The fight against the award of treble damages to tenants received a boost in the recent decision handled by our firm, Matter of Ger Spiegel [DHCR Admin. Rev. Docket No. AS-210014-RO, 10/21/14]. The decision related to rent overcharge complaints and the timing of refunds to tenants.

Currently, the DHCR takes a very parochial stance in assessing treble damages if a refund, with 9 percent interest, is not made within the first 30 days within which to file the initial answer.

This is a strict standard to meet, especially if a new owner is not familiar with the files or he or she hasn’t been given all of the past records.

In this new decision, the Deputy Commissioner reversed the assessment of treble damages given the fact that the owner had no inkling when the tenant filed her complaint that the Court of Appeals would issue its decision Cintron v. Calogero, forcing owners to roll back and freeze rents based upon rent reduction orders issued far beyond the four-year statute of limitations on record review (in this case, a 1992 order). The DHCR based its decision upon the following rationale:

[N]otwithstanding that the owner did not tender a full refund to the tenant within the time to answer the complaint, the particular facts in this case warrant a finding that the overcharge was not willful...First, the petitioner made a good faith attempt to refund the overcharge, including interest, by issuing a rent credit…at the same time petitioner answered the complaint...Third, the Cintron case was decided in 2010 while this overcharge case was pending and therefore the petitioner had no reason to believe that the 1992 rent reduction order would be an issue at the outset of this case and before the time to answer had expired. [Emphasis added.]

Therefore, the DHCR removed the treble damages and recalculated the interest (9 percent). Most of the refund resulted from the 1992 rent reduction, which was restored in 2010.

The DHCR discussed the owner’s burden of proof in attempting to rebut the presumption of willful overcharge by stating:

Amended Policy Statement 89-2 also states: ‘Refunds tendered after the initial period in which to respond will be reviewed in conjunction with other evidence to determine the issue of willfulness.’

The key language is “in conjunction with other evidence to determine the issue of willfulness.”

This is one of the first times that the Deputy Commissioner has exercised its discretion under this amended Policy Statement and ruled in the owner’s favor. This equitable section of Policy Statement 89-2 was added in 2012. The Rent Stabilization Code has always permitted an owner to rebut the presumption of willfulness, but the test of rebutting the presumption has narrowed over the years to a formula of whether or not the owner refunded monies with 9 percent interest within the first 30 days within which to answer.

Floods, hurricanes, and subsequent changes in the law have offered no grounds for the owner to establish that an overcharge was not willful. Likewise, owners are often surprised when the DHCR disqualifies Individual Apartment Improvements (IAIs) in the final stages of processing a rent overcharge claim. The DHCR rejects a refund at this point in the case and the agency often assesses treble damages for any resulting excess rent charged as a result of the agency eliminating an improvement cost.

It is important that you use this new decision, Matter of Ger Spiegel, when responding to a rent overcharge complaint where there are missing records or a change in the law. If the facts fit the criteria, the DHCR must be on notice that it is under a duty to consider “other evidence to determine the issue of willfulness.”