DOCKET NO. DJ-410377-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. DJ 410377-RO
                                           :                 
           PAN AM Equities, Inc,           :  DISTRICT RENT ADMINISTRATOR'S
                                           :  DOCKET NO. ZL-3111098-R/T      
                                           :  
                                           :  TENANT:  Hugh Klein & Tom Corper
                               PETITIONER  :  
      -------------------------------------X


           ORDER AND OPINION DENYING PETITION FOR ADMINISTRATIVE REVIEW
                       AND MODIFYING ADMINISTRATOR'S ORDER


      On October 25, 1989 the above-named petitioner-owner filed a petition 
      for Administrative Review against an order issued on     September 20, 
      1989 by the Rent Administrator, 92-31 Union Hall Street, Jamaica, New 
      York concerning the housing accommodations known as Apartment 1-C at 440 
      East 85th Street, New York, New York wherein the Rent Administrator 
      determined that the owner had overcharged the tenant. 

      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 
      warranted.

      The applicable sections of the Law are Section 26-516 of the Rent 
      Stabilization Law, Section 2526.1(a) of the current Rent Stabilization 
      Code and Sections 10B and 42A of the former 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 one of the tenants, in which he stated 












      DOCKET NO. DJ-410377-RO

      that he had commenced occupancy on March 24, 1983 at a rent of $985.00 
      per month.

      The owner was served with a copy of the complaint and was requested to 
      submit rent records to prove the lawfulness of the rent being charged.  
      In answer to the complaint, the owner submitted its own rental history 
      chart from March 1, 1975 justifying the complainant's rent as being 
      lawful.  The owner included a letter claiming that the rental history 
      had been sent to and approved by the Attorney General's office.  This 
      claim apparently refers to an Assurance of Discontinuance  cited in 
      other cases of the owner's (although not mentioned in this one) as the 
      basis for a claim that the DHCR had no jurisdiction to determine the 
      lawful rents.  On March 22, 1989 the owner withdrew the jurisdictional 
      defense due to recently-discovered questionable practices by two former 
      employees.  Because rent records were not available, the owner 
      calculated a default rent of $740.34 in the complainant's initial lease 
      by applying the DHCR's default procedure to the lowest August, 1985 rent 
      for an apartment in the same line as the subject apartment.  The owner 
      calculated an overcharge of $9,215.52 through the time the complainant 
      vacated May 31, 1986, and added 9% of that amount as interest for a 
      total of $10,044.92.  The owner stated that it would refund that amount 
      to the tenants when they were located and that it would appreciate the 
      DHCR's assistance in locating them.  The owner also stated that the 
      apartment was currently vacant but that the last regulated rent would be 
      reduced to $1,282.60 rather than the $1,538.08 actually charged the most 
      recent tenants.

      On June 1, 1989 the owner was informed that, unless a rental history 
      from the base date was submitted within 20 days, treble damages would be 
      imposed on any overcharges found.  In response, the owner contended that 
      its good faith attempt to locate the tenants and to correct any previous 
      rent overcharges should negate the imposition of treble damages.

      In an order issued on September 20, 1989 the Rent Administrator, 
      applying the default procedure to the lowest April 1, 1984 registered 
      rent ($376.89) of a 3-room apartment in the building, imposing treble 
      damages on overcharges occurring on or after March 1, 1984, and 
      disallowing any Guidelines increases during the period of the tenants' 
      occupancy, calculated an overcharge of $59,430.12 as of May 31, 1989. 

      In this petition the owner contends in substance that the Administrator, 
      contrary to the procedure promulgated by the New York City Conciliations 
      and Appeals Board (C.A.B.), calculated the default rent as the lowest 
      rent of the same size apartment, rather than the lowest rent of an 
      apartment in the same line increased by the appropriate percentage rent 
      increase for the renewal lease which commenced within the 12-month 
      period immediately preceding the month of the owner's rent roll; that 
      the "B" line of apartments consists of two-bedroom units while the "C" 
      line consists of one-bedroom units; and that Method 2 of the default 
      procedure, if correctly calculated, yields $947.12 rather than $945.60.  
      [Note:  neither figure was used as the default rent].  The owner also 
      asserts in substance that treble damages should not have been imposed 






      DOCKET NO. DJ-410377-RO

      since it has rebutted the presumption of willfulness by its good faith 
      actions in withdrawing its jurisdictional defense, in reviewing the 
      entire rental history in an effort to refund any overcharges, and in 
      using the default formula to calculate a refund which it would have 
      tendered to the tenants if it had been able to locate them.  In 
      addition, the owner asserts that its good faith efforts to determine the 
      base rent and correct any overcharge made it inappropriate to have 
      frozen the rent during the entire time of the tenants' occupancy.

