Background

Petitioner 1290 Ocean Realty LLC commenced this nonpayment proceeding against respondent-tenant Jean Massena in September 2014. The petition alleges, among other things, that the subject apartment (the "Apartment") is Rent Stabilized; that Mr. Massena is the tenant in possession thereof pursuant to a written lease agreement in which he promised to pay petitioner or its predecessor rent in the amount of $1,261.60 per month; that the rent sued for does not exceed the lawful rent; and that as of September 23, 2014 Mr. Massena owed petitioner $568.46 for June 2014 and an additional $1,261.60 per month from July 2014 through September 2014, a total of $4,353.26. The petition includes a copy of a written rent demand dated September 3, 2014, which contains the same breakdown of Mr. Massena's rent arrears.

In his initial answer, Mr. Massena, who, at the time, was not represented by counsel, asserts a general denial and also alleges that his name appears improperly; that petitioner never asked him, or properly asked him, for the rent orally or in writing before starting this case; that the monthly rent asked for is not the legal rent or the amount on the current lease; that petitioner owes him money because of a rent overcharge; that the rent, or a part of the rent, has already been paid to petitioner; and that there are or were conditions in the Apartment which petitioner did not repair and/or services which it did not provide.

By notice of motion dated November 10, 2014, Mr. Massena, now represented by counsel, moves for an order (1) dismissing the petition pursuant to Sections 3211(a)(2) and (a)(7) of the CPLR for lack of subject matter jurisdiction and failure to state a cause of action; (2) granting "leave to interpose [an] answer" pursuant to Section 3211(f) of the CPLR; (3) granting summary judgment pursuant to Section 3212 of the CPLR finding that he has been charged rent in excess of the amount permitted by the Rent Stabilization Law; (4) in the alternative, granting discovery "regarding the determination of [his] base rent and potential fraud"; and (5) ordering petitioner to make certain repairs in the Apartment. Petitioner opposes the motion.

Mr. Massena makes two arguments in support of his motion to dismiss the petition. First, he alleges that according to the petition he owes $568.46 for June 2014 and $1,261.60 per month for July, August, and September 2014; that according to his lease his rent "for that term" was $1,200.00 per month; that the rent is registered with the New York State Division of Housing and Community Renewal ("DHCR") at $1,200.00 per month; that he paid the full registered rent in June, July, August, and September; and that because he paid all rent due for the months demanded, the petition should be dismissed. He supports his claim with a copy of his last lease, which is for a two-year term commencing August 1, 2012 and ending July 31, 2014 at what purports to be a legal rent of $1,540.03 per month and a preferential rent of $1,200.00 per month; DHCR rent registration records for the Apartment; and copies of a number of US Postal Service money order stubs.

Next, Mr. Massena argues that petitioner's rent demand is defective because it seeks payments of rent in excess of the amount allowed by law and, therefore, was not made in good faith. Specifically, he claims that the rent of $1,261.60 per month contained in the rent demand exceeds the $1,200.00 per month set forth in his lease and in the DHCR rent registration records; that his rent should not exceed $1,056.38 per month; and that he has "a documented rent overcharge of $14,486.96.

Petitioner agrees that the rent demand seeks a monthly rent that is $61.60 more than the actual amount but claims that the total arrears sought was correct. It argues that the "inaccuracy" in the rent demand is "minuscule" and does not prejudice Mr. Massena, and that the rent demand expressed "a good faith sum" of the monthly rent and the total amount due. Neither the affirmation of petitioner's attorney nor the affidavit of its manager explains why the demand seeks a rent that exceeds the amount of the rent set forth in Mr. Massena's last lease.

In his reply affirmation, Mr. Massena's attorney states that according to a rent breakdown submitted by petitioner (a copy of which is attached as an exhibit to the reply papers) the alleged arrears began to accrue prior to April 2013, which is "far outside the scope of the rent demand that only goes back to June 2014"; that accordingly, the rent demand did not fairly apprise Mr. Massena of the time periods and amounts for which rent is claimed due; that in addition, the demand is based on an inaccurate rent amount and seeks an amount that was not owed; and that accordingly, the demand was not made in good faith.

