In a much anticipated case involving how to calculate the legal rents following an improper deregulation while the building in question was receiving J-51 tax benefits, the Court of Appeals in Casey v. Whitehouse Estates, filed March 16, 2023, unanimously rejected the application of the punitive default formula for resetting the rents, and reaffirmed its prior holding in Matter of Regina Metro Co., LLC v. NYS Div. of Hous. and Comm. Renewal, 35 N.Y.3d 332 (2020), on these issues.
In a J-51 deregulation case, the Court of Appeals made clear that an actual fraudulent scheme to deregulate needed to be proven before resorting to a punitive default formula to recalculate the rents, and the tenants failed to prove any fraudulent conduct. The Court of Appeals stated that a fraudulent scheme to deregulate requires a finding of willfulness and without establishing the elements of fraud, as defined in Regina, the Court of Appeals reiterated that the proper way to determine the legal rent and any overcharges is to determine the rent “actually charged on the base date” plus legal increases during the relevant look-back period prior to the complaint.
This is an important re-affirmance of the principles set out in Regina that provides significance guidance where regulatory status and the calculation of legal rents are challenged and fraud is alleged.
If you wish to discuss how any aspect of this decision may apply to your cases, contact your BBG attorney of record or contact us through our website.