STATE OF NEW YORK
                            OFFICE OF RENT ADMINISTRATION
                                     GERTZ PLAZA
                               92-31 UNION HALL STREET
                               JAMAICA, NEW YORK 11433

          APPEAL OF                              DOCKET NO.: BK 410153-RO 
                                              :  DRO DOCKET NOS.: 
               TRAFALGAR PROPERTIES, INC.,       CDR 31515

                                PETITIONER    : 


               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

               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

                    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

               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.  


                                          JOSEPH A. D'AGOSTA
                                          Deputy Commissioner


          ADM. REVIEW DOCKET NO.: BK 410153-RO


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