DOCKET NO.: FI 710493-RT, FL 710350-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
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IN THE MATTER OF THE ADMINISTRATIVE : SJR NO. 6442
APPEALS OF ADMINISTRATIVE REVIEW
: DOCKET NOS. FI 710493-RT
SEYMOUR and PEARL WASSERMAN, . FL 710350-RO
TENANT-PETITIONERS : D.R.O DOCKET NO. EJ 710245-R
and
CROSSLAND SAVINGS BANK, :
OWNER-PETITIONER
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ORDER AND OPINION GRANTING TENANTS' PETITION FOR ADMINISTRATIVE REVIEW
IN PART AND DENYING OWNER'S PETITION FOR ADMINISTRATIVE REVIEW
These proceedings have been consolidated as they involve common issues of
law and fact.
With respect to FL 710350-RO this Order and Opinion is issued pursuant to a
stipulation in an Article 78 proceeding before the Supreme Court, County of
Nassau, Justice Christ, dated June 3, 1992, Index Number 8384/92, which
directed the Division to issue an Order and Opinion in the underlying
Petition for Administrative Review within 125 days of June 4, 1992.
On September 19, 1991 and December 30, 1991, respectively, the above named
petitioners filed Petitions for Administrative Review against an order
issued on August 16, 1991, by the Rent Administrator, 50 Clinton Street,
Hempstead, New York, concerning housing accommodations known as Apartment
2P, 90 Knightsbridge Road, Great Neck, New York, wherein the Rent
Administrator determined that the prior owner had collected $16,600.40 in
overcharges including interest, and $2,680.40 in excess security. The
Administrator directed the tenants to a court of competent jurisdiction if
they wished to seek rescission of a purported contract to purchase the
cooperative shares to the subject apartment.
The issues in these appeals are whether the overcharges were subject to
treble damages and whether the Administrator should have allowed a rent
increase for certain alleged improvements to the apartment, thereby reducing
the overcharge. Also at issue is the timeliness of the owner's petition.
The applicable sections of the Tenant Protection Regulations (TPR) are
Sections 2506.1, 2507.3(a) and 2510.2.
The Commissioner has reviewed all of the evidence in the record and has
carefully considered that portion of the record relevant to the issues
raised by the administrative appeals.
The tenants commenced this proceeding on October 18, 1990 by filing a
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complaint of rent overcharge and excess security, alleging they took
possession of the subject apartment pursuant to a two year lease commencing
May 1, 1990 at a monthly rental of $1,700.00 with a security deposit of
$3,400.00.
The tenants stated that they themselves had renovated the kitchen except for
the stove, refrigerator and sink when they moved in and that the sponsor of
the cooperative conversion had renovated the two bathrooms. The tenants
alleged that the (prior) owner, i.e., the sponsor-holder of unsold shares,
had refused to prove the cost of the improvements on the basis that the
tenants had signed an interim lease and were therefore not subject to the
Emergency Tenant Protection Act (ETPA).
Finally, the tenants alleged that they had never intended to purchase the
shares to their apartment but had to sign the interim lease with rider as
well as a contract with option to purchase as a condition of renting the
apartment. The tenants noted that there was a zero downpayment which would
be "forfeited" if the option to purchase was not exercised, i.e., there was
no penalty for failure to purchase. Therefore they contended the contract
was an option to buy. Copies of the lease and contract were attached to the
tenants' complaint.
With a cover letter dated December 6, 1990, the attorney for the managing
agent and the owner of the unsold shares for the subject apartment filed an
answer to the tenants' complaint. The answer alleged that the tenants had
not signed an option to buy but rather an actual purchase agreement, and
they did so without coercion. The owner asserted that the apartment was on
the market for sale and would not have been rented by the owner without an
obligation to purchase.
Attached to the answer was a copy of a signed lease for a prior tenant at a
rental of $625.74 for the period May 1, 1988 through April 30, 1989. Also
attached was a copy of an unsigned renewal lease notice for that same prior
tenant for a one or two year period commencing July 1 1988 (sic), i.e.,
commencing two months after the commencement date of the signed lease.
There was no explanation given for this anomaly.
The owner noted the tenants' admission that the apartment had been renovated
and stated that it was "possible that the renovation costs could have been
passed along to the new tenant as provided for in the Regulations."
