CG 410144 RO, CG 410205 RT
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 NOS.: CG 410144-RO
CG 410205-RT
MURRAY SCHACTMAN
(ARTICLE 7-A ADMINISTRATOR), AND DRO DOCKET NO.: L-3113011-R
KAREN HATT (Tenant), CDR 33650
BUILDING OWNER:
Maurice Abelson, President
of H-O Realty Corporation
PETITIONERS
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ORDER AND OPINION DENYING PETITIONS FOR ADMINISTRATIVE REVIEW
AND MODIFYING RENT ADMINISTRATOR'S ORDER
On July 29, 1988 the above-named petitioner-Article 7-A
Administrator filed a Petition for Administrative Review (Docket
No. CG 410144-RO) against an order issued on July 5, 1988 by the
District Rent Administrator, 10 Columbus Circle, New York, New
York concerning housing accommodations known as Apartment 3 at 66
West 10th Street, New York, New York wherein the Rent
Administrator determined that the Article 7-A Administrator had
overcharged the tenant. On July 19, 1988 the above-named
petitioner-tenant filed a Petition for Administrative Review
(Docket No. CG 410205-RT) against the order.
The Commissioner notes that this proceeding was filed 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
provision 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 Rent Administrator'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 appeal.
This proceeding was originally commenced by the filing in
February, 1984 of a rent overcharge complaint by the tenant, in
which she stated that she had commenced occupancy on September 1,
1983 at a rent of $331.72 per month. She named H.O. Realty Corp.
as the owner and Murray Schactman as the Article 7-A
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Administrator. Upon being sent a copy of the complaint Mr.
Abelson submitted leases only from January 1, 1980, and invoices
from 1983 and 1984 for repairs and new equipment, while stating
that the subject apartment had became subject to rent
stabilization in 1977. Upon being sent a Final Notice of Pending
Default, which stated the default procedures that would be
utilized if a complete rental history from the base date was not
submitted, Mr. Abelson again submitted leases only from January 1,
1980, and contended that rent records were required only from
April 1, 1980.
In an order issued on July 5, 1988 the District Rent Administrator
used the DHCR's default procedure to establish the tenant's lawful
initial rent, and determined an overcharge of $1,154.05 as of
August 31, 1986. The order named Maurice Abelson, President of
H-O Realty Corporation, as owner, and Murray Schactman as 7-A
Administrator.
In his petition, the 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
Administrator.
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
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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.
In her petition, the tenant asserts in substance that her rent
should be based upon the rent of an adjacent and similar
apartment, No. 4, whose rent was set by the DHCR using the default
procedure, which rent was upheld on administrative appeal. With
her petition the tenant has enclosed 1983 architect's plans for
changes in the building, which plans the tenant contends show her
apartment to be the same size as Apartment 4. The tenant has also
enclosed copies of the DHCR orders relating to Apartment 4. The
$238.10 rent of Apartment 8 was used in the Administrator's order
to set the default rent of Apartment 4. While it appears from the
architect's plans that Apartment 8 is directly above Apartment 4,
the placement of walls has resulted in Apartment 8 have one less
room than the apartment directly below it. The registrations list
Apartment 4 as having 3 rooms, and Apartment 8 as having 2 rooms.
The Commissioner is of the opinion that these petitions should be
denied.
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
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addition, such Administrator by law must remit to the owner H.O.
Realty 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
Administrator 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, H.O. Realty 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 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
rehabilitation of this building at an illegal rent.
While the petitioner has cited a number of court cases in support
of his contentions, the Commissioner finds most significant the
case of Schactman v. State Division of Housing and Community
Renewal, 531 N.Y.S. 2d 804 (App. Div. 1st Dept., 1988), motion for
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leave to appeal to the Court of Appeals denied, 540 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. 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
Administrator 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 Article 7-A Administrator signed the tenant's
lease and collected all of the rents from her, so he is solely
responsible for the overcharges.
The DHCR default procedure establishes a complainant's initial
stabilized rent as the lowest amount of:
1) The lowest stabilized rent for the same size
apartment as the subject apartment (as indicated on the
Division's apartment registration), without guidelines
adjustment for the complainant's vacancy lease; or
2) The complaining tenant's initial rent, minus the
initial guidelines adjustment and vacancy allowance
lawfully chargeable when the tenant took occupancy; or
3) The last rent paid by the prior tenant.
Because the 1984 registrations listed rents for 3-room apartments
ranging from $343.32 (for the subject apartment) to $520.00 (for
Apartment 4), the Rent Administrator found the $289.80 rent paid
by the prior tenant to be the lowest amount yielded by the default
procedure, and used it for the complainant's initial lawful rent.
However, on October 18, 1985 an order had been issued in Docket
No. 59081-G, establishing a lawful rent of $238.10 for
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Apartment 4 from September 1, 1980 to May 31, 1986. The Article
7-A Administrator's appeal of that order (Docket No. ARL 6378-L)
was denied on February 20, 1987. However, it is now apparent that
the order for Apartment 4 was incorrect, because it was based on
comparing that apartment to an apartment with fewer rooms. While
the lawful April 1, 1984 rent of Apartment 4, as set by the DHCR
using a default procedure, and then finalized (by the denial of an
administrative appeal) prior to the time that the Rent
Administrator issued the order under appeal herein, should
normally have been used in setting the lawful rent of the subject
apartment, since $238.10 would be the lowest amount yielded by the
default procedure, the Rent Administrator failed to so use it.
However, while the lawful stabilization rent for Apartment 4,
although incorrectly set, is final and binding for that apartment
since the Commissioner's order upholding it was not challenged in
court, the Commissioner declines to compound the error by using
the incorrectly-set rent to set the lawful rent of the subject
apartment. Absent such use, the Rent Administrator's use of the
default formula yielded a correct rent, and the Rent
Administrator's order is accordingly being affirmed, except for
the removal of excess security from the overcharge award, since
the tenant has vacated.
This order may, upon the expiration of the period in which the
Article 7-A Administrator, Murray Schactman, may institute a
proceeding pursuant to Article Seventy-Eight of the Civil Practice
Law and Rules, be filed and enforced by the tenant against the
Article 7-A Administrator in the same manner as a judgment.
THEREFORE, in accordance with the Rent Stabilization Law and Code,
it is
ORDERED, that these petitions be, and the same hereby are, denied
and that the District Rent Administrator's order be, and the same
hereby is, modified in accordance with this Order and Opinion.
The lawful stabilization rent is $314.34 per month in the lease
from September 1, 1983 to August 31, 1986. The total overcharge
is $1,125.07 as of August 31, 1986.
ISSUED:
JOSEPH A. D'AGOSTA
Deputy Commissioner
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