AL 110604-RO
STATE OF NEW YORK
DIVISION OF HOUSING AND COMMUNITY RENEWAL
OFFICE OF RENT ADMINISTRATION
GERTZ PLAZA
92-31 UNION HALL STREET
JAMAICA, NEW YORK 11433
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IN THE MATTER OF THE ADMINISTRATIVE ADMINISTRATIVE REVIEW
APPEAL OF DOCKET NO.:
AL 110604-RO
MELOHN PROPERTIES,
DRO DOCKET NO.:
PETITIONER Q-3119496-T
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ORDER AND OPINION DENYING PETITION FOR ADMINISTRATIVE REVIEW
On December 22, 1986, the above-named owner filed a petition for
administrative review of an order issued on November 18, 1986, by
a District Rent Administrator concerning the housing
accommoda-tion known as Apartment 3-B, 83-43 118th Street, Kew
Gardens, New York, wherein the Administrator determined that the
tenant had been overcharged in the amount of $20,219.20,
including ex-cess security and interest on overcharges incurred
after April 1, 1984.
The Commissioner notes that this proceeding was initiated prior
to April 1, 1984. Sections 2526.1(a)(4) and 2521.1(d) of the
Rent Stabilization Code (effective May 1, 1987) governing rent
overcharge and fair market rent proceedings provide that
deter-mination of these matters be based upon the law or code
provi-
sions in effect on March 31, 1984. Therefore, unless otherwise
indicated, reference to sections of the Rent Stabilization Code
(Code) contained herein are to the Code in effect on April 30,
1987.
The Commissioner has reviewed all of the evidence in the record
and has carefully considered that portion of the record relevant
to the issue raised by the administrative appeal.
This proceeding was originally commenced by the filing of a rent
overcharge complaint by the tenant on March 26, 1984. The tenant
originally took occupancy pursuant to a two-year vacancy lease
commencing on August 1, 1977 and expiring on July 31, 1979 at a
monthly rent of $350.00.
A copy of the complaint was served upon the owner along with a
notice advising the owner that the complaint was in reference to
a fair market rent appeal and rent overcharges.
In its answer the owner maintained that the tenant was ineligible
for a Fair Market Rent Appeal, and that since the prior tenant
had been under a "sweetheart" lease with the former owner, it
would be inequitable to make a determination on overcharges
without recognizing this fact. The answer noted that the
complainant was the second stabilized tenant, in accordance with
a prior DHCR order, No. ZAD 25614, which found that decontrol of
the premises occurred at the commencement of the prior tenancy.
Therefore, the complaint had no statutory right to a Fair Market
Rent Appeal. The answer further emphasized the fairness of the
complainant's initial rent of $350.00, since the prior tenant had
paid an "artificially low" rent of $167.70 for two lease terms
without being subject to an increase.
The petitioner then outlined the rent history of the premises:
that the prior owner consisted of a partnership of three
brothers; that, immediately after vacancy decontrol in June,
1972, they rented the apartment to a fourth brother in a
"sweet-heart" lease at a rent of $167.70 per month for a 4 1/2
year term, which was then renewable for another two years without
a rent increase, that the other rents in the subject-line -
including those still rent controlled - were all higher than that
of the subject-apartment; that the apartment became subject to
the Rent Stabilization Law on June 30, 1974; that, subsequent to
a CAB order finding that the "sweetheart" tenant was in fact the
first stabilized tenant, the apartment was vacated in July, 1977;
that, in August, 1977, the complaining tenant first took occu-
pancy at an initial rent of $350.00 per month.
The owner also noted that reasonable adjustments of the rent have
been approved by the Code, which allows recognition of the
equities of a particular situation. Also, that the Commissioner
acknowledges the initial rent as comparable to rents in other
stabilized apartments in the subject line. The answer then
proposed that the proper calculation of the fair market rent,
even though not legally required in this situation, would utilize
the same procedures as were actually used by the owner to
determine the complainant's initial rent, and would have had the
same result: averaging the rents of the two other stabilized
apartments in the subject line, $315.00 and $300.00, respec-
tively, - results in an average stabilized base rent of $307.50;
applying the guidelines increase for a two year lease (Guide-
lines Board Order No. 9 authorized 8.5%) and a 5% vacancy
allowance to the base rent, results in a proposed rent of $349.01
(5% + 8.5% x $307.50 = $349.01), which is only about a dollar
less than the initial rent, and which clearly establishes the
owner's fairness. Finally, the owner argued that to find that
the complainant's initial rent was an overcharge would amount to
granting a fair market rent appeal and, in accordance with
customary practice at the DHCR, there should be no award for
attorneys fees or treble damages.
In Order No. 26,955, issued on November 18, 1986 the Rent
Admin-istrator determined that, although the tenant was
ineligible for a Fair Market Rent Appeal, there were nevertheless
overcharges due to an excessive initial rent. It was noted that
the owner had purchased the building on or about January 1, 1973
and had demonstrated its intention to honor the terms of the
existing lease. As evidence of this the Administrator noted that
the owner had the opportunity, under Section 24 of the former
Code, to file for an increase of the new rent once the prior
tenant vacated the premises on the basis of "unique and peculiar
circumstances," but chose not to do so. By failing to make the
application, however, the owner acknowledged the "sweetheart"
rent of $167.70 as the legal stabilized rent for future
tenancies. Then, in a rent calculation chart affixed to the
order, and made a part thereof, the Administrator showed how the
lawful stabilized rent and the overcharges were determined. The
Administrator first granted a guidelines increase for a two-year
lease, and the 5% vacancy allowance to the adjusted base rent of
$181.12 from $167.70. In applying the 8 1/2% guidelines increase
for a two-year lease, the 5% vacancy allowance to the adjusted
base rent of $181.12, the vacancy rent for the complaining tenant
became $205.57, instead of $350.00 as flowing entirely from this
initial overcharge, subsequent overcharges were then calculated
for the tenant's next three lease terms, resulting in total
over-charges of $20,219.20, including accrued interest, since
April 1, 1984, and excess security.
