DHCR Decisions
EA 410129-RO and EA 410277-RT
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
APPEALS OF DOCKET NO.: EA 410129-RO;
EA 410277-RT
Metropolitan Life Insurance DISTRICT RENT ADMINISTRATOR
Co. (owner), DOCKET NO.: ZAG-410140-R
and Michael Borak (prime tenant),
PETITIONERS Subtenant: Richard Miller
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ORDER AND OPINION TERMINATING PROCEEDING IN DOCKET
NO. EA 410129-RO AND DENYING PETITION FOR ADMINISTRATIVE
REVIEW NO. EA 410277-RT
On January 22, 1990 the above named petitioner-owner filed a
Petition for Administrative Review (Docket No. EA 410129-RO)
against an order issued on December 27, 1989 by the Rent
Administrator, 92-31 Union Hall Street, Jamaica, New York
concerning housing accommodations known as Apartment 7A at 651
East 14th Street, New York, New York wherein the Rent
Administrator determined that the owner had overcharged the
tenant. In response to the petition, which contended that the
issue was a prime tenant/subtenant overcharge in which the owner
had no involvement, an amended order was issued on March 19,
1990, finding the prime tenant solely liable for the $42,545.52
in overcharges for the period from June 1, 1984 to March 31,
1986. On January 31, 1990 the above named petitioner-prime
tenant had filed a Petition for Administrative Review (Docket No.
EA 410277-RT) against the original order. That petition is
regarded as also being an appeal of the amended order, since the
gravamen of the entire proceeding which resulted in the original
order was whether or not the prime tenant had overcharged a
subtenant, and since the amended order finally dealt with that
actual issue.
Subsequent thereto, the subtenant filed a Petition in the Supreme
Court pursuant to Article 78 of the Civil Practice Law and Rules
requesting that an expeditious determination of the Petitions for
Administrative Review be mandated. The proceeding was remitted
to the Division of Housing and Community Renewal (DHCR), and the
petitions are herein decided on the merits.
As these petitions involve common grounds of law or fact, they
are being decided in one order and opinion.
The issue in these appeals is whether the Rent Administrator's
order was warranted.
The applicable sections of the Law are Section 26-516 of the Rent
Stabilization Law and Sections 2520.13, 2525.6(b) and 2526.1(a)
of the Rent Stabilization Code.
EA 410129-RO and EA 410277-RT
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 July,
1986 of a rent overcharge complaint by the tenant, in which he
stated that he had commenced occupancy on June 1, 1984 as a
subtenant of Michael Borak at a rent of $1,200.00 per month,
although the prime lease rent was $553.72; that Mr. Borak was
married and never lived in the apartment during the time of the
sublease; and that Mr. Borak required him to sign an agreement to
sublease the apartment. The tenant included an agreement, signed
by him and Mr. Borak, stating that:
I, Michael Borak, residing at:
651 East 14th Street, Apt. 7A,
New York, New York do hereby agree to have
Richard Miller reside at same address as my Roommate
for a period of no less than 12 months (1 yr.) from
June 1, 1984 to May 31, 1985. After the initial period
(June 1, 1984 - May 31, 1985) either party may
terminate this understanding with a minimum of three
(3) months notice, either in writing, or orally
transmitted.
The amount will be $1200 per month.
At the bottom of the agreement Mr. Borak included his home
address and phone number in New Jersey.
In answer to the complaint, Mr. Borak contended that the
$1,200.00 monthly payment was comprised of $553.72 for rent,
$6.50 for an intercom, $500.00 towards the acquisition of
furniture, and $139.78 as a service charge; that the tenant
requested the signed agreement to protect his rights against any
attempted eviction; that the arrangement continued for 24 months,
at which time the tenant abruptly informed the prime tenant that
he was terminating the arrangement and vacating; that the tenant
moved some of the furniture out of the apartment; that the prime
tenant, when asking the tenant about his intentions regarding the
rest of the furniture, was told that the tenant was taking him to
court; and that the prime tenant had to pay the owner three
months additional rent due to the tenant's failure to remove his
personal property. With his answer the prime tenant enclosed a
list of what he contended was $12,000.00 in furniture and other
items purchased by the tenant, and a list of what he contended
the tenant removed upon vacating.
In reply, the tenant asserted that he subleased a furnished
apartment, that he had no agreement to purchase any furniture,
and that he left all the furniture in the apartment when he
vacated. With his reply the tenant enclosed cancelled rent
checks to the order of the prime tenant, including a $1,200.00
check for a security deposit.
In an order issued on December 27, 1989 the Rent Administrator
determined that the lawful stabilized rent duri g the month-to-
month tenancy of the complainant was $590.91 per month ($553.72
increased by 10% for a furnished sublet), and that the
complainant had been overcharged in the amount of $42,545.42,
EA 410129-RO and EA 410277-RT
including treble damages, during his 24 month tenancy. The order
named Metropolitan Life Co. as the owner. After the owner filed
its appeal against the order, an amended order, naming the prime
tenant as being solely responsible for the overcharge, was issued
on March 16, 1990.
