Petitioner, 656 Realty, LLC, commenced this lease expiration holdover proceeding against James J. Cabrera ("respondent") on the premise that the apartment he occupies at 656 West 162nd Street, Apt 2F, is not subject to rent regulation as it "was or became vacant on or after April 1, 1994, [*2]and had a regulated rent of $2,000 or more per month." Respondent answered the petition by asserting the following defenses and counterclaims: (1) the subject premises are subject to rent stabilization as the premises receive the benefits of a J-51 tax abatement; (2) failure to state grounds for eviction as required by the Rent Stabilization Law ("RSL"); (3) petitioner failed to allege that a predicate notice was served as required under the RSL; (4) petitioner has charged and collected washing machine charges since 2005 as authorized by the RSL; (5) petitioner has willfully overcharged respondent in excess of the legal rent; (6) retaliatory eviction; (7) breach of the warranty of habitability; (8) counterclaim for an order directing petitioner to complete repairs; (9) counterclaim for breach of the warranty of habitability; (10) counterclaim for treble damages for rent overcharge; and (11) counterclaim for damages based on harassment.

Respondent now moves for summary judgment on his first, second, third, fourth and fifth affirmative defenses; a determination that the premises are subject to rent stabilization; a determination of the legal rent of the premises using the Division of Housing & Community Renewal ("DHCR") default formula; a determination as to the amount of rent overcharge and that said overcharge was willful; and an award of attorney's fees. Petitioner opposes the motion in its entirety and asks the court to search the record and grant it summary judgment.

Respondent's arguments are premised on the court determining that his apartment is, as a matter of law, subject to rent stabilization. Respondent argues that the apartment falls under the purview of rent stabilization for three different reasons: (1) because it was improperly removed from rent stabilization; (2) it is covered by rent stabilization by virtue of the building receiving a J-51 tax abatement; and (3) by estoppel. The court need only address the first argument.^[FN1]

It is undisputed that the apartment was registered with DHCR as subject to rent stabilization up through 1998. The last registered legal rent was $650 for a lease that expired on August 30, 1998 (see Respondent's Notice of Motion, Exhibit H). In 1999 the owner registered respondent's apartment with DHCR as temporarily exempt pursuant to Rent Stabilization Code ("RSC") § 2520.11 (m) based on its claim that the superintendent was then occupying the apartment (id.).^[FN2]

In or around 2001, the superintendent moved from the subject apartment to another unit in the building. Then, in April of 2001 petitioner purportedly entered into a one-year lease for the period May 2001 through April 2002 with Ronald Crump ("Crump") for the subject premises. The lease set the rent at $950 and has a hand written notation stating "see rider attached" (see Respondent's Notice of Motion, Exhibit G; Petitioner's Opposition, Exhibit A) An unsigned rider was annexed which provided for a rent of $2000.00 with a preferential rent of $950.00 (id.). The next purported lease provided to the court was with Crump for the period May 2004 through April 2005. This lease indicated a monthly rent of $1000 with a legal rent of $2221.60 written on the bottom (see Petitioner's Opposition, Exhibit A).^[FN3] Petitioner has also provided a lease between it and [*3]Crump for the period May 2005 through April 2006 (id.). This lease indicated a monthly rent of $1025 with the phrase "Legal Rent $2221.60" written below (id.).

Shortly after commencement of Crump's last lease for the subject unit, petitioner entered into a lease with respondent. Said lease is dated July 12, 2005 and ran for the period August 2005 through August 2006 and provided for a rent of $1050. The lease indicated on the bottom "Exempt Unit Legal Rent $2628.52" (see Petitioner's Opposition, Exhibit A). The lease was renewed on June 14, 2006 for the period August 2006 through July 2007, again at $1050 per month with "Legal - $2728.52" written on the bottom. Upon expiration of that lease, the present proceeding ensued.