A proper demand for rent must "fairly apprise the tenant of the periods and amounts for which rent is alleged due" and need only state an approximate good faith sum of the amount due. (10 Midwood LLC v. Hyacinth, 2003 NY Slip Op 50789[U][App Term, 2d and 11th Jud Dists 2003]). Minor inaccuracies in the amounts sought should be disregarded. (Id.). The rent of $1,261.60 per month sought in petitioner's rent demand is about five percent more than the $1,200.00 per month which petitioner acknowledges is the correct amount. In 10 Midwood LLC, supra, the Appellate Term held that a five percent discrepancy did not merit dismissal of the petition, finding that the differential "could hardly have surprised tenant nor prejudiced him with respect to his ability to respond to the demand, formulate defenses, and avoid litigation or eviction." Here, the five percent discrepancy in the monthly rent demanded is minimal and Mr. Massena has not demonstrated any prejudice arising from petitioner's error. Indeed, that error did not hinder his ability to formulate a defense as he noted in his pro se answer that the monthly rent asked for was not the legal rent or the amount on his current lease. Accordingly, the Court [*3]holds that the incorrect amount of the monthly rent sought in the rent demand does not merit dismissal of the petition.

Although petitioner did not address Mr. Massena's claim that he paid the rent for the months stated in the rent demand, the rent breakdown attached to respondent's reply papers supports his claim, at least in part. According to that rent breakdown, Mr. Massena paid $1,200.00 per month in June, August, and September 2014, but paid nothing in July of that year. Those payments, and the lack of any payment for July, are also reflected in the copies of the money order stubs submitted by Mr. Massena.

The rent breakdown also supports petitioner's claim that, while the monthly rent sought in the rent demand was incorrect, the total arrears set forth therein accurately reflect the arrears it believed were owed by Mr. Massena.^[FN1] That being said, the breakdown supports Mr. Massena's claim that petitioner is seeking rent owed from before April 2013 (and, as noted above, indicates that he also failed to pay rent in July 2014).

Several courts have found that discrepancies between a landlord's rent records and its rent demand indicate that the demand did not comprise a good faith claim for rent due for the periods asserted therein. (See Sixth Ave. Terrace Assoc. v. Langley, NYLJ, May 1, 2014, 1202653274133, at *1 [Civ Ct, New York County 2014]; JDM Washington St., LLC v. 90 Washington Rest. Assoc., LLC, 36 Misc 3d 769, 775 [Civ Ct, New York County 2012]; 2110 Arthur Owners LLC v. Reyes, 34 Misc 3d 1208[A], 2011 NY Slip Op 52456[U][Civ Ct, Bronx County 2011]). Although in this case at least some of the arrears claimed due by petitioner are from prior to April 2013, more than a year before the earliest month set forth in the rent demand, the Court will not dismiss the petition at this time because there is insufficient proof that the months sought in the rent demand were not sought in good faith. Generally, a debtor may direct how payments to a creditor are to be applied, but where he fails to do so, the creditor may apply the payments as he sees fit. (See Snide v. Larrow, 62 NY2d 633, 634 [1984]). There also is a presumption that a payment will be applied to that portion of the debt first becoming due. (See id.). Thus, if Mr. Massena failed to direct how his rent payments were to be applied,^[FN2] petitioner and/or its predecessor ^[FN3] may well have had the right to apply his rent payments to prior months for which rent was owed. Because the papers submitted by the parties fail to address this issue, the Court can not determine whether petitioner had a good faith basis for asserting in its rent demand that rent was owed for the months set forth therein. Accordingly, that part of Mr. Massena's motion is denied with leave to renew at trial.

