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On June 20, 2024, the New York State Court of Appeals issued a decision inK.E. Liggett v. Lew Realty LLC, reversing the Appellate Division, First Department, and reiterating that landlords and tenants cannot conspire to evade the rent regulations.

In this case – where the Plaintiff-Appellant, K.E. Liggett, was represented by Newman Ferrara LLP --the Court of Appeals addressed whether a stipulation entered into by a predecessor tenant and the building’s owner was "void" as an impermissible waiver of rent stabilization.

The agreement in question provided that the initial regulated rent was $1,650 per month but only required that the tenant pay $650 per month. Importantly, that stipulation also waived that tenant’s right to file a Fair Market Rent Appeal (“FMRA”). While that arrangement certainly benefited that particular tenant, it imperiled future tenants because it allowed the landlord to take rent increases, and eventually deregulate the unit, based on the elevated $1,650 figure – not the lower $650 number that was actually being charged and paid. Additionally, because that tenant waived his statutory right to file a FMRA as part of the housing court settlement, the Appellate Division was of the view that the initial rent figure was not challengeable.

Our state’s highest court found in favor of Newman Ferrara’s client, and reversed the Appellate Division, because significant public policy concerns were implicated when the tenant waived his right to file a FMRA. The Court also found that such an arrangement went against the express language of the rent laws.

Since the right to file a FMRA is meant to protect the viability of the entire rent regulation system – not just a single tenant in a single unit -- safeguarding the process afforded a crucial check on determining the initial rent, because that is the amount which serves as the baseline against which rent increases are calculated. Thus circumventing the FMRA was found to have an adverse effect on New York City rent-stabilized apartments and could not be sanctioned.

“About every decade or so, our state’s appellate authority has to step in and tell landlords that you cannot make private agreements to evade the rent regulations,” said Newman Ferrara partner Lucas A. Ferrara. “Indeed, we litigated this very issue back in 2006, and prevailed, in a case called Drucker v Mauro.”

“Yes, but all that’s old is new again,” quipped Roger A. Sachar, the Newman Ferrara attorney who argued the Liggett case. “Every so often, a healthy reminder that landlords cannot contract around rent regulation is needed. That this reminder came by way of a unanimous Court of Appeals ruling is especially gratifying, and we look forward to continuing to fight to protect tenants.”

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Our thanks to Myles Ganther for his assistance with this article.