ADM. REVIEW DOCKET NO.: DF 410095 - 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 NO.:               
                                                 DF 410095 - RO 
                                              :
                                                 D.R.O DOCKET NO.:          
                                                 L 3114538 R/T
             320 WEST 87TH STREET CO.,                                      
                                                 Tenant: Debra Mendizza
                                             
                                                  

                              PETITIONER      : 
          ------------------------------------X                             

            ORDER AND OPINION DENYING PETITION FOR ADMINISTRATIVE REVIEW


               On June 23, 1989, the above named petitioner-owner  filed  a
          Petition for Administrative Review against an order issued on May 
          19, 1989, by the Rent Administrator,  92-31  Union  Hall  Street,
          Jamaica, New York, concerning  housing  accommodations  known  as
          Apartment 1 CE, 320 West 87th Street, New York, New York, wherein 
          the  Rent  Administrator  determined  that  there  had  been   an
          overcharge and ordered a refund of $12,948.42,  including  treble
          damages and excess security.

               The Commissioner notes that this  proceeding  was  initiated
          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
          provisions 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 Commissioner has reviewed all of  the  evidence  in  the
          record and has carefully considered that portion  of  the  record
          relevant to the issues raised by the administrative appeal.  



           
               The tenant commenced this proceeding on March  30,  1984  by
          filing an overcharge complaint and  a  Fair  Market  Rent  Appeal
          (FMRA) with the New York  City  Conciliation  and  Appeals  Board
          (CAB), the  agency  formerly  charged  with  enforcing  the  Rent
          Stabilization Law, based in part on an  alleged  failure  by  the
          owner to provide a complete rental history. 

               On April 4, 1984 the Division  notified  the  owner  of  the






          ADM. REVIEW DOCKET NO.: DF 410095 - RO
          proceeding and of the owner's obligation to preserve and  produce
          rent records from the base date.

               On August 16, 1985 the owner was served with a copy  of  the
          tenant's FMRA and was requested to submit a copy  of  any  Notice
          of Initial Legal Regulated Rent (DC-1 or DC-2 form) served on the 
          first stabilized tenant, together with proof of service of  same.
          The owner was also  informed  of  the  procedures  and  necessary
          documentation associated with a FMRA.    

               On September 10, 1986 the owner was informed that the tenant 
          had filed both a FMRA and an overcharge complaint.  The owner was 
          again requested to submit a DC-2 form with proof  of  service  on
          the first stabilized tenant.  The owner  was  also  requested  to
          fill out an enclosed RS-1 form in the event that the  tenant  was
          ineligible to file a FMRA. 

               On October 10, 1986, the  owner  was  served  with  a  Final
          Notice of Pending  Default  and  advised  that  overcharges  with
          treble damages could  be  determined,  via  a  default  procedure
          pursuant to Section 42 A of the prior Code.

               In a letter dated  October  17,  1986,  the  managing  agent
          stated he had taken over management of the building  in  February
          of 1976 and, due to the death of  the  prior  agent,  he  had  no
          records prior to February 1976.  On a "Schedule A" form  (one  of
          the forms sent to an owner in a FMRA proceeding)  submitted  with
          his response, he  stated  the  subject  apartment  had  not  been
          subject to rent control on June 30, 1974 and submitted a copy  of
          an April 1, 1976 two year lease with a prior tenant (Hauser) at a 
          monthly rental of $208.34.  Also on the Schedule  A  form  was  a
          list of the rents for  all  the  three  room  apartments  in  the
          building, but none of the requested documentation to prove  these
          figures was submitted.

               On August 30, 1988 the owner was served with another Default 
          Notice.  In response, on September 15, 1988, the owner  submitted
          copies of its  October  17,  1986  submission,  noting  that  the
          complaining tenant had not been the first stabilized tenant and 



          had waited six years after signing her April  1,  1978  lease  to
          file her "complaint to harass the owner" at the time the building 
          was undergoing a conversion to cooperative ownership.  

               On February 7,  1989  the  subject  apartment's  cooperative
          owner was served with the  tenant's  FMRA  and  informed  of  the
          procedures and  requirements  thereof.   In  response,  the  same
          managing  agent  stated  that  he  had  submitted  the  requested
          information previously and noted that  the  tenant's  three  room
          apartment was not in the  same  line  as  the  other  three  room
          apartments but added that the apartments  "are  of  approximately
          the same living size with the same amenities."   

