Civil CourtHousing PART CJudge LebovitsPetitioner, the owner and landlord of the subject premises, brought eviction proceedings against seven of the building’s tenants in May 2002. The seven proceedings were consolidated, and the case has been litigated for over a year. The main issue is whether the seven apartments are subject to the New York City Rent Stabilization Law (RSL). Petitioner has been contending that the apartments became deregulated because it substantially rehabilitated them. Respondents have been replying that petitioner fell well short of the criteria necessary to effectuate a deregulation by way of substantial rehabilitation. The parties have engaged in lengthy discovery to prove their cases. Petitioner now seeks leave to amend three of the seven petitions and moves for summary judgment. This opinion concerns these three petitions.Petitioner’s motion for leave to amend is premised on the argument that because three respondents have been paying rent in excess of $2000 a month-a sum defined as “high rent”-their three apartments were never subject to rent stabilization. According to petitioner, it is irrelevant whether the building was so rehabilitated as to remove it from rent stabilization. If the apartments were deregulated on account of the high rents respondents were paying, petitioner may seek to terminate respondents’ tenancies in a simple no-grounds holdover on 30 days’ notice. (See generally Washington Assocs. v. Torres, NYLJ, Sept. 8, 1999, at 30, col 6 [Hous Part, Civ Ct, Kings County] [defining "no-grounds holdover"].) And, according to petitioner, respondents may no longer contest the deregulation because they have paid their high rents from more than four years. Petitioner argues that the four-year statutes of limitation that apply to overcharge claims necessitates granting petitioner summary judgment.Motions to amend are freely granted absent surprise or prejudice to the opposing party. (CPLR 3025 [b]; Murray v. City of New York, 43 NY2d 400, 404-405 [1977].) But the court must first consider the merits of the proposed pleadings. (E.g. East Asiatic Co., Inc. v. Corash, 34 AD2d 432, 434 [1st Dept 1970].) The court must deny a motion to amend when the merits of a proposed pleading are plainly lacking. (Ramundo v. Town of Guilderland, 108 AD2d 995, 996 [3d Dept 1985].) The court denies petitioner’s motion to amend because its deregulation claim lacks merit.The following facts are uncontested. The subject building was converted from commercial to residential use sometime in the 1970s. Petitioner bought the building in 1992. In August 1993, respondent Karl Haller moved into apartment 4-D and signed a two-year lease with a monthly rent of $2600.00. In April 1996, respondent Robert Geiger moved into apartment 3-D for $2500.00 a month. Respondent Cheryl Mitchell settled into apartment 5-D in November 1996, paying a monthly rent of $2300.00. The parties do not have current lease agreements. In May 2002, petitioner served a 30-day termination notice on respondents. Neither petitioner nor its predecessor-in-interest filed the appropriate forms with the Division of Housing and Community Renewal (DHCR) regarding what rent it charged respondents. Additionally, petitioner never filed with the DHCR any annual registration regarding the subject apartments.For an apartment to be deregulated, the high-rent-vacancy-deregulation rules require the tenant to have moved into the previously regulated and now vacant apartment after July 7, 1993, and to pay “legal regulated rent” of $2000 or more a month. (Rent Stabilization Code [9 NYCRR] §2520.11 [r] [2000].) RSL (Administrative Code of City of NY) §26-512 (e) provides that the legal regulated rent for a housing accommodation subject to the RSL “shall be the rent registered pursuant to section 26-517.” RSL §26-517 lays out the procedure for a landlord to file initial and annual registration statements with the DHCR. Included in the annual registration statement must be the number of accommodations subject to regulation and the amount of rent charged on the registration date. (NY City Rent Stabilization Law [Administrative Code of City of NY] §26-517 [f] [2001].)In 111 on 11 Realty Corp. v. Norton, the court refused to find that an apartment had become deregulated, even though the tenant had been paying more than $2000 a month. (189 Misc 2d 389, 398 [Civ Ct, Kings County 2001].) The apartment was not automatically deregulated because, as in this proceeding, the landlord had never registered the apartment with the DHCR and because that agency never set a “legally regulated rent.” (Id.) The court expressly found that only regulated apartments can have legally regulated rent. (Id.) Petitioner has not filed any registration with the DHCR and has not notified respondents of the status of their accommodations. Without complying with the proper regulation procedures, petitioner cannot prove that the apartments have been properly deregulated by respondents paying a “legally regulated rent” over $2000. (See id.) No case or statute says otherwise, and the 111 on 11 Realty court’s reasoning is persuasive. This court therefore rejects petitioner’s claim of deregulation.The critical difference between what this court finds is the correct definition of “legally regulated rent” and what