LLC v. AKA (2026)

Petitioner Rae Realty LLC commenced these consolidated nonpayment and holdover proceedings against respondent Christopher Scott Lee concerning apartment 5B at 176 East Third Street in Manhattan. After discovery, the parties submitted respondent's rent-overcharge defenses and counterclaims for determination on stipulated facts, documentary evidence, and memoranda of law. The court must decide which rent-calculation rules govern, whether respondent has proved a fraudulent scheme, and whether he has established an overcharge  ¹ .

Respondent's overcharge defenses and counterclaims, insofar as based on the historical-rent, fraud, and registration-freeze theories submitted for determination, are dismissed in both proceedings. The court applies the rent-calculation rules preceding the Housing Stability and Tenant Protection Act of 2019 (HSTPA). As explained below, the court reads Crest I as continuing to govern these challenges to rents imposed on respondent before HSTPA and carried forward through later guideline renewals. On that reading, the court rejects separate pre- and post-HSTPA calculations.

Under the current fraud standard, the missing support for the 2002 improvements and the owners' later conduct, including the unauthorized 2015 renewal increase, do not establish a knowing fraudulent scheme when considered together. The record therefore does not warrant use of the default formula.

The base-date rent for determining these overcharge claims is therefore the rent actually charged in 2019, $4,192.97 per month. Respondent has not established a basis to substitute the earlier registered rent of $515.72 or to freeze the rent at that amount. Applying the permissible subsequent increases, respondent has not established an overcharge. The requests for overcharge damages, interest, and treble damages are accordingly denied.

This determination resolves only the overcharge defenses and counterclaims submitted to the court. Petitioner's entitlement to relief on the petitions and respondent's remaining defenses and counterclaims remain to be determined.

Facts and procedural history

The building received J-51 tax benefits throughout the relevant period. The apartment's registered monthly rent in 2001 was $515.72. A lease beginning August 1, 2002 charged $2,400 per month. Its deregulation rider claimed a $1,437.50 monthly increase for individual apartment improvements (IAIs), representing $57,500 in expenditures, and calculated a regulated rent exceeding the then-applicable $2,000 deregulation threshold. The 2003 registration reported the apartment as permanently exempt based on high-rent vacancy deregulation. The subsequent registration history continued to reflect exempt status.

Respondent and Isaac Ezer began their tenancy on November 3, 2013 under a lease with petitioner's predecessor, Jesse East 3rd LLC. The lease ran through October 31, 2014 at $3,700 per month and described the apartment as unregulated. A one-year extension beginning November 1, 2014 continued that treatment and increased the monthly rent to $3,825. Petitioner acquired the building on November 18, 2014, after the extension had been executed.

Petitioner continued to treat the apartment as unregulated in a one-year extension beginning November 1, 2015 at $4,050 per month. In July 2016, petitioner first offered a rent-stabilized renewal. Respondent accepted a two-year term, from November 1, 2016 through October 31, 2018, at $4,131 per month. He then accepted a one-year stabilized renewal beginning November 1, 2018 at $4,192.97 per month, followed by a two-year stabilized renewal beginning November 1, 2019 at $4,297.79 per month.²

The registration history includes stabilized registrations for 2015 forward, some filed or amended after the year they cover. The 2015 registration was filed in June 2019; entries for 2016 and 2017 bear amendment dates in 2017 and 2018. The 2019 registration, filed in May 2019, reports the $4,192.97 rent. The registrations for 2020 through 2023 report $4,297.79. These records establish the filings and reported amounts, but registration alone does not establish that the historical increases were lawful.

In July 2021, petitioner offered a further renewal beginning November 1, 2021. The offer provided a one-year option with no increase for the first six months and a 1.5% increase to $4,362.26 for the remaining six months, or a two-year option at $4,405.23. Respondent declined to sign this lease. Petitioner commenced the nonpayment proceeding in May 2022 and the holdover proceeding, based on respondent's failure to renew, in April 2023.

Respondent first asserted the overcharge claims in his amended answer in the nonpayment proceeding on July 31, 2023. He challenges the historical increases, the apartment's deregulated treatment, and the rents carried forward after petitioner recognized its stabilized status. He seeks recalculation from the earlier registered rent, a rent freeze, and overcharge damages.