Finally the owner requested a full plenary hearing so that the tenants'
allegations could "be determined on the merits and not by conflicting
documents."
In reply, the tenants alleged they had been told that the signing of the
purchase agreement and interim lease "was a mere formality in order to rent
[the] premises" and that the tenants had told the owner's agent
"emphatically" that they did not wish to purchase.
On December 31, 1990 and January 22, 1991 the owner was requested to submit
copies of bills and cancelled checks for the alleged improvements to the
apartment. In response the owner's attorney submitted a copy of a contract
for $13,695.00 with Unique Kitchen and Bath, Inc. for renovations to the
kitchen, bathrooms; for the refinishing the floors and painting the walls
throughout the apartment; new lighting fixtures, switches and outlets
throughout; and new doors with hardware throughout.
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In addition the owner submitted a copy of a $4,000.00 bill marked "paid" for
a downpayment on unspecified renovations to the apartment. The bill was
from Equitable Maintenance Co. LTD.
Subsequently the owner submitted a letter from Unique Kitchen stating the
apartment had been renovated pursuant to the contract and that it had been
paid for in full by check number 3037 dated July 24, 1989 by Knightsbrook
(sic) Associates, the prior owner.
The Commissioner notes that in the owner's first submission (dated January
24, 1991) the owner's attorney stated: "Because of the change in management,
there has been some difficulty in obtaining the documents requested." In
the second submission (dated February 7, 1991) the same attorney stated:
"Unfortunately, because of change in Managing Agent as well as ownership of
the subject apartment, cancelled checks for the payment are not available."
Neither letter stated the name of the new managing agent and/or owner.
In a letter dated March 20, 1991, the prior owner's attorney stated that the
new owner was Crossland Savings Bank and the managing agent was Fairco
Realty Services, Inc. The Administrator was requested to contact the DHCR
Hearings Unit at Gertz Plaza so that the attorney for the prior owner and
Fairco would receive notice of a hearing date. (On June 6, 1991 the
Administrative Law Judge determined that no hearing was necessary.)
In a notice dated June 11, 1991, the attorney was informed that the proof of
payment for the renovations was insufficient since it did not include
cancelled checks and that the contract failed to itemize the costs of the
various renovations, some of which would not qualify for a rent increase.
In an answer dated July 2, 1991 the (same) attorney stated he represented
Fairco Realty Services, the new managing agent, and that no further
documentation would be submitted since "none exist[s]." The attorney
requested a hearing on the costs and extent of renovations.
In a request dated July 8, 1991 the Administrator asked the tenants whether
the owner had made the alleged improvements. In response the tenants stated
they had no way of knowing which improvements had been made by the prior
owner and which had been made by a prior tenant. They stated that they had
been informed by another tenant in the building that prior tenants had
installed the kitchen cabinets and countertops. They also alleged that the
doors appeared to be the original doors since the hinges bore several coats
of paint. The only improvement acknowledged by the tenants was the painting
of the apartment.
In the cover letter to this submission by the tenants their attorney
requested a hearing on the issue of whether the tenants had signed, or
intended to sign, an option to purchase or a contract of sale.
In the order herein under review, the Rent Administrator determined that the
owner had failed to adequately prove the cost of the alleged renovations and
denied any increase therefor. The Administrator found the above-stated
overcharge but determined that it was not willful since it had been based on
the owner's belief that it could increase the rent because of the alleged
improvements. The Administrator found that the "contract of sale" did not
relieve the owner of the obligation to charge a legal rent under ETPA.
In their petition, the tenants contend that the Rent Administrator's Order
is incorrect and should be modified because the owner had failed to prove
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that the overcharge was neither willful nor negligent. Therefore the
Administrator was obligated to impose treble damages pursuant to TPR section
2506.1(a). The tenants noted that the overcharge was over $980.00 per month
so that even if the owner had been allowed to raise the rent by 1/40th of
the alleged $13,695.00 in renovations the monthly overcharge would have been
over $600.00 per month. The tenants alleged the rent charged was not based
on the alleged renovations but on the owner's belief it could charge any
rent it wanted, as evidenced by the lease clause stating the rental was not
subject to ETPA.
In addition, the tenants contend in their petition that the Administrator
should have used the prior rent of $625.74 as the legal rent for the
complaining tenants since the lease produced by the owner did not have the
notice required by TPR Section 2503.8.
