CA 410062-RT, CB 410059-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

          -----------------------------------X
          IN THE MATTER OF  THE  ADMINISTRATIVE      ADMINISTRATIVE  REVIEW
          APPEAL OF                          :    DOCKET NOS.: CA 410062-RT
                                                               CB 410059-RO
            MURRAY SCHACTMAN (ARTICLE 7-A    :
            ADMINISTRATOR),    AND           :    DRO DOCKET NO.: TC-076864-G
            KENNETH WEINSTEIN (TENANT),      :                    CDR 32281
            
                                             :    OWNER:  Maurice Abelson
                              PETITIONERS    :
          -----------------------------------X                                  

           ORDER AND OPINION DENYING ARTICLE 7-A ADMINISTRATOR'S PETITION
              FOR ADMINISTRATIVE REVIEW, AND GRANTING TENANT'S PETITION
                          FOR ADMINISTRATIVE REVIEW IN PART


          On January 25, 1988 the  above-named  petitioner-tenant  filed  a
          Petition for Administrative  Review  (Docket  No.  CA  410062-RT)
          against an order issued on January 13, 1988 by the District  Rent
          Administrator, 10 Columbus Circle, New York, New York  concerning
          housing accommodations known as Apartment  25  at  68  West  10th
          Street, New York, New York wherein the District  Rent  Administra
          tor determined that the Article 7-A Administrator had overcharged 
          the tenant.  On February 1 ,  1988  the  above-named  petitioner-
          Article 7-A Administrator filed  a  Petition  for  Administrative
          Review (Docket No. CB 410059-RO) against the  order.   Since  the
          two petitions involve common grounds of law  or  fact,  they  are
          herein decided in one order and opinion.

          The Commissioner notes that this proceeding was  initiated  prior
          to April 1, 1984.  Sections 2526.1(a) 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
          provisions in  effect  on  March  31,  1984.   Therefore,  unless
          otherwise indicated, reference to sections of the Rent  Stabiliza
          tion Code (Code) contained herein are to the Code  in  effect  on
          April 30, 1987.

          The issue in this appeal is whether the District Rent  Administra
          tor's order was warranted.

          The applicable sections of the Law are Section 26-516 of the Rent 
          Stabilization Law and Sections 2520.6(i)  and  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 appeals.

          This  proceeding  was  originally  commenced  by  the  filing  in
          September, 1983 of a rent overcharge complaint by the tenant,  in






          CA 410062-RT, CB 410059-RO

          which he stated that he had commenced occupancy on  September  1,
          1983 at a rent of $261.54 per month.   The  complaint  named  the
          Article  7-A  Administrator  as  the  owner.   The  tenant   also
          mentioned C.A.B. Opinion No. 24518, which expelled  the  building
          from the Rent Stabilization Association and made  it  subject  to
          rent-control.

          The owner, Maurice  Abelson,  was  served  with  a  copy  of  the
          complaint and was requested to submit rent records to  prove  the
          lawfulness of the rent being  charged.   In  answer  to  the  com
          plaint, the Article 7-A Administrator submitted leases only  from
          April 1, 1982,  enclosed  evidence  of  the  purchase  of  a  new
          refrigerator for the  subject  apartment  in  August,  1983,  and
          stated that C.A.B. Opinion No. 24518  was  being  appealed.   The
          owner submitted an answer stating that the 7-A Administrator  had
          all the records.

          On August 5, 1986 the owner was sent a Final  Notice  of  Pending
          Default, which stated the default procedures that would  be  used
          to establish the lawful stabilization rent if  a  rental  history
          from the base date was not submitted.

          In an order issued on January 13,  1988  the  Administrator  used
          the  default  procedures  to  set  the  tenant's  initial  lawful
          stabilization rent at $250.70, and found an overcharge of $436.43 
          as of August 31, 1986.

          In this petition, the  petitioner  -  Article  7-A  Administrator
          contends in substance that:

               1)  He was appointed as 7-A Administrator for the 
               subject building by a Housing Judge of the Civil Court 
               on May 2, 1983.

               2)  The Division has no jurisdiction to order the 7-A 
               Administrator to refund monies from his "administrative 
               fund" to the tenant, as he is not an "owner" under the 
               Rent Stabilization Code and as the Order and Judgment 
               of the Civil Court which resulted in the appointment of 
               such Administrator states, in pertinent part, that such 
               rental monies "shall be used, subject to the Court's 
               direction, ... to remedy... violations of record placed 
               by any Office of the Department of Housing Preservation 
               and Development (HPD) ... and any other conditions as 
               required or authorized by law".  As a result, the only 
               proper authority to order rental overcharge payments to 
               the tenant is the judge who appointed the Administrato 
               or.