As mentioned above, the parties agree that the apartment at issue was subject to rent stabilization before 1999. That year, the apartment was registered as temporarily exempt based on its use by petitioner's employee. Under RSC § 2520.11 (m), said use of the premises rendered the premises temporarily exempt from rent stabilization "so long as" the premises were used for that purpose. Upon the expiration of the exempt use, the premises return to rent regulation as the exemption is only temporary in nature (see RSC § 2520.11 [m]; RSC § 2526.1 [a][3][iii]; Blumenthal v Chung Fu Lam, 17 Misc 3d 233[Civ Ct, NY County 2007]). However, according to petitioner's records, the subject apartment never returned to rent stabilization.

Petitioner's argument for removing the apartment from rent stabilization is essentially twofold. First, it argues that, under RSC § 2526.1 (a)(3)(iii), it can set the rent at whatever the market will bear. Second, petitioner argues that even if it wrongfully removed the premises from the ambit of rent stabilization when it rented it out to Crump in April 2001, it is too late to challenge it. These arguments are without merit.

Petitioner's first argument is premised on its claim that the RSC allows petitioner to set the rent at whatever the market bears even if it means deregulating the apartment. Petitioner relies on RSC § 2526.1 (a)(3)(iii) in support. That provision of the code, which falls within a section that addresses calculating the legal rent for rent overcharge claims, states that:

"Where a housing accommodation is vacant or temporarily exempt from regulation pursuant to section 2520.11 of this Title on the base date, the legal regulated rent shall be the rent agreed to by the owner and the first rent stabilized tenant taking occupancy after such vacancy or temporary exemption, and reserved in a lease or rental agreement; or, in the event a lesser amount is shown in the first registration for a year commencing after such tenant takes occupancy, the amount shown in such registration, as adjusted pursuant to this Code."

(RSC § 2526.1 [a][3][iii]).

Petitioner argues that this provision of the RSC allows it to negotiate a first rent after a temporary exemption however it and the initial tenant deem appropriate. This interpretation, as applied by petitioner, is misguided for numerous reasons. First off, the statute is clear that the first rent must be "regulated." Here, the 2001 lease issued immediately after the temporary exemption [*4]stated that the legal rent was $2000 and that the new tenant had a preferential rent of $950.^[FN4] Petitioner argues that the $2000 rent rendered the premises unregulated.^[FN5] However, such a lease would run directly contrary to the RSC which requires the first post-temporary exemption lease be regulated. Thus, if the court were to follow petitioner's interpretation of how it may set the first post-temporary exemption rent, the "temporary" characterization of RSC § 2520.11 (m) exemptions is rendered meaningless as the exemption becomes permanent at the whim of the landlord. As discussed in more detail below, petitioner's interpretation of the RSC would create a loophole that undermines the goals of rent regulation. Under such a scenario, a landlord could place an employee in an apartment for a short period of time for the sole purposes of skirting its rent regulatory status as it could then permanently deregulate the premises once the employee vacates.

Secondly, the purported $2000 rent in the 2001 Crump lease was effectively illusory. Even if petitioner were able to set the rent at what the free market called for, all indications are that $2000 was in far excess of the market rate at the time. Assuming the leases proffered by petitioner are true, the billed rent never passed $1050 in the seven years that elapsed. Thus, under this scenario, the alleged $2000 rent can only be seen as an attempt to circumvent the rent regulatory framework. Such a scenario is akin and perhaps even more egregious than that which was prohibited in 390 West End Associates v Harel (298 AD2d 11 [1st Dept 2002]). In Harel, the court emphasized the well recognized precept that an apartment cannot be deregulated by private contract (Id. at 15; see also Draper v Georgia Properties, Inc., 94 NY2d 809, 811 [1999] citing 9 NYCRR § 2520.13 ["an agreement by the tenant to waive the benefit of any provision of the Rent Stabilization Law or this Code is void"]). In that case, the landlord and tenant agreed to deregulate a rent stabilized apartment based on the tenant's acknowledgment that he was not using the premises as his primary residence (see Harel, 298 AD2d at 13).^[FN6] The court determined that such an agreement was offensive to public policy and untenable as it would "open the door to landlords and tenants privately agreeing to deregulate rent stabilized units, whether for their mutual advantage or plausibly at the landlord's behest, and to the indisputable diminution of the rent stabilization regime that has clearly benefitted New York City for so many decades" (Id. at 16-17). The 2001 lease in this instance has the same effect of the invalid lease in Harel as it allowed the landlord to negotiate a fictitious $2000 "legal rent" with the tenant and deregulate the premises even though the $2000 figure number was [*5]completely unsupported.^[FN7] However, what makes this situation more offensive than Harel, is that there is no indication of how this arrangement was to the benefit of the 2001 leaseholder — a scenario that implies a nefarious scheme to distort the regulatory status of the premises to hide it from future tenants.

