In the Matter of Kelley S. Boyd, Respondent,v.New York State Division of Housing and Community Renewal, et al., Appellants.

Brief

N.Y.June 24, 2014

COURT OF APPEALS STATE OF NEW YORK In the Matter of KELLEY BOYD, Petitioner-Appellant-Respondent, - against – NEW YORK STATE DIVISION OF HOUSING AND COMMUNITY RENEWAL and 232/242 REALTY CO., LLC., a/k/a UPTON REALTY, C-UPTOWN REALTY; ROBERT CANDEE, Respondents-Respondents-Appellants. APL -2014-0052 New York Co. Clerk Index No. 110437/11 BRIEF OF AMICI CURIAE PUBLIC ADVOCATE LETITIA JAMES, MANHATTAN BOROUGH PRESIDENT GALE BREWER & COUNCILMEMBER ROSIE MENDEZ IN SUPPORT OF PETITIONER-RESPONDENT BOYD OFFICE OF MANHATTAN BOROUGH PRESIDEN T GALE A. BREWER Adele Bartlett, Deputy General Counsel One Centre St., 19 th Floor New York, N.Y. 10007 (212) 669-8139 abartlett@manhattanbp.nyc.gov OFFICE OF NEW YORK CITY PUBLIC ADVOCATE LETITIA JAMES Chaumtoli Huq, General Counsel for Litigation One Centre St., 15 th Floor New York, N.Y. 10007 (212) 669-2175 chuq@pubadvocate.nyc.gov May 2, 2014 i TABLE OF CONTENTS TABLE OF AUHTORITIES i PRELIMINARY STATEMENT 1 STATEMENT OF FACTS 3 ARGUMENT I. THE APPELLATE DIVISION DECISION WAS CORRECT AND SHOULD BE AFFIRMED 3 A. Appellate Division’s Decision Is Consistent With Public Policy of the State to Preserve Rent Regulated Housing and this Court’s Established Legal Precedent in Thornton and Grimm 3 B. The Appellate Division’s Decision Correctly Embodies Sound Public Policy and Will Help Deter Fraudulent Deregulation of Affordable Housing Units and Stem the Accelerating Loss of Affordable Housing in New York City 6 C. The Appellant DHCR Seeks to Impose An Improper Burden Of Proof On Respondent Boyd Abdicating its Obligation to Enforce Rent Stabilization Laws and to Advance New York State’s Policy to Preserve Affordable Housing 9 D. Appellant DHCR’s Failure to Investigate Overcharge Complaints Where Tenants Show Indicia of Fraud Will Have a Detrimental Impact on Vulnerable Tenants and Affect the Overall Demographic Stability of New York City 11 CONCLUSION 13 ii TABLE OF AUTHORITES Cases Boyd v. DHCR, 110 A.D.3d 594 (1 st Dep’t 2013) 11 Davis v. Waterside Hous. Co. 274 A.D.2d 318 (`1 st Dep’t 2000), appeal den’d 95 N.Y.2d 770 (2000) 13 Drucker v. Mauro, 30 A.D.3d 37 (1 st Dep’t 2006) 3,4,5, Estro Chem. V. Flak, 30 N.Y. 83 (1951) 3 Manocherian v. Lenox Hill Hospital, 84 N.Y.2d 385 (1994) 3 Grimm v. DHCR, 15 N.Y.3d 358 (2010) 4,5,6 Thorton v. Baron, 5 N.Y.3d 175 (2005) 4,5,6 West End Ave. Assoc. v. Harel, 298 A.D. 2d 11(1 st Dep’t 2002) 11 Statutes and Regulations New York City Administrative Code §26-516 4, 9 Reports and Newspaper Articles The Growing Gap, New York City Comptroller, April, 2014, Available at: http://comptroller.nyc.gov/wp-ontent/uploads/documents/Growing Gap.pdf (last accessed May 1, 2014) 2, 7, 11 New York City Housing and Vacancy Survey, (“HVS”) available at: http://www.nyc.gov/html/hpd/downloads/pdf/HPD-2011-HVS-Selected-Findings- Tables.pdf (last accessed May 1, 2014) 2 2012 State of New York City’s Housing and Neighborhoods, Available at http://furmancenter.org/research/sonychan (last accessed May 1, 2014) 7 The $20,000 Stove: How Fraudulent Rent Increases Undermine New York’s Affordable Housing, Ass’n. for Neighborhood Housing & Development, January 2009 7 iii Rent Fraud Illegal Rent Increases and the Loss of Affordable Housing In New York City, Available at http://www.maketheroad.org/pix_reports/DHCR%20Report.pdf (last accessed May 1, 2014) 12 The Taskforce to Expand Legal Services Report to Chief Judge of the State of New York found that 99 percent of tenants are unrepresented in eviction cases. See https://www.nycourts.gov/ip/access-civil-legal-services/PDF/CLS-TaskForceREPORT.pdf (November 23, 2010) 12 1 PRELIMINARY STATEMENT Amici New York City Public Advocate Letitia James, Manhattan Borough President Gale Brewer, and City Council Member Rosie Mendez, respectfully urge that the Appellate Division’s decision be affirmed, because to do otherwise would not only severely undermine the Rent Stabilization Law and the clear precedent of this Court that the four year look back period not be used as a shield against fraudulently increased rents, but would as well exacerbate an existing crisis in the availability of affordable housing in New York City. The Appellate Division correctly found that a tenant’s presentation of “a sufficient showing of fraud” in an apartment’s rent levels subject to the Rent Stabilization Law triggered Appellant New York State Division of Housing and Community Renewal’s (“DHCR”) obligation to investigate