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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 SJR 5854 (DEEMED DENIAL)
APPEAL OF ADMINISTRATIVE REVIEW
DOCKET NO.: FB 410136-RO
WARD WALLAU,
DRO DOCKET NO.: ZBL-410422-R
TENANT: NANE CHEUNG
PETITIONER
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ORDER AND OPINION GRANTING PETITION FOR ADMINISTRATIVE REVIEW
IN PART
On February 13, 1991 the above named petitioner-owner filed a
Petition for Administrative Review against an order issued on
January 11, 1991 by the Rent Administrator, 92-31 Union Hall
Street, Jamaica, New York concerning housing accommodations known
as Apartment 5 at 294 Elizabeth Street, New York, New York
wherein the Rent Administrator determined that the owner had
overcharged the tenant.
Subsequent thereto, the petitioner-owner filed a petition in the
Supreme Court pursuant to Article 78 of the Civil Practice Law
and Rules requesting that the "deemed denial" of its Petition for
Administrative Review be annulled. The proceeding was remitted
to the Division of Housing and Community Renewal (DHCR), and the
owner's petition is herein decided on the merits.
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 and Sections 2526.1(a) and 2528.4 of the 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
December, 1987 of a rent overcharge complaint by the tenant, in
which she stated that she had commenced occupancy on July 1, 1982
at a lease rent of $750.00 per month, that she received a 3-year
renewal lease commencing July 1, 1983 at a rent of $825.00 and a
2-year renewal lease commencing July 1, 1986 at a rent of
$878.63, that she actually paid a rent of $500.00 from July 1,
1982 to June 30, 1984 and of $700.00 commencing July 1, 1984,
that she believed the lease rents were meant to defraud Ward
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Wallau, who bought the building in December, 1986 on the basis of
the $878.63 per month rental representation, that Mr. Wallau was
demanding that she now pay the full lease rent, and that she
believed the base rent should be the $500.00 she actually paid
rather than the lease rent.
In answer, the owner stated that he was aware before purchasing
the building on December 30, 1986 that the then-current owners
were giving the tenant a rent concession which the tenant was
aware would not continue after the change of ownership, and that
the tenant began paying the actual lease rent one month before
the building was sold.
The owner enclosed a statement by the prior owner, who stated
that he had developed a relationship with the tenant when she
lived elsewhere in the building; that they had moved into the
subject apartment together; that the $500.00 paid for the subject
apartment resulted from his arrangement with his co-owner based
on compensation for managing the property; that he reimbursed the
tenant for all but $170.00 of each $500.00 rent check; that the
preferential rent continued after he moved out in February, 1984;
that Mr. Wallau was occupying his former apartment at the time
that he entered into a contract to sell the building to Mr.
Wallau; that Mr. Wallau was fully aware of the financial aspects
of his relationship with the tenant; that the tenant was aware
that payment of the full lease rent would be required when the
building was sold; and that the tenant had the only copy of the
handwritten agreement as to the actual rent. The tenant later
enclosed a copy of such notations.
The current owner later stated that the prior owner had
registered the subject apartment in 1984 and 1985, and had
mailed the initial registration to the tenant on July 14, 1984,
but had not registered the apartment in 1986. The owner stated
that he had filed registrations properly each year since buying
the building on December 30, 1986, and that the tenant had a
signed lease for the year in question that reminded her what the
true rent was. He submitted a April 7, 1988 stipulation signed
in Housing Court whereby the tenant agreed to pay an increase,
not to exceed $40.00, of 1/40th of the cost of an air conditioner
with heating supplement.
In an order issued on January 11, 1991 the Rent Administrator,
based on the lack of a 1986 registration, froze the lawful rent
at the last rent registered prior to April 1, 1986 (this being
the $825.00 rent as of April 1, 1985), and found an overcharge of
$19,008.72 as of January 31, 1991, including treble damages.