          CA 410062-RT, CB 410059-RO


               3)  The purpose of the appointment of a 7-A Administra 
               tor is to assure that when the Court has found that 
               dangerous and hazardous conditions exist in a building 
               that all the income from the premises is used to abate 
               those serious conditions before funds are diverted for 
               other purposes, such as refunding monies pursuant to a 
               rent overcharge.  The Division Order thus impermissibly 
               frustrates the 7-A Administrator's ability to preserve 
               the rental income of the subject building to make 
               court-ordered crucial repairs.

               4)  To compel the 7-A Administrator to pay thousands of 
               dollars as a consequence of complaints of rental 
               overcharges results in depleting and wasting the funds 
               allocated for maintenance and repair of the building - 
               a function which the Administrator is duty bound to 
               perform (see Real Property Action and Proceedings Law 
               Section 778).  The Division's Order cripples the 
               activities of the 7-A Administrator by depriving him 
               of additional rent payments and, based thereon, 
               promotes the further deterioration of the subject 
               building.

               5)  The owner of the subject building, not the 7-A 
               Administrator, is responsible for all rent overcharges 
               in the subject building.  The proper procedure in the 
               instant matter would be to defer payment of the rent 
               overcharge amount until the period of administration 
               ends and the owner has possession of the building.  Or, 
               in the alternative, the affected tenant or the Division 
               could make an application to the Civil Court for a 
               determination by the judge who appointed the 7-A 
               Administrator to ascertain whether the Administrator's 
               funds are presently adequate to make such payment, 
               without conflicting with the very purpose of RPAPL 
               Section 778, the preservation and rehabilitation of the 
               building.

          The tenant did not submit an answer to  the  7-A  Administrator's
          petition, although given an opportunity to do so.

          In his petition,  the  tenant  contends  in  substance  that  the
          Administrator did not consider C.A.B. Opinion  No.  24518,  which
          set the prior tenant's rent at $200.00 per month.

          Neither the owner nor the 7-A Administrator submitted  an  answer
          to the tenant's petition, although given an opportunity to do so.

          The Commissioner is of  the  opinion  that  the  Article  7-A  Ad
          ministrator's petition should be denied, and  that  the  tenant's
          petition should be granted in part.






          CA 410062-RT, CB 410059-RO

          Section 2520.6(i) of  the  Rent  Stabilization  Code  defines  an
          owner, in pertinent part, as a "person  or  entity  receiving  or
          entitled to receive rent for the use or occupation of any housing 
          accommodation, or an agent" of the owner.  In the instant matter, 
          it is uncontroverted that  the  7-A  Administrator  receives  the
          monthly rents from the  tenants  of  the  subject  building.   In
          addition, such Administrator by law must remit to the owner  H.O.
          Realty  (of  which  Maurice  Abelson  is  President)  any  monies
          received from the tenants that exceed the cost  of  building-wide
          rehabilitative and repair  work,  real  property  tax  liens  and
          payment for the Administrator's services [see  RPAPL  Sect.  778,
          subd. 1(e)].   The  Commissioner  also  notes  that  the  7-A  Ad
          ministrator has an interest in the rents that he receives in  the
          form of the fee he collects which is based on  the  monthly  rent
          roll.  Therefore the Commissioner finds  that  the  petitioner-7A
          Administrator is considered the owner of the subject building  as
          that term is defined in Section 2520.6(i)  of  the  Code.   Based
          thereon, the Commissioner further finds  without  merit  the  7-A
          Administrator's contention that the Agency  is  without  jurisdic
          tion in this matter.  

          The Commissioner finds without merit the  petitioner's  assertion
          that all income  from  the  subject  building  must  be  used  to
          rehabilitate the existing structure  before  such  funds  may  be
          "diverted" to, for example, rent overcharge  refunds  to  tenants
          who have been remitting a rent in excess of stabilized guide-
          lines.  The Commissioner  notes  that  this  position  in  effect
          discriminates against tenants by forcing them  to  subsidize  the
          cost of their own housing (see Dept. of Housing Preserv. Dev.  v. 
          Sartor, 487 N.Y.S.2nd 1 [A.D.  1st  Dept.  1985])  by  compelling
          tenants to pay for housing at a rent that is unlawful.