In its petition, the owner argues that contrary to the stated
intention of the order, the Administrator had "merely paid lip
service" to the equities involved in determining that the
complainants initial rent of $350.00 was excessive.
The petitioner argues that the Administrator's determination that
the tenant's initial rent was excessive was based on a strict
interpretation of Section 24 of the former Code, which states as
follows:
"Within 60 days of the adoption of this Code provision
or 60 days after the commencement of the first tenancy
occurring after June 30, 1974, whichever is later, the
tenant or owner of the dwelling unit may file an
appli-cation with the Conciliation and Appeals Board on
the ground that the presence of unique or peculiar
circum-stances materially affecting the Initial Legal
Regu-
lated Rent has resulted in a stabilization rent which
is substantially different from the rents generally
prevailing in the same areas for substantially similar
housing accommodations."
In arguing that the Administrator erred in relying upon Section
24, the petitioner notes that, under Section 35A of the former
Code, which authorized the Division to take into consideration
all factors bearing upon the equities involved in the contro-
versy, the tenant's initial rent was merely the owner's
legitimate adjustment of an "intentionally deflated rent," and
that both the courts and the CAB have upheld such actions by
owners in similar situations. The petition then cites the case
of In the Matter of Gervasi vs. New York City Conciliation and
Appeals Board (N.Y.L.S.), April 2, 1981, p. 14, col. 6, Sup. Ct.
Kings County, Monteleone, J.), which held that Section 35 should
have been applied, and reversed an order denying the owner's
petition for adjustment as untimely, where "through no fault of
his own, the lease or rental as below that which is required
under the law." Petitioner then cites CAB Order No. 8150 as a
supporting case. Finally petitioner contends that the "arbitrary
nature" of the Administrator's order is clearly drawn by its
granting a single guidelines increase to the prior tenant's
renewal lease, without explanation, while denying all other
increases to which the owner was just as entitled.
The Commissioner is of the opinion that this petition should be
denied.
In its petition, the owner claims that it was "patently erron-
ious" for the Administrator to ignore the equities that apply in
this case, relying upon Section 35 of the former Code. However,
such reliance is shown inapplicable when one examines the actual
wording of the provision, to wit: that the CAB "take into
consid-eration all factors bearing upon the equities involved . .
."
It should be obvious that the breadth and discretion implied by
such language will counteract the tendency to adopt any case as
"controlling" if leased solely upon its authority.
Petitioner's insistence that Matter of Gervasi has such authority
is, thus, out of proportion with its actual influence. If, in
arguendo, a greater weight is given Gervasi, the petitioner gets
scant support in any event due to the distinguishing features
between the two cases. In Gervasi, the equities provision was
cited to override the usually fatal defect of failing to timely
submit an application for rent adjustment. The Court held that
the provision should "protect" an owner "where, through no fault
of his own, the lease or rental was below that which is required
under the law."
However, the owner in Gervasi had actually filed an application.
In so granting it, the Court recognized the owner's attempt to
comply with the specific obligations as well as the subsuming
intent of the Code, namely the performance by an owner of all
affirmative duties specified therein.
But that is not the case here. Petitioner has never filed an
application for a rent adjustment, and is only making its belated
arguments for one now because the tenant has filed a rent over-
charge complaint. In contrast to the Gervasi case, the subject
owner has already fashioned its own remedy, totally bypassing the
requirements of the Code. It is therefore inappropriate for the
subject owner to obtain "relief" in equity, when the proceeding
was only instituted by a tenant who was seeking "relief" from
having to pay an unlawful rent.
The example of Order No. 8150 is even less persuasive. That
proceeding was commenced by the owner as an application for per-
mission to increase the rent of the tenant under the "sweetheart"
lease. Timeliness did not arise as an issue because the tenant
was the same as on June 30, 1974, and the statutory limit would
not begin to run until the commencement of the next tenancy.
Thus, there is nothing in that decision to support the adjust-
ment of rent on behalf of an owner if, as in the instant case,
that owner has failed to even apply for such adjustment.
With respect to the owner's complaint that it was painfully
"saddled with a sweetheart lease for the first four years of its
ownership", the Commissioner has noted in a case that similarly
concerned the failure to apply for a rent adjustment that ". . .
the fact that such prior owner did not make application for
relief is reflective of the fact that a reduced rental for the
subject tenant as a bargained for consideration reflected in the
purchase price." (ART 03992-K, BC 210303-RO).
Finally, the owner's repeated reference to the prior tenancy as
involving a "sweetheart lease" is itself an inaccuracy, in
accordance with the Commissioner's most recent interpretation of
Section 2(j) of the former Rent Stabilization Code. In the
opinion cited in the paragraph above, it was held that, with the
exception of a singular CAB order that in no way reflects the
Division's policy the CAB's rulings in cases filed prior to April
1, 1984 only found "sweetheart rents" in cases where the reduced
rent paid is less than the rent of a comparable apartment by an
amount that reflects the value of services rendered by the
tenant. Such is clearly distinguished from the instant case,
however, where the "reduced" rental relied upon, no benefit other
than the nepotism of the prior owner, and the petitioner has
never claimed otherwise.
THEREFORE, in accordance with the Rent Stabilization Law and
Code, it is
ORDERED, that the owner's petition be, and the same hereby is,
denied, and the Administrator's order be, and the same hereby is,
affirmed.
ISSUED:
ELLIOT SANDER
Deputy Commissioner
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