ADM. REVIEW DOCKET NO.: BK 410153-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.: BK 410153-RO
: DRO DOCKET NOS.:
TC-082127-G
TRAFALGAR PROPERTIES, INC., CDR 31515
PETITIONER :
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ORDER AND OPINION DENYING PETITION FOR ADMINISTRATIVE REVIEW
AND MODIFYING RENT ADMINISTRATOR'S ORDER
On November 10, 1987 the above-named petitioner-owner filed a
Petition for Administrative Review against an order issued on
October 7, 1987 by the District Rent Administrator, 10 Columbus
Circle, New York, New York concerning housing accommodations
known as Apartment 23 at 361 East 10th Street, New York, New York
wherein the District Rent Administrator determined that the owner
had overcharged the tenant.
The Commissioner notes that this proceeding was filed prior
to April 1, 1984. Section 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
determination of these matters be based upon the law or code
provision 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 issue in this appeal is whether the District Rent
Administrator's order was warranted.
The applicable sections of the Law are Section 26-516 of the
Rent Stabilization Law, Section 42A of the former Rent
Stabilization Code and Section 2526.1(a) of the current Rent
Stabilization Code.
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 in
January, 1984 of a rent overcharge complaint by the tenant, in
which he stated that he had commenced occupancy on July 15, 1983
at a rent of $550.00 per month.
The owner was served with a copy of the complaint and was
requested to submit rent records to prove the lawfulness of the
ADM. REVIEW DOCKET NO.: BK 410153-RO
rent being charged. In answer to the complaint, the owner stated
that it did not have rent records, but would attempt to get them
from the previous owner.
On August 28, 1985 the tenant advised that he had refused the
owner's offer of settlement one year earlier, and on February 9,
1986 he stated that no settlement had been made.
On July 1, 1987 and July 30, 1987 the owner was sent Final
Notices of Pending Default, which stated in substance that unless
leases from the base date were submitted, the lawful stabilized
rent would be established by using the lowest figure established
by any of three methods, one of them being the lowest stabilized
rent for the same size apartment in the same building.
In a letter dated September 14, 1987 the owner stated that
the tenant had vacated in May, that an oral settlement had been
reached prior to vacating, and that the parties were currently
endeavoring to formalize such settlement in a signed writing. The
owner requested a 30 day extension of time to submit the
settlement for review.
In an order issued on October 7, 1987 the District Rent
Administrator applied the default formula and used the lowest rent
of the other 4-room apartments in the building to find an
overcharge of $40,856.10 as of July 15, 1987, including treble
damages on overcharges occurring on or after April 1, 1984.
In this petition the owner contends in substance that,
contrary to a previous Administrative Revi w order, (ART 06593-
U/ARL 06614-U), the Administrator issued an order before the
expiration of the (requested) extended time to answer; that the
oral settlement of which the Administrator was advised would have,
if not for the Administrator's supervening order, resulted in an
instant monetary refund to the tenant upon execution of the
agreement; that similarly to the order in ARL 04177-L the refund
had it been made would have avoided the imposition of treble
damages on remaining unrefunded overcharges; and that the default
formula should have used the lowest rent in the same line rather
than the lowest rent for a similar size apartment in the building.
In answer, the tenant asserts in substance that no "oral
understanding of settlement" was ever reached; that he agreed only
to consider the owner's offer, with the intent of awaiting the
DHCR's ruling; that no final "settlement" of any kind was ever
agreed on; and that he vacated the subject apartment not in May,
1987 but rather on July 15, 1987.
