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

      APPEAL OF                              DOCKET NO. CI410006RO

           Century Operating Corp.(for    :  DISTRICT RENT OFFICE
           Clermont York Associates),        DOCKET NO. L3117003R
                                             TENANT: Allan Hollenberg & Gaye  
                           PETITIONER    :           Smiley 

                                     IN PART

      On September 2, 1988 the above-named petitioner-owner filed a Petition 
      for Administrative Review against an order issued on August 2, 1988 by 
      the Rent Administrator, 10 Columbus Circle, New York, New York 
      concerning the housing accommodations known as Apartment 24C at 444 East 
      82nd Street, New York, New York wherein the Rent Administrator 
      determined that the owner had overcharged the tenants.

      The Commissioner notes that this proceeding was filed prior to April 1, 
      1984.  Sections 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 Rent Administrator's order was 

      The applicable sections of the Law are Section 26-516 of the Rent 
      Stabilization Law 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 March, 1984 of 
      a rent overcharge complaint by the tenants, in which they stated that 
      they had commenced occupancy on December 1, 1983 at a rent of $1,065.00 
      per month.

      In answer to the complaint, the owner submitted leases only from April 
      1, 1976, claiming that had bought the building at judicial sale on 


      February 1, 1977 and that it received no earlier leases.  In the course 
      of processing complaints for other apartments in the subject premises, 
      the owner established that it purchased the building at a judicial sale.

      In an order issued on September 2, 1988 the Administrator, using DHCR 
      default procedures, determined an overcharge of $24,539.18 through 
      October 30, 1987, including interest.  While the Administrator used a 
      standard DHCR form to establish the default rent, such form having as 
      the first prong of the default formula "[t]he 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,"  the Administrator used the average 
      rent of $614.19 for 3-room stabilized apartments in the building, rather 
      than the low rent of $357.44.  The Administrator also failed to freeze 
      the rent as called for by the formula.  If the Administrator had 
      followed the formula by using the lowest rent and disallowing any 
      Guidelines and vacancy increases, the overcharge would have been 
      approximately $40,000.

      On April 11, 1989 the Commissioner granted a stay of that portion of the 
      Administrator's order that directed a rent reduction.

      In this petition, the owner contends in substance that it is not 
      required to produce leases from the base date since the property was 
      purchased through a foreclosure sale and such leases are not available; 
      that the default formula should not have been utilized since it resulted 
      in an unreasonably punitive and excessive penalty; that the 
      Administrator failed to consider all the equities; and that the 
      Administrator wrongly failed to credit the owner with 1/40th of the cost 
      of new appliances installed in 1981.

      In a supplement, the owner contends in substance that the Appellate 
      Division decision in J.R.D. Management means that only the rental 
      history from August, 1984, four years prior to the Administrator's 
      order, may be considered.

      The Commissioner is of the opinion that this petition should be granted 
      in part.

      Section 42A of the former Rent Stabilization Code requires that an owner 
      retain complete records for each stabilized apartment in effect from 
      June 30, 1974 (or the date the apartment became subject to rent 
      stabilization, if later) and produce such records to the DHCR upon 

      Section 26-516 of the Rent Stabilization Law, effective April 1, 1984, 
      limited an owner's obligation to provide rent records by providing that 
      an owner may not be required to maintain or to produce rent records for 
      more than four (4) years prior to the most recent registration and, 
      concomitantly, established a four year limitation on the calculation of 
      rent overcharges.

      It has been the DHCR's policy that overcharge complaints filed prior to 


      April 1, 1984 are to be processed pursuant to the Law or Code in effect 
      on March 31, 1984. [See Section 2526.1(a)(4) of the current Rent 
      Stabilization Code.]  The DHCR has therefore applied Section 42A of the 
      former Code to overcharge complaints filed prior to April 1, 1984, 
      requiring complete rent records in these cases.  In following this 
      policy, the DHCR has sought to be consistent with the legislative intent 
      of the Omnibus Housing Act (Chapter 403, Laws of 1983), as implemented 
      by the New York City Conciliation and Appeals Board (CAB), the 
      predecessor agency to the DHCR, to determine rent overcharge complaints 
      filed with the CAB prior to April 1, 1984 by applying the law in effect 
      at the time such complaints were filed so as not to deprive such tenants 
      of their right to have the lawful stabilized rent determined from the 
      June 30, 1974 base date and so as not to deprive tenants whose 
      overcharge claims accrued more than four years prior to April 1, 1984 of 
      the right to recover such overcharges.  In such cases, if the owner 
      failed to produce the required rent records, the lawful stabilized rent 
      would be determined pursuant to the default procedure approved by the 
      Court of Appeals in 61 Jane Street Associates v. CAB, 65 N.Y.2d 898, 493 
      N.Y.S. 2d 455 (1985).

      However, it has recently been held in the case of J.R.D. Mgmt. v. 
      Eimicke, 148 A.D. 2d 610, 539 N.Y.S. 2d 667 (App. Div. 2d Dept., 1989), 
      motion for leave to reargue or for leave to appeal to the Court of 
      Appeals denied (App. Div. 2d Dept., N.Y.L.J., June 28, 1989, p.25, 
      col.1), motion for leave to appeal to the Court of Appeals denied (Court 
      of Appeals, N.Y.L.J., November 24, 1989, p.24, col.4), motion for leave 
      to reargue denied (Court of Appeals, N.Y.L.J., February 15, 1990, p.25, 
      col.1) that the Law in effect at the time of the determination of the 
      administrative complaint rather than the Law in effect at the time of 
      the filing of the complaint must be applied and that the DHCR could not 
      require an owner to produce more than four years of rent records.