Finally, the tenant-petitioners argue that the Administrator erred by not
ruling that the "contract of sale" for the subject apartment was a "sham".
The tenant allege that the Administrator misconstrued the tenants' complaint
as a request for rescission of the contract and therefore referred the
tenants to a court of competent jurisdiction. Instead, the tenants'
position, in full, is that:
"the "contract of sale" was, at best, an option to
purchase and the landlord used and is using this
contract to evade its impending obligation to renew the
tenants' lease. The agency should act at this time
because it is apparent that the restrictions in the
Regulations against interfering with a tenant's
occupancy (Sec. 2504.1), and against suing to evict
except upon proper grounds (Sec. 2504.2), against
refusing to renew a lease (Sec. 2504.4) and against
evading the requirements of the Regulations (Sec.
2505.2) are being flouted and undermined by the
landlord.
"DHCR is given both the jurisdiction and the obligation
to enforce the ETPA of 1974 and the Regulations by
Section 2506.2(a) of the Regulations which provides:
"Upon notice and reasonable opportunity to be heard, the
division may issue orders it deems appropriate to
enforce the act and this Chapter."
"Under Regulations Sec. 2505.1(a), it is unlawful for
any person to do any act in violation of ETPA or the
Regulations; and the requirements thereof are not to be
evaded, directly or indirectly (Sec. 2505.2).
"On its face, the "contract of sale" for the apartment
is a sham. There is a total lack of consideration for
this contract. There is no down payment and damages for
default by the purchaser are liquidated in the amount of
the down payment; i.e. zero. Thus performance of the
contract is strictly optional with the purchaser. The
terms of the contract specifically preclude any penalty
to purchaser if purchaser elects not to perform. This
is the classic description of an option.
DOCKET NO.: FI 710493-RT, FL 710350-RO
"The intention of the landlord in entering into this
option arrangement and calling it a contract of sale is
obvious. The landlord could not sell the apartment and
was collecting no rent. If the apartment was simply
rented, ETPA would protect the tenant who took
occupancy. The solution arrived at by the landlord was
to trick the renter--a person answering a rental ad (see
tenants' RTP-3 of 12/18/90 -- into entering into a
contract of sale and then evicting the tenant at the end
of the lease for not completing the purchase. The
landlord would thus collect rent for two years and get
the apartment back when the two years ended.
"Since the purchase was represented to the tenants as
strictly at the tenants' option, no down payment (the
hallmark of a true purchase agreement)could be demanded.
"Rather than forcing the tenants to defend what will
inevitably be an eviction proceeding when the lease
expires, DHCR should use its authority under Sec.
2205.2(a) (sic) to declare the contract of sale an
option and to direct the landlord to renew the lease at
tenants' option. We urge the Commissioner to do so."
In an answer dated January 2, 1992 the owner responded to the tenants'
petition, incorporating its own petition as part of its response.
The owner argues in its answer that treble damages should not be imposed
against the owner-petitioner since it is a new owner and was never served
with the complaint. Had it been served with the complaint, the owner-
petitioner alleges that it would have submitted the missing proof of payment
for the improvements and would have reviewed and recalculated the rent and
security deposit, rolled them back to their proper levels and made a full
refund with interest. Such action would have allegedly fulfilled the
requirements of DHCR Policy Statement 89-2 for a finding that treble damages
should not be imposed.
The owner further argues that since the lawful rent should be increased to
reflect the cost of the alleged improvements which had been rejected only
because of a lack of sufficient documentation, treble damages are
inappropriate.
As proof of the owner's good intentions, the answer notes that the filing of
a petition stays the obligation to refund past overcharges. Nevertheless,
the new owner states it is willing to refund the total overcharge due to the
tenants on the assumption that the increase for the improvements is allowed.
Subsequently the owner submitted proof that a payment for the back
overcharges was made to the tenant -- with deductions for five months of
non-payment of rent and for a rent increase based on the improvements
disallowed by the Administrator. [The tenant later acknowledged receipt of
this payment.] Based on this payment the owner asserts: "The tenant has
been fully compensated, as it would have been during the proceeding below,
had the owner been advised of said proceeding." For these reasons the owner
contends the tenants' request for treble damages should be denied.