In an affidavit in support of his petition, the prime tenant
repeats the assertions made in his answer to the complaint, and
additionally contends in substance that he would send his rent
check to Metropolitan after the tenant had forwarded the monthly
rent bill, slipped under the door of the subject apartment, to
the prime tenant's address in New Jersey, and that
In or about the end of May 1986, I entered the
Apartment to inspect the premises in preparation for
respondent's departure. I was shocked to discover that
the place was an absolute mess and that certain
furniture had been removed. Subsequently, I telephoned
Mr. Miller the following day and asked him when he was
going to clean the Apartment and what had happened to
the missing furniture. Mr. Miller got very angry and
replied that "I'll see you in court." Prior to this
conversation, Mr. Miller and I always had amiable
discussions without any conflict. Respondent's
behavior caused me to believe that he had planned this
suit from the outset of the sublet and that he had
bided his time until the termination of the sublease to
increase the possible amount which he could obtain from
me.
The prime tenant also contends in substance that the subtenant
has failed to return the approximately $2,000.00 worth of
furniture which he removed from the apartment. In another
affidavit in support of the petition, the prime tenant's attorney
asserts in substance that the subtenant's bad faith and
unconscionable conduct in seeking a windfall by knowingly paying
an overcharge in an attempt to recover treble damages should not
be countenanced by the DHCR, since his behavior subverts the
purpose of the Rent Stabilization Law; that, while there are no
reported court decisions construing Section 2525.6(b) of the Rent
Stabilization Code where a subtenant knowingly pays an
unlawfully high rent and then sues for treble damages upon
conclusion of the sublet, the court in Hurst v. Miske, 505
N.Y.S.2d 984 (N.Y. City Civ. Ct. 1986) declined to grant treble
damages to a subtenant in a rent-controlled apartment where the
subtenant knowingly continued to pay an overcharge throughout the
sublease and thus had "unclean hands"; that New York courts have
determined that equitable considerations require that they ignore
the "letter of the law" to prevent individuals from being
unjustly enriched by their wrongful acts; that the subtenant knew
from the outset of his sublease that he was being charged in
excess of the lawful stabilization rent; that he remained for the
full two year sublet period anyway; that he removed furniture
from the apartment even though claiming that the rent he paid had
no relation to the furniture owned by the prime tenant; that when
he was questioned by the prime tenant regarding his intentions to
clean the apartment he replied "I'll see you in court", and filed
an overcharge complaint less than six weeks later; that this
indicates that he acted with premeditation in remaining in the
EA 410129-RO and EA 410277-RT
apartment to the conclusion of the sublet; that the Rent
Stabilization Law and Code were not meant to provide windfalls to
wrong-doers who seek to circumvent the equitable principles
underlying the law; that the Administrator's order should be
reversed; and that the petitioner should be awarded an amount
equivalent to the value of the furniture which the subtenant
removed from the apartment.
The Commissioner is of the opinion that the proceeding in Docket
No. EA 410129-RO should be terminated, and that the Petition for
Administrative Review No. EA 410277-RT should be denied.
The appeal by the owner, Metropolitan Life Insurance Company, is
being terminated as moot because the amended order of March 16,
1990 gave the owner everything it had asked for in its petition
against the original order of December 27, 1989.
With regard to the prime tenant's petition, section 2525.6 of the
Rent Stabilization Code provides in pertinent part that a tenant
who maintains an apartment as his or her primary residence, and
who intends to occupy it as such at the expiration of the
sublease, may sublease it for no more than the legal regulated
rent, plus a surcharge of no more than 10% if the apartment is
sublet fully furnished. When a tenant charges a higher rent the
subtenant shall be entitled to treble damages on the overcharges.
By its terms the May 22, 1984 agreement between the parties was
for the subtenant to reside as the prime tenant's "roommate" at
an "amount" of $1,200.00 per month. While the prime tenant
contends that this amount included $500.00 for furniture (and
$139.78 for a "service charge"), side agreements for payment of
other obligations cannot be part of the rent, since the rent laws
could easily be evaded by claiming that what appeared to be an
unlawful rent actually included various other payments. The
prime tenant's subleasing of the apartment, without the owner's
consent or even knowledge, for $1,200.00 when he was paying the
owner only $560.22 evinces a profiteering intent that cannot be
countenanced.
While this order disallows furniture payments as part of the
rent, the Commissioner considers it unlikely that the $1,200.00
payments were even meant to include them. It might be expected
that parties to a purported agreement to transfer the ownership
of $12,000.00 worth of furniture would put something in writing
to safeguard their interests, but the record contains no evidence
for the sale of furniture, other than contentions made by the
prime tenant after being served with the overcharge complaint.