Finally, while Mr. Massena claims that the rent demand is also defective because the monthly rent sought therein exceeds the $1,056.38 per month that he claims it should be and [*4]because he has been overcharged by more than $14,000.00, the Court will not dismiss the petition on those grounds at this time because he has not shown that the arrears sought in the rent demand failed to express an approximate good faith sum of the rent that petitioner believed was owed. He may renew that part of his motion at trial.

Although Mr. Massena seeks leave to interpose an answer pursuant to Section 3211(f) of the CPLR, he has already interposed one. Consequently, the Court will treat this part of his motion as one for leave to serve and file an amended answer.

Section 3025(b) of the CPLR provides that "[a] party may amend his or her pleading . . . at any time by leave of court or by stipulation of all parties. Leave shall be freely given upon such terms as may be just including the granting of costs and continuances." Leave to amend should be freely given absent prejudice or surprise resulting directly from the delay in moving to amend. (See Fahey v. County of Ontario, 44 NY2d 934 [1978]; McCaskey, Davies & Assoc. v. New York City Health & Hosps. Corp., 91 AD2d 516 [1st Dept 1982], mod. on other grounds, 59 NY2d 755 [1983]).

Because petitioner has not shown how it would be prejudiced by granting this part of Mr. Massena's motion and, in fact, has not stated that it opposes such relief, the Court grants the motion to the extent of deeming the proposed "Verified Answer and Counterclaims" annexed to Mr. Massena's motion papers as having been served and filed.

Motion for Summary Judgment on Mr. Massena's Overcharge

Affirmative Defense and Counterclaim

Mr. Massena alleges that he has been overcharged in both his former apartment in the building and in his current one. First, he claims that in February 2003 DHCR issued a rent reduction order for his former apartment, effective August 1, 2002; that petitioner ^[FN4] continued to collect rent in excess of the amount permitted by the rent reduction order for several years, ending in July 2009; and that, as a result, he was overcharged by more than $7,900.00. Next, Mr. Massena claims that in 2009 the landlord induced him to move to his current, larger apartment; that they initially agreed upon a rent of $850.00 per month; that before he moved in, the landlord reneged on his promise and raised the rent to $900.00 per month; that they then signed a lease for that amount for a one-year term beginning August 1, 2009; that just before moving in, the landlord raised the rent to $1,000.00 per month, but told him that for the first year, he need only pay $950.00 per month; that he was not given a Rent Stabilization rider that explained how his rent was calculated; that he never received copies of his annual DHCR rent registration statements from the landlord; that he later found out that the rent he was being charged was a preferential rent; that in the renewal lease offered in 2014, which was the first renewal lease offered after the four-year statute of limitations expired, petitioner revoked the preferential rent; that the legal rent for the Apartment on August 1, 2009, when his initial lease began, should have been $893.48 per month, not the $1,354.65 per month claimed by petitioner's predecessor; that petitioner (and its predecessor) continued to overcharge him thereafter; that as of August 1, 2014 the legal regulated rent should have been $1,094.47 per month; and that he has [*5]been overcharged in his current apartment by about $7,000.00. He also argues that while the CPLR and Rent Stabilization Law ("RSL") generally limit overcharge claims to four years from the first overcharge alleged, where, as here, fraud casts doubt on whether the legal registered rent on the base date (that is, the date four years prior to the date an overcharge claim is filed, see Rent Stabilization Code ["RSC"] [9 NYCRR] § 2520.6[f]), is lawful, a court may examine the rental history prior to the base date. As support for that position, Mr. Massena cites the Court of Appeals' decision in Matter of Grimm v. State of NY Div. of Hous. & Community Renewal Off. of Rent Admin. ["Grimm"], 15 NY3d 358 [2010]).

