 [5].) Defendant is therefore not entitled to attorney fees and disbursements incurred from defending this action, which arises from alleged overcharges, not tenants' default. (See Flynn v Red Apple 670 Pac. St., 209 AD3d 580, 581 [1st Dept 2022] [holding that lease provision allowing landlord to recover legal fees in an action arising from tenant's default or in an action brought by a third-party due to tenant's conduct does not extend to attorney fees incurred in defending against a rent-overcharge action].)

Accordingly, it is

ORDERED that defendant's motion for summary judgment is granted and the action is dismissed; and it is further

ORDERED, ADJUDGED, AND DECLARED that apartment 2A within the building located at 17 West 82nd Street, New York, NY is not rent stabilized; and it is further

ORDERED that defendant's request for attorney fees and disbursements is denied; and it is further

ORDERED that plaintiff serve a copy of this order with notice of its entry on defendants; and on the office of the County Clerk (using the NYSCEF document type "Notice to the County Clerk - CPLR § 8019 (c)"), which shall enter judgment accordingly.