the claim of overcharge, and that DHCR acted irrationally in (1) failing to investigate; (2) failing to request any evidence from the landlord; (3) refusing to consider rent increases taken more than four years prior to the complaint; and (4) summarily concluding – without any basis or investigation – that the Appellant landlord “could” have spent a sufficient amount in qualifying renovations to legally raise the rent to a level just below that which would virtually guarantee its deregulation in short order, despite contrary and wholly unrebutted evidence provided by the tenant as to the apartment’s actual condition. Accepting DHCR’s position here would have a devastating impact on vulnerable low-income tenants, including elderly, disabled and limited English proficient (“LEP”) and their access to much needed affordable housing in New York City. 2 Amici represent constituents who are increasingly being forced out of, or excluded from access to, private apartments due to constantly increasing rents. Amici’s offices and constituent service staff deal with an increasing number of complaints and try to ameliorate the tragic consequences faced by constituents due to the affordable housing crisis. Each rent regulated apartment that is lost due to fraudulent setting of an unlawful rent compounds the crisis that Amici’s constituents face. Both the State Legislature and the New York City Council have found that there exists a “serious public emergency” in the State and City respectively, requiring the regulation of rents. New York City’s critical shortage of affordable housing is deepening, and an estimated 400,000 affordable apartments have been lost in the last twelve years. 1 The city-wide vacancy rate as last calculated is 3.12 percent. 2 This Court’s prior rulings have sent a clear message that the look back limitations in the Rent Stabilization Law cannot be used as a shield to protect fraudulently increased rents. These rulings constitute a critical bulwark against a tide of deregulation; without this, unscrupulous landlords will have even more incentive to attempt to illegally raise rents in the hopes evading scrutiny of their fraud by waiting out the four year look back period. The Appellate Division’s holding here is fully consistent with this Court’s prior rulings, and simply requires Appellant DHCR, the agency charged with enforcing the Rent Stabilization Law and protecting tenants against illegal schemes of this nature, to investigate when facts indicative of possible fraud are brought forth. To reverse the 1 See “The Growing Gap”, study issued by New York City Comptroller, April 2014, available at: http://comptroller.nyc.gov/wp-content/uploads/documents/Growing_Gap.pdf (last accessed May 1, 2014) 2 See, New York City Housing and Vacancy Survey, (“HVS”) available at: http://www.nyc.gov/html/hpd/downloads/pdf/HPD-2011-HVS-Selected-Findings-Tables.pdf (last accessed May 1, 2014) 3 Appellate Division here, and constrain this Court’s prior holdings by requiring DHCR to investigate only in the narrowest of circumstances indicative of a possibly fraudulent schemes, would seriously weaken, if not eventually destroy, the goals of the Rent Stabilization Laws and unduly shift the burden of enforcement to tenants. STATEMENT OF FACTS Amici Curiae rely on the facts as set forth in the briefs submitted by counsel for Respondent Kelley S. Boyd in the Appellate Division, First Department (wherein she was Petitioner-Appellant). I. THE APPELLATE DIVISION DECISION WAS CORRECT AND SHOULD BE AFFIRMED A. Appellate Division’s Decision Is Consistent With Public Policy of Preserving Rent Regulated Housing and This Court’s Established Legal Precedent in Thornton and Grimm The Rent Stabilization Law was enacted and Rent Stabilization Code adopted in response to the shortage of affordable housing, to protect and preserve the dwindling supply of such housing, and thus address “the intractable housing emergency in the City of New York” and “protect dwellers who could not compete in an overheated rental market, through no fault of their own.” Manocherian v. Lenox Hill Hosp., 84 N.Y.2d 385, 389 (1994). Preventing the extraction of excessive rents by landlords is central to the statutory scheme. Drucker v. Mauro, 30 A.D.3d 37, 40 (1 st Dep’t 2006), citing Estro Chem. V. Flak , 30 N.Y.83, 87 (1951) The statute and the code attempt to accomplish these goals by providing that, in the event that a regulated unit becomes vacant, an owner is entitled only to those specific increases set forth in the law and set by the Rent Guidelines Board. 