In opposition, petitioner argues that because Section 26-516(a) of the RSL precludes examination of an apartment's rent history prior to the four-year period preceding the filing of an overcharge complaint, the Court may not examine rents charged from 2004 to 2009; that the Grimm exception to the four-year rule applies only where a landlord conducts a fraudulent scheme to destabilize an apartment; and that there was no fraudulent scheme here. Rather, petitioner alleges that in 2009 Mr. Massena asked petitioner's predecessor if he could move to a larger apartment in the building; that petitioner's predecessor offered him one, which he "gleefully accepted"; that before Mr. Massena moved into the new apartment, but after the prior tenant vacated it, petitioner's predecessor made extensive renovations; that after calculating the vacancy increase (see RSL [Administrative Code of City of NY] § 26-511[c][5-a]; RSC § 2522.8[a]), longevity increase (see RSL § 26-511[c][5-a]; RSC § 2522.8[a]), and improvement increase (see RSC § 2522.4[a][1], [4]), petitioner's predecessor registered the new rent with DHCR; that petitioner and its predecessor "obviously took calculated steps toward increasing the legal rent"; and that there was no fraudulent deregulation scheme. Petitioner's opposition papers include an affidavit from a manager of the prior owner as well as a "check registry" which purportedly shows, among other things, payments made in 2009 for "vacancy upgrade[s]" and improvements in the Apartment.

While the RSC provides that an apartment's legal regulated rent is the rent charged on the base date plus any subsequent lawful increases and adjustments (RSC § 2520.6[e]), the statute of limitations for rent overcharge claims is four years (see CPLR § 213-a), and the CPLR and RSL expressly bar examination of an apartment's rental history beyond four years from the date that an overcharge claim is asserted,^[FN5] the Court of Appeals held in Grimm that where a tenant [*6]presents "substantial indicia of fraud" in a rent overcharge case at DHCR, DHCR has an obligation to, at minimum, examine its own records to ascertain the reliability and legality of the rent charged on the base date. (See Grimm, 15 NY3d at 366-367). Thus, "the rental history [of an apartment] may be examined for the limited purpose of determining whether a fraudulent scheme to destabilize the apartment tainted the reliability of the rent on the base date." (Id. at 367). Where, however, a tenant fails to show sufficient indicia of fraud, DHCR may not consider the rental history beyond the four-year statutory period. (See Matter of Boyd v. New York State Div. of Hous. & Community Renewal ["Boyd"], 23 NY3d 999 [2014]).

Because Mr. Massena's overcharge claims for both his former and current apartments arose more than four years before he asserted them, he bears the burden of demonstrating an exception to the four-year statute of limitations and four-year rent history lookback period. (Cf. Garcia v. New York-Presbyt. Hosp., 114 AD3d 615 [1st Dept 2014][because statute of limitations had run as to proposed medical malpractice claim, plaintiff seeking to amend complaint bore burden of demonstrating applicability of relation-back doctrine]). As noted above, the basis of his overcharge claim for his former apartment is that the prior landlord failed to reduce his rent pursuant to the 2003 DHCR rent reduction order and continued to increase his rent thereafter for several years. Because no substantial indicia of fraud are even alleged, much less shown, Mr. Massena's overcharge claim is subject to the four-year statute of limitations. As there is no allegation or proof that he was overcharged in his former apartment on or after October 2010 (four years before he asserted his claim), his motion for summary judgment on that claim is denied and summary judgment dismissing that claim is granted to petitioner.

Turning to Mr. Massena's overcharge claim regarding his current apartment, it is undisputed that at the time he moved in there was a substantial increase in rent from the amount paid by the prior tenant. Generally, however, an increase in the rent alone will not be sufficient to establish a colorable claim of fraud, and a mere allegation of fraud, without more, is insufficient to trigger an inquiry into the legitimacy of a base date rent. (See Grimm, 15 NY3d at 367). Even a tenant's detailed but unsupported claim that an owner could not have spent enough on apartment improvements to justify a substantial rent increase is insufficient as well. (See Boyd, 23 NY3d 999, revg 110 AD3d 594 [1st Dept 2013]).

