As readers of the Reporter may recall, the Court of Appeals decision in Roberts v. Tishman Speyer left several key issues unresolved and remanded the case to the lower court to address. The major issue left open was whether the Court’s decision was to be applied only prospectively, so as to prohibit owners of J-51 buildings from deregulating apartments in the future, or whether the decision was to be applied retroactively, subjecting owners of J-51 buildings who had deregulated apartments to overcharge claims.
That issue has now been addressed by State Supreme Court Justice Richard B. Lowe, III, who ruled that Roberts is to be applied retroactively. Justice Lowe disagreed with the arguments raised by MetLife, the owner of the apartment complex prior to Tishman Speyer, that the entire real estate community had relied upon the unchallenged policies of DHCR and HPD since 1996 which permitted owners to deregulate apartments during the period of the J-51 benefits.
According to Justice Lowe, the fact that this was the commonly accepted and unchallenged practice since the mid-1990’s was, in effect, irrelevant and that the text of the law, together with its legislative history, undermined the arguments of the property owners.
Although Justice Lowe did rule that Roberts is to be applied retroactively, at least one additional aspect of this issue remains to be addressed and that relates to the period of time covered by retroactivity. In other words, will owners be subject to overcharge claims going back to the enactment of the law in 1993? Will the four-year statute of limitations for overcharges be applied and, if so, will it run from the filing of the complaint by tenants in 2007, the decision by the Court of Appeals in 2009, or some other time period? Much is at stake depending upon the answer to that question which will, inevitably, be resolved by future court cases.
Just prior to the issuance of Justice Lowe’s decision, two recent decisions were issued which, although based upon different legal principles, provided encouragement to property owners by rejecting challenges brought by tenants based upon Roberts and ruled for property owners.
In Gersten v. 56 7th Avenue, LLC, State Supreme Court Justice Louis B. York considered whether Roberts should be applied to a situation where a tenant was high-income, high-rent deregulated in 1999 at a time when the building was also receiving J-51 benefits. The Court noted that the tenant did not file an administrative appeal or commence an Article 78 proceeding upon their deregulation in 1999 to contest DHCR’s action at that time. Justice York ruled that “Despite the decision in Roberts, this Court is without jurisdiction to grant the declaratory relief as the statute of limitations for Article 78 proceedings has expired and the Court must respect the decision of DHCR in this type of proceeding.” As a result, Justice York dismissed the tenant’s case. Magda Cruz, Esq., of Belkin, Burden, Wenig & Goldman represented the owner.
In Gerard v. Clermont York Associates, LLC, based upon Roberts, tenants who were deregulated between 1993 and 1997 claimed that due to the owner’s receipt of tax benefits, their deregulation was unlawful and that they were compelled to pay illegal market rents as a result. State Supreme Court Justice O. Peter Sherwood agreed with the owner’s argument that the complaint should be dismissed on the ground that, under the doctrine of primary jurisdiction, the appropriate forum for addressing the issues in the case was DHCR and not the court. Justice Sherwood recognized that although both the courts and DHCR are capable of addressing these issues, DHCR was the preferred venue given its expertise. Justice Sherwood also dismissed the attempt by the tenants to pursue their case as a class action, ruling that each tenant’s situation involved unique factual circumstances and that there was no single issue which was common to all of the members of the proposed class. Kevin Smith, Esq., of Stroock & Stroock & Lavan represented the owner in this case.
Owners who may be affected by these court rulings should consult with their attorneys. The Reporter will keep readers apprised of further developments on this subject.
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