FD 510244-RO

                                STATE OF NEW YORK
                          OFFICE OF RENT ADMINISTRATION
                                   GERTZ PLAZA
                             92-31 UNION HALL STREET
                             JAMAICA, NEW YORK 11433

      APPEAL OF                              DOCKET NO. FD 510244-RO

                                          :  DISTRICT RENT OFFICE
           Roy Agoney, Agent for             DOCKET NO. ZCC-510517-R
           92 Morningside Realty, Inc.,      
                                             TENANT: Rodney Epperson      

                            PETITIONER    : 


      On April 24, 1991 the above-named petitioner-owner filed a Petition for 
      Administrative Review against an order issued on April 12, 1991 by the 
      Rent Administrator, 92-31 Union Hall Street, Jamaica, New York 
      concerning the housing accommodations known as 92 Morningside Avenue, 
      New York, New York, Apartment No. 61 wherein the Rent Administrator 
      determined that the owner had overcharged the tenant.  On August 8, 1991 
      the appeal was rejected for procedural reasons, and the owner was given 
      35 days to refile.  On February 7, 1992 the owner's attorney requested 
      reconsideration and reopening of the proceeding, contending that the 
      owner had just become aware of the August 8, 1991 rejection.  The DHCR 
      granted the request on March 27, 1992, and the owner's appeal is herein 
      considered on the merits.

      The issue herein is whether the Rent Administrator's order was 

      The applicable sections of the Law are Section 26-516 of the Rent 
      Stabilization Law and Sections 2520.6(i) and 2526.1(a) 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 March, 1988 of 
      a rent overcharge complaint by the tenant, in which he stated that he 

          FD 510244-RO

      had commenced occupancy on January 1, 1987 at a rent of $500.00 per 
      month, and that he was required to pay the prior tenant's rent arrears 
      of $1,700.00 before he was given the apartment.

      The owner was served with a copy of the tenant's complaint, and 
      requested to submit leases from 1984 as well as proof of registration 
      from 1984 to 1990.  The owner submitted the requested leases, as well as 
      registration worksheets from the Rent Stabilization Association 
      ("R.S.A.") and proof of mailing of the worksheets to the R.S.A.  The 
      owner did not respond to a request for proof of service of the 1985 to 
      1990 registrations on the DHCR, or for an explanation of the $1,700.00 
      "key money" charge.  The tenant did not respond to a notice asking if 
      there was any relationship between him and the prior tenant Stephen 
      Epperson, or if he had lived in the apartment with the previous tenant.

      In an order issued on April 12, 1991 the Administrator found an 
      overcharge of $22,620.00 from January 1, 1987 to December 31, 1988 as a 
      result of freezing the rent due to the owner's failure to register after 
      1984, and imposing treble damages on the resulting overcharge as well as 
      on the $1,700.00 fee collected by the owner.

      In this petition, the owner contends in substance that the $1,700.00 
      "key money" was refunded to the tenant on June 19, 1989 pursuant to a 
      court stipulation; that it was not "key money," but rather back rent 
      from the time when the tenant lived in the apartment with his brother 
      Stephen Epperson, whom the tenant referred to in his complaint only as 
      the "prior tenant"; that the apartment registrations for 1985 through 
      1989 were submitted under Docket No. CC-610518-R; that the tenant 
      refuses access for repairs; that he has never signed a renewal lease; 
      and that he last paid rent in September, 1989, with that payment only 
      being made when forced by a judge.  The owner also asserts in substance 
      that the tenant's lease was entered into by James Harrell, a 7A 
      Administrator directed by the Court to charge the maximum rent; that the 
      owner only renewed existing leases inherited from Mr. Harrell, using 
      Guidelines percentages of increases, since Mr. Harrell was acting as an 
      agent of the Court and the owner could not challenge the rents that he 
      had set; that the owner has put in new windows, a new burner and a new 
      roof without asking for any M.C.I. increases; and that the tenant's 
      challenge to the rent, if allowed to stand, could upset every single 
      lease in the 48-unit building since Mr. Harrell had tried in 1986 to 
      obtain rents which would help the building survive.