               On April 12, 1989, the managing agent  and  apartment  owner
          were served with a notice informing them that an  overcharge  had
          been found  and  treble  damages  would  be  imposed  unless  the
          presumption of willfulness was rebutted by a preponderance of the 






          ADM. REVIEW DOCKET NO.: DF 410095 - RO
          evidence.

               In a response post-marked May 9, 1989, the  co-op  apartment
          owner submitted "a  copy  of  the  last  computed  MBR  Order  of
          Eligibility for the premises referred to in the complaint."   The
          owner noted that the Unadjusted 1976 Maximum Base rent for  "the"
          first floor three room apartment was $236.18.  (The order  itself
          shows apartments 1FE and 1RE having this value, neither being the 
          number of the subject apartment.  Of the  36  apartments  in  the
          subject building 9 were subject to rent control at  the  time  of
          that order.)   

               Also submitted was a copy of an R-42 form (Landlord's Report 
          of Statutory Decontrol), dated April  12,  1976  and  naming  the
          present managing  agent.   This  form  stated  that  the  subject
          apartment was decontrolled on February 15, 1974 and was rented on 
          March 1, 1974 to a tenant named Grimes, for  whom  no  lease  was
          available.  (The form also stated that the then-current  building
          owner lived in the building and had done so since  April,  1957.)

               The co-op owner argued that the DHCR would  have  considered
          15% (sic) above the 1976 MBR  to  be  a  fair  market  rent,  and
          therefore  the  owner  could  have  charged  Ms.  Hauser  $271.61
          ($236.18 plus 15%) rather than the $208.34 actually  charged,  so
          that the prior rent of $208.34 was clearly lawful.   Furthermore,
          raising $271.61  by  13.5%  (8.5%  Guidelines  increase  plus  5%
          vacancy allowance pursuant to Guidelines Order Number  9)  yields
          $308.28 so that  the  complaining  tenant's  initial  lease  rent
          ($250.00) was also alleged to be lawful (even though 13.5%  above
          $208.34 is only $236.47).  



               The owner also alleged that the April  1,  1980  three  year
          lease for the complaining tenant and an additional  named  tenant
          was eligible for a 30% increase (15% Guidelines increase  plus  a
          15% vacancy allowance pursuant to Guidelines  Order  Number  11).
          Accordingly, the owner contended there was no overcharge. 

               In Order Number L - 3114538 - RT - Z, herein  under  review,
          the  Rent  Administrator  determined  that  there  had  been  the
          overcharge stated above.  In so  doing,  the  Administrator  used
          $208.34 as the first stabilized rent; found it to  be  less  than
          11% above the 1974 Maximum Rent of $193.44 (the source for  which
          was not stated in the order) and therefore not subject to a FMRA; 
          and did not allow the owner a vacancy allowance for the April  1,
          1980 lease. 

               In this petition, the managing agent contends that the  Rent
          Administrator's Order is incorrect and should be modified because 
          the prior tenant, Ms. Hauser, was the first stabilized tenant and 
          a "family friend" of the managing  agent.  Her  initial  rent  of
          $208.34 was  a  "sweetheart  lease"  rent.   Submitted  with  the
          petition is a copy of a letter purportedly written by Ms.  Hauser
          on April 1, 1976, the commencement date  of  her  initial  lease,
          acknowledging that her $208.34 was based on her "long term family 
          relationship" with the agent and would revert to the real rent of 
          $230.00 plus $3.34  for  an  appliance  in  the  event  that  the
          landlord would sell the building.  Accordingly, the agent implies 






          ADM. REVIEW DOCKET NO.: DF 410095 - RO
          that the complaining tenant's rent should have been computed from 
          $233.34 rather than from $208.34.  Such a computation would  show
          the complaining tenant's initial rent to have been  lawful.   The
          petition requests that the  proceeding  should  be  dismissed  or
          "remanded so the Division can  conform  its  decision  to  agency
          precedent and rule that the complainant's rent on April  1,  1978
          was lawful."     

               The petitioner further argues that since the  DHCR  in  1976
          set the MBR for a comparable three  room  apartment  at  $236.18,
          the $233.34  non-preferential  rent  acknowledged  by  the  prior
          tenant was clearly lawful.  

               The Administrator had determined that  the  $208.34  charged
          Ms. Hauser was lawful since it was less  than  the  1974  Maximum
          Rent of $193.44  plus  11%  [$214.72].   Accordingly,  using  the
          Administrator's method, the $233.34 rent, if accepted as the true 
          rent, would have  been  subject  to  a  FMRA.   Accordingly,  the
          petitioner contends that "if the Division maintains that the rent 





          should be calculated from a 1974 maximum base rent, the  Division
          should remand the case to grant the petitioner an opportunity  to
          answer the complaint  as  a  fair  market  rent  appeal  and  the
          Division should review the initial legal regulated rent.  

