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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