Landlords are under tremendous amounts of scrutiny, so it is always best to error on the side of overkill. No judge in the history of Housing Court has ever complained because a landlord was too meticulous in their record keeping, and no landlord has ever lost a case for submitting an overabundance of evidence. This is why it is imperative that you keep everything.
This is especially true when you offer a tenant preferential rent. Before you do so, make absolute certain that you have all of your paperwork in order. This should include, at a minimum: documents that show the legal rent on the apartment for at least four years prior to the original lease, documents that can back up any increase that may have taken place during the vacancy between the previous lease and the current lease, and a properly filled out rider attached to every single lease. You also need to note, on the lease itself, that the tenant is receiving preferential rent and that it is distinct from the legal rent. If there is any ambiguity, the preferential rent will become the legal rent, and you may face treble penalties if the “overcharge” is deemed to have been done on purpose.
A recent Petition for Administrative Appeal filed by landlord 91-95 East 18 Property LLC in Brooklyn reveals just how expensive a lack of record keeping can be for a landlord. On July 30, 2015, one of the landlord’s tenants, Maximo Cervantes, filed a complaint for overcharge alleging that there was inadequate proof to establish a legal rent of $1,425 when the tenancy began on September 18, 2007 at a preferential rate of $900.
During the initial proceeding, the Rent Administrator requested the rent history dating back before the July 30, 2011 base date (the base date being defined under the Rent Stabilization Code § 2520.6(f)(1) as the date four years prior to the filing of an overcharge complaint) to establish the terms and conditions of the preferential rent, which is allowed by § 2526.1(a)(2)(viii) of the Rent Stabilization Code. The landlord did not provide this information, arguing that landlords are not required to provide the Rent Administrator with rent histories antecedent the base date. Unfortunately, this is not accurate in all scenarios. The Rent Administrator is not precluded from requesting “history of the housing accommodation prior to the four-year period preceding the filing of a complaint” when reviewing a case pertaining to preferential rent. Because the landlord did not provide this information, “the authenticity of the higher, legal regulated rent could not be confirmed,” by the Rent Administrator. The Rent Administrator ruled in favor of the tenant in an order filed on July 20, 2017.
The landlord appealed, saying that the “Rent Administrator’s application of the 2014 ‘look-back’ revision to the RSC was inappropriate,” though it’s unclear on what grounds besides undue hardship under RSC § 2527.7. The landlord did not demonstrate that the Rent Administrator’s decision in favor of the tenant would result in undue hardship, nor did the landlord provide evidence that established the legal rent to be distinct from the preferential rent. On March 22, 2018, the landlords P.A.R. was denied.
What to take away: The four-year look-back rule has multiple exceptions. It is not a hard cut-off. Keep records going back as far as possible, especially if you offer a tenant preferential rent. Even a minor oversight can result in a judge determining that the preferential rent should be regarded as legal rent.
To read more about this case, click here to see what Landlord V. Tenant has to say.