4 In an effort to relieve owners from the burden of maintaining records for extensive periods, the Rent Stabilization Law provides that there may be no challenge to rent amount more than four years prior to the last registered rent at the time of such a challenge. See NYC Administrative Code §26-516. However, this Court has consistently held that this four-year rule cannot be misused by landlords to circumvent the State policy of preserving affordable housing; it was not intended to “immunize dishonest ones” from compliance with the law. Thornton v. Baron, 5 N.Y. 3d 175, 181 (2005); Grimm v. DHCR, 15 N.Y.3d 358 (2010). In Thornton, this Court examined a case where lease provisions purported to remove apartments from regulation, and such leases had been memorialized in registrations more than four years prior to a challenge. The Court held that since the registered rent filed four years prior to the challenge, or the base rent, was itself fraudulent, it could not be the basis for calculation of future increases. In declining to apply an arbitrary four-year limitation, this Court declared that to do so “would bring about the rapid removal of many apartments from rent stabilization …undermining the statute’s very purpose of preserving a stock of affordable housing.” Id. 5 N.Y.3d at 181. Following this Court’s reasoning, the First Department in Drucker, ruled that a lease was voidable even though there the tenants had agreed to the terms more than four years prior to the challenge. The Division noted “For example, a landlord who can extract an unlawful rent for a sufficiently long period of time may be able to establish the stabilized rent at the unlawful level, to the detriment of a future tenant.” Id. 30 A.D.3d at 40. 5 In Grimm, the Court restated its principal concern behind Thornton as invalidating schemes to circumvent rent stabilization laws that would result in the loss of affordable housing. Grimm, 15 N.Y.3d at 365. The Court reaffirmed that where the rent registered on a “base date” (i.e., four years prior to the complaint) was in fact fraudulent, it cannot stand as the “legal regulated rent” Most importantly here, the Court refused to limit the holding in Thornton to the “narrow set of circumstances:” DHCR contends that that our holding in Thornton should be constrained to the narrow set of circumstances described in that case and we should limit its application to cases involving illusory tenancies. We disagree and conclude that, where the overcharge complaint alleges fraud, as here, DHCR has an obligation to ascertain whether the rent on the base date is a lawful rent. Id at 365. Ms. Boyd’s case falls squarely within this established precedent. It appears from the Record that the purported first tenant after the imposition of the increase was only provided with a gross amount of $975.35 representing “new equipment, service, improvement for this apartment.” (R.115) No detail was provided as to the specifics of what occurred in the apartment by which the owner purportedly incurred the $39,014.00 justifying the increase. Therefore, no one, other than the owner – not the first tenant after the vacancy (who allegedly resided in the apartment only a few months), nor the succeeding tenants immediately prior to Ms. Boyd (who were told, incorrectly, that the last registered rent was already $1750.00), nor Ms. Boyd, and not the DHCR, has ever seen the details or cost breakdown of the purported $39,000 renovation. The rent increase imposed in 2004 would have resulted in the premature removal of the apartment from regulation, which in fact is precisely what Appellant Landlord initially asserted to Appellant DHCR in response to Ms. Boyd’s complaint. (R.165-67) This is exactly the result that Drucker held must be avoided. Id. 30 A.D.2d at 40 (noting that increases taken years earlier, if left 6 unexamined and undisturbed would “prematurely subject the premises to luxury decontrol.”) This Court’s prior decisions should not be so narrowly construed as to require agency scrutiny of potential fraudulent increases only in circumstances factually identical to Grimm and Thornton , as DHCR apparently desires and in fact held in the PAR. In a city with hundreds of thousands of rent regulated apartments, fraudulent schemes will no doubt exist in many variations and at many points in time. This Court has previously refused to limit the required scrutiny of possible fraudulent rents to a narrow set of defined circumstances. The Appellants here would have the Court reconsider and reverse that position. Amici urge this Court to retain and reaffirm