Discovery did not produce records substantiating the claimed 2002 IAI expenditures. Petitioner supplied an affidavit describing its search for relevant documents and stating that any additional documents were never in its possession, were no longer in its possession, or could not be located after a diligent search (stipulation ¶ 36; exhibit K). The parties thereafter submitted the overcharge issues for a final determination in lieu of trial, while reserving the other issues in the proceedings.

Governing law

An apartment's stabilized status and the method for calculating an overcharge are distinct questions. Under Roberts v Tishman Speyer Props., L.P. (13 NY3d 270, 285-287 [2009]), an owner receiving J-51 benefits could not use luxury deregulation to remove an apartment from rent stabilization. Roberts applies retroactively (Gersten v 56 7th Ave. LLC, 88 AD3d 189, 198 [1st Dept 2011], appeal withdrawn 18 NY3d 954 [2012]). The apartment here therefore remained stabilized despite its treatment as exempt.

HSTPA expanded the rent history available for review, but the apartment's stabilized status does not itself determine whether those provisions apply. Matter of Regina Metro. Co., LLC v New York State Div. of Hous. & Community Renewal (35 NY3d 332, 354-361, 363 [2020]) holds that HSTPA's expanded overcharge provisions may not be applied retroactively to pre-HSTPA overcharges. Under the pre-HSTPA rules, the calculation ordinarily begins with the rent actually charged four years before the claim, plus lawful subsequent increases. Absent fraud, that rule applies even when an earlier unlawful increase affected the base-date rent.

The fraud exception prevents an owner from using a rent produced by a fraudulent scheme as the foundation for an overcharge calculation. Older history may be examined to determine whether such a scheme tainted the base-date rent; if established, the default formula supplies the rent rather than an unrestricted reconstruction from the last lawful historical rent (Thornton v Baron, 5 NY3d 175, 180-181 [2005]; Matter of Grimm v State of NY Div. of Hous. & Community Renewal Off. of Rent Admin., 15 NY3d 358, 366-367 [2010]; Regina, 35 NY3d at 355-356).

The current fraud standard requires consideration of the totality of the circumstances and whether the owner knowingly engaged in a fraudulent scheme. It does not require proof of every element of common-law fraud, including tenant reliance (L 2023, ch 760, as amended by L 2024, ch 95, § 4; Burrows v 75-25 153rd St., LLC, 44 NY3d 74, 79-84 [2025]; Alekna v 207-217 W. 110 Portfolio Owner LLC, 241 AD3d 414, 415-417 [1st Dept 2025]).

The 2023 and 2024 amendments govern the fraud inquiry in this pending proceeding (see Alekna, 241 AD3d at 415-416). If the pre-HSTPA calculation rules apply, the current fraud standard determines whether the fraud exception permits departure from the ordinary four-year calculation. Applying that standard does not itself require use of HSTPA's rent-calculation rules.

The procedural stage also matters. Allegations sufficient to obtain discovery do not necessarily establish a fraudulent scheme on a final submission. Aras v B-U Realty Corp. distinguishes the preliminary inquiry into sufficient indicia of fraud from the determination whether a scheme actually occurred (— AD3d —, —, 2026 NY Slip Op 04983, *2 n 3 [1st Dept 2026], on remittitur from 45 NY3d 1010 [2026]). Here, discovery is complete, and the parties submitted the overcharge merits for determination on the stipulated record. The court must weigh that evidence under the current standard.

Applicable rent calculation rules

Respondent proposes applying pre-HSTPA rules to charges before June 14, 2019 and HSTPA rules to later charges. Under the amended law, the calculation begins with the most recent reliable annual registration filed and served six or more years before the most recent registration, plus lawful increases; the court considers all reasonably necessary rent history (Administrative Code of the City of NY § 26-516 [a] [ii]; [h]). Respondent argues that those provisions permit examination of the unsupported 2002 increase without proof of fraud when calculating post-HSTPA overcharges. He separately invokes the amended Code to seek six years of recovery.

Crest I LP v Ventura (81 Misc 3d 1, 2-3 [App Term, 1st Dept 2023]) presents a close factual parallel. The tenant's first lease began in 2010, and her overcharge defense and counterclaim, asserted in 2020, rested on an unexplained increase preceding that lease. Applying Regina, the Appellate Term used pre-HSTPA law and declined to examine the older increase absent fraud, even though it allegedly inflated the base-date rent.

