Docket Number: FG 410292-RO
                                  STATE OF NEW YORK
                            OFFICE OF RENT ADMINISTRATION
                                     GERTZ PLAZA
                               92-31 UNION HALL STREET
                               JAMAICA, NEW YORK 11433

          APPEAL OF                              DOCKET NO.: FG 410292-RO 
            MURRAY SCHACTMAN,                    DRO DOCKET NO.: ZDG-410380-R  
                                                 TENANT:  Karyn Lynn Dale
                                PETITIONER       OWNER:  H.O. Realty Corp.


          On July 24, 1991 the above-named petitioner filed  a  Petition  for
          Administrative Review against an order issued on June 26,  1991  by
          the Rent Administrator, 92-31 Union Hall Street, Jamaica, New  York
          concerning housing accommodations known as Apartment 20 at 66  West
          10th Street, New York, New  York  wherein  the  Rent  Administrator
          determined that the Article 7-A Administrator had  overcharged  the

          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 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  July,
          1989 of a rent overcharge complaint by the  tenant,  in  which  she
          stated that she had commenced occupancy on August 4, 1985 at a rent 
          of $323.01 per month.  Although she named H.O. Realty Corp. as  the
          owner, the lease commencing November 15, 1985 which  she  submitted
          was made with the petitioner herein, as was the November  15,  1983
          lease of the prior tenants, which lease  was  assigned  to  her  on
          August 4, 1985.  She also contended that her rent should  be  based
          on the rent established by a prior Order No. CDR 34147 (Docket  No.
          T/C-79164-G) issued on October 24, 1988.

          A copy of the tenant's complaint was sent to H.O. Realty.  No reply 
          was received from it.

          In an order issued on June 26, 1991 the Rent Administrator,  making
          use of an order which had set the prior tenants'  default  rent  at
          $240.36 through November 14, 1985, found that the  complainant  had
          been overcharged in the amount of $2,330.07 as of the time  of  the
          order.  (The petitioner had reduced the  complainant's  rent  to  a

          Docket Number: FG 410292-RO

          lawful amount as of the  first  rent  payment  date  following  his
          receipt of the October 24, 1988 order reducing the lawful  rent  in
          the prior tenants' lease, so  no  overcharge  was  collected  after
          November 14, 1988.)  The order named the petitioner herein  as  the

          In this  petition,  the  petitioner  -  Article  7-A  Administrator
          contends in substance that:

               1)  He was appointed as 7-A Administrator for the  subject
               building by a Housing Judge of the Civil Court on  May  2,

               2)  The Division has no  jurisdiction  to  order  the  7-A
               Administrator to refund monies  from  his  "administrative
               fund" to the tenant, as he is not  an  "owner"  under  the
               Rent Stabilization Code and as the Order and  Judgment  of
               the Civil Court which resulted in the appointment of  such
               Administrator states, in pertinent part, that such  rental
               monies "shall be used, subject to the  Court's  direction,
               ... to  remedy...  violations  of  record  placed  by  any
               Office of  the  Department  of  Housing  Preservation  and
               Development (HPD)... and any other conditions as  required
               or authorized by law".   As  a  result,  the  only  proper
               authority to  order  rental  overcharge  payments  to  the
               tenant is the judge who appointed the Administrator.

               3)  The purpose of the appointment of a 7-A  Administrator
               is to assure that when the Court has found that  dangerous
               and hazardous conditions exist in a building that all  the
               income from the premises is used to  abate  those  serious
               conditions before funds are diverted for  other  purposes,
               such as refunding monies pursuant to  a  rent  overcharge.
               The Division Order thus impermissably frustrates  the  7-A
               Administrator's ability to preserve the rental  income  of
               the  subject  building  to  make   court-ordered   crucial

               4)  To compel the 7-A Administrator to  pay  thousands  of
               dollars  as  a  consequence  of   complaints   of   rental
               overcharges results in depleting  and  wasting  the  funds
               allocated for maintenance and repair of the building  -  a
               function which the Administrator is duty bound to  perform
               (see Real Property  Action  and  Proceedings  Law  Section
               778).  The Division's Order  cripples  the  activities  of
               the 7-A  Administrator  by  depriving  him  of  additional
               rent payments and, based  thereon,  promotes  the  further
               deterioration of the subject building.