the broader view, which is more consistent with the purposes of the law. To do otherwise would be tantamount to providing dishonest landlords with a roadmap which they will use to evade the law. B. The Appellate Division’s Decision Correctly Embodies Sound Public Policy and Will Help Deter Fraudulent Deregulation Of Affordable Housing Units and Stem The Loss of Affordable Housing in New York City. Protecting and increasing the supply of safe, affordable housing for citizens of the City of New York is the shared concern of Amici here, since encompassed within their respective offices is the duty to work for the social and physical safety and welfare of their constituents. The Furman Center for Real Estate and Urban Policy, in its 2012 State of the New York’s City’s Housing and Neighborhoods, found that “over the past decade rental housing has become less affordable to many New Yorkers.” 3 And as noted in the previously-cited 3 Available at http://furmancenter.org/research/sonychan (last accessed May 1, 2014) 7 Comptroller’s report, “The Growing Gap,” 4 annual lease renewal increases alone could not account for the drastic rise in median rents over the past decade, and that individual apartment increases (“IAI”), Major Capital Improvement (“MCI”) and vacancy increases were significant factors. The study notes that “there is a perception of fraudulent activity associated with MCI and IAI rent increases”. Id., at 21-22. See also “The $20,000 Stove: How Fraudulent Rent Increases Undermine New York’s Affordable Housing,” Report by the Association for Neighborhood Housing and Development (January 2009) 5 The standard of “affordability” in rental housing costs is generally accepted as thirty per cent of gross annual income. Therefore, for a household enjoying a gross income of $40,000.00, or just higher than the average renter household income, an affordable rent would be $1,000.00 or below. The 2011 HVS reported that the median rent for apartments subject to Rent Stabilization was $1,050.00. The New York City-wide vacancy rate for apartments renting below $1,000.00 was 2.58 per cent as of 2011. 6 It is clear that the supply of Rent Stabilized housing teeters on the edge of affordability for the median regulated rental household, and is already mostly unaffordable for vast numbers of New Yorkers. Amici and their staffs deal daily with the human face of these statistics. The absence of affordable, regulated apartments, even for two-income families, leads to hardship and desperation. While rents have risen at and beyond affordability for New Yorkers enjoying the median income, households below that level have been devastated by the rise in rents and 4 The Growing Gap”, study issued by New York City Comptroller, April, 2014, available at: http://comptroller.nyc.gov/wp-content/uploads/documents/Growing_Gap.pdf (last accessed May 1, 2014) 5 Available at www.anhd.org/resources/the$20,000stovereport.pdf (last accessed May 1, 2014) 6 The New York City Housing and Vacancy Survey is conducted every three years by the United States Census Bureau. The most recent Survey was completed in 2011. 8 disappearance of rents affordable to them. Over the last decade, the City has lost a quarter million apartments renting for $800 or less, leading to devastating circumstances for families and individuals with annual incomes below the median level. 7 Owners are certainly entitled to improve their units and should be properly compensated for their investment, but fraudulent increases, which place rents ever more out of reach of average renters and ever nearer (or beyond) the levels where the apartment becomes permanently deregulated should be taken only when legitimate and legal. As the facts in this case demonstrate, the increases allowed in a vacant stabilized unit are significant, and using fraudulent IAI’s a rental level close to (or above) the deregulation goalpost of $2,500.00 ($2,000.00 at the time of the challenge here) is easily reachable in just about any regulated apartment at vacancy. Here, the purported IAI increase of $975.35 brought the rent within a single vacancy increase of destabilization, and Appellant Landlord believed that Ms. Boyd’s apartment was in fact deregulated because the rent had reached the $2,000.00 level by the time her tenancy began. The IAI increase of $975.35 brought the rent within a few lease renewals, or a single vacancy, for destabilization. The temptation for dishonest landlords to take such increases where there is no oversight and where their actions will be insulated from any and all scrutiny in four years