Here, the Court finds that Mr. Massena has presented substantial indicia of fraud that is sufficient to cast doubt on the reliability and legality of the base date rent. Petitioner alleges that it was proper for its predecessor to increase the legal regulated rent for the Apartment by $632.94 per month, from the $721.71 charged to the prior tenant to the $1,354.65, because it was entitled to a 17% vacancy increase,^[FN6] amounting to $122.60, a longevity increase of $56.25, and an unspecified increase for significant apartment improvements made while the Apartment was vacant. Assuming the amount of the vacancy and longevity increases alleged by petitioner are correct (and at least the vacancy increase is not [see n 6]), in order to reach a legal regulated rent [*7]of $1,354.65 per month, petitioner's predecessor had to make over $18,000.00 in improvements. The DHCR rent history does not indicate that any improvements were made in 2009. Moreover, while the spreadsheet submitted by petitioner provides some evidence that improvements were made, the total indicated (which includes both improvements and what appear to be a few ordinary maintenance items) comes to only $11,416.00. Even assuming that all of those funds were for qualified apartment improvements, they would justify a rent increase of $285.40 which, when added to the amounts for the vacancy and longevity increases, would come to $464.25, resulting in a legal regulated rent of only $1,185.96 per month.

Other indicia of fraud, which were not disputed by petitioner, include the failure of petitioner's predecessor to provide Mr. Massena with any Rent Stabilization rider for his vacancy lease (see Grimm, 15 NY3d at 366, let alone one which explained how the rent provided in that lease was computed above the amount shown in the most recent annual registration statement (see version of RSC § 2522.5[c][1][I] in effect on August 1, 2009);^[FN7] the failure of petitioner's predecessor and petitioner to provide a Rent Stabilization rider for Mr. Massena's renewal leases (see RSC § 2522.5[c][1][iv]); the failure of petitioner's predecessor and petitioner to provide Mr. Massena with copies of the annual DHCR rent registration statements for the Apartment (see RSL § 26-517[f], RSC § 2528.3[b]); and the fact that while petitioner and its predecessor charged Mr. Massena what they claimed was a preferential rent for five years (a circumstance that could well have affected his incentive to challenge the legal regulated rent), petitioner revoked the preferential rent on the occasion of the first lease renewal offer made after the four-year statute of limitations had run.

That being said, Mr. Massena did not deny that improvements were made in the Apartment before he moved in and petitioner has raised material issues of fact regarding the proper amount of the legal regulated rent for the Apartment. Accordingly, Mr. Massena's motion for summary judgment on his rent overcharge affirmative defense and counterclaim is denied.

Motion for Leave to Conduct Discovery

In summary proceedings, a party requesting discovery must obtain leave of court (see CPLR § 408) and to obtain such leave, must demonstrate "ample need." (Antillean Holding Co. v. Lindley, 76 Misc 2d 1044, 1047 [Civ Ct, New York County 1973]). In determining whether a party has established ample need, courts consider a number of factors, including:

whether the movant has asserted facts to establish a cause of action;

whether there is a need to determine information directly related to the cause of action;

whether the requested disclosure is carefully tailored and is likely to clarify the disputedfacts;

whether prejudice will result from granting leave to conduct discovery;

whether any prejudice caused by granting a discovery request can be diminished by anorder [*8]fashioned by the court for that purpose; and

whether the court can structure discovery so that unrepresented parties will be protectedand not adversely affected.

(See New York Univ. v. Farkas, 121 Misc 2d 643, 647 [Civ Ct, New York County 1983]).