      With his petition the owner has enclosed a stipulation dated June 19, 
      1989 providing that $1,200.00 of the $1,700.00 fee would be applied 
      toward the $4,313.00 arrears remaining after the $1,000.00 which the 
      tenant had paid that day; and that $500.00 would be used for security. 
      [The tenant's lease had provided for zero security.]  The owner has also 
      enclosed a December 29, 1987 letter from Omnia Properties, agent to 
      Manhattan Avenue Association Corp. stating that she had visited the 
      tenant's apartment four times in the past two months, that his brother 
      had been there each time, and he was not making arrangements to allow 
      repairs to be made.  The owner has also enclosed September 19, 1990 and 

          FD 510244-RO

      October 17, 1990 notices from the DHCR, each bearing a computer 
      generated label for Docket No. CC-610518-R [concerning a case at a 
      building in The Bronx, with a different owner], rather than for No. CC- 
      510517-R, which is the order under appeal.   [It is possible that the 
      answer forms enclosed with those notices also had labels for No. CC- 
      610518-R, and that the owner's submissions therefore never made it t to 
      the correct case file].  The owner has also enclosed a copy of a 
      November 28, 1990 answer, with the correct docket number on the answer 
      form, which is not contained in the case file.
      In answer, the tenant submitted an October 1, 1991 rent bill from the 
      owner listing $19,988.70 total rent due, with a notation from the owner 
      that "[a] PAR was filed with DHCR - you must pay rent until a decision 
      is made."  [This is partially correct.  The tenant was supposed to pay 
      rent, but at a reduced amount based on the Administrator's order, rather 
      than at the $500.00 lease rent which the owner was billing.]

      On June 1, 1992 the owner was requested to submit evidence of 
      registration of the apartment for 1985 through 1989.  In response, the 
      owner submitted mailing lists and mailing receipts from the R.S.A. to 
      establish the mailing of the registrations to all of the stabilized 
      apartments in the building in 1986 through 1989, and an affidavit of 
      service from the R.S.A. Director of Finance, as well as a 1985 
      registration date-stamped by the DHCR.  In addition, information 
      furnished by the R.S.A. concerning the computer tapes on which it 
      originally submitted the registrations to the DHCR has enabled the DHCR 
      to locate the registrations, and to confirm that the owner had in fact 
      registered for 1986 through 1989.

      In response the tenant questions why the matter was reopened.
      The Commissioner is of the opinion that this petition should be granted 
      in part after reopening upon reconsideration.

      Section 2520.6(i) of the Rent Stabilization Code defines an owner, in 
      pertinent part, as a "person or entity receiving or entitled to receive 
      rent for the use or occupation of any housing accommodation, or an 
      agent" of the owner.  In the instant matter, the 7-A Administrator, 
      James Harrell, received the monthly rents from the tenants of the 
      subject building, including the prior tenants of the subject apartment.  
      In addition, such Administrator by law must remit to the owner any 
      monies received from the tenants that exceed the cost of building-wide 
      rehabilitative and repair work, real property tax liens and payment for 
      the Administrator's services [see RPAPL Sect. 778, subd. 1(e)].  The 
      Commissioner also notes that a 7-A Administrator has an interest in the 
      rents that he receives in the form of the fee he collects which is based 
      on the monthly rent roll.  Therefore the Commissioner finds that the 7A 
      Administrator is considered the owner of the subject building, as that 
      term is defined in Section 2520.6(i) of the Code, during the time that 
      he managed the building and entered into leases.

