In the past five years, we have had an increasing number of owners of rent stabilized buildings in New York City come to us in desperate need of help after receiving a “final notice” from the Division of Housing of Community Renewal of the State of New York (“the Division”). The “final notice” says that the rent in one or more of their market units will be reduced pursuant to the punitive “default formula” which often means an up to 70% rent reduction. That so called “final notice” is scarily the first notice the owner receives about the pending rent overcharge proceeding. But what is most troubling is learning that the Division requires proof of deregulation from a previous owner. While it is frequently a business decision to go ahead and buy a building even when Adam Leitman Bailey P.C.’s rent regulatory due diligence research reveals this kind of potential problem, that makes it no more pleasant for the owner when our warning comes true. However, current law allows for an examination of records going as far back in time as is necessary to determine whether an apartment is properly deregulated, regardless of whether the owner innocently lacks those records.

Overcoming these hurdles requires guiding management through creative avenues to gather the necessary proof, if possible, to get the case dismissed and save the market rent from steep reduction and the owner from a crippling overcharge award. The first step is always reaching out to the prior owner. There is generally less than 50/50 chance of gaining its cooperation. A good relationship with the prior managing agent is always helpful and can, at a minimum, uncover what contractors for apartment renovations the owner used at that time. Connecting and interviewing those contractors, persuading them to assist at a time when there is no pecuniary benefit to them to help and assessing what they recall and what records they may have, or have access to, can help the case, but often require a bit of spin. Too frequently these efforts fail on the first attempts, but friendly persistence many times does yield results and directives to ownership and busy management to ask again and review records again can change the outcome in the owner’s favor. The owner doing all of this not only increases its chances of success in fighting these cases, but reduces its expense in legal fees.