The Appellate Term later followed the same reasoning in West Pierre Assoc. LLC v Harvey (81 Misc 3d 139[A], 2024 NY Slip Op 50052[U], *1-2 [App Term, 1st Dept 2024], revd 241 AD3d 413 [1st Dept 2025]). Citing Crest I, it applied pre-HSTPA law because the challenged IAI increase occurred in 2014, although the tenant's first lease began in December 2020. The First Department reversed, applied HSTPA, and reinstated the overcharge defense and counterclaim. The reversal therefore requires examination of the continuing reach of Crest I.

In Matter of West Pierre Assoc. LLC v Harvey (241 AD3d 413, 413-414 [1st Dept 2025]), the First Department identified two related circumstances: the tenant's first lease began after HSTPA, and "no pre-HSTPA overcharge is alleged." It permitted inquiry into the disputed 2014 IAI increase without a fraud allegation. It also concluded that any retroactive effect in that setting had a rational legislative basis.

Harvey establishes that the date of an older increase does not, by itself, require pre-HSTPA treatment of a later claim. Its reliance on a tenancy beginning after enactment does not establish the converse rule that every earlier tenancy remains governed by pre-HSTPA law. The question here is whether Crest I still governs a challenge to rents imposed on the same tenant before enactment and carried forward through later guideline renewals.

The court reads Crest I as remaining applicable to this dispute. In applying Regina, Crest I treated the effect of an older increase on the base-date rent as subject to the pre-HSTPA calculation. Harvey rejected extending that reasoning to the initial rent of a post-HSTPA tenancy. It did not decide whether the same result follows for later renewals in a tenancy during which the complaining tenant had already sustained alleged overcharges before enactment. Crest I is therefore directly pertinent to this proceeding: respondent alleges that his initial 2013 rent was unlawful, that the 2015 renewal imposed another unlawful increase, and that the stabilized renewals beginning in 2016 carried those amounts forward. When HSTPA took effect, he already held a stabilized renewal at $4,192.97 per month. The November 2019 renewal added the applicable guideline increase to that amount. His historical-rent theory identifies no new post-HSTPA IAI or other independent increase beyond the guideline.

The court follows Crest I here because respondent seeks to replace the rent charged under his pre-HSTPA leases as the basis for measuring the alleged overcharges under later guideline renewals. In the court's view, that reconstruction would unsettle the protection against reopening older increases that Regina recognized under the pre-HSTPA rules (35 NY3d at 359-360, 379). The court reads Harvey's alternative retroactivity rationale in the context of the wholly post-enactment tenancy before it. It therefore retains the pre-HSTPA calculation for these claims, subject to the fraud exception. This conclusion reflects the court's reconciliation of the cases; Harvey does not expressly resolve it.

The recovery period presents a separate question. Wise v 1614 Madison Partners, LLC (214 AD3d 550, 550 [1st Dept 2023]) applied the four-year limitations period to claims that accrued before HSTPA but were asserted afterward. 2904 Atl. Ave., LLC v Hoyte (88 Misc 3d 17, 20-21 [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2026]) rejected reliance on Rent Stabilization Code (9 NYCRR) § 2526.7 (i) (2) to expand recovery for such claims. Those decisions support limiting recovery here to four years; they do not independently decide which calculation method governs charges after enactment. That determination rests on the court's reading of Regina, Crest I, and Harvey above.

Applying the four-year period yields a base date of July 31, 2019, after HSTPA's enactment. Every charge within that recovery period therefore arose after enactment, which supports respondent's argument for applying HSTPA. The court nevertheless concludes that the expiration of the recovery period for earlier charges does not itself change the method for measuring the alleged effect of respondent's pre-HSTPA rent on his later renewals. That conclusion follows from the court's reading of Crest I above. Neither the tenancy's commencement date nor the description of the overcharge as continuing independently determines the result.

Respondent relies on Matter of Syllman v New York State Div. of Hous. & Community Renewal (233 AD3d 977, 978-979 [2d Dept 2024]) to support both his overcharge claims and his request to set the prospective rent at $515.72. In Syllman, the tenant sought an administrative calculation of the legal regulated rent without damages for prior overcharges. The Second Department required consideration of the available rent history under HSTPA because that determination would not impose the retroactive liability addressed in Regina. Thus, Syllman supports distinguishing prospective rent setting from recovery for past overcharges; it does not itself determine which calculation rules govern the overcharge claims presented here. The court resolves those claims for the reasons stated above and reserves respondent's request to determine the prospective legal regulated rent. The base-date rent used in this decision determines the overcharge calculation only.