In this petition, the owner contends in substance that the tenant
did not complain about a failure to register; that the issue was
not introduced into the proceeding until three years later, when
the DHCR sent a "Final Notice to Owner; Imposition of Treble
Damages on Overcharge"; that the DHCR should not add causes of
action on the tenant's behalf; that the imposition of treble
damages for failure to register is not a penalty permitted by the
Rent Stabilization Code; that treble damages should not be
imposed for the prior owner's failure to register during the
impending sale of the building, particularly since the 1987 and
later Registration Receipt Reports sent to the owner listing
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registration errors did not mention the fact that the building
was not registered for 1986; that any technical non-compliance
with registration requirements was fully remedied prior to the
issuance of the Administrator's order by the filing of the 1986
registration on January 9, 1991; that all of the tenant's rents
have been lawful, since a "sweetheart" rent is not effective to
establish the true legal rent for an apartment; that the
Administrator's order did not consider a 1988 increase based on
an improvement, for which the tenant agreed in a stipulation in a
non-payment proceeding to pay an increase of $40.00 per month;
and that the DHCR's delay in processing the complaint has
compounded the tenant's windfall. With his petition the owner
has included invoices for the purchase and installment of a
heating/cooling unit and for additional electrical wiring for the
unit, at a total cost of $1660.95.
In answer, the tenant asserts in substance that her complaint
was meant to spur a complete investigation of the records
regarding her apartment; that anyone buying a building is
responsible for any legal requirements that have not been met;
that her moving from Apartment 1 o Apartment 5 with the co-
owner was not a "sweetheart" deal, since it allowed a vacancy
increase on Apartment 1 and since it resulted in a rent increase
for the subject apartment from $265 to $825, based on some real
and some fabricated renovations including the co-owner's charge
for his own labor; and that the owner's failure to register the
apartment was willful.
In response, the owner contends in substance that the tenant's
answer does not address the issues raised in his petition; that
the failure to register in 1986 was an oversight; that the
tenant was paying a "sweetheart rent"; and that the document
submitted by the tenant stated "rent paid as long as
Pfeiffer/Chung occupy #5 would be $500.00."
The Commissioner is of the opinion that this petition should be
granted in part.
The Commissioner initially finds that the rent increase for
renovations in 1982 is not at issue. Based on Section 2526.1(a)
of the Rent Stabilization Code, the Administrator found that the
Initial Legal Regulated Rent was the $825.00 rent in the lease as
of April 1, 1984 (regardless of what previous increases had
resulted in that rent). The owner's petition does not challenge
that aspect of the Administrator's order so the tenant cannot,
without filing her own Petition for Administrative Review
against the order, raise that issue in answer to the contentions
in the owner's petition.
Section 2528.4 of the Rent Stabilization Code provides in
pertinent part that:
The failure to properly and timely comply with the
initial or annual rent registration as required by this
Part shall, until such time as such registration is
completed, bar an owner from applying for or collecting
any rent in excess of:
.
.
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.
b) the legal regulated rent in effect on April first of
the year for which an annual registration was required
to be filed...
The late filing of a registration shall result in the
elimination prospectively of such penalty.
It is not disputed that the subject apartment was not registered
for 1986 until January 9, 1991, two days before the
Administrator's order. It was therefore proper for the
Administrator's order to disallow any rent increases for periods
prior to that time, including increases for new equipment. It
does not matter that the owner finally registered the apartment
for 1986 before the Administrator's order; the Rent Stabilization
Code specifically provides for a bar on collecting increases
until after an owner has finally registered. While the tenant
agreed in a "so ordered" stipulation to pay an increase of 1/40th
of the cost of new equipment, with the increase not to exceed
$40.00, the judge in that case was not purporting to determine
the lawful rent of the subject apartment but was rather just
following the customary guideline for increases above the lease
rent. He could not have known of a missing registration in the
DHCR's records which prevented (as of the time of the
stipulation) the owner from actually collecting an increase that
would have otherwise been allowable.