          Concerning the petitioner's contention that  deprivation  of  the
          additional rental payments cripples the  activities  of  the  7-A
          Administrator the Commissioner finds that a tenant,  pursuant  to
          the Rent Stabilization Code and the Emergency  Tenant  Protection
          Act, is not required to remit rent in excess of lawful stabilized 
          amounts even if the 7-A  Administrator  funds  would  thereby  be
          reduced.  To determine otherwise would destroy  the  very  founda
          tion of the stabilization system which  was  created  "to  insure
          that the level of rent adjustments authorized  under  (the  EPTA)
          will  not  be  subverted  and  made  ineffective"  [see   Century
          Operating Corp. v. Marrero, 425 N.Y.S. 2d 464, 465; Section 10 of 
          Chapter 576 of the Laws of 1974 (ETPA)].

          Finally, the Commissioner  rejects  the  petitioner's  suggestion
          that the payment of rent overcharge amounts to the tenant  should
          be deferred until the owner reassumes control  over  the  subject
          building or in the alternative, that  the  Division  should  make
          application to the Civil Court for permission to attach  the  7-A
          Administrator's funds.  As hereinabove stated, a tenant is not 






          CA 410062-RT, CB 410059-RO

          required to remit an unlawful rent.  Moreover, as  the  condition
          of the subject building is in no way the  fault  of  the  tenant,
          such tenant should not be required to  subsidize  the  rehabilita
          tion of this building at an illegal rent.

          While the petitioner has cited a number of court cases in support 
          of his contentions, he has  neglected  to  mention  Schactman  v.
          State Division of Housing and Community Renewal,  531  N.Y.S.  2d
          804 (App. Div. 1st Dept., 1988), motion for leave  to  appeal  to
          the Court of Appeals denied,  540  N.Y.S.  2d  238.   That  case,
          significantly, involved the petitioner  and  concerned  the  same
          issue of rent overcharge at  another  apartment  in  the  subject
          building.  [While  that  case  actually  involved  66  West  10th
          Street, the 7-A Administrator has  stated  in  other  proceedings
          that 66 and 68 West 10th Street function as one  building.]   The
          Commissioner's order in the proceeding (Docket No.  ARL  01824-K)
          had found that the 7-A Administrator was  an  "owner"  under  the
          Rent Stabilization Code; that the  tenant  was  not  required  to
          remit a rent in excess of the lawful rent; and  that  the  tenant
          should not have to wait and collect  the  refund  of  overcharges
          from the actual owner, although the refund she could collect from 
          the 7-A Administrator was limited  to  the  overcharges  actually
          collected by him.  The trial court upheld the order except to the 
          extent that it remanded the matter  for  a  determination  as  to
          whether the building owner was financially  able  to  refund  the
          overcharges and as to whether the amount of overcharge should  be
          offset against future rents in the event that the building  owner
          was not financially sound.  The Appellate Division  reversed  the
          trial court and upheld  the  Commissioner's  order  as  having  a
          rational basis.

          The Commissioner notes that the Appellate Division proceeding  in
          Schactman involved an apartment in  the  subject  building  whose
          tenants had been in occupancy  prior  to  the  time  the  7-A  Ad
          ministrator took over  management  responsibilities.   A  default
          rent was set by the Rent Administrator, and the 7-A Administrator 
          was held liable for those overcharges which he had collected.  In 
          the present case the complainant's initial rent was set by the 
          7-A Administrator, and the  complainant  paid  all  of  his  rent
          monies to the 7-A Administrator,  so  the  7-A  Administrator  is
          responsible for all overcharges.