Clermont York 82nd St. LLC. v Zgodny (88 Misc 3d 133[A], 2026 NY Slip Op 50593[U], *1-2 [App Term, 1st Dept 2026]) likewise requires attention to the relief at issue. That tenancy began in 2004, but the tenant had never received an initial stabilized lease. The court affirmed dismissal of a holdover based on defective 2024 renewal offers and directed that the lease rent be calculated under HSTPA, citing Harvey. That direction confirms that a tenancy beginning before 2019 can require application of HSTPA to a later lease.

Zgodny addressed the owner's obligation to offer a compliant lease; it did not decide how damages should be calculated for alleged overcharges imposed on a tenant before HSTPA and carried forward afterward. The present determination concerns the overcharge defenses and counterclaims submitted in both proceedings. Their use as defenses does not, in the court's view, change the method for calculating the same alleged historical overcharge. The court therefore applies the pre-HSTPA calculation to those claims, while leaving the independent validity of the 2021 renewal offer and petitioner's entitlement to possession for determination on the remaining issues.³

Respondent has not established a fraudulent scheme

Respondent relies on the sharp historical rent increase, unsupported IAI expenditures, continued use of unregulated leases after Roberts, the 2015 increase, and delayed correction and registrations. The court considers those circumstances together. It considers the 2015 lease to determine whether a fraudulent scheme tainted the base-date rent. The four-year lookback rule permits review of older rental history for that limited purpose (see Grimm, 15 NY3d at 366-367).

The missing IAI records prevent verification of the predecessor's claimed expenditures. Missing old records do not alone establish that the work was fictitious or its cost knowingly fabricated (Fuentes v Kwik Realty LLC, 186 AD3d 435, 438 [1st Dept 2020]). The claimed work preceded petitioner's acquisition by more than a decade, but that circumstance neither proves the work occurred nor insulates petitioner from a predecessor's proven fraud (see Alekna, 241 AD3d at 417).

Petitioner's own post-Roberts conduct also matters. Respondent's 2013 lease expressly treated the apartment as unregulated. After acquiring the building in November 2014, petitioner continued that treatment. Its one-year renewal beginning November 1, 2015 increased the monthly rent from $3,825 to $4,050, although Rent Guidelines Board Order No. 47 permitted a zero-percent one-year renewal increase. The stipulated record identifies no other authorization for the additional $225 (stipulation ¶¶ 11, 14-18; exhibit D).

The 2015 increase supports respondent's fraud argument and requires examination of petitioner's own conduct. Although outside the recovery period, it bears on whether petitioner knowingly evaded the rent laws. The court considers it with the unsupported IAIs, continued unregulated treatment, and registration delays. Those circumstances must establish a fraudulent scheme; proof of an unauthorized increase alone does not establish one (see Grimm, 15 NY3d at 367).

Petitioner first offered a stabilized renewal in July 2016, before these proceedings. Recognition of stabilization at that time bears on the course of conduct, but does not erase the 2015 increase or establish that the prior rents were lawful. The later filings and amendments also document delayed compliance. Their registration years must be distinguished from their filing dates; an amendment date does not establish when the original registration was filed.

In 2016, the Division of Housing and Community Renewal (DHCR) undertook its J-51 Rent Registration Initiative. The initiative directed owners of buildings receiving J-51 benefits to re-register improperly deregulated apartments, with the aim of restoring rent-stabilization protections to as many as 50,000 units (Governor's Press Office, Governor Cuomo Launches Initiative to Return Thousands of New York City Apartments to Rent Regulation, reprinted in New York RealEstateRama, Jan. 26, 2016). DHCR notified approximately 4,000 owners that apartments in buildings receiving J-51 benefits had to be treated as stabilized, with stabilized leases and registration of improperly deregulated apartments (see Najera-Ordonez v 260 Partners L.P., 251 AD3d 460, 463 n 4 [1st Dept 2026]). The scale of that effort shows that DHCR was still addressing compliance broadly when petitioner offered respondent a stabilized renewal in July 2016. That circumstance provides context for the fraud inquiry, although it neither excuses petitioner's delay nor establishes its good faith.