          FD 510244-RO

      The Commissioner rejects the owner's claim that a stabilized apartment 
      becomes exempt from the Rent Stabilization Law upon the appointment of 
      a 7-A Administrator.  The apartment remains stabilized.  Neither the 
      Rent Stabilization Law of 1969 nor the Emergency Tenant Protection Act 
      of 1974 expressly excludes from the Rent Stabilization Law apartments 
      managed by 7-A Administrators.  The Rent Stabilization Law's failure to 
      mention 7-A Administrators is significant because this program was 
      established prior to the enactment of the Rent Stabilization Law and the 
      legislature could have expressly provided for an exemption from 
      stabilization had it chosen to do so.

      The owner's attempt to include a building managed by a 7-A Administrator 
      in the language of the ETPA exempting "housing accommodations owned or 
      operated by the  ... State of New York,... agency or instrumentality 
      thereof" fails.  Given the remedial nature of the Rent Stabilization 
      Law, exemptions to this law are to be construed narrowly.  In such a 
      building, since the title continues to be held by the private owner, 
      neither the 7-A Administrator nor the Civil Court owns the building.  
      Since the day-to-day operation is conducted by the 7-A Administrator, a 
      private individual, the building is not operated by New York State.  The 
      Civil Court's supervision over the 7-A Administrator is too intermittent 
      to constitute a government operation of the building.

      The Commissioner finds that a tenant, pursuant to the Rent Stabilization 
      Code and the Emergency Tenant Protection Act, is not required to remit 
      rent in excess of lawful stabilized amounts even if the 7-A 
      Administrator's funds would thereby be reduced.  To determine otherwise 
      would destroy the very foundation of the stabilization system which was 
      created "to insure that the level of rent adjustments authorized under 
      (the EPTA) will not be subverted and made ineffective" [see Century 
      Operating Corp. v. Marrero, 425 N.Y.S.2d 464, 465; Section 10 of Chapter 
      576 of the Laws of 1974 (EPTA)].  Moreover, as the condition of the 
      subject building is in no way the fault of the tenant, such tenant 
      should not be required to subsidize the rehabilitation of this building 
      at an illegal rent.  The Commissioner also notes the case of Schactman 
      v. State Division of Housing and Community Renewal, 531 N.Y.S. 2d 804 
      (App. Div. 1st Dept., 1988), motion for leave to appeal to the Court of 
      Appeals denied, 540 N.Y.S. 2d 238, involving another Manhattan building 
      with a 7-A Administrator. The Commissioner's order in the proceeding 
      (Docket No. ARL 01824-K) had found that the 7-A Administrator was an 
      "owner" under the Rent Stabilization Code; that the tenant was not 
      required to remit a rent in excess of the lawful rent, and that the 
      tenant should not have to wait and collect the refund of overcharges 
      from the actual owner, although the refund she could collect from the 7- 
      A Administrator was limited to the overcharges actually collected by 
      him.  The trial court upheld the order except to the extent that it 
      remanded the matter for a determination as to whether the building owner 
      was financially able to refund the overcharges and as to whether the 
      amount of overcharge should be offset against future rents in the event 
      that the building owner was not financially sound.  The Appellate 
      Division reversed the trial court and upheld the Commissioner's order as 
      having a rational basis. 

          FD 510244-RO

      The owner is contending that the 7-A Administrator was obligated, by the 
      Court's directive, to charge the "maximum" rent, and is implicitly 
      contending that the $450.00 rent charged Stephen Epperson therefore had 
      judicial approval.  The Commissioner finds nothing in the system of 
      court-appointed 7-A Administrators to suggest that the Civil Court 
      should be considered to have established Stephen Epperson's lawful rent 
      at $450.00 per month.  The system of 7-A Administrators was designed to 
      permit the restoration of services by a tenant representative where the 
      owner has defaulted on its duties to maintain the building.  It was not 
      designed to permit 7-A Administrators or the Civil Court to increase the 
      rents above the lawful limits where either party considers the building 
      rent roll to be insufficient to cover the costs of its maintenance.  

