New York Court of Appeals Expands Fraud Exception in Rent Overcharge Claims

On March 20, 2025, the New York State Court of Appeals issued its decision in Burrows v. 75-25 153rd Street, LLC which addressed the application of the fraud exception in rent overcharge claims under the New York Rent Stabilization Law.

In Burrows, the tenants alleged that the landlord engaged in fraudulent practices by registering inflated legal regulated rents which lead to rent overcharges.  The Supreme Court denied the landlord’s motion to dismiss. However, the Appellate Division granted defendant’s motion to dismiss holding that (i) plaintiff-tenants could not have reasonably relied on the alleged inflated legal regulated rents and (ii) since tenant’s claims regarded rents which were registered more than four years before the commencement of the initial action, tenant’s claims were time-barred by the statute of limitations in place at the time.

The Court of Appeals modified the Appellate Division’s order by (i) broadening the grounds through which a tenant could demonstrate the existence of a fraudulent scheme to deregulate a rent-stabilized unit in order to circumvent the statute of limitations for such overcharge claims (this circumvention is commonly known as the “fraud exception”) and (ii) holding that reasonable reliance by tenants is not a prerequisite for invoking the fraud exception in rent overcharge matters.  

The Court revoked any use of the elements of common law fraud as a foundation to invoke the fraud exception. Instead, Burrows applied the standard of showing either a “sufficient indicia of fraud” or a “colorable claim” of fraud. 

Unfortunately, the standards established by Burrows will make it more difficult for owners to quickly dispose of rent overcharge claims which would have previously been considered legally insufficient. 

Burrows will have an immediate impact on rent overcharge claims. Therefore, should you have any questions, or are served with an overcharge complaint, please immediately contact your trusted KMWB advisor.