      The Commissioner is of the opinion that this petition should be denied, 
      and that the Administrator's order should be modified.

      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 to date and produce them to the DHCR upon demand  If the 
      apartment was decontrolled from the Rent Control Law after June 30, 1974 
      the owner must provide satisfactory documentary evidence of the 
      apartment's date of decontrol, and produce a rental history from that 
      date.

      In 1982, the DHCR predecessor N.Y.C. Conciliation and Appeals Board 
      adopted procedures to be used to determine an apartment rent where the 
      owner did not provide a complete rent history of the apartment.  In such 
      cases the rent was calculated to be the lowest of the following amounts:

           1)   The lowest rent for an apartment in the same line, 
                without any Guidelines adjustment for the 
                complainant's vacancy lease or for any subsequent 
                lease, except for renewal leases commencing on or 
                after the 12-month period  immediately preceding 
                the month of the owner's rent roll.

           2)   the complaining tenant's initial rent minus any allowance 
                for the tenant's initial lease, without any Guidelines 
                adjustment for any subsequent lease commencing prior to 
                the date of the agency's order.

           3)   the prior tenant's last rent, without any Guidelines 
                adjustment for any subsequent lease commencing prior to 
                the date of the agency's order. 

      These procedures have been adopted by the DHCR and upheld by the Courts 
      (61 Jane Street Associates v. CAB, NYLJ, May 8, 1984, p. 11, col. 4 
      (Sup. Ct. N.Y.Co., Greenfield, J.), 108 A.D. 2d 636, 486 NYS2d 694, 
      affirmed 65 NY2d 898, 493 NYS2d 455 (C.A., 1985).


      In the present case, the owner was directed to submit a complete rental 
      history, but acknowledged that it was unable to do so, so it was proper 
      for the Administrator to use the DHCR's default procedure to set the 
      lawful stabilization rent.  For reasons set forth infra, the DHCR has 
      since 1985 been using the standard of the lowest registered rent for an 












      DOCKET NO. DJ-410377-RO

      apartment with the same number of rooms in the building rather than the 
      lowest rent of an apartment in the same line.  For reasons also set 
      forth infra, exact comparability of apartments is not necessary, so it 
      does not matter that the owner considers the 3-room apartment 3-C to 
      have two bedrooms and the 3-room apartment 2-B to have one bedroom.  It 
      was therefore proper for the Administrator to use the $376.89 rent of 
      Apartment 2-B in the formula rather than the $698.43 rent of Apartment 
      3-C.

      When the C.A.B. adopted the default procedures in 1982 there was no 
      system of registration of apartment sizes and rents.  To avoid undue 
      processing in the form of efforts to ascertain all comparable apartments 
      in a building anytime an overcharge complaint was made, the C.A.B. used 
      the standard of considering apartments in the same line as the apartment 
      complained about as a way to achieve a rough comparability.  Since the 
      room count and rents of all stabilized apartments have been required to 
      be registered since April 1, 1984, the DHCR has since 1985 been using 
      the lowest rent of an apartment with the same room count in the 
      building.  Although this may mean that the apartment being used in the 
      test is not exactly identical to the apartment at issue (since the 
      latter may have additional features or be on a more desirable floor or 
      have a larger area although having the same number of rooms), the 
      Commissioner notes that the Section 42A default procedure is a penalty 
      to be applied where an owner has defaulted on its obligation to 
      establish the lawfulness of the rents charged, rather than its being an 
      equitable situation where a more exact comparability might be necessary.

      The use of the standard of the lowest rent for a comparably-sized 
      apartment promotes the enforcement of the Rent Stabilization Law in 
      several important ways and is a natural evolution from the initial 
      implementation of the procedures in 1982.  First, it gives the DHCR a 
      larger survey of comparably-sized apartments.  This larger survey 
      reduces the likelihood that the rent selected is one in excess of the 
      Guidelines.  The use of just one line of apartments increases the 
      possibility that the apartment selected is one for which an owner has 
      charged an illegal rent, especially if the line contains few apartments.  
      [That is of particular importance in cases involving the owner, herein, 
      which has stated in a lawsuit and in other DHCR proceedings that its 
      former employees apparently falsified numerous rent records during their 
      tenure.]  Second, a line of apartments may not exist, such as in a 
      garden apartment complex, or may be difficult to ascertain.  The use of 
      the registration records avoids this problem and permits quicker 
      resolution of a tenant's complaint.  Third, the DHCR should not have to 
      rely upon an owner's designation of a line where such owner has been 
      shown to have violated one of the most basic requirements of the Rent 
      Stabilization Law, namely the maintenance of complete rent records.  The 
      Commissioner has previously taken this same position in an order issued 
      on February 28, 1992 in Docket No. BK 410153-RO, where the use of a 
      similar apartment in the building rather than the same line was also 
      explicitly challenged.