In addition, the owner argues that the tenants' "request for rescission of
the Contract of Sale" should be denied because the Division does not have
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the jurisdiction to rescind a contract. The fact that the tenants contend
they are not seeking a rescission but merely asking that the contract be
declared an "option" does not change this result since the "essence of [the
tenants'] request is that the terms of the contract be changed."
Furthermore, the owner argues that the fact that the tenants' request for
changes in the terms of the contract is based, in part, on the allegation
that the contract violates the policies of ETPA, which the Division is
charged to enforce, does not confer jurisdiction which otherwise does not
exist.
Finally, the owner challenges the timeliness of the tenants' petition which
was received by the Division on September 23, 1991, the 38th day after the
Administrator's order was issued.
In its own petition, the owner contends that the Rent Administrator's order
is incorrect and should be modified because the petitioner is the new owner
of the subject apartment. The petitioner alleges it never received a copy
of the tenants' complaint, despite the fact that the petitioner owned the
apartment since December 1990, prior to the date the Administrator's order
was issued. Similarly, the petitioner argues that it was never "served by
the Administrator" with a copy of the Administrator's order and therefore
its petition should be deemed timely even though filed over four months
after the Administrator's order was issued.
Furthermore, the owner alleges that the Administrator had been "given due
notice of the change in identity of the owner (specifically, the change in
management companies)." Attached to the petition is a purported copy of a
letter dated April 1, 1991 informing the Administrator that Fairco Realty
Co., Inc. had taken over the management of the subject building and asking
if the prior managing agent had properly registered the building. The copy
is unsigned and makes no reference to the instant proceeding, or any other
proceeding. Nor does the letter state that the subject apartment had a new
owner.
In addition, the owner submits proof that the new managing agent, Fairco,
had registered the subject building on July 29, 1991 on behalf of 90
Knightsbridge Owner's Corporation, i.e., the cooperative corporation which
owns the entire building.
Based on the above, the petitioner argues that the Administrator was
obligated to send a copy of the August 16, 1991 order to Fairco at its
Commack Road address. Instead, the order was only sent to the prior owner
at its Northern Boulevard address. Therefore, the petitioner argues that
its petition should be deemed to have been timely filed.
The petitioner contends that by failing to serve the current owner with the
complaint the Administrator was in violation of Section 2527.3(a) of the
Rent Stabilization Code (sic) which requires service on all "affected"
parties, and cites two Administrative Review orders in support of this
proposition. Based thereon the petitioner contends the proceeding should be
"re-opened for the purpose of serving the petitioner with copies of the
complaint and all related correspondence and affording it an opportunity to
submit the requested data."
The petitioner also alleges that had it "been given the opportunity to
respond to the Administrator's requests for information concerning the
improvements made to the premises, a full and complete response of all
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requested information would have been made, including the information deemed
'missing' by the Administrator." In particular, the petitioner alleges that
it had the requested cancelled checks in its possession during the
proceeding and would have submitted them had it been requested to do so.
Copies of the checks are attached to the petition.
In addition, the petitioner argues that had it been notified of the
proceeding "it would have reviewed and recalculated the complainants' rent
(as an owner is entitled to do under DHCR Policy Statement 89-2). The
tenants' rent would have been rolled back much earlier than now, and an
appropriate refund would have been sent." The petitioner then discusses the
actual (then proposed) refund as stated above in the owner's answer to the
tenants' petition.
In an answer dated April 6, 1992 the tenants responded to the owner's
petition as follows.
The tenants contend that the owner's petition should be dismissed as
untimely since the owner actually appeared before the Administrator through
its attorney. Attached to the tenants' answer is an (unsigned) copy of the
owner's answer to the tenants' complaint, the original of which was received
by the Administrator on December 7, 1990 and which was accompanied by a
cover letter dated December 6, 1990 stating that the undersigned attorney
represented both the Managing Agent and the Owner of the Unsold Shares for
the subject apartment. The letter names neither the owner of the unsold
shares nor the managing agent. Latter in their answer, the tenants state
that this appearance was on behalf of the prior owner, but contend that
since the prior owner had an interest in the outcome "at least as
substantial as the current owner's," the new owner's claim should be
rejected.
