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Posted by nyhawk on May 31, 2001 at 14:02:04:

In Reply to: Landlords Seeking Rent Hikes Must Meet Prior Standard posted by nyhawk on May 31, 2001 at 06:31:39:

Landlords Seeking Rent Hikes Must Meet Prior Standard

By Michael A. Riccardi
New York Law Journal
May 30, 2001

Landlords seeking higher initial rents on apartments newly covered by the Rent Stabilization Law must prove that they would have been entitled to the highest increases allowed under the previously applicable Rent Control regulations, a Manhattan Supreme Court justice has ruled.

Justice Leland DeGrasse reversed a decision of the State's Division of Housing and Community Renewal that supported the assumption that a landlord who failed to apply for such increases would have been able to get them.

The court ruled further that the agency relied on a faulty special guideline promulgated by the city's Rent Guidelines Board.

Special Guideline 26, which said that initial stabilized rents should be set by reference to actual rent in existence "or [that] would have existed," was not in accordance with the State Rent Stabilization Law, Justice DeGrasse ruled.

In Schaper v. New York State Division of Housing and Community Renewal, 117938/00, tenants sought to annul an opinion by the agency that ignored the fact that the landlord failed to seek increases in the Maximum Base Rent (MBR) during the previous tenancy, which had been governed by the city Rent Control Law.

The tenants were the first rent-stabilized tenants in an apartment building at 929 West End Avenue.

Therefore, an initial stabilized rent had to be set, and the parties disagreed over the basis for setting that rent.

The tenants argued that the special guideline allowed the landlord to rely on "imaginary rent amounts," according to their lawyer, Kenneth B. Hawco of Manhattan.

But the State, represented by Caroline M. Sullivan, counsel to the Division of Housing and Community Renewal, said that the guideline required that Maximum Base Rent be updated to the date that a former rent-controlled tenant relinquishes tenancy.

But the maximum increases are not automatic, Justice DeGrasse observed, writing that "the rent control law requires that a landlord establish the existence of numerous predicate facts before it may obtain an increased MBR." Justice DeGrasse said, "DHCR's interpretation of Special Guideline 26 ignores this statutory scheme by assuming that a landlord who has not applied to have its MBR increased is nonetheless automatically entitled to such an increase when DHCR calculates the initial stabilized rent for an apartment."

The landlord may still use a hypothetical rent in excess of the previous rent-controlled rent, but only if it proves that facts existed to support increases in the Maximum Base Rent under the previous tenancy, the court held.

"Placing the burden on a landlord to prove it would have been entitled to MBR increases . . . comports with the usual evidentiary burdens in Fair Market Rent Appeals," Justice DeGrasse wrote, adding that "[a] tenant new to a building would have a difficult time establishing that a landlord would not have been entitled to MBR increases."

Landlords, on the other hand, need only to maintain good records to prove, at the end of a rent-controlled tenancy, that Maximum Base Rent increases would have been justified.

Date Received: May 29, 2001

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