In response, the owner's attorney contends in substance that
he spoke to the tenant in September, 1987, at which time the
tenant agreed in principle to settle the complaint for the amount
of $6,000.00, subject to his first reviewing the stipulation of
settlement; that even if the tenant had never intended to settle
but instead intended to wait for the Administrator's
determination, the Administrator erred in making a determination
after being advised that a settlement was being discussed, and in
assessing treble damages; that in a similar case in Docket No. AL
ADM. REVIEW DOCKET NO.: BK 410153-RO
410654-RO the Administrator's order was reversed because of
failure to consider a letter from the owner's attorney stating
that the matter had been tentatively settled; that the $6,000.00
settlement offer was much closer to the $8,980.94 overcharge
calculated by applying the default formula to the lowest rent in
the same line than was the overcharge of over $40,000.00
incorrectly found by the Administrator; that the owner could not
unilaterally make a refund (and thus avoid treble damages) because
the tenant was no longer in occupancy; that the owner had admitted
liability and was prepared to refund to the tenant what it was
legally responsible for, but it was prevented from doing so by the
issuance of the Administrator's order; and that in Docket No. ARL
04159-L the Administrator's order was reversed because the default
rent had incorrectly been based on the lowest rent in the
building.
On February 4, 1991 the tenant advised that he had been
unable to reach settlement with the owner.
The Commissioner is of the opinion that this petition should
be denied, and that the District Rent Administrator's order should
be modified.
Section 42A of the former Rent Stabilization Code requires
that an owner retain complete rent records for each stabilized
apartment in effect from June 30, 1974 to date and produce them to
the DHCR upon demand. If the apartment was decontrolled from the
Rent Control Law after June 30, 1974 the owner must provide
satisfactory documentary evidence of the apartment's date of
decontrol, and produce a rental history from that date.
In 1982, the DHCR predecessor N.Y.C. Conciliation and Appeals
Board (C.A.B.) adopted procedures to be used to determine an
apartment rent where the owner did not provide a complete rent
history of the apartment. In such cases the rent is calculated to
be the lowest of the following amounts:
1) The lowest rent for an apartment in the
same line, without any Guidelines adjustment for
the complainant's vacancy lese or for any subsequent
lease commencing prior to the date of the agency's
order.
2) the current tenant's initial rent minus any
allowance for the tenant's initial lease,
without any Guidelines adjustment for any
subsequent lease commencing prior to the
date of the agency's order.
3) the prior tenant's last rent, without any
Guidelines adjustment for any subsequent
lease commencing prior to the date of the
agency's order.
These procedures have been upheld by the Courts (61 Jane
Street Associates v. CAB, NYLJ, May 8, 1984, p. 11, col. 4 (Sup.
Ct. N.Y.Co., Greenfield, J.), 108 A.D. 2d 636, 486 NYS2d 694,
ADM. REVIEW DOCKET NO.: BK 410153-RO
affirmed 65 NY2d 898, 493 NYS2d 455 (C.A., 1985).
When the C.A.B. adopted the default procedures in 1982 there
was no system of registration of apartment sizes and rents. To
avoid undue processing in the form of efforts to ascertain all
comparable apartments in a building anytime an overcharge
complaint was made, the C.A.B. used the standard of considering
apartments in the same line as the apartment complained about as
a way to achieve a rough comparability. Since the room count and
rents of all stabilized apartments have been required to be
registered since April 1, 1984, the DHCR has since 1985 been
using the lowest rent of an apartment with the same room count in
the building. Although this may mean that the apartment being
used in the test is not exactly identical to the apartment at
issue (since the latter may have additional features or be on a
more desirable floor or have a larger area although having the
same number of rooms), the Commissioner notes that the Section 42A
default procedure is a penalty to be applied where an owner has
defaulted on its obligation to establish the lawfulness of the
rents charged, rather than its being an equitable situation where
a more exact comparability might be necessary. Both the July 1,
1987 and July 30, 1987 Final Notices to the owner stated that one
of the tests used in establishing the lawful stabilization rent in
the event of a default would be the lowest registered
stabilization rent for the same size apartment in the same
building (rather than the same line). Under the DHCR definition
of rooms the subject apartment is registered as having 4 rooms
(rather than 5 as claimed by the owner); the Administrator used
the lowest rent of 4-room apartments in the building.
