AR Docket Nos. DJ 410205-RT; DJ 410405-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 NOS.: DJ 410205-RT
DJ 410405-RO
MARLENE COLGATE (Tenant), DRO DOCKET NOS.:
and CL-410038-RP; CL-410039-RP;
BROADWALL MANAGEMENT (Owner), AL 410231-RT; ARL 6273-L;
L-3111093-R; CDR 26112;
T/A 12438; CTA 0539;
TC 53681-G
PETITIONERS
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ORDER AND OPINION GRANTING TENANT'S PETITION FOR ADMINISTRATIVE
REVIEW IN PART AND DENYING OWNER'S PETITION
FOR ADMINISTRATIVE REVIEW
On October 24, 1989 the above-named petitioners filed Petitions
for Administrative Review against an order issued on September
19, 1989 by the Rent Administrator, 92-31 Union Hall Street,
Jamaica, New York concerning housing accommodations known as
Apartment 2A at 220 East 95th Street, New York, New York wherein
the Rent Administrator determined that the owner had overcharged
the tenant. The tenant's petition was assign d Docket No. DJ-
410205-RT, and the owner's petition was assigned Dock t No. DJ-
410405-RO. As they involve common grounds of law or fact, the
two petitions are herein merged and decided in one order and
opinion.
The Commissioner notes that two of the proceedings involved in
this case were 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 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, Section 2526.1(a) of the Rent Stabilization
Code, and Sections 2(f)(8) and 2(g)(1) of the former Rent
Stabilization Code.
AR Docket Nos. DJ 410205-RT; DJ 410405-RO
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,
1981 of a rent overcharge complaint (Docket No. 53681-G) by the
tenant, in which she stated that she had commenced occupancy on
July 1, 1979 at a rent of $517.00 per month, and that the prior
tenant had been paying a rent of $350.00 per month.
The owner (Pineco Developers, c/o Terri Management Corp.) was
sent a copy of the complaint and requested to submit a rental
history from the base date to prove the lawfulness of the rents
charged. In answer, Terri Management stated that it had never
been connected with the subject premises, that the building was a
J-51 renovation completed in 1975, that rents were set by the
U.S. Department of Housing and Urban Development (H.U.D.), that
the first rents were in some cases higher than the rents charged
the tenants, that leases were not given out while the rent
control office was checking out the first rents during the time
that the owner was obtaining a late registration with the Rent
Stabilization Association, and that the owner's attorney was
keeping the tenants apprized of the situation. It enclosed a
handwritten listing of rents for September 1, 1975 giving an
amount of $440.00 for the subject apartment. The owner later
submitted a rental schedule submitted to H.U.D. on September 15,
1975 by Richard Pine, a partner in the owner, which listed
proposed rents of $365.00 for units with 2 bedrooms, kitchenette
and living room, and of $435.00, $445.00 and $455.00 for units
with 3 bedrooms, kitchenette and living room, for a total gross
monthly rent of $9,005.00 for the building. Various documents
submitted by the tenant indicate that the apartment was formerly
rent-controlled, with a 1973 Maximum Base Rent of $72.31 for a
tenant C. McCloud; that a building vacate order was issued by New
York City on March 28, 1972; that the subject building was
rehabilitated with H.U.D. Section 221 (d)(4) and New York City
Administrative Code Section J51-2.5 benefits; that the renovation
was completed in 1975 (according to the former managing agent);
that the owner Jack Pine registered the subject apartment with
the Office of Rent Control on January 15, 1976, requesting a
maximum rent of $440.00 and listing a tenant Mel Waithe as paying
that rent beginning September 1, 1975; and that the (former)
managing agent applied to the Rent Stabilization Association
(R.S.A.) on April 2, 1981 for late enrollment. (DHCR rent
records contain a rent control registration card showing a
registration with the R.S.A. effective July 10, 1981.) The
tenant subsequently (in this appeal proceeding) submitted
evidence that there was at least one other tenancy between Mr.
Waithe's tenancy and her tenancy, at a rent of $350.00.
