DOCKET NO.:  FI 710493-RT, FL 710350-RO
                            STATE OF NEW YORK
                          OFFICE OF RENT ADMINISTRATION
                                   GERTZ PLAZA
                             92-31 UNION HALL STREET
                             JAMAICA, NEW YORK  11433

    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
           CROSSLAND SAVINGS BANK,              :


    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 

    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 

    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 

          DOCKET NO.:  FI 710493-RT, FL 710350-RO

    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 

              "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.

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              "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 

    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 

    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 

    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 

    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 
    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 

    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.

          DOCKET NO.:  FI 710493-RT, FL 710350-RO

    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 

    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 

          DOCKET NO.:  FI 710493-RT, FL 710350-RO

    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 

    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, 

          DOCKET NO.:  FI 710493-RT, FL 710350-RO

    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 

          DOCKET NO.:  FI 710493-RT, FL 710350-RO

    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.


                                                   JOSEPH A. D'AGOSTA
                                                Acting Deputy Commissioner 



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