      For reasons set forth at length in an order issued under Docket No. DI 






      DOCKET NO. DJ-410377-RO

      410106-RO on July 31, 1991, involving the issue of treble damages 
      imposed on Pan Am Equities because of overcharges resulting from the 
      allegedly unauthorized and fraudulent actions of its former employees 
      (namely its Vice President in charge of leasing, and his successor in 
      that position), the Commissioner considers the owner to have been on 
      notice since April, 1984 that it would have to justify the lawfulness of 
      the rents charged.  While the owner has claimed a willingness, stymied 
      only by its lack of knowledge as to the tenants' whereabouts, to refund 
      the overcharge which it calculated by its application of the default 
      procedure, the owner did not make any attempt to make such a calculation 
      and refund during the two years between the time it was informed on 
      April 6, 1984 that an overcharge complaint had been filed and the time 
      the tenants vacated on May 31, 1986.   The Commissioner does not find 
      that the limited exemption from treble damages conferred by prompt 
      voluntary refund of overcharges is appropriate under the facts of this 
      case.  In addition, the presumption of willfulness that arises when an 
      owner charges a rent which it cannot justify as lawful has not been 
      rebutted by the owner's offer to refund the overcharge which it 
      calculated and to reduce the rent, since such actions were required (and 
      liable to be ordered by the DHCR) and were in any event after-the-fact 
      of charging rents that could not be justified.  The withdrawal of its 
      jurisdictional defense, in addition to being after-the-fact, is also of 
      little importance since that defense has been rejected in several 
      Commissioners' orders and court opinions.  As discussed in the order for 
      Docket No. DI 410106-RO, the willfulness of its corporate officers in 
      overcharging is imputed to the owner. 

      While the owner has asserted that it would have refunded approximately 
      $10,000 to the tenants if only it had known their address, the 
      Commissioner notes that Tom Corper has been listed in the Manhattan 
      telephone directory every year since vacating the subject apartment in 
      1986.  A copy of this order is being sent to him at his current address.

      Regarding the owner's contention that the Administrator should not have 
      frozen the rent through May 31, 1986, the Commissioner notes that the 
      DHCR has since 1985 used as the first prong of the default procedure the 
      lowest stabilized rent for the same size apartment (as indicated on the 
      Division's initial apartment registration)  without guidelines 
      adjustment for the complainant's vacancy lease or for any subsequent 
      leases of the subject apartment which commenced prior to the date of the 
      Division's order.  Because the registered rents, rather than rent rolls 
      submitted by owners, are now used, it would not have been appropriate to 
      have continued the original C.A.B. practice of allowing guidelines 
      adjustments for renewal leases which commenced on or after the 12-month 
      period immediately preceding the month of an owner's rent roll.  The 
      Commissioner also notes that, freezing of the rent is a routine part of 
      the default procedure and is not dependent on a calculus of the degree 
      of willfulness of an overcharge.

      Because the tenants vacated in 1986, the excess security of $708.97 
      should be removed from the overcharge award.













      DOCKET NO. DJ-410377-RO

      With regard to the method of refund of the overcharge and penalties, the 
      owner is directed to do one of the following:

           1)   Within thirty days of the issuance of this order, 
                tender to the tenants a check for the total amount 
                of the overcharge and penalties payable to the 
                order of "Tom Corper and Hugh Klein"; or

           2)   Tender to either tenant (Tom Corper or Hugh Klein) 
                a check for the full amount of the overcharge and 
                penalties upon presentation by such tenant to the 
                owner of a written instrument in proper form duly 
                executed by the other tenant releasing the owner 
                from any further liability for such refund.

      If the owner does not perform either of these two options, the tenants 
      may, upon the expiration of the period in which the owner may institute 
      a proceeding pursuant to Article 78 of the Civil Practice Law and Rules, 
      file and enforce this order in the same manner as a judgment.

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

      ORDERED, that this petition be, and the same hereby is, denied and that 
      the Administrator's order be, and the same hereby is, modified in 
      accordance with this order and opinion.  The total overcharge is 
      $58,721.15 as of May 31, 1986.  The lawful stabilization rent is $376.89 
      as of May 31, 1986.


      ISSUED:



                                                                       
                                         JOSEPH A. D'AGOSTA
                                         Acting Deputy Commissioner

    

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