petitioner argues it should be is the difference between the inquiry necessary to determine deregulation by statute and the inquiry into a tenant’s overcharge complaint. Petitioner argues that the proper definition of the phrase “legal regulated rent” is in Rent Stabilization Code (RSC) (9 NYCRR) §2520.6 (e). In subdivision e, “legally regulated rent” is defined as the rent set on the “base date” as determined under subdivision f of the same section “plus any lawful increases and adjustments.” (Id.) Subdivision f articulates a formula to determine the base date for overcharge complaints under RSC (9 NYCRR) §2526.1 or fair- market rent appeals under RSC (9 NYCRR) §2522.3. (RSC [9 NYCRR] §2520.6 [f] [2000].) When faced with either type of a complaint, a tenant’s base date is calculated as (1) the date four years before the appeal or complaint is filed; (2) the date on which the housing accommodation first became subject to the RSL or (3) April 1, 1984, for complaints filed on or before March 31, 1988. (Id.) Petitioner argues that because respondents counterclaimed for overcharge pursuant to RSC (9 NYCRR) §2526.1, this court must apply the formula in RSC (9 NYCRR) §2520.6 (f) to find that respondents were paying over $2000 in legally regulated rent.Were the court to agree with petitioner, respondents would simply withdraw their overcharge counterclaim to avoid being evicted, and tenants in other, future holdover proceedings will be chilled into never asserting a just counterclaim for fear that they will lose their homes. But the court disagrees. RSC (9 NYCRR) §2520.6 (e) and (f) are irrelevant. In this motion, the court is not asked to ascertain whether respondents have been overcharged. Rather, the court must determine whether petitioner may amend its petition to plead deregulation.Petitioner also contends that the statutes of limitation in RSL §26-516 (a) (2) and CPLR 213-a prevent the court from examining petitioner’s lack of compliance with Rent Stabilization Law procedures regarding rental history to determine whether an apartment is deregulated. This argument is similarly without merit. The statutes of limitation in CPLR 213-a and RSL §26-516 (a) serve only to limit the amount of damages a tenant may collect upon bringing a successful overcharge challenge to the rent a landlord charges. (See 78/79 York Assocs. v. Rand, 175 Misc 2d 960, 966 [Hous Part, Civ Ct, NY County 1998] [agreeing with jurisprudence that overcharge counterclaim bars recovering damages earlier than four years before complaint but that overcharge is a continuing wrong that gives rise to new cause of action for each payment], affd 180 Misc 2d 316, 317 [App Term, 1st Dept 1999, per curiam] [affirming on grounds that tenant's overcharge claim was based on registration from three years before claim].) CPLR 213-a and RSL §26-516 (a) prevent reviewing rental histories prior to the four years before a complaint even if those rent charges were improper. (See Matter of Hatanaka v. Lynch, 304 AD2d 325, 326 [1st Dept 2003] [holding that regulatory scheme prohibits examining pre-four-year rental history in overcharge claim].) In this proceeding, if the rent charged is found to violate the RSL, respondents would be able to collect damages for the overcharges of the past four years. These statutes of limitation do not require the court to turn a blind eye to a landlord’s noncompliance with the provisions that govern establishing legally regulated rent.Inapplicable are the cases that petitioner cites to support using the statutes of limitation to prevent a court from inquiring into rental history. They all involve overcharge complaints, not deregulation following overcharge. In Hirsch v. Borowik (2001 NY Slip Op 40023[U], *3-4 [Hous Part, Civ Ct, NY County 2001]), the court found that the premises were not subject to rent regulation. The court also stated that even if the apartment had not been deregulated, the tenant could not complain about the rent amount charged. (Id.) This was because it was more than four years since the alleged overcharge had occurred, and the court was precluded from reviewing the rental history. (Id. at *4, citing Matter of Hawco v. New York State Div. Hous. & Community Renewal, 281 AD2d 294, 294 [1st Dept 2001, mem] [affirming DHCR dismissal of overcharge complaint due to statute of limitations]; and Bowen v. E. 13th St. Realty Co., 182 Misc 2d 99, 100 [App Term, 1st Dept 1999, per curiam] [dismissing overcharge claim under CPLR 213-a].) Petitioner further claims that the Court of Appeals held in Matter of Crabtree v. New York Division of Housing & Community Renewal (99 NY2d 606 [2003, mem]) that the DHCR may not review materials from before the four-year statute of limitations. But the Court simply held that the DHCR may not review proceedings from before the four-year-period in overcharge claims. (Id. at 607.) The Court did not preclude examining rental materials in a holdover proceeding like this one. In short, the four-year statutes of repose apply to overcharge complaints, not to deregulating a rent-regulated apartment.Petitioner’s next contention is that its failure to register the rent with the DHCR or to comply with any other regulatory provision has no effect on the premises’ regulatory status. Precedent does not support petitioner’s