The use of the standard of the lowest rent for a comparably-
sized apartment promotes the enforcement of the Rent Stabilization
Law in several important ways and is a natural evolution from the
initial implementation of the procedures in 1982. First, it gives
the DHCR a larger survey of comparably-sized apartments. This
larger survey reduces the likelihood that the rent selected is one
in excess of the Guidelines. The use of just one line of
apartments increases the possibility that the apartment selected
is one for which an owner has charged an illegal rent, especially
if the line contains few apartments. Second, a line of apartments
may not exist, such as in a garden apartment complex, or may be
difficult to ascertain. The use of the registration records
avoids this problem and permits quicker resolution of a tenant's
complaint. Third, the DHCR should not have to rely upon an
owner's designation of a line where such owner has been shown to
have violated one of the most basic requirements of the Rent
Stabilization Law, namely the maintenance of complete rent
records.
ARL 04159-L, cited by the owner, is clearly distinguishable.
It was decided after being remitted from an Article 78 proceeding
"in which it was argued that [the] Administrator was in error in
establishing the stabilized rent based on the lowest rent in the
ADM. REVIEW DOCKET NO.: BK 410153-RO
building; that the proper procedure is to employ the lowest rent
in the 'line' (or for the same size apartment)." The default rent
had been set using the lowest rent of any apartment in the
building regardless of size, rather than just of apartments with
the same number of rooms. Further, in that case the owner had not
been informed in the default notice that the lowest rent of a
similar size apartment might be utilized whereas the owner in this
proceeding was so notified.
Regarding the owner's contention that the Administrator's
order was, in effect, issued before the owner's time to answer had
expired, and that the issuance of the order with treble damages
was contrary to several previous DHCR cases: Policy Statement 89
2 provides that the burden of proof in establishing lack of
willfulness will be deemed to have been met, and treble damages
will therefore not be imposed, when an owner adjusts the rent on
his or her own, and tenders to a tenant a full refund of all
excess rent plus interest, within the time afforded to interpose
an answer to the proceeding. The owner in the present case not
only failed to make a refund within 20 days of being mailed the
tenant's complaint in August, 1984, but even failed to make a
refund by the time of the Administrator's order on October 7,
1987, despite knowing for over three years after receiving the
complaint that it did not have records to justify the rents
charged and despite the fact that it was sent Final Notices of
Pending Default on July 1, 1987 and July 30, 1987 stating the
procedures that would be used to establish a default rent and
informing it that treble damages would be imposed. The fact that
the owner may have been engaged in settlement negotiations with
the tenant does not bar the imposition of treble damages.
With regard to the owner's citing of ART 06593-U/ARL 06614-U,
it is noted that in such case, an order had been issued on
November 6, 1985 after an owner had on October 2, 1985 been given
a final 30 days to submit a rent l history. On appeal, newly-
provided leases were accepted because the owner submitted a copy
of a postcard from the DHCR, extending the owner's time to respond
to December 3, 1985. The Administrator's file did not contain any
indication that an extension had been granted. In the present
case the owner was not granted an extension. Furthermore, the
owner has not submitted a complete rental history even on appeal.
The owner also cites an order in AL 410654-RO. In that case
an owner's attorney had sent a letter on October 27, 1986 stating
that the parties were engaged in active settlement negotiations
and had tentatively settled the matter, so a complete rental
history would not be submitted. On November 20, 1986 the
Administrator defaulted the owner and found an overcharge of over
$26,000.00. During the course of the appeal the parties, both
represented by counsel, signed a stipulation which was then "so
ordered" by a judge, which stipulation provided that the tenant
was withdrawing his overcharge complaint with prejudice. The
Commissioner found that the tenant should be deemed to have
withdrawn his complaint pursuant to Section 2520.13 of the current
Rent Stabilization Code, and revoked the Administrator's order.
In the present case no agreement has ever been reached, so the
ADM. REVIEW DOCKET NO.: BK 410153-RO
owner's attorney's optimistic assessment on September 14, 1987 of
the prospects for a settlement has little significance except as a
document that could have warranted revoking the Administrator's
order and dismissing the tenant's complaint if a settlement had
ultimately been reached before this appeal was decided. While the
owner in the present case asserts that the issuance of the
Administrator's order prevented a settlement, the Commissioner
notes parenthetically that the issuance of an order in L 410654-
RO did not prove an insuperable barrier to the settlement. Also,
the tenant in the present case, who had rejected a settlement
offer in 1984, has stated that he never had an "oral understanding
of settlement", but was rather awaiting the issuance of an order
before agreeing to anything. This substantially weakens the force
of the owner's "but for" argument.
