The Numbers Told the Story: First Department Finds a Colorable Claim of Fraud Where Rent Spiked to the Deregulation Threshold — Then Fell Back Below It

Badesch v Fort 710 Assoc., L.P., 240 AD3d 402 (1st Dept 2025)

By Bikram Singh, Esq. | Singh & Rani LLP

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Since Matter of Regina Metropolitan Co., LLC v New York State Division of Housing and Community Renewal, 35 NY3d 332 (2020), landlords have argued — often successfully — that the fraud exception to the four-year lookback rule is essentially unavailable in overcharge cases arising from Roberts deregulations. On July 1, 2025, the Appellate Division, First Department, unanimously affirmed the denial of summary judgment to the landlord in Badesch v Fort 710 Assoc., L.P., holding that this record raised a colorable claim of fraud notwithstanding that framework.

Bikram Singh of Singh & Rani LLP represented the plaintiff-tenant in this case.

What Was at Stake

This was an appeal about remedy, and the stakes were substantial.

The landlord moved for summary judgment in Supreme Court, New York County, seeking to limit the tenant's damages cause of action to non-trebled overcharges calculated under the four-year lookback rule, rather than under the default formula. Justice Eric Schumacher denied the motion by order entered July 25, 2024. The landlord appealed.

Framed practically: if the landlord won, the rent history would be frozen at the base date, the tainted deregulation would be insulated from review, and treble damages would be off the table. If the tenant won, the pre-base date history was open, the default formula was available to reconstruct the legal regulated rent, and willfulness — and therefore trebling — remained a jury question.

The First Department affirmed, with costs.

The Regina Problem — and Why It Didn't Control

The panel began by acknowledging the landlord's strongest point. The fraud exception is often unavailable where an overcharge claim rests solely on Roberts v Tishman Speyer Props., L.P., 13 NY3d 270 (2009), because deregulations during the receipt of J-51 benefits were undertaken in reliance on erroneous DHCR guidance — not fraudulent intent (Regina Metro., 35 NY3d at 352, 356; Nájera-Ordóñez v 260 Partners, L.P., 217 AD3d 580, 581 [1st Dept 2023]).

That is a real doctrinal obstacle, and it disposes of many post-Regina overcharge claims.

It did not dispose of this one. The Court held that the 2009 deregulation and the tenant's subsequent unregulated leases raised a colorable claim of fraud, permitting review of the pre-base date rent history to determine whether the landlord engaged in a fraudulent scheme to deregulate that tainted the base date rent (Regina Metro., 35 NY3d at 355; Malkiewicz v Acquisition Am. XI LLC, 233 AD3d 587, 588 [1st Dept 2024]).

The Numbers That Did the Work

The decision is worth reading closely because the fraud indicia are laid out arithmetically. Two patterns carried the day.

The unexplained leap. The last rent-stabilized tenant paid $603.33 and vacated in 2008. By 2009, the apartment had purportedly cleared the $2,000 high-rent deregulation threshold then in effect. The Court observed that the record contained no evidence whatsoever supporting an increase of that magnitude. A gap that large, unsupported by IAIs, vacancy increases, or any other documented lawful basis, is not a neutral fact.

The spike and the retreat. The tenant's first lease, in 2011, recited a legal rent of $2,500 — an amount identical to the deregulation threshold then in effect. The subsequent unregulated renewals then dropped well below that threshold: $1,495, $1,550, $1,600, and $1,675 from 2013 through 2016.

As the Court put it, this pattern of raising the rent above the deregulation threshold and then lowering it significantly below the threshold can indicate fraud. A legal rent that arrives precisely at the statutory line and then quietly recedes once the apartment is out of the system does not look like market pricing. It looks like a number chosen to accomplish something.

Treble Damages Stay in Play

The final holding follows logically and is easy to overlook. Because there is a colorable claim of fraud as to the 2009 purported deregulation, there is necessarily an issue of fact as to whether any overcharge was willful — and therefore whether the tenant is entitled to treble damages (Rent Stabilization Law § 26-516 [a]; Matter of Century Tower Assoc. v State of N.Y. Div. of Hous. & Community Renewal, 83 NY2d 819, 823 [1994]).

Landlords frequently seek to bifurcate these issues, conceding a lookback fight while insisting willfulness can be resolved as a matter of law. Badesch forecloses that move where fraud is colorable: the two questions travel together.

Takeaways

• The fraud exception survived Regina. It is narrow, but it is not a dead letter. What matters is whether the record shows indicia of a scheme, not whether the deregulation happened to occur during a J-51 period.
• Build the case on the rent roll. The strongest evidence here was arithmetic: an unexplained jump to the threshold, and a legal rent set at exactly the statutory number. Pull the full DHCR registration history and chart it.
• A rent that falls back below the threshold is a red flag. Under Malkiewicz and now Badesch, the spike-and-retreat pattern is affirmatively probative.
• Silence in the record is evidence. The Court pointed to the absence of any proof justifying the increase. On summary judgment, the landlord bears the prima facie burden — and cannot carry it by asserting that a lawful explanation must have existed.
• Fraud and willfulness are linked. A colorable fraud claim keeps treble damages before the factfinder.

A Note on Posture — and on the Case's Other Contribution

This was an affirmance of the denial of summary judgment. The Court held that issues of fact exist; it did not find that fraud occurred or fix the amount of any overcharge. Those questions remain for the trial court.

Worth noting as well: this litigation has produced two First Department decisions. The earlier one — Badesch v Fort 710 Assoc., L.P., 233 AD3d 604 (1st Dept 2024) — addressed leave to amend under CPLR 3025 (b), and has since been cited repeatedly by Housing Court and Civil Court judges for the standard that amendment should be freely granted absent prejudice or surprise unless the proposed pleading is palpably insufficient or patently devoid of merit.

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Singh & Rani LLP represents tenants and landlords in rent overcharge, deregulation, and rent stabilization litigation in Supreme Court, Civil Court, Housing Court, and on appeal throughout New York City. Bikram Singh represented the plaintiff-tenant in Badesch v Fort 710 Assoc., L.P. If your apartment was deregulated and the rent history does not add up, we can obtain and analyze the registration record and advise you on your options.

Singh & Rani LLP 5 Penn Plaza, 19th Floor New York, NY 10001

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Attorney Advertising. This article is for general informational purposes only, does not constitute legal advice, and does not create an attorney-client relationship. Prior results do not guarantee a similar outcome. Each matter turns on its own facts and applicable law.