contention.The one case petitioner cites for this contention is Central Park South Association v. Haynes (171 Misc 2d 463 [Civ Ct, NY County 1996]). Central Park South involved a tenant’s challenge to applying the high-rent deregulation statutes to the first tenant after an apartment is decontrolled following a vacancy. (See id. at 465.) The Central Park South court did not need to consider whether the landlord had properly filed the initial registered rent with the DHCR. The court in 430 Realty Co., LLC v. Heftler pointed out that registration was unnecessary in Central Park South because the DHCR had issued two earlier orders that found that the apartment was not subject to rent regulation. (185 Misc 2d 450, 458-459 [Hous Part, Civ Ct, NY County 2000].) The 430 Realty court also noted that DHCR rulings cannot be collaterally attacked in Civil Court. (Id.) In 101 West 70th Street Associates v. Desoiza, the court concluded a landlord must register rent with the DHCR and serve the tenant with notice of that registration to deregulate an apartment. (NYLJ, Apr. 9, 1997, at 28, col 3 [Hous Part, Civ Ct, NY County].) When faced with the same situation as in the above cases, moreover, the Townan Realty Company v. Posner court found that “[t]o the extent that Central Park South conflicts with 101 West 70th Street, * * * the reasoning set forth in 101 West 70th Street is more consistent with the language and purpose of the Rent Stabilization Law.” (NYLJ, Sept. 9, 1998, at 22, col 4 [Hous Part, Civ Ct, NY County].) This court agrees with the Townan Realty court’s analysis.The decisions in 430 Realty, Townan Realty, 101 West 70th Street, and Central Park South concerned apartments that were removed from rent control to rent stabilization due to a vacancy and in which the landlord charged the new tenant over $2000 a month. (430 Realty, 185 Misc 2d at 451; Townan Realty, NYLJ, Sept. 9, 1998, at 22, col 4; 101 West 70th St., NYLJ, Apr. 9, 1997, at 28, col 3; Central Park South, 171 Misc 2d at 464.) They did not deal solely with the issue of permanently deregulating a rent-stabilized apartment due to high-rent vacancy. Thus, they are inapposite to this proceeding. The rationales of these cases are important, however, because the courts in each case decided that the apartments were not automatically deregulated when the tenant was paying over $2000 a month. The courts required the landlords to file the appropriate documents with the DHCR, serve notice on the tenant, or obtain a DHCR determination that the apartments are not subject to rent regulation. (430 Realty, 185 Misc 2d at 451; Townan Realty, NYLJ, Sept. 9, 1998, at 22, col 4; 101 West 70th St., NYLJ, Apr. 9, 1997, at 28, col 3; Central Park South, 171 Misc 2d at 464.)Abuses will arise were this court to adopt a reading of the Rent Stabilization Law and Code that allowed a four-year statute of limitations for overcharge complaints to remove an apartment from rent regulation. All a landlord would need to do to remove an apartment from rent-stabilization protection for eternity would be to charge an illegal monthly rent exceeding $2000 while keeping the tenants in the dark about their rights for four years. This cannot be the law, for the law ought never allow cheaters to prosper.Nor does the Legislature favor dislocation. As the Court of Appeals has explained, “The central, underlying purpose of the RSL” is to protect New Yorkers from the “risk of widespread lack of suitable dwellings.” (Manocherian v. Lennox Hill Hosp., 84 NY2d 385, 395 [1994], cert denied 514 US 1109 [1995]; accord Matter of Patton Indus., Ltd. v. New York City Conciliation & Appeals Bd., 97 AD2d 716, 717 [1st Dept 1983, Asch, J., concurring], lv denied 61 NY2d 607 [1984].) To guard against that risk, deregulation may occur when authorized by law and when effected by statutory means. (390 West End Assocs. v. Harel, 298 AD2d 11, 15 [1st Dept 2002] [finding private agreement between landlord and tenant to remove apartment from rent regulation void from the start].) The RSL’s goal is not merely to protect tenants but also “to ensure the viability of the rent regulation system which protects tenancies in general, provides predictability to landlords, and enhances the social, economic and demographic stability of New York City.” (Id. at 16.)These underlying policies compel the court to conclude that in determining whether an apartment is regulated, the correct definition of “legally regulated rent” is found in RSL §26-512 (e). That provision requires a landlord to comply with the registration requirements of RSL §26- 517. In this case, petitioner has not pleaded compliance. To establish a “legally regulated rent” and to deregulate an apartment under the high-rent-vacancy statute, a landlord must first subject the apartment to rent regulation. (111 on 11 Realty, 189 Misc 2d at 398.) And that makes sense in the context of this proceeding: An apartment cannot become destabilized by substantial rehabilitation, as petitioner claims it was, if it was never stabilized to begin with.Petitioner’s motion for leave to amend is denied. Petitioner’s motion for summary judgment and respondents’ cross-motions for pretrial discovery and for leave to file amended answers are denied as academic.This opinion is the court’s decision and order.