      Since the issuance of the decision in JRD, the Appellate Division, First 
      Department, in the case of Lavanant v. DHCR, 148 A.D. 2d 185, 544 N.Y.S. 
      2d 331 (App. Div. 1st Dept. 1989), has issued a decision in direct 
      conflict with the holding in JRD.  The Lavanant court expressly rejected 
      the JRD ruling, finding that the DHCR may properly require an owner to 
      submit complete rent records, rather than records for just four years, 
      and that such requirement is both rational and supported by the Law and 
      legislative history of the Omnibus Housing Act.

      Since in the instant case the subject dwelling unit is located in the 
      First Department, rent records are required from June 30, 1974.  Since 
      the owner has defaulted in its obligation to prove the lawfulness of 
      rents since the base date, it is necessary for the DHCR to establish the 
      lawful rent.

      Generally, where there are incomplete rent records in an overcharge 
      proceeding, DHCR currently establishes the legal regulated rent at the 
      lowest of : a) the lowest rent in the building for an apartment with the 
      same number of registered rooms; b) the complaining tenant's initial 
      rent, minus the guidelines; or c) the prior tenant's rent, if known.  
      This rent is then frozen until the end of the lease in effect at the 


      time of issuance of the Rent Administrator's Order.

      However, the DHCR has recently adopted a new policy modifying the 
      default procedure with respect to the processing of overcharge cases 
      involving judicial sale purchasers.  Where rent records are not 
      available upon judicial sale, DHCR will establish the legal regulated 
      rent as the average of: a) the lowest rent in the building for an 
      apartment with the same number of registered rooms; b) the complaining 
      tenant's initial rent, minus the guidelines (1 or 2 year allowance and 
      the vacancy allowance); and c) the prior tenant's rent, if known.  The 
      legal regulated rent so established is to be frozen for three years, or 
      two lease terms, whichever is greater, starting with the commencement 
      date of the complaining tenant's initial lease.  In no event, however, 
      shall the rent be frozen for a total of more than four years.

      In the present case the lowest rent for a stabilized 3-room apartment in 
      the building on April 1, 1984 was the $357.44 rent in effect for 
      apartment 7K pursuant to a lease expiring September 30, 1984, which 
      would have been in effect on December 1, 1983, when the complainants 
      commenced occupancy.  The complainants' vacancy rent minus a 7% 
      Guidelines increase and 5% vacancy allowance is $950.89, as correctly 
      calculated by the Administrator.  The last rent paid by the prior tenant 
      was $988.78 per month in a lease commencing March 1, 1983 (not the 
      $898.89 listed by the Administrator, that being the rent in the prior 
      tenant's penultimate lease).  The default rent is therefore $765.70, 
      obtained by averaging $357.44, $950.89 and $988.78.  No increase is 
      allowed for the two lease terms, totalling four years, at issue in the 
      Administrator's order.  No increase is allowed for new appliances 
      installed in early 1981, nearly three years prior to the time the 
      complainants took occupancy, since the tenants were not getting new 
      equipment.  In addition, the installation of new appliances in 1981 
      apparently did actually have an impact on the complainants' lawful rent, 
      since the prior tenant's vacancy rent (being $35.00 more than just a 
      vacancy allowance and Guidelines increase over the previous rent would 
      account for) included it as of March 1, 1981, and since subsequent rents 
      based on that rent affected two of the three rents averaged in the 
      default formula.

      Taking these above factors into account, the Commissioner has 
      recalculated the lawful stabilization rents and the amount of rent 
      overcharge.  They are set forth on the amended rent calculation chart 
      attached hereto and made a part hereof.

      The owner is directed to reflect the findings and determinations made in 
      this order on all future registration statements, including those for 
      the current year if not already filed, citing this Order as the basis 
      for the change.  Registration statements already on file, however, 
      should not be amended to reflect the findings and determinations made in 
      this order.  The owner is further directed to adjust subsequent rents to 
      an amount no greater than that determined by this order plus any lawful 

      Because the complainants have vacated, a copy of this order is also 


      being sent to the current tenant.

      The Commissioner has determined in this Order and Opinion that the owner 
      collected overcharges of $19,400.65.  This Order may, upon expiration of 
      the period for seeking review of this Order and Opinion pursuant to 
      Article Seventy-eight of the Civil Practice Law and Rules, be filed and 
      enforced as a judgment.  Where the tenants file this Order as a 
      judgment, the County Clerk may add to the overcharge interest at the 
      rate payable on a judgment pursuant to Section 5004 of the Civil 
      Practice Law and Rules from the issuance date of the Rent 
      Administrator's Order to the issuance date of the Commissioner's Order.

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

      ORDERED, that this petition be, and the same hereby is, granted in part 
      and that the Rent Administrator's be, and the same hereby is, modified 
      in accordance with this order and opinion.  The lawful stabilization 
      rents and the amount of the rent overcharge are established on the 
      attached chart, which is fully made a part of this order.  The total 
      overcharge is $19,400.65 as of November 30, 1987.


                                      JOSEPH A. D'AGOSTA
                                      Deputy Commissioner


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