A frequent issue for landlords who purchase distressed buildings or even buildings that were owned by individuals who did not have a great record keeping system is the amount of liability that you take on after purchase. In most cases, you do assume a great deal of liability. It’s part of the risk of being an owner, which is why due diligence is so important. Existing violations do not simply vanish just because the conditions that gave rise to them first appeared on someone else’s watch. They become your responsibility when you become that building’s owner.
In many ways, a similar thing can be said of issues like rent overcharges on stabilized apartments. If you continue to request an amount that is above the legal rent, even though you were not the one who set the rent at that level in the first place, you still can be held liable. Because you did not rectify the situation and benefited from the overcharge, it becomes your problem.
However, if a landlord never collected a rent above the legal level, then they cannot be responsible for the previous landlord’s overcharge. This is especially the case if the property has been procured through a judicial sale and the tenant has signed a waiver of overcharge prior to the purchase of the building.
Unfortunately for the owner in this volume of the Case of the Week, the Rent Commissioner to whom they first made their case did not think this was so. Despite the tenant signing a waiver of overcharge in April of 2014, and the current landlord acquiring the property through a judicial sale in March 2015, the RC still filed an order and opinion in August 2017 stating that the landlord had overcharged the tenant. Even odder, the RC claimed that there was no credible evidence that the current owner had acquired the property through a judicial sale despite the owner submitting the verified complaint from foreclosure proceeding, the tenant’s waiver of overcharge, and the bargain and sale deed between the previous landlord and the current owner, which was executed on February 11, 2016, as exhibits. The RC still concluded that the overcharge that had taken place prior to the sale was the current owner’s responsibility.
The landlord responded by filing a proceeding under Article 78 in the Supreme Court. They requested the Court review the Rent Commissioner’s ruling in October 2017. Before the Court could reach a decision, the matter was settled by a stipulation and remanded back to the Division of Housing and Community Renewal.
Upon being remanded, another Rent Commissioner found that, following a foreclosure sale by the owner, “The owner is not liable for overcharges collected by any prior owner subsequent to foreclosure, to the extent that such overcharges are the result of overcharges collected prior to the foreclosure sale.” By an order issued on January 11, 2019, the petition for administrative review was granted, the order granting the overcharge complaint was overturned, and the action was terminated.
What to take away: Sometimes it pays to appeal to the Supreme Court.