On July 29, 1986 and September 16, 1986 Final Notices of Pending
Default were sent to Pineco Developers (150 Joralemon Street) and
AR Docket Nos. DJ 410205-RT; DJ 410405-RO
Pineco Developers c/o Fred Halla (44 Schermerhorn Street). The
Notices set forth the procedure that would be used to set the
lawful stabilization rent if a full rental history was not
submitted, and stated that treble damages would be imposed on
willful overcharges occurring on and after April 1, 1984. On
July 13, 1988 Broadwall Investments (370 7th Avenue, a/k/a 7 Penn
Plaza) was sent a copy of the tenant's complaint. The answer
form included a notice about treble damages.
No separate order was issued in Docket No. TC 53681-G. Instead,
it was consolidated in Docket Nos. CL-410038-RP and CL-410039-RP.
(This was a new proceeding resulting from remands directed by
orders in Docket Nos. ART 06273-L and AL 410231-RT.) An order
deciding the consolidated proceeding was issued on September 19,
1989. The owner's and tenant's appeals of that order are
considered herein.
The proceeding in Docket No. L-3111093-R was commenced by the
tenant filing a complaint of overcharge in March, 1984. Although
the owner submitted only the tenant's lease from July 1, 1979,
the Administrator issued an order on November 10, 1986 using that
as the base date and finding no overcharge. The tenant's appeal
of this determination was assigned Docket No. AL 410231-RT. On
November 29, 1988 an order was issued remanding the proceeding
for consolidation with other overcharge proceedings.
Docket No. T/A 12438 was a Fair Market Rent Adjustment
Application ("fair market rent appeal") filed by the tenant. On
October 23, 1985 an order (CTA #0539) was issued dismissing the
application on the grounds that the building had undergone an
H.U.D. renovation and that therefore the tenant's rent was not
subject to a fair market rent appeal. The tenant's appeal of
this order was assigned Docket No. ART 06273-L. On November 29,
1988 an order was issued remanding the proceeding for
consolidation with other proceedings.
In the new proceeding (Docket No . CL-410038-RP and CL-410039-
RP), Broadwall Management (370 7th Avenue, a/k/a 7 Penn Plaza)
was requested on August 9, 1989 to submit rental documents to
substantiate the actual rent charged and paid from September 1,
1975 to June 30, 1979. With this request was included a Final
Notice of Pending Default, which informed Broadwall Management of
the possibility of treble damages.
On September 19, 1989 an order was issued establishing a default
rent in the tenant's initial lease, imposing treble damages on
overcharges occurring on and after April 1, 1984, and finding a
total overcharge of $22,111.11 as of September 30, 1989. The
Administrator stated that the subject building was subject to
the Rent Stabilization Code as of September, 1975 because of
Section 2 (f)(8) of the former Code, by virtue of having been
AR Docket Nos. DJ 410205-RT; DJ 410405-RO
renovated through a loan financed by H.U.D. pursuant to a J-51
tax abatement; and that the owner had waived its right to a
higher base rent by failing to show that it had charged the full
rents to which it was entitled. The Administrator also rejected
the tenant's contention that the apartment should be returned to
a rent control status.
In her petition (Docket No. DJ 410205-RT) against the order, the
tenant contends in substance that the order did not indicate
whether 1.) the DHCR had reviewed the H.U.D. regulations and
rental restrictions and had judged them not to have been
exceeded, or 2.) the DHCR does not regard itself as having
jurisdiction to enforce those regulations. The tenant later
submitted several documents from the former managing company
showing the prior tenant Nelson as having a rent of $350.00,
including a rent roll for FHA Project No. 012-35103-PM-EC as of
November 31, 1978 showing a "rent/mo." of $350.00 for
Nelson/Garfinkel in a lease expiring September, 1979, as well as
a "Max. Reg." of $440.00 per month. The tenant also enclosed an
affidavit from a man who stated that he rented the apartment to
the prior tenants for $350.00 per month, and that indeed the
other 3-bedroom apartments in the building were offered at a rent
of $350.00 from 1976 to 1978 "in order to induce tenants to move
into the building." The tenant contends that the base rent for
her initial lease should be based on $350.00 rather than the
$441.88 rent established by use of the default formula.