               The petitioner further  contends  that,  using  the  $233.34
          "prior rent" as a starting point, the complainant's initial  rent
          of $250.00 was less  than  the  13.5%  increase  allowed  by  the
          Guidelines for a two year vacancy rent.  Furthermore,  since  the
          complainant added a named roommate to her subsequent  1980  three
          year lease, the owner was entitled to a 15% Guidelines increase 
          plus a 15% vacancy allowance  ($325.00).   The  owner  states  it
          inadvertently took two 15% increases in succession, rather than a 
          single 30% increase, arriving at the  $330.63  actually  charged.
          The owner argues that the Administrator erred by not  allowing  a
          vacancy allowance on the 1980 lease.   

               Moreover, the owner contends that subsequent rent  increases
          were lawful except for "a minuscule unintentional error of $1.81" 
          in computing the 6 1/2% increase under  Guidelines  Order  Number
          17. 

               The owner further  argues  that  any  overcharges  were  not
          willful  and  therefore  treble  damages  should  not  have  been
          imposed.   The  owner  purports  to   paraphrase   Code   Section
          2526.1(a)(1) for the proposition that "treble  damages  can  only
          [be]  imposed  if  it  is  proven  that  the  landlord  willfully
          overcharged the tenant."  The owner contends that even if $233.34 
          is not accepted as the prior rent,  it  was  reasonable  for  the
          owner to do so and therefore the resulting overcharges  were  not
          willful. 

               In answer to this  petition,  the  tenant  argues  that  the
          Administrator's order was correct and should be affirmed  because
          in responding to the Administrator the  managing  agent  did  not






          ADM. REVIEW DOCKET NO.: DF 410095 - RO
          raise the issue of the "sweetheart" nature of the lease of  prior
          tenant Hauser.  In particular, the owner did  not  state  to  the
          Administrator either that Ms. Hauser had a  special  relationship
          to the managing agent or that her lease was lower than the  legal
          rent. 

               The  tenant  further  notes  that  neither   allegation   is
          supported  by  the  Hauser  lease  itself  and  argues  that  the
          purported letter from Ms. Hauser submitted for the first time  on
          appeal lacks credibility, in part because it was addressed to the 





          managing agent  who  answered  the  complaint  and  yet  did  not
          remember the "long term family relationship" stated in the letter 
          or the allegedly reduced rent while this  proceeding  was  before
          the Administrator.

               The tenant further  contends  that  Division  precedent  has
          recognized "sweetheart" leases based  on  employment  and  actual
          family relationships, but not for  mere  friendship,  i.e.,  only
          when based on a "demonstrably proven relationship."   The  tenant
          argues that to accept the owner's position on  this  issue  would
          create "a new loophole in the rent stabilization scheme," in that 
          any owner who had charged less than the maximum lawful rent could 
          claim that it was a "sweetheart" lease arrangement and recoup the 
          rent in a subsequent lease.  

               The tenant further argues that the owner has failed to prove 
          that the Hauser lease rent was below market value, nor  is  there
          any proof that the owner could have charged Ms. Hauser  a  market
          value rent since there is no proof that Ms. Hauser was the  first
          stabilized tenant  after  vacancy  decontrol.   Noting  that  the
          Administrator had found Ms. Hauser to  be  the  first  stabilized
          tenant, the complainant contends that neither the owner  nor  Ms.
          Hauser had made such a claim before the  Administrator.   Indeed,
          the complainant notes  that  in  the  owner's  October  17,  1986
          response the managing agent stated he had no rent  records  prior
          to February 1976 when he took over management  of  the  building.
          Thus, Ms. Hauser's rent could have been restricted to that  of  a
          preceding  stabilized  tenant  plus  a  Guidelines  increase  and
          vacancy allowance, without any reference to market value.  

               Furthermore,  even  assuming  Ms.  Hauser  was   the   first
          stabilized tenant, there was no proof that her $208.34  rent  was
          below market value, since in the 1970's "it was  not  unusual  to
          find a MBR [Maximum Base Rent] or MCR rent  [Maximum  Collectible
          Rent] which was higher than  the  market  would  bear.   Thus,  a
          landlord might very well charge less than he or she was otherwise 
          permitted to  charge  under  [the]  law  in  order  to  rent  the
          apartment."  Thus, the fact  that  a  different  rent  controlled
          apartment had a MBR of $236.18 in no way proves that the  $208.34
          paid by Ms. Hauser that year was below market value.  