In addition, the tenants argue that the petitioner failed to file a notice
of change in identity on the proper form. Furthermore, the tenant contends
that without proof that the DHCR actually changed its records in response to
the letter submitted by the petitioner, the Division was not required to
serve the new owner. The tenants contend that the Administrative Review
opinions cited by the owner provide only that "notice should be given to the
address reflected on DHCR records." Similarly, the tenants argue that there
is no proof that the DHCR's registration records had been updated between
the July 29, 1991 registration and the August 16, 1991 issuance of the order
under appeal. Accordingly, the tenants assert that if the petitioner was
not served it was the fault of the petitioner for not having complied with
the requirements of the Regulations.
The tenants submit proof that they had served copies of the Administrator's
order on the petitioner and the managing agent which were received on
October 23 or 24, 1991 and the receipt of which was acknowledged on October
31, 1991. Therefore, the tenants argue that the December 30, 1991 filing of
a petition was untimely even if the 35 day period is deemed to have started
from October 31, 1991, rather than from the August 16, 1991 date of the
order itself.
The tenants further argue that, even if the petition is deemed timely, the
additional documentation submitted for the first time on appeal should be
rejected as it was clearly in the possession of the prior owner, who was the
recipient of the letter and by whom the checks were drawn. No excuse for
the failure to submit them to the Administrator was offered. Therefore,
they should not be considered on appeal.
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The tenants also question the genuineness of the documents, noting that the
address of one contractor is that of a residential apartment building.
Furthermore, the submitted bills apply to the subject apartment and an
additional apartment; the bills are not itemized as to cost so that the
total paid can not be allocated between ordinary repairs and actual
improvements; there is an unexplained discrepancy between the bill amounts
and the total of the checks; no reference is made on the checks to the
invoices; the bill of a second contractor contains no information as to the
work done and seems to duplicate the work of the first contractor. In
addition, the tenants deny that the alleged improvements were actually made
at all.
In a letter dated August 17, 1992, the petitioner-owner replied to the
tenants' answer to its petition. In its reply the petitioner contends that
the appearance/filing referred to by the tenants was not that of petitioner
but by an attorney for the prior owner. Therefore, neither the appearance
or the service on that attorney relieved the Division of its obligation to
serve the new owner-petitioner.
In addition the owner contends that the April 1, 1991 letter from Fairco
sufficed to put the Administrator on notice that "all papers and notices
concerning any on-going matter should be sent to them." The fact that the
Division did not change its records should not change this result: The
notice of a change in identity creates the obligation, whether or not the
Division changes its records.
The owner further contends that service on the new owner of a copy of the
Administrator's order by the tenants' attorney in a demand letter does not
constitute service by the Division and therefore does not trigger the 35 day
time period in which to file a petition: The owner adds that the tenants
have not even shown that the instructional RAR-1 form (Notice of Right to
Administrative Review) was included [in the tenants' mailing of the
Administrator's order to the new owner]."
In addition, the owner states that only the costs attributable to
improvements to the subject apartment have been claimed but the bills for
the other apartment were submitted since the checks covered both apartments.
Regarding the lack of itemization on the invoices, the owner contends the
Administrator should have requested same if necessary, adding that "perhaps
this matter should be remanded for that purpose." No itemization is
submitted.
Regarding the second contractor, the owner argues that its $4,000.00 bill
does not duplicate that of the first contractor, one being "for the general
renovation of the entire unit, [The other] being for specific items, not
covered by the [general renovations]."
The owner did not explain the ($210.00) excess of the checks submitted on
appeal over the sum of the allegedly related invoices.
Finally, the owner contends the stay should remain in effect, alleging that
the tenants have not made any rent payments since issuance of the order "in
a blatant attempt to recover the retroactive portion of the order, in
violation of the stay." Furthermore, the owner reiterates that the tenants
have received a "partial refund" of the amount covered by the retroactive
portion of the order.
On September 4, 1992, the tenants were given 15 days in which to rebut
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letters from the owner's attorney dated January 2, 1992, January 28, 1992
and August 17, 1992 and to serve such rebuttal with a copy of the notice of
opportunity to rebut on the owner's attorney. The tenants complied with
this request on September 21, 1992.
Attached to their response was a copy of the 15th Amendment to the Offering
Plan for the subject premises dated March 9, 1992 which indicates that on
January 24, 1992 Crossland Savings Bank, FSB transferred its interest in the
subject apartment and building to Crossland Federal Savings Bank.