While the tenant was not able to obtain full financial records of
the project from H.U.D., she did obtain a copy of a July 24, 1981
letter from H.U.D. to the former managing agent regarding among
other things a rent increase checklist, management plan and
monthly accounting reports.
Despite twenty requests for extensions of time to answer,
submitted by its attorney from February 28, 1990 to September 6,
1991, no reply has been received from the owner to date regarding
the tenant's petition.
In its petition (Docket No. DJ 410405-RO) against the order, the
owner contends in substance that it does not, based on the
Appellate Division, 2nd Department opinion in J.R.D. Management
Corp. v. Eimicke, have to furnish rent records prior to April 1,
1980, and that the DHCR did not have authority to promulgate
Section 2526.1 (a)(4) of the current Rent Stabilization Code.
In answer, the tenant asserts in substance that Lavanant v.
N.Y.S. DHCR, and the legislative history of the Omnibus Housing
Act (Laws of 1983, Chapter 403), provide for the processing of
the tenant's overcharge complaint, which was made three years
prior to April 1, 1984, under the former Code; that the tenant
has already provided the prior tenant's rental records in Docket
AR Docket Nos. DJ 410205-RT; DJ 410405-RO
No. DJ 410205-RT; that interest should be imposed prior to April
1, 1984 and treble damages after that date based on a prior rent
of $350.00; that Administrative Code Section 26-516 (a)(4) and
CPLR Section 5001.4 allow the imposition of interest prior to
April 1, 1984; and that the DHCR has ignored the proposition,
decided in a New Jersey appellate case, that rents collected in
excess of H.U.D.-established maximum rent schedules for projects
with mortgages insured under U.S. Code Title 12, Section 1701 et
seq. are recoverable by tenants.
In response, the owner contends in substance that the DHCR is
precluded from assessing treble damages since neither Broadwall
Management nor the owners have intentionally overcharged the
tenant; that the owners or managing agent were not put on notice
of the treble damage penalty under all of the related docket
numbers; that the DHCR may not process the matter under the
former Rent Stabilization Code and then impose treble damages
under the current Code in order to enrich the tenant; that the
current managing agent first received notice of the tenant's
complaint more than four years after the effective date of the
Omnibus Housing Act; that Lavanant v. State D.H.C.R. is not
binding precedent as the Court's statements regarding an owner's
obligation to produce records back to 1974 are nothing more than
dicta, since they were unnecessary to support the Court's
affirmance and since the issue was not even raised until the
appellant submitted its reply brief; and that neither the former
nor current Codes provide for the imposition of interest on
overcharges occurring prior to April 1, 1984.
The Commissioner is of the opinion that the tenant's petition
should be granted in part, and that the owner's petition should
be denied.
Section 2 (f)(8) of the former Rent Stabilization Code included
in its definition of dwelling units covered by the Rent
Stabilization Code those dwelling units which:
"are subject to regulation solely as a condition of
receiving or continuing to receive benefits pursuant to
Section J51-2.5 of the Administrative Code of the City
of New York, as amended by Local Law 60 of 1975, so
long as such benefits are being received, or because
rehabilitated with a loan under Article 14 or 15 of the
Private Housing Finance Law, including a structure
which contains less than 6 dwelling units, or which is
not a class A multiple dwelling..."
Section J51-2.5 of the Administrative Code of the City of New
York prior to amendment by Local Law 60 of 1975, which applied
to applications filed on or after January 1, 1976, provided in
AR Docket Nos. DJ 410205-RT; DJ 410405-RO
pertinent part that its benefits would not apply to dwellings not
subject to the Rent Control Law or the City Rent and
Rehabilitation Law or the Private Housing Finance Law.