               In addition, the tenant argues that a rent within $20.00  of
          the alleged market value can not  be  considered  a  preferential
          rent.






          ADM. REVIEW DOCKET NO.: DF 410095 - RO

               Regarding the  imposition  of  treble  damages,  the  tenant
          contends that  the  owner  not  only  compounded  the  Guidelines
          increase and vacancy allowance under Guidelines Order Number  11,


          but also used an incorrect vacancy allowance of 15%  rather  than
          the 5% allowed by the Guidelines Order.  These errors, and the 
          admitted subsequent miscalculations, as well  as  the  "unfounded
          story about a sweetheart  arrangement  with  some  unidentifiable
          friend which is mentioned for the first  time  on  this  appeal,"
          indicate a "disregard for the  law  ...  characteristic  of  this
          landlord's willful behavior in overcharging the tenant."  

               The Commissioner is of the opinion that this petition should 
          be denied.     

               At the outset the Commissioner  notes  that  the  tenant  is
          correct that there is no proof that prior tenant Hauser  was  the
          first stabilized tenant, nor did the owner even allege before the 
          Administrator that Ms.  Hauser  had  been  the  first  stabilized
          tenant.  Indeed, in the May 9,  1989,  response  from  the  co-op
          apartment owner evidence was submitted that the first  stabilized
          tenant's name was Grimes, whose tenancy commenced March 1, 1974.
          Accordingly, the petitioner's various contentions that Ms. Hauser
          could have been charged $234.34 based either on  a  prior  market
          value and/or the MBR or MCR of another apartment in the  building
          are without merit. 

               The only way to determine the maximum lawful rent  that  Ms.
          Hauser could have been charged would be to  add  the  appropriate
          Guidelines  increase  and  vacancy  allowance   to   the   lawful
          stabilized rent in effect on  the  last  day  of  the  Guidelines
          period prior to the Hauser  tenancy,  i.e.,  on  June  30,  1975.
          Since the owner admittedly has no leases prior to April 1,  1976,
          there is no  evidence  in  the  record  even  to  show  that  Ms.
          Hauser's rent of $208.34 was lawful.  (The purported letter  from
          Ms. Hauser, even if accepted as authentic,  does  not  constitute
          proof of the legality of even her $208.34 rent.   Such  a  letter
          can have no more weight than the lease itself.)    

               On the procedural level, the tenant is also clearly  correct
          that the issue of preferential rent was  not  raised  before  the
          Administrator and is therefore beyond the scope of  this  review.
          The owner has offered no justification  for  not  submitting  the
          purported April 1, 1976 letter to the Administrator.  Indeed, the 
          managing agent had claimed only to be missing  records  prior  to
          that date.  Furthermore, the letter was, of course, addressed  to
          this same managing agent.  Section 2529.6  of  the  current  Code
          limits the scope of  Administrative  Review  to  those  facts  or
          evidence  which  were  before  the   Administrator   unless   the
          petitioner "establishes [the evidence  submitted  for  the  first
          time on appeal] could not reasonably have been offered or 



          included in the proceeding prior to the  issuance  of  the  order
          being appealed."  The petitioner herein has not even attempted to 
          justify the submission of  the  letter  for  the  first  time  on






          ADM. REVIEW DOCKET NO.: DF 410095 - RO
          appeal.     

               Accordingly, the owner's  argument  that  the  $233.34  rent
          alleged chargeable to Ms. Hauser  was  subject  to  a  FMRA  (and
          therefore the  matter  should  be  remanded)  is  without  merit.
          Furthermore, the procedural history recited above  clearly  shows
          that the owner was given ample  opportunity  to  respond  to  the
          tenant's FMRA.

               On the other hand,  the  owner  is  correct  that  when  the
          complaining tenant added a second named tenant to her April  1980
          lease the owner was allowed to charge a  15%  vacancy  allowance.
          This represents the longstanding policy  of  the  Division.   See
          Administrative Review Order Number CF 420006 - RO.   [The  tenant
          is correct that Guidelines Order Number 11 provided for only a 5% 
          vacancy allowance.  However, that order was amended by Guidelines 
          Order 10c (sic) which provided for a 15%  vacancy  allowance  for
          Guidelines 11 leases commencing on or after February 1, 1980.]