The owner cites ARL 04177-L in support of its contention that
it could have avoided treble damages on unrefunded overcharges, by
refunding a portion of them to the tenant as part of a settlement,
if only the Administrator had permitted such a refund to occur by
waiting until after October 14, 1987 (30 days after the September
14, 1987 request for an extension) to issue an order rather than
doing so on October 7, 1987. The owner has also asserted that it
could not, although admitting liability for overcharges,
unilaterally make a refund to avoid treble damages as the tenant
had vacated. Although this argument fails because of Operational
Bulletin 89-2 (absent a complete refund within 20 days or a
complete withdrawal of the tenant's complaint because of a
settlement agreement), ARL 04177-L would not have supported the
owner's argument in any event. In that case the Rent
Stabilization Association had determined that a tenant's vacancy
rent should have been $780.00 rather than $835.00. The owner in
that case immediately (prior to April 1, 1984) reduced the rent to
$780.00 and made a refund of past overcharges. The Administrator
subsequently established a lawful rent of $750.00 using the
default formula, and imposed treble damages. The Commissioner
reversed the imposition of treble damages on the grounds that the
prompt correction of overcharges as determined by the Rent
Stabilization Association showed that the remaining overcharge
(i.e., the rent in excess of the $750.00 later established by the
DHCR) was not willful. In the present case the owner was informed
on August 8, 1984 that leases from the base date were required to
prove the lawfulness of the rents charged. Although the owner
knew that it did not have records to justify the rents charged, it
did not reduce the rent or make any refund, even after being twice
notified in July, 1987 of the default procedure that would be
used to set the rents and the possible imposition of treble
damages. The owner's assertion that it could not avoid treble
damages by a unilateral refund because the tenant was no longer in
occupancy is also not persuasive. The owner was sent the
complaint of overcharge on August 8, 1984, nearly three years
before the tenant vacated on July 15, 1987, and was notified of
the possibility of treble damages. The tenant was still in
occupancy when the owner was sent the July 1, 1987 Final Notice
which the owner could have used to calculate a rent upon which to
base refunds, and even the last Final Notice of July 30, 1987 was
sent more than two months prior to the Administrator's order. The
owner had ample opportunity to make a refund during the 35 months
ADM. REVIEW DOCKET NO.: BK 410153-RO
that the tenant was in occupancy after the owner was notified of
his complaint. While the owner has cited orders (issued prior to
Operational Bulletin 89-2) in which owners avoided treble damages,
either by refunding the entire overcharge which the Rent
Stabilization Association found (and which constituted most of the
overcharge found by the Administrator) prior to the
Administrator's order, or by obtaining a "so ordered" settlement
prior to the time of the appeal being decided, the Commissioner
notes that even prior to Operational Bulletin 89-2 an owner that
had overcharged a tenant delayed a refund at its own peril.
The Administrator's order incorrectly included excess
security in the calculation of overcharge, even though the owner
no longer had excess security after the tenant vacated. The
Commissioner's order is modified to the extent of removing it
from the overcharge.
This order may, upon the expiration of the period in which
the owner may institute a proceeding pursuant to Artic e seventy-
eight of the civil practice law and rules, be filed and enforced
by the tenant in the same manner as a judgment.
THEREFORE, in accordance with the Rent Stabilization Law and
Code, it is
ORDERED, that this petition be, and the same hereby is,
denied and the District Rent Administrator's order be, and the
same hereby is, modified as set forth above. The overcharge as of
July 15, 1987 (not including any excess security) is $40,533.45.
The lawful stabilization rent is $289.70 as of July 15, 1987. A
copy of this order is being sent to the tenants currently in
occupancy at the subject apartment.
ISSUED:
JOSEPH A. D'AGOSTA
Deputy Commissioner
ADM. REVIEW DOCKET NO.: BK 410153-RO
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