Section J51-2.5 of the Administrative Code as amended by Local
Law 60 provided in pertinent part that J-51 benefits would apply,
where the application was filed on or after January 1, 1976, only
to buildings or structures converted to a class A multiple
dwelling or substantially rehabilitated where the rents
subsequent to the conversion or substantial rehabilitation did
not exceed the amount fixed by the city rent agency pursuant to
the Rent Control Law, or to the Rent Stabilization Law so long as
the initial legal regulated rent for the dwelling units were the
rents charged and paid by the initial tenant. Sections 11-243
(d)(2) and 11-243 (t) of the current Administrative Code continue
that requirement, requiring registration with the DHCR and
providing that the apartment rents are subject to regulation so
long as tax benefits are being received. Section 2 (g)(1) of the
former Rent Stabilization Code excludes dwelling units from rent
stabilization so long as they are subject to rent-control. In
the present case a former managing agent has stated that
renovation of the subject building was completed in 1975, and an
inquiry to the N.Y.C. Department of Finance has revealed that it
began receiving J-51 benefits on July 1, 1976, and continues to
receive them. Because it is unclear whether J-51 benefits were
applied for before or after January 1, 1976, it is uncertain
whether Local Law 60 affected the status of the first tenant
after renovation, and thus whether he was rent-stabilized or
rent-controlled. However, even if such first tenant were rent-
controlled, his subsequent vacancy decontrolled the apartment
pursuant to Chapter 371 of the Laws of 1971. The subject
apartment, in a building registered as having 22 apartments, is
therefore subject to rent stabilization. Evidence furnished by
the tenant shows that hers is not the first tenancy after that
vacancy, so there is no evidence that she would have a right to
make a fair market rent appeal even if that initial tenant had
been rent-controlled. In any event her fair market rent appeal
would have now been dismissed since the $350.00 rent of the prior
tenant would not, if he were the initial stabilized tenant,
represent an unlawful increase over a previous controlled rent of
$440.00.
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) to date and to produce
such records to the DHCR upon demand.
Section 26-516 of 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
AR Docket Nos. DJ 410205-RT; DJ 410405-RO
produce rent records for more than 4 years prior to the most
recent registration and, concomitantly, established a 4 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 4 years prior to April
1, 1984 of their 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),
in cases involving rent overcharge complaints filed prior to
April 1, 1984.
However, it has recently been held in the case of J.R.D. Mgt. v.
Eimicke, 148 A.D.2d 610, 539 N.Y.S.2d 667 (App. Div. 2d Dep't
1989), motion for leave to reargue or for leave to appeal to the
Court of Appeals denied (App. Div. 2d Dep't, 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., Nov. 24, 1989, p. 24,
col. 4), motion for leave to reargue denied (Court of Appeals,
N.Y.L.J., Feb 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 4 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 Dep't 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. Even if, as the
owner contends, the statements of the Appellate Division in
AR Docket Nos. DJ 410205-RT; DJ 410405-RO
Lavanant are dicta rather than binding precedent, the DHCR has
found the Court's reasoning persuasive and has chosen to follow
it in overcharge cases involving apartments in the First
Department. Because the former and current owners were given
several opportunities to submit rental histories, but failed to
do so, it was proper for the Administrator to use the default
procedures upheld in 61 Jane Street Associates v. C.A.B. to set
the tenant's initial rent at $441.88.
However, the tenant has managed to obtain monthly reports and
letters from the former managing agent, and an affidavit from the
former rental agent. While these are being submitted for the
first time on appeal the tenant, unlike the owner, had no
obligation to retain and furnish such rental history of former
tenants. The tenant was not requested to provide them and indeed
would not be expected to be able to provide them. The
Commissioner considers this an acceptable excuse for the late
submission, particularly since the tenant's submission of the
documents allows her lawful rent to be calculated on the basis of
the actual history of rents charged and paid, rather than being
based on a default formula because of the failure of the owner to
fulfill its obligation to produce rental records. The acceptance
of these documents on appeal, resulting in the calculation of a
larger overcharge, prevents the owner from benefiting from the
withholding of documents which it should have produced; and which
clearly were available since the tenant managed to obtain them.
While the first tenant after rehabilitation (who, as mentioned
earlier, may have been either rent-stabilized or rent-controlled,
depending on when the application for J-51 benefits was filed)
may have had a rent of $440.00, the charging of $350.00 to the
next tenant in 1977 constituted a waiver of the owner's right to
base subsequent vacancy rents on any amount higher than that.