               Nevertheless, the  Commissioner  declines  to  correct  this
          error  for  the  following   reason.    As   noted   above,   the
          Administrator should not have used $208.34 as  the  1976  -  1978
          lawful base rent on the assumption that Ms. Hauser had  been  the
          first  stabilized  tenant.  The   owner's   submission   to   the
          Administrator showed that  the  apartment  was  subject  to  rent
          stabilization on June 30, 1974 and the  owner  was  therefore  in
          default for not submitting rent  records  from  that  date.   [In
          Lavanant v. DHCR, 544 N.Y.S. 2d 331 (App. Div. 1st  Dep't,  1989)
          the court upheld the use of the  June  30,  1974  base  date  for
          overcharge complaints filed before April 1,  1984  but  processed
          thereafter.  Since the subject apartment is in the First Judicial 
          Department the Administrator's request for rent records from June 
          30, 1974 was proper.]  

               Accordingly, the Administrator should have used the  default
          procedure pursuant to Section 42 A of the former Code which would 
          have established the  complainant's  initial  rent  (1978)  at  a
          figure no greater than the $208.34  rent  of  the  prior  tenant.
          (The Administrator found $236.47 to be  the  lawful  1978  rent.)
          Furthermore, the default rent of $208.34 or less would have  been
          frozen  for  the  duration  of  the  Administrator's  calculation
          period, i.e., until March 31, 1988, and the overcharges  computed
          therefrom would have been subject to treble damages.     




               Therefore, the overcharge calculated  by  the  Administrator
          was  significantly   lower   and   the   rent   established   was
          significantly higher than the corresponding  figures  would  have
          been had  the  Administrator  used  the  42A  default  procedure.
          Accordingly, the Commissioner declines to magnify  the  error  by
          adding the 15% vacancy allowance to the 1980 rent.

               Finally, the Commissioner finds  that  treble  damages  were
          properly imposed.  As stated above, on April 12, 1989 the  owners
          were notified that an overcharge had been found and  that  treble
          damages would be imposed thereon unless the  owner  was  able  to
          prove the overcharges were not willful.  The owner's May 9,  1989






          ADM. REVIEW DOCKET NO.: DF 410095 - RO
          response failed to  address,  much  less  refute,  the  issue  of
          treble damages.  In particular, the allegation that  the  $208.34
          Hauser rent had been pursuant to a sweetheart lease was not  made
          at any time before the Administrator.  Accordingly, the  argument
          that it was reasonable for the owner to  base  the  complainant's
          initial rent on the $234.34 that the  owner  incorrectly  thought
          could have been charged the prior tenant is also beyond the scope 
          of review.   

               Furthermore,  the  petitioner  misstates  the  standard   of
          current Code Section 2526.1(a)(1) regarding treble damages.  That 
          Section requires  the  Administrator  to  impose  treble  damages
          unless "the owner establishes by a preponderance of the evidence
          that the overcharge was not willful."  That  is,  the  burden  of
          proof regarding treble damages is on the owner, not the tenant or 
          Administrator as contended by the owner.  The Commissioner  finds
          that the owner has clearly  failed  to  meet  this  burden.   The
          Administrative Review  decisions  cited  by  the  owner  are  all
          distinguishable and do not control this case. 

               In particular, in ARL 05307-Q the owner could  have  charged
          $339.56 pursuant to  Guidelines  Order  13  but  charged  $330.00
          instead.  In a subsequent lease the owner  used  $339.56  as  the
          base rent.  The resulting overcharge was deemed not  willful  and
          treble damages were not imposed.  The Commissioner noted  therein
          that the $339.56 would have been lawful had it been charged.   In
          the present proceeding there is no proof that  even  the  $208.34
          rent charged the prior tenant was lawful.   

               Moreover, the Commissioner notes that had  the  42A  default
          procedure been applied the resulting overcharge,  without  treble
          damages, would have exceeded the total overcharge found herein by 
          the Administrator.





               This order may, upon the expiration of the period  in  which
          the owner may institute a proceeding pursuant to Article seventy 
          eight of the civil practice law and rules, be filed and enforced
          by the tenant in the same manner as a judgment or not  in  excess
          of twenty percent thereof per month may  be  offset  against  any
          rent thereafter due the owner.

               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 Rent Administrator's order be, and the same hereby 
          is, affirmed.

          ISSUED:












          ADM. REVIEW DOCKET NO.: DF 410095 - RO



                                                                        
                                          JOSEPH A. D'AGOSTA
                                          Deputy Commissioner




                                                    

    

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