Therefore, the tenants ask that the owner's petition be dismissed as the
petitioner neither caused the overcharge nor owns the premises.
In addition, the tenants argue that the refund of a subsequent owner can not
negate the willfulness of the prior owner who collected the overcharge.
Finally, the tenants argue that they are not seeking rescission of the
alleged contract of sale, but rather that the Administrator should have
found that the contract was an attempt to evade the requirements of ETPA.
The other points raised by the tenants on September 21, 1992 have been
presented in substance elsewhere in this Order.
The Commissioner is of the opinion that the tenants' petition should be
granted in part and that the owner's petition should be denied.
At the outset the Commissioner notes that the record contains proof, via an
official postmark, that the tenants' petition was timely mailed. Therefore,
it is deemed timely filed, despite the fact that it was received after the
deadline.
Section 2506.1(a)(1) of the TPR requires the Division to impose a penalty of
treble damages when an overcharge has been collected, unless the owner
"establishes by a preponderance of the evidence that the overcharge was
neither willful nor attributable to [the] negligence [of the owner]." No
such evidence has been submitted in this proceeding.
The owner-petitioner argues that had it been served with the complaint it
would have submitted all the requested information and made a full refund as
provided in Policy Statement 89-2 (PS 89-2). The Commissioner notes that PS
89-2 states on its face that it applies to treble damages required by the
New York City Rent Stabilization Law (RSL), which law only provides for
treble damages as of April 1, 1984 [whereas ETPA has included a provision
for treble damages since 1974] and which law (RSL), unlike ETPA, does not
provide for treble damages where the overcharge is attributable to the
negligence of the owner. Thus PS 89-2 has no direct relevance to the
proceeding, although some of the general principles stated therein may be
applicable to the TPR.
More importantly, the owner emphasizes at length what steps it would have
taken had it or its managing agent been served with the complaint. But, as
stated above, on July 2, 1991 the attorney for the prior owner, who had
participated in the proceeding up until that point, informed the
Administrator that he represented Fairco, the very same new managing agent
that the owner-petitioner asserts should have been served with the
complaint. The Commissioner therefore finds that the petitioner-owner not
only had actual notice of the proceeding before the Administrator, but that
it appeared therein via the attorney for its managing agent, Fairco.
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Thus, all the petitioner's assertions as to what it would have done had it
been given the opportunity to appear before the Administrator are, at best,
without merit. In particular, regarding the owner's suggestion that the
Administrator should have requested itemization of the renovation bills and
that the matter should now be remanded for that purpose, itemization was
requested on June 11, 1991, and the attorney for Fairco stated in the same
July 2, 1991 letter that no further documentary evidence existed. (This
statement also was in response to the Administrator's request for the
cancelled checks submitted for the first time on appeal.)
Clearly the owner's claim that it would have made a full refund upon notice
of the complaint, in mitigation of treble damages, is contradicted by the
record. The fact that the owner has now made a partial refund (after the
filing of the tenants' appeal) in no way mitigates the imposition of treble
damages.
Regarding the relevance of the alleged improvements to the imposition of
treble damages, the Commissioner notes that, in general, DHCR policy is not
to impose treble damages on overcharges caused solely by an owner's
inability to prove the cost of improvements to an individual apartment.
However, the existence of the improvements themselves must not be in dispute
and the improvements must be of a nature for which a rent increase would be
given if the costs were adequately proven.
This policy is not applicable to this proceeding because: (1) the existence
of the improvements and/or whether they were made by the owner is in
dispute; (2) some of the improvements alleged do not qualify for a rent
increase, e.g., scraping and refinishing the floors, painting the apartment;
(3) the maximum allowable rent increase for all the alleged improvements,
including those that could not qualify for a rent increase, constitute less
than half of the $980.00 per month overcharge found by the Administrator.
Indeed, the initial lease of the complainants stated that the lease was not
subject to ETPA: thus it is clear that the rent therefore was not
determined by the expectation of a rent increase pursuant to ETPA.
The Commissioner further finds that the tenants are correct that the
Administrator should not have credited the owner with a rent increase over
that of the prior tenant because the owner failed to provide the rent
history/increase notice requirement by Section 2503.8 of the TPR for
vacancy leases. Subsection (b) of that Section mandates that:
"In the event the landlord does not comply with this
requirement, the lease shall not be effective to
increase the prior legal regulated rent; however, at
such time thereafter that the landlord does provide the
notice to the tenant with the required information in
writing, the otherwise authorized monthly rent increase
shall be collectible commencing with the first rent
payment date thereafter."