While no rent increase for new equipment is being allowed during
the period that the apartment was not registered for 1986, this
order does modify the Administrator's order to include a $40.00
increase in the permanent rent after it was installed. The
increase is prospective only, effective from the time when the
apartment was finally registered for 1986 on January 9, 1991.
The Administrator apparently did not include the increase in the
permanent rent because no invoices were submitted. However,
because the owner submitted a stipulation in which the tenant
agreed to pay an increase of no more than $40.00 for new
equipment, and because the owner was clearly charging the $40.00
increase, at least as of the lease commencing August 1, 1988, the
matter was sufficiently at issue that the Administrator should
have requested additional evidence if she did not consider the
stipulation to be sufficient evidence of an entitlement to charge
the increase. The Commissioner considers it appropriate to
consider the invoices submitted on appeal as a supplement to the
stipulation. The expenditure of $1,660.95 entitles the owner to
an increase of $41.52 (limited to $40.00 by the stipulation), as
increased by the Guidelines, effective prospectively as of
January 9, 1991. Although the owner is not allowed to collect
any rent above $825.00 prior to January 1, 1991, the lawful
permanent stabilization rent in the lease from August 1, 1988 to
July 31, 1990 is $975.74, and in the lease from August 1, 1990 to
July 31, 1992 is $1,063.56. These are both the rents stated in
the respective leases. Because the owner was entitled to collect
the $1,063.56 lease rent as of January 9, 1991, the overcharge
for the month of January, 1991 was $62.74 rather than the $238.56
overcharge the Administrator determined by freezing the rent
through the end of the month. The actual overcharge collected
from August 1, 1986 through January 31, 1991 is therefore
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$6,097.68, not counting interest or treble damages.
Section 2526.1(a)(1) of the Rent Stabilization Code provides in
pertinent part for the imposition of treble damages on
overcharges unless an owner can establish that the overcharge
was not willful, in which case interest is imposed. Given the
facts of this case, including the fact that the building co-owner
was occupying the subject apartment with the tenant at the time
that the 1986 registration, which would have mentioned the same
lease cited in the 1985 registration, should have been filed, and
the fact that negotiations to sell the building were going on at
the time that the building would normally have been registered
for 1986, the Commissioner finds that the overcharge should not
be considered willful, and that interest should be imposed. The
total overcharge, with interest, is therefore $6,625.71 through
January 31, 1991.
In her complaint, the tenant claimed that:
1. My landlord has improperly overcharged me.
Additionally, he has perpetrated a fraud upon
me, in that the amount of rent actually
charged was less than the amount on the
lease.
This complaint of overcharge is sufficient to trigger the owner's
affirmative obligation to prove the lawfulness of the rents
charged. One of the factors affecting an owner's right to charge
a particular rent is compliance with registration requirements.
A general complaint by a tenant that she or he is being
overcharged requires an owner to prove that all requirements
have been met, so it is not improper for the DHCR to find an
overcharge resulting from the failure to register, even if the
tenant does not allege such a failure. In addition, the
requirement of annual registration is an ongoing requirement, not
one which an owner has to be put on notice of by a tenant filing
a complaint. The evidence f an owner's compliance, or non-
compliance, is already contained in the DHCR's records. The
owner's contention that the Administrator's order may not
properly be based on an issue not raised by the tenant is
therefore rejected.
This determination is without prejudice to any rights the owner
may have to proceed against the prior owner in a court of
competent jurisdiction for failure to register or to inform the
owner of the failure to register.
This order may, upon the expiration of the period in which the
owner may institute a proceedi g 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, granted
in part; and that the Rent Administrator's order be, and the same
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hereby is, modified in accordance with this Order and Opinion.
The total overcharge is $6,625.71 as of January 9, 1991. The
lawful stabilization rent in the lease from August 1, 1990 to
July 31, 1992 is $1,063.56 per month, although only $825.00 per
month of that is collectible until January 9, 1991.
ISSUED:
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ELLIOT SANDER
Deputy Commissioner
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