Petitioner's second argument — that even if the apartment was wrongfully deregulated in 2001, it is too late to challenge — is equally unavailing. Petitioner contends that the RSC provision which states that "no determination of an overcharge and no award or calculation of an award of the amount of an overcharge may be based upon an overcharge having occurred more than four years before the complaint is filed" somehow prohibits the court from examining the rent regulatory status beyond the four year term (RSC § 2526.1 [a][2]; see also CPLR 231-a). However, this argument is contrary to the express language of RSC § 2526.1 (a)(2)(ii) which states that "nothing contained herein shall limit a determination as to whether a housing accommodation is subject to the RSL and this Code." Furthermore, this argument is flawed as this proceeding is about possession, making any claim of rent overcharge only ancillary (cf. Bedford Apts. Co. v Lewison, 4 Misc 3d 139[A] [App Term 1st Dept 2004] [Statutes that preclude examination of rental history beyond four years address an "action" or "complaint" for rent overcharge, not a possessory proceeding for eviction]). Thus, the court is by no means precluded from reviewing the history of a tenancy in order to determine whether the premises is subject to rent regulation. This is the precise holding of the Appellate Division in East West Renovating Co. v New York State Div. of Housing and Community Renewal, (16 AD3d 166, 167 [1st Dept 2005]), where the Court stated that "consideration of events beyond the four-year period is permissible if done not for the purpose of calculating an overcharge but rather to determine whether an apartment is regulated" (see also 422 E. 14th St. Assoc., LLC v Vlashos, 21 Misc 3d 137 [A] [App Term 1st Dept 2008]).

To the extent that petitioner relies on the 2001 Crump lease as its sole basis for deregulating the premises, said lease is contrary to the express terms of the RSC and void against public policy to the extent that it provided for a fictitious and impermissible legal rent of $2000 as a basis to improperly remove the subject apartment from rent stabilization. As it is apparent, as a matter of law, that there was no other cognizable basis for deregulation of the subject premises in 2001, the apartment still falls under the purview of the RSL. Accordingly, respondent is entitled to summary judgment dismissal of the petition as the petition fails to state a basis for eviction under the RSL.

Respondent also asks the court to make a determination as to his rent overcharge claim based on DHCR's default formula and that said overcharge was willful. Issues of fact exist as to the appropriate calculation of the legal rent for the subject unit and whether any overcharge was willful. These issues include, inter alia, whether the DHCR default formula is the "appropriate vehicle for fixing the base date rent" under these circumstances (Thornton v Baron, 5 NY3d 175, 181 [2005]; see also Partnership 92 LP v State of NY Div. Of Hous. & Community Renewal, 11 NY3d 859 [2008]).

Accordingly, the matter is restored to the Part A calendar on April 7, 2009 at 9:30 am to be sent out forthwith to Part X for a hearing on the setting of the legal regulated rent, the rent [*6]overcharge claim and legal fees. Respondent's remaining counterclaims are severed for a plenary proceeding.

The foregoing constitutes the decision and order of this court.

Dated: March 3, 2009____________________

New York, New YorkDavid J. Kaplan, J.H.C.