Montera v KMR Amsterdam LLC (193 AD3d 102, 105-109 [1st Dept 2021]) does not require a different finding. There, the apartment was first deregulated after Roberts, and the owner corrected its status after litigation began. The First Department denied the owner summary judgment before discovery; it did not finally determine whether an overcharge had occurred. Here, the initial deregulation occurred in 2002, stabilized renewals began in 2016 before litigation, and discovery preceded the final submission. Those differences require an assessment of this record; they do not excuse petitioner's post-Roberts conduct.

Nor does Najera-Ordonez compel a fraud finding. The court found fraud established for eight post-Roberts deregulations on a record including testimony demonstrating knowledge of Roberts. It remanded the claims involving 23 pre-Roberts deregulations for trial under the totality standard. That remand did not exonerate the owners; it required a determination on the evidence. The court makes that determination here on the parties' completed submission.

Considering the evidence together, the court finds unlawful treatment and an unexplained rent history, but is not persuaded that either owner knowingly engaged in a fraudulent scheme. That conclusion accounts for the unauthorized 2015 increase, the missing IAI records, delayed registrations, and recognition of stabilization before litigation. Fraud may be proved circumstantially; the court does not require an admission of knowledge or tenant reliance. This is a failure of proof of a scheme, not a finding that either owner acted in good faith or that every historical increase was lawful.

Registration and calculation of the rent

Respondent's request to freeze the rent at $515.72 requires consideration apart from fraud. The registration requirement carries its own consequences under Administrative Code of the City of New York § 26-517 (e). But Regina rejected use of earlier registration failures to freeze rents where registrations covered the four-year period and, absent fraud, the calculation could not reach the older failures (35 NY3d at 358 n 9).

The certified history here reports stabilized rents for the relevant period. The 2019 registration was filed before the July 31, 2019 base date, and the subsequent annual entries report the rent under the 2019 renewal. Respondent's demand for a freeze at the 2001 amount depends on reaching back to the earlier exempt treatment and registration omissions. On this record, those earlier defects do not supply a separate basis to substitute $515.72 for the base-date rent. The court neither treats the registrations as conclusive proof of legality nor relies on the absence of fraud alone to resolve the freeze argument.

The four-year calculation begins with the $4,192.97 rent charged on July 31, 2019. Rent Guidelines Board Order No. 51 permitted a 2.5% increase for the two-year renewal beginning November 1, 2019, producing $4,297.79, the rent in the executed lease. Respondent's challenge to that amount depends on reopening the earlier increases, for which the necessary fraud showing has not been made.

The figures in the 2021 offer likewise reflect the percentages in Rent Guidelines Board Order No. 53: no increase for the first six months of a one-year renewal, followed by 1.5%, or 2.5% for a two-year renewal. Those percentages produce $4,362.26 and $4,405.23, respectively. Respondent accepted neither option. The arithmetic therefore does not establish that either increased rent became collectible or that the offer was otherwise valid; it establishes only that the proposed figures do not demonstrate the historical overcharge alleged.

Respondent has not otherwise established an overcharge within the reviewable period. Without an overcharge, the requests for overcharge damages, interest, and treble damages fail.

Disposition

Accordingly, respondent's rent-overcharge affirmative defenses and counterclaims in proceedings LT-306954-22/NY and LT-308229-23/NY, insofar as based on the historical-rent, fraud, and registration-freeze theories submitted for determination, are dismissed on the merits. The related requests for overcharge damages, interest, and treble damages are denied. Neither petition is disposed of. Petitioner's entitlement to relief and respondent's remaining defenses and counterclaims, including the matters reserved in paragraph 40 of the stipulation, remain pending. No judgment of possession or monetary judgment is awarded by this determination.

Date: September 28, 2026

FOOTNOTES

1.   The court considered the pleadings in both proceedings. It also considered the parties' stipulation of undisputed facts and accompanying exhibits (NYSCEF Doc Nos. 36 and 37), petitioner's memorandum of law and reply (NYSCEF Doc Nos. 40 and 42), and respondent's memorandum of law and reply (NYSCEF Doc Nos. 38, 39 and 41), all filed under index No. LT-308229-23/NY.

2.   Paragraphs 23 and 24 of the stipulation contain apparent transcription errors. Exhibit F provides a one-year term ending October 31, 2019 at $4,192.97 per month, consistent with the subsequent renewal in exhibit G. The court uses the terms in exhibit F.

3.   Whether defects in the 2021 renewal offer independently warrant dismissal of the holdover petition is beyond this submission (see Zgodny, 2026 NY Slip Op 50593[U], *1-2).

Jason Vendzules, J.