Attention NY Building Owners: The Rent Overcharge Provision of the Housing Stability and Tenant Protection Act of 2019 Only Applies Prospectively

In the midst of the global COVID-19 (Coronavirus) pandemic, some New York building owners are breathing a collective sigh of relief after securing a hard-fought victory in the New York Court of Appeals.  On April 2, 2020, the Court of Appeals, in a divisive 4-3 decision, struck down Part F of the Housing Stability and Tenant Protection Act of 2019 (the “HSTPA”) after concluding that retroactive application of Part F of the HSTPA violated building owner’s due process rights.

Considered to be the strongest tenant protections act in the history of rent regulation, the HSTPA overhauled how to determine the legal regulated rent for overcharge purposes, extended the statute of limitations, and significantly expanded the scope of owner liability in rent overcharge cases (not to mention dramatically reduced rent increases for major capital improvements and interior apartment improvements). You can read our previous blog which addresses this here. Importantly, pursuant to Part F, the HSTPA was to be applied to any claims pending or filed on or after the enactment of the HSTPA (June 14, 2019).  The Court of Appeals undertook four cases on appeal[1] after all the tenants, whose cases were pending at the time of the HSTPA’s enactment, urged the Court to apply the new overcharge calculation provision of the HSTPA to their appeals.

Before the enactment of the HSTPA, tenants filing rent overcharge suits could only seek relief under the Rent Stabilization Law (the “RSL”), which subjected overcharge claims to a four-year statute of limitations.  Moreover, absent evidence of fraud, determining rent overcharges under the RSL involved examining a four-year “lookback period” to calculate the difference between the legal regulated rent rate and the “base date rent” actually charged during that period.  In contrast, Part F of the HSTPA extended the statute of limitations to six years, which subsequently permits tenants to go back six or more years to determine their “base date rent” and legal regulated rent.  Moreover, Part F of the HSTPA also requires owners to now retain six, instead of four, years of rental records.

While the tenants here urged the Court to retroactively apply the HSTPA to their respective appeals and the Court did find that the “claims pending” language in Part F of the HSTPA demonstrated legislative intent to apply the HSTPA retroactively to at least some overcharge claims, the Court ultimately determined that such retroactive application would unconstitutionally infringe upon the due process rights of building owners.  Notwithstanding that the Court found there was a rational basis for the enactment of the HSTPA – to alleviate a presiding affordable housing shortage – the Court struck down the retroactive application of Part F as it would force building owners to be financially responsible for conduct that predated the HSTPA’s enactment.

At a time when many uncertainties exist in the New York real estate market, this Court of Appeals decision proves to be a crucial victory for strained New York building owners.  However, Part F of the HSTPA continues to apply, on a prospective basis, for all applicable cases commenced since the HSTPA’s enactment so it is important that all building owners continue to observe the relevant mandates outlined in the HSTPA.

[1] The four rent regulation overcharge cases taken on appeal were: (i) Matter of Regina Metropolitan Co., LLC v. New York State Division of Housing and Community Renewal, (ii) Raden v. W7879, LLC, (iii) Taylor v. 72A Realty Associates, L.P., and (iv) Reich v. Belnord Partners, LLC,