The papers submitted by petitioner on this motion do not express opposition to that part of Mr. Massena's motion which seeks leave to conduct discovery. Moreover, the Court finds that Mr. Massena has asserted facts to establish an affirmative defense and counterclaim for rent overcharge; that he has a need to obtain information regarding how petitioner's predecessor calculated the legal regulated rent for his vacancy lease; and that petitioner will not be prejudiced by granting his discovery request. Accordingly, except as limited or amended herein, the Court grants Mr. Massena's motion for leave to conduct discovery to the extent of directing petitioner to comply with the demand for a bill of particulars and document request annexed as Exhibit M to his motion papers by March 27, 2015. However, the relevant year for providing information is 2009, not 2010 as requested by Mr. Massena, and petitioner need not respond to paragraph 1(f) of the demand for a bill of particulars or paragraphs 19, 20, and 21 of the "notice for inspection and discovery."

Upon completion of discovery, either party may move on at least eight days' written notice, or by stipulation, to restore the case to the calendar.

Motion for an Order to Correct

Petitioner has expressed no opposition to that part of Mr. Massena's motion which seeks an order to correct. Accordingly, the Court grants that part of his motion to the extent of directing petitioner to inspect and correct, to the extent required by law, the conditions described in paragraph 21 of respondent's Verified Answer and Counterclaims. The parties shall arrange mutually convenient access dates.

This constitutes the decision and order of the Court.

Dated:February 25, 2015

Brooklyn, New York

________________________________________

Hon. Andrew Lehrer

Judge, Housing Court

Footnotes

Footnote 1:According to the rent breakdown, the amount owed by Mr. Massena as of September 1, 2014 was $4,603.26. After subtracting $250.00 in late fees, the arrears are reduced to $4,353.26, the amount set forth in the rent demand.

Footnote 2:There is no particular manner in which a debtor must direct the application of his payment. (See A & E Tiebout Realty, LLC v. Johnson, 23 Misc 3d 1112[A], 2009 NY Slip Op 50715[U][Civ Ct, Bronx County 2009], affd 26 Misc 3d 131[A], 2010 NY Slip Op 50055[U][App Term, 1st Dept 2010]). "A direction [as to how a payment is to be applied] may be evidenced by circumstances as well as by words. A payment may be attended by circumstances which demonstrate its application as completely as words could demonstrate it." (L & T E. 22 Realty Co. v. Earle, 192 Misc 2d 75, 76 [App Term, 2d & 11th Jud Dists 2002], quoting Tayloe v. Sandiford, 20 U.S. 13, 20 [1822]).

Footnote 3:According to the deed attached to its motion papers, petitioner bought the subject building on April 8, 2013.

Footnote 4:Although Mr. Massena's motion papers allege that it was petitioner who overcharged him, it appears that petitioner did not acquire title to the subject building until April 8, 2013. If that is true, than any overcharges collected prior to that date were collected by petitioner's predecessor in interest. That being said, petitioner would be liable for any such overcharge penalties. (See Rent Stabilization Code [9 NYCRR] § 2526.1[f][2][i]).

Footnote 5:Section 213-a of the CPLR provides:

An action on a residential rent overcharge shall be commenced within four years of the

first overcharge alleged and no determination of an overcharge and no award or calculation

of an award of the amount of any overcharge may be based upon an overcharge having

occurred more than four years before the action is commenced. This section shall preclude

examination of the rental history of the housing accommodation prior to the four-year period

immediately preceding the commencement of the action.

In addition, Section 26-516(a)(2) of the RSL provides, in pertinent part, that

Except as provided under clauses (I) and (ii) of this paragraph, a complaint under this

subdivision shall be filed with the state division of housing and community renewal

within four years of the first overcharge alleged and 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.

. . . This paragraph shall preclude examination of the rental history of the housing

accommodation prior to the four-year period preceding the filing of a complaint pursuant

to this subdivision.

Footnote 6:Actually, the vacancy increase should have been 16% (see RSL § 26-511[c][5-a]; RSC § 2522.8[a]; Rent Guidelines Board Apartment Order # 40), resulting in an increase of $115.47.

Footnote 7:That section of the RSC was amended, effective January 8, 2014, to require landlords to provide more detailed information describing how the rent was adjusted from the prior legal rent.