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

          -----------------------------------X 
          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     
          -----------------------------------X                           
            
            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






          CG 410144 RO, CG 410205 RT

          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 






          CG 410144 RO, CG 410205 RT

               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 






          CG 410144 RO, CG 410205 RT

          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 







          CG 410144 RO, CG 410205 RT

          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 






          CG 410144 RO, CG 410205 RT

          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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