In addition, while the prime tenant in his answer to the
complaint, and his attorney in an affidavit in support of the
appeal, contended that the prime tenant asked the complainant
after he vacated about his intentions to remove the rest of the
furniture, the prime tenant in his affidavit states that he was
shocked in May, 1986 to discover that some furniture was removed,
and that he asked the complainant what had happened to the
missing furniture. Since 24 monthly payments of $500.00 each
would have completely paid the claimed $12,000.00 selling price,
and since the prime tenant would have had no way to know that the
subtenant would subsequently file a complaint and contend that
there was no agreement to purchase furniture, it is hard to see
EA 410129-RO and EA 410277-RT
why the prime tenant would be shocked by the removal of some
furniture since the prime tenant's contentions about an agreement
would mean that all the furniture was, by that point, the
property of the subtenant.
Because the prime tenant's allegations about the removal of
furniture are more a matter between the parties than they are
matter of "rent", the Commissioner does not find it necessary
to inquire into them in this order. This order is without
prejudice to any rights the prime tenant may have to pursue such
claim against the subtenant in a court of competent
jurisdiction.
With regard to the imposition of treble damages, Section 2525.6
provides for the mandatory imposition of treble damages when a
prime tenant charges a subtenant a higher rent than the prime
tenant is entitled to.
Section 2520.13 of the Rent Stabilization Code provides in
pertinent part that a tenant may not waive the benefit of any
provision of the Rent Stabilization Law or Code. Thus, even if a
tenant were to agree to pay a rent higher than the lawful
stabilization rent, but lower than an unregulated rent, to obtain
an apartment in a tight housing market, the lawful rent would
not be affected by the rent actually paid. The prime tenant is
attempting to avoid two-thirds of the mandatory treble damages
penalty by talking about the subtenant's "wrongful" acts, and
effectively arguing that the act of willfully overcharging is
somehow more acceptable, and less objectionable, if a tenant is
aware that the rent is unlawfully high but pays it anyway in
order to have a place to live. The imposition of treble damages
is designed mainly to deter owners from overcharging; and the
purportedly "wrongful" failure of the subtenant to object to the
unlawfulness of the rent charged until after he vacated should
not save the prime tenant from mandatory treble damages. To do
otherwise could gut the deterrent effect of the penalty, as an
owner could often argue that tenants knew or should have known
that they were being overcharged, and that therefore such owner
should not have to refund any more than just the actual unlawful
overcharges.
Several of the court cases cited by the prime tenant's attorney
in support of his argument that the subtenant's "unclean hands"
make him undeserving of reaping the "windfall" of treble damages
involve situations where a tenant could be considered to be doing
something affirmatively wrong, rather than just passively failing
to object to someone else's wrongful acts. In the present case
there is no evidence, or contention, that the subtenant somehow
entrapped the prime tenant into giving him a sublease (without
the owner's consent or knowledge) at a rent approximately double
the lawful rent. The rent control case of Hurst v. Miske is not
applicable o this case because Hurst concerned a rent-
controlled apartment and the instant case concerns a rent
stabilized apartment. Under rent control, the courts have the
primary duty of determining whether treble damages should be
imposed; under rent stabilization, the DHCR is authorized to
impose treble damages. Second, as discussed above the imposition
of treble damages where a prime tenant overcharges a subtenant of
a rent stabilized apartment is mandatory. Unlike the case where
EA 410129-RO and EA 410277-RT
an owner overcharges a prime tenant and is permitted to show by a
preponderance of the evidence that the overcharge was not
willful, thereby avoiding the imposition of treble damages, a
prime tenant does not have this opportunity.
Even Hurst assessed damages of $15,000.00 on an overcharge of
$10,431.00. Because it appears that approximately $2,500.00 of
the overcharges for the relevant period represented arrears not
yet paid by the subtenant, the $15,000.00 award was approximately
twice the overcharges actually paid by that subtenant. Based on
the reasons given previously in this order, the Commissioner
declines to follow the example of this one Court, and upholds the
Administrator's imposition of mandatory treble damages.
Furthermore, after the subtenant filed his complaint, the prime
tenant had an opportunity to refund all overcharges and thereby
relieve himself of the penalty of treble damages. His failure to
do so cannot be ascribed to the actions of the subtenant.
This order may, upon the expiration of the period in which the
prime tenant, Michael Borak may institute a proceeding pursuant
to Article seventy-eight of the civil practice law and rules, be
filed and enforced by the subtenant against the prime tenant in
the same manner as a judgment.
THEREFORE, in accordance with the provisions of the Rent
Stabilization Law and Code, it is
ORDERED, that the proceeding in Docket No. EA 410129-RO be, and
the same hereby is, terminated; that Petition for Administrative
Review No. EA 410277-RT be, and the same hereby is, denied; and
that the Rent Administrator's amended order of March 16, 1990 be,
and the same hereby is, affirmed. The total overcharge of the
subtenant by the prime tenant is $42,545.52.
ISSUED:
JOSEPH A. D'AGOSTA
Deputy Commissioner
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