The Commissioner finds that the Administrator's order, showing the prior
rent and lawful increase acts as a substitute for the notice, so that the
owner was allowed to charge the rent set by the Administrator as of the
first rent payment after the issuance of the Administrator's order.
However, for the period covered by the order, the lawful rent was the rent
of the prior tenant, i.e., $625.74. (The Commissioner notes that the owner
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in answering the tenants' petition did not address this issue.)
Thus the corrected total overcharge, with treble damages, is [$1,700,00 -
$625.74] x 16 mos. x 3 = $51,564.48, plus $2,774.26 in excess security for
a total of $54,338.74.
Finally, the Commissioner finds the tenants' contention that the
Administrator should have found the "contract of sale" to be a sham to be
without merit. The tenants urge on appeal that such a finding by the
Administrator would alleviate the need for a failure to renew lease
proceeding at a later date. (The contract provides that if the tenants do
not purchase the cooperative shares to their apartment they are subject to
eviction.) However, this issue of lease renewal was not raised before the
Administrator. Therefore, it cannot be raised for the first time on appeal,
which is limited to the issues and evidence which were before the
Administrator. The tenants filed an overcharge complaint and it was
properly processed as such. The references to the lease and contract of
sale in this complaint were for the apparent purpose of justifying that the
Division had jurisdiction over the matter. (The lease states that the
tenants are not protected by ETPA.)
The Administrator properly found, in effect, that the clause stating, for
example, that the apartment was not subject to ETPA, as well as the clauses
stating the rent and security deposit were invalid in that they conflicted
with ETPA and/or amounted to a waiver of ETPA rights by the tenants. (See
Sections 2500.10 and 2500.12 of the TPR.)
However, this order is without prejudice to the tenants' right to file a
complaint of failure to renew a lease if the facts so warrant.
Nevertheless, the Commissioner emphasizes that this Order makes no finding
on the validity of the lease and/or contract beyond those findings necessary
to resolve the tenants' overcharge complaint.
The Commissioner is of the opinion that the owner's petition should be
denied.
The record is clear that the March 20, 1991 letter from the prior owner's
attorney put the Administrator on notice regarding both the change of
ownership to petitioner Crossland Savings Bank and the change of managing
agent to Fairco. The July 2, 1991 letter from the same attorney stated that
he now represented Fairco. Accordingly, had the Administrator served that
attorney it would have sufficed to constitute service on both the former
owner and the petitioner herein. However, the Administrator only served the
prior owner directly. This was a clear error.
Nevertheless, it is undisputed that the petitioner and its agent had actual
notice of the Administrator's order by the end of October 1991, i.e., two
months before the filing of the owners' petitioner. [The Commissioner feels
that this fact should have been presented and confronted by the owner-
petitioner in its petition rather than leaving it to the tenants to raise in
their answer.] On the other hand, the owner has noted that the tenants have
not shown that the order sent by the tenants' attorney included the notice
of the 35 day limit to file a petition. The Commissioner notes that the
owner-petitioner does not explicitly deny that it received such notice.
Nevertheless, the tenants did not even allege that the notice was included
with the copy of the order in their response to the owner's answer. On the
other hand, the third and final page of the order directs the party
receiving it to follow the directions on the reverse side of the third page,
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which directions include the deadline for filing. Thus the notice would
have been received had the copy sent been two-sided.
It's clear from the record that the owner had actual notice of the order
and of the right to appeal. However, this notice was received, not from the
Administrator, but from the tenants, and it was received after the time to
appeal had expired.
On October 31, 1991, the tenants' attorney wrote a letter to Fairco
confirming a telephone conversation in which Fairco acknowledged receipt of
the order and agreed that "no further rent need be paid by the tenant[s]
pending reimbursement of the full refund ordered by the DHCR."
Accordingly, based on the record on a whole, it seems that the petitioner
made a conscious decision not to appeal the order and indeed had reached
some form of settlement with the tenants. This decision was apparently
changed when, on December 2, 1991, the owner was served with the tenants'
petition seeking treble damages. Nevertheless, noting that the courts have
in certain circumstances held the Division to a very strict standard
regarding service, and noting that some of the foregoing analysis is based
on allegations and/or failure to make an allegation, the Commissioner
declines to decide the owner's petition on this procedural ground.
