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
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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 :
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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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