      It is appropriate to consider information in the DHCR's records to be 
      part of the record of any proceeding at the time.  While the 
      Administrator froze the collectible rent at the April 1, 1984 registered 
      rent of $260.00 because the DHCR's computerized rent registration system 
      did not show the owner as having registered for 1985 through 1988, the 
      owner has submitted satisfactory proof that he did serve the 
      registrations on the occupants of the subject apartment from 1986 
      through 1989, and an investigation of DHCR records has shown, as 
      previously mentioned on page 3 of this order, that the owner had 
      registered with the DHCR for those years.   [The owner did not submit 
      new proof for 1985, since he had previously submitted that registration 
      date-stamped by the DHCR.]  Because the owner had actualy registered, 
      the rent should not have been frozen due to apparent non-registration.

      Taking the above-mentioned factors into account, the Commissioner has 
      recalculated the lawful stabilization rents and the amount of 
      overcharge.  They are set forth on a revised rent calculation chart 
      attached hereto and made a part hereof.  Treble damages have been 
      imposed on the monthly overcharge, but not on the $1,700.00 initially 
      collected by the owner, which was refunded two years prior to the 
      Administrator's order.   The June 19, 1989 "So Ordered" stipulation 
      submitted by the owner includes the tenant's acknowledgement that he 
      owed $5,313.00 for the period through June 30, 1989, before any payments 
      or adjustments were made on the day of the stipulation.  This represents 
      six months rent in 1989 at a lease rent of $500.00 per month, and 
      $2,313.00 arrears for the complainant's lease ending December 31, 1988, 
      with was the subject of the Administrator's order.  In the stipulation 
      the owner acknowledged that the tenant had paid $1,000.00 that day, and 

      agreed to credit the tenant with the $1,700.00, with $500.00 of that 
      being used for security, $500.00 being used for the January, 1987 rent, 
      and $700.00 being used for other arrears.  While the owner has contended 
      that the tenant has not paid rent since September, 1989 [approximately 
      three months after the date of the stipulation], it is presumed that the 
      payments made by the tenant between June and September, 1989, together 
      with the $1,000.00 payment and $1,200.00 credit on June 19, 1989, paid 
      in full the rent owing for the period from January 1, 1987 to December 
      31, 1988.  Even though those arrears had not been paid by December 31, 

          FD 510244-RO

      1988, the last day concerned in the Administrator's order, the tenant 
      was contractually obligated to pay that portion of rent, the owner was 
      contractually entitled to collect it, and it was eventually paid prior 
      to the Administrator's April 12, 1991 order, so it is appropriate to 
      treat it as though it was paid at the expected time.  Because the 
      $1,700.00 fee was refunded nearly two years prior to the Administrator's 
      order, it is not included in the amount which the owner must refund to 
      the tenant.

      Section 2526.1(a)(1) of the Rent Stabilization Code provides in 
      pertinent part that treble damages shall be imposed on overcharges 
      unless an owner establishes that the overcharge was not willful.  An 
      owner has an independent duty to charge only lawful rents, based upon an 
      apartment's rental history.  The presumption of willful overcharge is 
      not rebutted by the owner's setting the complainant's rent at a 9% 
      increase over the $425.00 rent of the prior tenant, since that rent 
      itself represented an unlawful increase over the $260.00 rent of the 
      lease in effect in the previous Guidelines period.  Treble damages are 
      therefore imposed on the $4,243.36 overcharge occurring from January 1, 
      1987 to December 31, 1988. 

      This order 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, be filed and enforced in the same manner as a judgment, or 
      the tenant may apply the overcharge award against any arrears that he 
      owes.  If he does the latter, and there is an excess of the overcharge 
      award remaining after being offset against the arrears, the tenant may 
      offset not more than twenty percent of the excess each month 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 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 is $12,897.74 as of December 31, 1988, including excess 
      security of $167.66.  The lawful permanent stabilization rent is $332.34 
      per month in the lease from January 1, 1987 to December 31, 1988.


          FD 510244-RO


                                           JOSEPH A. D'AGOSTA
                                           Acting Deputy Commissioner



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