The Commissioner also declines to dismiss the owner's petition based on the
tenants' September 21, 1992 submission indicating a change of ownership to
Crossland Federal Savings Bank. Such change of ownership does not leave the
petitioner without standing. Surely the petition was filed by an entity
that was aggrieved by the order. This is all the TPR requires. Secondly,
the petitioner may still be subject to loss, direct or indirect, as a result
of the Administrator's order. Thirdly, the Division has received no notice
of a change of ownership from an owner.
[Copies of this Order will be served upon issuance to Crossland Federal
Savings Bank at its address as stated in the above-referenced 15th
Amendment, at the address of its agent also stated therein, to the FDIC care
of the owner-petitioner's attorney, who stated in a letter to the tenants'
attorney dated February 21, 1992 that the Federal Deposit Issuance
Corporation (FDIC) was appointed receiver for the petitioner on January 24,
1992 (the same date the 15th Amendment stated Crossland Federal Savings Bank
became the owner). The owner-petitioner's attorney also stated in that
letter that he was authorized by the FDIC to consider settlement offers in
this matter.]
Turning to the merits of the owner's petition, the Commissioner feels it
should be denied. At the outset it is emphasized that the owner has not
denied the fact that the tenants were overcharged. Instead, the owner-
petitioner seeks merely to reduce the overcharge to reflect the improvements
alleged to have been made to the subject apartment. As discussed above
regarding the issue of treble damages, all of the owner-petitioner's
allegations as to what it would have done had it been notified of the
proceeding before Administrator are without merit. The petitioner's
managing agent, Fairco, appeared before the Administrator through its
attorney who stated explicitly that there was no further documentation
available. Accordingly, none of the documentation submitted for the first
time on appeal can be accepted. An Administrative appeal is not a de novo
proceeding but, absent good cause, is limited to the evidence and issues
which were before the Administrator. The only reason the owner-petitioner
has asserted for not submitting the new documentation to the Administrator
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is that it had no knowledge of the proceeding. This claim is belied by the
record which shows that the petitioner actually did appear before the
Administrator and alleged no further documentation was available --
referring to both the checks submitted on appeal and the itemization of
costs, for which the owner now seeks a remand. Indeed, on appeal the owner
asserts it had all the documentation submitted on appeal during the
proceeding below. Surely no good cause has been shown.
The Administrator correctly denied a rent increase for the $4,000.00 in
unspecified alleged renovations by Equitable Maintenance. There is no
evidence or even an allegation in the record below or on appeal of any
specific renovation covered by that alleged payment.
As to the Unique contract, which specified various renovations, as stated
above, not all of those specified would qualify for rent increases under the
Regulations even if proved. Accordingly, the owner was asked by the
Administrator to itemize the individual costs of the various alleged
renovations. The attorney for petitioner's managing agent answered that no
itemization was available (July 2, 1991 letter).
In its reply to the tenants' answer to its petition the owner states that
the Administrator should have requested the itemization if necessary and
that the proceeding should "perhaps" be remanded to resolve this issue.
However, as stated above, the Administrator did make such a request and
Fairco responded that the no additional documentation was available.
Therefore, a remand is clearly not mandated.
Based on the foregoing, the Commissioner finds that the Administrator
properly did not grant a rent increase for any of the alleged improvements
in the Unique invoice. Since not all of them could qualify for an increase,
the lack of allocation of cost prevented the Administrator from properly
determining the amount of a rent increase even if the improvements were
otherwise proved. For this reason it is unnecessary to resolve the issue of
genuineness raised by the tenants, such as the unexplained discrepancy
between the bill and check amounts.
THEREFORE, in accordance with the Emergency Tenant Protection Act and
Regulations, it is
ORDERED, that the tenants' petition be, and the same hereby is, granted in
part; and the owner's 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 to show an overcharge of $54,338.74,
including treble damages and excess security. The legal regulated rent of
$719.60, as determined by the Administrator, can only take effect as of
September 1, 1991, the first rent payment date after the issuance of the
Administrator's order.
ISSUED:
JOSEPH A. D'AGOSTA
Acting Deputy Commissioner
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