          Docket Number: FG 410292-RO

               5)  The  owner  of  the  subject  building,  not  the  7-A
               Administrator, is responsible for all rent overcharges  in
               the  subject  building.   The  proper  procedure  in   the
               instant matter would be  to  defer  payment  of  the  rent
               overcharge amount until the period of administration  ends
               and the owner has possession of the building.  Or, in  the
               alternative, the affected tenant  or  the  Division  could
               make  an  application   to   the   Civil   Court   for   a
               determination  by  the  judge  who   appointed   the   7-A
               Administrator to  ascertain  whether  the  Administrator's
               funds  are  presently  adequate  to  make  such   payment,
               without  conflicting  with  the  very  purpose  of   RPAPL
               Section 778, the preservation and  rehabilitation  of  the

          The petitioner also contends that, while the Administrator  ordered
          the refund of $48.21 ($366.01 minus $317.80)  in  excess  security,
          the current rent of $351.39 means  that  there  is  now  a  smaller
          excess, and that the new  rent  in  the  lease  renewal  commencing
          November 15, 1991 will mean that there will no longer be any excess 
          security being held as of that time.

          In answer, the tenant asserts in substance  that  the  issues  have
          already been decided in Docket No. TC-79164-G, which set  the  rent
          and directed a refund of overcharges to the prior  tenants  in  the
          subject apartment; and that the 7-A Administrator indeed  paid  the
          prior tenants the full amount of the ordered refund.

          The Commissioner is of the opinion that  this  petition  should  be

          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,
          it is  uncontroverted  that  the  7-A  Administrator  receives  the
          monthly rents  from  the  tenants  of  the  subject  building.   In
          addition, such Administrator by law must remit to  the  owner  H.O.
          Realty 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  the  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  petitioner-7A
          Administrator is considered the owner of the  subject  building  as
          that term is defined in  Section  2520.6(i)  of  the  Code.   Based
          thereon, the Commissioner  further  finds  without  merit  the  7-A
          Administrator's contention that the Agency is without  jurisdiction
          in this matter.  

          Docket Number: FG 410292-RO

          The Commissioner finds without  merit  the  petitioner's  assertion
          that  all  income  from  the  subject  building  must  be  used  to
          rehabilitate the  existing  structure  before  such  funds  may  be
          "diverted" to, for example, rent overcharge refunds to tenants  who
          have been remitting a rent in excess of stabilized guidelines.  The 
          Commissioner notes  that  this  position  in  effect  discriminates
          against tenants by forcing them to subsidize the cost of their  own
          housing (see  Dept.  of  Housing  Preserv.  Dev.   v.  Sartor,  487
          N.Y.S.2nd 1 [A.D. 1st Dept. 1985]) by compelling tenants to pay for 
          housing at a rent that is unlawful.

          Concerning the petitioner's  contention  that  deprivation  of  the
          additional rental payments  cripples  the  activities  of  the  7-A
          Administrator 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 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

          Finally, the Commissioner rejects the petitioner's suggestion  that
          the payment of rent overcharge amounts  to  the  tenant  should  be
          deferred until the owner, H.O. Realty, reassumes control  over  the
          subject building or in the alternative, that  the  Division  should
          make application to the Civil Court for permission to attach the 
          7-A Administrator's funds.  As hereinabove stated, a tenant is  not
          required to remit an unlawful rent.  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.

          While the petitioner has cited a number of court cases  in  support
          of his contentions, he has neglected to mention 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.   That  case,  significantly,
          involved the petitioner  and  concerned  the  same  issue  of  rent
          overcharge at another  apartment  in  the  subject  building.   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


          Docket Number: FG 410292-RO

          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.

          The Commissioner notes that the Appellate  Division  proceeding  in
          Schactman involved an  apartment  in  the  subject  building  whose
          tenants  had  been  in  occupancy  prior  to  the  time   the   7-A
          Administrator took over  management  responsibilities.   A  default
          rent was set by the Rent Administrator, and the  7-A  Administrator
          was held liable for those overcharges which he had  collected.   In
          the present case not only did the complainant pay all of  her  rent
          monies to the  petitioner,  but  her  lawful  stabilized  rent  was
          established  by  an  order  issued  in  an  overcharge   proceeding
          initiated by the prior tenants, a proceeding which began after  the
          petitioner was already in charge of the building and the petitioner 
          did not appeal the determination in that proceeding.

          While the 7-A Administrator was holding excess security  of  $48.21
          as of the time of the Rent Administrator's order, subsequent  lease
          renewals establish that the petitioner is no  longer  holding  that
          much in excess security.  To avoid unnecessary passing of  security
          refunds  or  arrears  back  and  forth  between  the  parties,  the
          Administrator's order is hereby modified to direct  the  refund  of
          any security in excess of one  month's  current  rent.   The  total
          overcharge  refund  collectible  by  the  tenant  is   the   actual
          overcharge of $2,148.63 plus interest of $133.23.

          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.  The term  "owner"  is  taken  to  include  the  7-A

          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 Rent Administrator's order be, and  the  same  hereby  is,
          modified in accordance with this  order  and  opinion.   The  total
          overcharge, not including any excess security,  is  $2,281.86  from
          August 4, 1985 through November 14, 1988.


                                          ELLIOT SANDER
                                          Deputy Commissioner

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