          On January 27, 1983 the DHCR predecessor New York  City  Concilia
          tion  and  Appeals  Board  (C.A.B.)  issued  Opinion  No.   24518
          (Expulsion Order No. 689, Docket Nos. 50973-H, 50974-H and 
          50975-H), which expelled the building  at  68  West  10th  Street
          from the Rent Stabilization Association.   The  opinion  referred
          the matter to the city rent agency (N.Y.C. Department of  Housing
          Preservation  and  Development)  for  appropriate  action.    The
          opinion stated that all of the apartments  would  be  subject  to
          rent-control, and that upon vacancies occurring the owner could 






          CA 410062-RT, CB 410059-RO

          apply to  have  individual  apartments  become  subject  to  rent
          stabilization, with the initial lawful stabilization rent  to  be
          not in excess of the Maximum Rent (Maximum Base Rent  or  Maximum
          Collectible Rent, whichever is greater) as  increased  by  lawful
          guidelines increases for the new tenancy.  Pending the  establish
          ment  of  a  rent-controlled  rent,  the  opinion  established  a
          stabilization rent of $200.00 for the tenant then in occupancy of 
          the subject apartment.  On March  26,  1984  orders  were  issued
          setting the controlled rents  of  various  apartments,  effective
          February 1, 1983.  By the time that  the  controlled  rents  were
          set, the tenant  named  in  the  opinion  had  vacated,  and  the
          complainant had commenced occupancy, so no  controlled  rent  was
          set for the subject apartment.  DHCR records  indicate  that  the
          subject apartment was  registered  with  the  Rent  Stabilization
          Association as a result of  the  change  in  tenancies,  and  was
          therefore subject to rent stabilization.  While the District Rent 
          Administrator established a default rent by removing a  guideline
          increase from the complainant's initial  rent,  the  Commissioner
          considers it appropriate to set the rent of the subject apartment 
          as if an order setting a rent controlled rent effective  February
          1, 1983,  prior  to  the  time  that  the  complainant  commenced
          occupancy on September 1, 1983, had been issued prior to the time 
          he moved in.  Treating the complainant as the initial  stabilized
          tenant, there is no default in furnishing a rental  history  from
          the base date,  and  there  is  no  reason  to  use  the  default
          procedure to establish a lawful stabilized rent.

          DHCR records contain the newly-set rent controlled rents  of  ten
          other 2-room apartments in the subject  building.   Those  rents,
          and the 1982-83 Maximum Base Rents, are as follows:


                                   Controlled rent          1982-83
            Apt. No.               effective 2/1/83           MBR
                22                        $209.67           $203.80  
                26                        $205.30           $199.36  
                28                        $205.30           $199.36  
                29                        $200.93           $194.93  
                30                        $200.93           $194.93  
                32                        $200.93           $194.93  
                33                        $196.56           $190.49  
                34                        $196.56           $190.49  
                37                        $192.19           $186.06       
                38                        $192.19           $186.06   


          Because Apartment 25 is on the same floor as  Apartment  26,  and
          because the Maximum  Rent  for  Apartment  26  was  $205.30,  the
          Commissioner is setting the Maximum Rent of the subject apartment 
          at $205.30 and, using the procedure specified  in  the  expulsion
          order, calculating the lawful stabilization rent of the first 






          CA 410062-RT, CB 410059-RO

          stabilized tenant after February 1, 1983 (the complainant)  as  a
          10% increase to $225.83 for a 3-year vacancy lease,  plus  $12.94
          for new equipment for  a  lawful  rent  of  $238.77.   Since  the
          complainant paid a rent of $261.54, the overcharge was $22.77 per 
          month for 36 months, which  equals  $819.72  through  August  31,
          1986.  Interest on the $660.33 of overcharges  occurring  on  and
          after April 1, 1984 is $74.28 as of August 31, 1986.   The  total
          overcharge for the tenant's initial  3-year  lease  is  therefore
          $894.00 as of August 31, 1986, not including any excess security.

          The Article 7-A Administrator is cautioned to adjust the rent, in 
          leases after those  considered  in  this  order,  to  amounts  no
          greater than that  determined  by  this  order  plus  any  lawful
          increases, and to register any adjusted rents,  with  this  order
          being given as the reason for the adjustment.

          THEREFORE, in accordance with  the  Rent  Stabilization  Law  and
          Code, it is

          ORDERED, that the Article 7-A Administrator's  petition  be,  and
          the same hereby is, denied; that the tenant's  petition  be,  and
          the same hereby is , granted;  and  that  the  District  Rent  Ad
          ministrator's order be, and  the  same  hereby  is,  modified  in
          accordance with this Order and Opinion.  The lawful stabilization 
          rent is $238.77 per month in the lease from September 1, 1983  to
          August 31, 1986.  The total overcharge in that  lease,  including
          interest through August 31, 1986, and excess security of  $22.77,
          is $916.77.

          ISSUED:





                                                                          
                                         JOSEPH A. D'AGOSTA
                                         Deputy Commissioner

    

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