Basing the complainant's vacancy rent on the $350.00 rent of that
tenant, the Commissioner has calculated the lawful stabilization
rents and the amount of overcharge. They are set forth on an
amended rent calculation chart attached hereto and made a part
hereof.
Regarding the owner's contention that the DHCR may not process
the matter under the former Code and then use the current Code to
impose treble damages, the Commissioner notes that Section 2526.1
(a)(1)(4) of the current Code provides for precisely those
actions. Regarding the contention that neither the petitioner
nor the owners overcharged the tenant, and that they were not put
on notice of the treble damage penalty under all of the related
docket numbers: It was appropriate for the Administrator to
impose treble damages where the owner did not retain (or at least
did not submit) a rental history sufficient to show its
entitlement to the rents charged the tenant. Now that the tenant
has furnished documents to complete the rental history, a
presumption of willful overcharge arises because the tenant was
AR Docket Nos. DJ 410205-RT; DJ 410405-RO
charged $517.00 while the previous tenant was last being charged
$350.00. Pineco Developers has owned the subject building since
at least 1975, with several different managing agents. Various
Final Notices of Pending Default and answer forms giving notice
of possible treble damages were sent to those agents. The
petitioner was itself twice notified, via a July 13, 1988 answer
form to Broadwall Investments at 370 7th Avenue and an August 9,
1989 Final Notice to Broadwall Management at the same address
(being the address listed on the apartment registrations since
1988), in the remanded proceeding (Nos. CL-410038-RP and CL-
410039-RP) which consolidated the previous dockets and which the
petitioner has appealed. This is more than enough notice.
The tenant has cited Blodgette v. Melohn, 477 N.Y.S.2d 587 (N.Y.
City Civ. Ct. 1984) in support of her contention that interest
should be imposed on overcharges occurring prior to April 1,
1984. While the Court in that case did award interest from
February 1, 1982 by virtue of Civil Practice Law and Rules
Section 5001, neither the former not the current Rent
Stabilization Code authorize the DHCR to do so. Section 26-516
(a)(4) of the Rent Stabilization Law, cited by the tenant, is
meant to allow the imposition of interest on overcharges
occurring on and after April 1, 1984 when treble damages have not
been imposed. This determination is without prejudice to any
rights the tenant may have to proceed in a court of competent
jurisdiction for interest on overcharges occurring prior to April
1, 1984.
Regarding the issue of H.U.D. rental restrictions: The DHCR does
not have jurisdiction over the gross potential rental income for
the subject building although it does, since H.U.D. has not been
shown to have pre-empted DHCR jurisdiction to do so at this
building, regulate the rents of individual apartments. The
proposed rent levels of $435.00, $445.00 and $455.00 for 3-
bedroom apartments were simply allocations that the owner
proposed as a way to reach the total building rental ceiling;
such amounts were not ceilings for any particular apartment.
While the gross potential rental income for the building as shown
by the registrations is in excess of the amount shown on the
rental schedule submitted to H.U.D. by the owner on September 15,
1974, and while there is no evidence that the owner applied to
H.U.D. for increases in the gross potential income [although the
fact that the owner was apparently making monthly financial
reports to H.U.D. would tend to imply that H.U.D. was aware of,
and authorized, increases], the tenant may wish to pursue any
remedies she may have through H.U.D. or in a court of competent
jurisdiction.
The owner is cautioned to adjust the rent, in leases after those
considered in this order, to amounts no greater than that
determined by this order plus any lawful increases, and to
AR Docket Nos. DJ 410205-RT; DJ 410405-RO
register any adjusted rents with this order being given as the
reason for the adjustment. Because of the possibility that the
tenant herein may have vacated by the time that this
determination is issued, a copy of this determination is being
mailed to the tenant-in-occupancy.
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 the tenant's petition be, and the same hereby is,
granted in part; that the owner's petition be, and the same
hereby is, denied; and that the Rent Administrator's order be,
and the same hereby is, modified in accordance with this Order
and Opinion. The lawful stabilization rents and the amount of
overcharge are established on the attached chart, which is fully
made a part of this order. The total overcharge, including
excess security of $142.38, is $38,685.36 as of September 30,
1989.
ISSUED:
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ELLIOT SANDER
Deputy Commissioner
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