is apparently all too common. But as noted above, this Court has repeatedly held that where indications are presented that a four-year-old registration may in fact not represent a proper and legal rent, the time limit should not preclude DHCR’s obligation to investigate the rent history. For this Court to hold otherwise now 7 For a family consisting of a parent and two children receiving Public Assistance in New York City, the maximum rent payable under the Family Eviction Prevention Supplement (“FEPS”) is $850.00 9 would be to countenance the gutting of the purposes of the existing law and the continued loss of affordable housing. C. The Appellant DHCR Seeks to Impose An Improper Burden Of Proof On Tenants Abdicating its Obligation to Enforce Rent Stabilization Laws and to Advance New York State’s Policy to Preserve Affordable Housing Appellant DHCR is charged with the enforcement of the New York Rent Stabilization Law and Code and to implement its underlying purpose of protecting the supply of affordable housing. N.Y. Admin. Code§ 26-516. DHCR cannot avoid these obligations and turn a blind eye to possible fraud and the resultant loss of the very housing stock it is charged with protecting. The Agency must be urged to scrutinize all rent increases, whether requiring Agency pre-approval, or brought to the attention of the Agency after the fact, when information is provided indicating possible fraud. It is deeply dismaying that Appellant DHCR would insist that Ms. Boyd’s unrebutted statement, containing a detailed description of items and conditions in her own home, does not constitute “real evidence.” The contents and appearance of an apartment less than five years after an alleged $40,000 renovation is highly relevant to whether such a renovation actually occurred, or whether in fact such a claim may be fraudulent. As noted above, no one, including Ms. Boyd, had detailed information on what improvements were allegedly made or additional equipment was allegedly installed. Ms. Boyd provided all the relevant information to which she had access. She did not have investigatory or subpoena powers at her disposal to obtain additional information. She gave the Agency the facts that she had. As the tenant and occupant of the subject apartment, she was able to provide competent and relevant evidence as to the condition of the apartment, the appearance of the 10 floors, walls, windows, installations and appliances. The evidence that she provided certainly indicates that the increase taken may well have been fraudulent. For DHCR to conclude that her evidence did not constitute “indicia” of fraud was unfair and improper. The effect of the Appellant DHCR’s position, requiring that a tenant to produce conclusive evidence of fraud before asking the owner to produce any documentation, is to place the burden of proof entirely upon the tenant -- essentially to investigate and prove her own case. Indeed, DHCR would not only have a tenant prove her case, but do so without the right to see the owner’s files or documentation. Here, in blind insistence on the four year look-back limit on rent overcharge complaint, Appellant DHCR refused to conduct even a cursory investigation into the tenant’s allegation of fraud. The Agency not only refused to investigate the very strong possibility of fraud and wrongful rent increase that was presented to it, it dismissed the tenant with the speculation that, theoretically, the landlord “could” have spent the amount of money necessary to justify the increase. The Agency’s position appears to be that it will guess and speculate what an owner’s defenses may be, and find such potential evidence persuasive, without requiring a scintilla of actual evidence -- but an unrepresented tenant’s detailed statements of fact are of no evidentiary value. Further, in a brazen abdication of its statutory obligation to prevent the circumvention of the rent stabilization laws, DHCR acknowledges in its brief to this Court that it “did not make the Owner submit proof of his improvements, nor should it have.” See DHCR Brief, at 11. It was DHCR’s failure to take any action here, and improperly imposing a high evidentiary burden on tenant to prove conclusively that the landlord was engaged in fraudulent scheme, that the Appellate Division properly characterized as 11 “DHCR’s disparate treatment of the parties.’ Boyd v. DHCR, 110 A.D. 3d 594, 595 (1 st Dep’t 2013). The Appellate Division correctly held that that failing to ask the Landlord to provide any evidence justifying the increase and on its face crediting “the owner implicit claim that it spent $39,000” cannot be viewed as rational decision making by an agency entrusted with the critical function of enforcing the rent stabilization laws so as to preserve the affordable housing in New York City. Id. at 594. D. Appellant DHCR’s Failure to Investigate Overcharge Complaints Where Tenants Show Indicia of Fraud Will Have a Detrimental Impact On Vulnerable Tenants and Affect the Overall Demographic Stability of New York City The point of rent stabilization laws is not only to protect a tenant, but “to ensure the viability of the rent regulation system which protects tenancies in general, provide predictability to landlords, and significantly enhances the social, economic, and demographic stability of New York City. West End Avenue Assoc. v. Harel, 298 A.D.2d at 16 (1 st Dep’t 2002) (emphasis added). In this regard, the Appellate Division’s decision and DHCR’s failure to investigate in this instant case should be viewed with greater care as to the impact a reversal would have on rent regulated tenancies in general, and specifically how it would affect vulnerable tenants who are most in need of rent protection. The loss of affordable housing has had the most devastating impact on low income New Yorkers. See, “The Growing Gap,” at 1. This, coupled with the loss of apartments renting for under $1,000, increasingly renders New York City unaffordable for most working poor. Since the elderly constitute a significant portion of low income households, especially elderly New Yorkers on fixed incomes, DHCR’s failure to carefully scrutinize possible rent overcharges can have severe consequences. As rent stabilized rents become 12 high, and the affordable housing shortage deepens, the harshest consequences will be on older New Yorkers. 8 Finally, another demographic adversely affected by DHCR’s failure to scrutinize rent increases are immigrant and limited English proficient tenants. In Rent Fraud Illegal Rent Increases and the Loss of Affordable Housing in New York City, community based organization Make the Road New York (August 2011) 9 found that Limited English proficient (LEP) tenants face significant language barriers when they interact with DHCR. If LEP tenants are required to carry the heavy evidentiary burden of proving fraud and DHCR not required to ask landlords for any evidence, then LEP tenants will be the least likely to bring forth overcharge complaints, and dishonest landlords who overcharge them will have little to fear. Given that the vast majority of tenants are often unrepresented and pro se tenants are those most likely file their complaint with DHCR, rather than raise the overcharge as a defense in a summary non-payment proceeding or file a complaint directly in Supreme Court, it is particularly important that DHCR fulfill its obligation to enforce the law and assist tenants with a full and fair investigations. 10 Where a tenant chooses the forum of DHCR and files a rent overcharge claim, it has primary jurisdiction over the complaint. See Davis v. Waterside Hous. Co., 274 A.D.2d 318 (1st Dep't 2000), appeal denied, 95 N.Y.2d 770 (2000) Where such a complaint is filed tenants look to DHCR to exercise its powers and discretion to conduct an investigation of the overcharge complaint. To reverse the Appellate Division and adopt the DHCR’s reasoning that it need not ask landlord to 9 Available at http://www.maketheroad.org/pix_reports/DHCR%20Report.pdf (last accessed May 1, 2014) 10 The Taskforce to Expand Legal Services Report to Chief Judge of the State of New York found that 99 percent of tenants are unrepresented in eviction cases. See https://www.nycourts.gov/ip/access-civil-legal- services/PDF/CLS-TaskForceREPORT.pdf (November 23, 2010) 13 provide any evidence would not only do a disservice to Ms. Boyd, but will leave many other tenants at risk and adversely affect the overall demographic stability of New York City. Amici are invested in ensuring that New York City remains the vibrant, vital and diverse urban city, and that it remains a city which is affordable to live by all. CONCLUSION For all the foregoing reasons, the decision of the Appellate Division should be affirmed. Dated: May 2, 2014 Respectfully submitted, OFFICE OF MANHATTAN BOROUGH PRESIDEN T GALE BREWER Adele Bartlett, Deputy General Counsel One Centre St., 19 th Floor New York, N.Y. 10007 (212) 669-8139 abartlett@manhattanbp.nyc.gov OFFICE OF NEW YORK CITY PUBLIC ADVOCATE LETITIA JAMES Chaumtoli Huq, General Counsel for Litigation One Centre St., 15 th Floor New York, N.Y. 10007 (212) 669-2175 chuq@pubadvocate.nyc.gov