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STATE OF NEW YORK
DIVISION OF HOUSING AND COMMUNITY RENEWAL
OFFICE OF RENT ADMINISTRATION
GERTZ PLAZA
92-31 UNION HALL STREET
JAMAICA, NEW YORK 11433
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IN THE MATTER OF THE ADMINISTRATIVE : ADMINISTRATIVE REVIEW
APPEAL OF DOCKET NO.: GI410041RO
THOMAS & BRENDA ROHLMAN, : DRO DOCKET NOS. ZEF410195RV
PETITIONERS : SUBTENANT: JILL SKALER
------------------------------------X OWNER: PARK CREST APTS.,
C/o PINE MANAGEMENT, INC.
ORDER AND OPINION DENYING PETITION FOR ADMINISTRATIVE REVIEW AND
MODIFYING ADMINISTRATOR'S ORDER
On September 15, 1992 the above named petitioners-prime tenants
filed a Petition for Administrative Review against an order issued
on August 11, 1992 by the Rent Administrator, 92-31 Union Hall
Street, Jamaica, New York concerning housing accommodations known
as Apartment 2A at 4 West 90th Street, New York, New York wherein
the Rent Administrator determined that the subtenant was entitled
to a lease to the subject apartment because of an illusory prime
tenancy by members of the owner's family.
The issue in this appeal is whether the Rent Administrator's order
was warranted.
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 June,
1990 of a complaint by the subtenant, in which she stated that she
had commenced occupancy on July 15, 1987 at a rent of $1,900.00 per
month, [$1,850.00 during the first 12« months], and that an
illusory prime tenancy by the daughter and son-in-law had resulted
in her apartment being registered as exempt from rent stabilization
and her rent being approximately $1,600 per month more than the
lawful rent.
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The prime tenants advised that the matter was pending under
overcharge complaint docket no. DL410177R. In a June 1, 1992
answer to questions from the DHCR, they stated that they had an
oral lease with the owner Harold Pine from March 5, 1983 to March
31, 1993; that Brenda Rohlman was the daughter of Harold Pine; that
Thomas Rohlman was Vice President of Pine Management, Inc., the
agent for the owner; that the owner had not made a renewal offer to
the prime tenants; that the subtenant had apparently opted to
effectuate the sublease option for a one-year extension of her
sublease; and that the subtenant had commenced a declaratory
judgment action. The prime tenants' answer stated in a footnote
that "[t]his addendum also pertains to Docket No. DL-410177-R; the
two Dockets should be consolidated for review." In their answer
the prime tenants also referred to their November 5, 1991 response.
That is actually a response, several hundred pages in length,
submitted in Docket No. DL-410177-R, the overcharge proceeding.
In an order issued on August 11, 1992 the Administrator, stating
that the complainant had stated that the prime tenants had never
lived in the subject apartment, found that prime tenancy was
illusory, and directed the owner to offer a lease to the subtenant.
The order stated that it was without prejudice to the overcharge
complaint.
In a September 30, 1992 denial of the prime tenants' request for
reconsideration, the Acting Bureau Chief of the Overcharge Bureau
stated that all relevant information submitted in the overcharge
case was considered during the processing of the lease violation
case.
In this petition, the prime tenants contend in substance that the
Administrator did not consider the materials submitted in the
overcharge proceeding, which showed that the subject apartment was
the prime tenants' primary residence from 1983 to 1987, including
a period in the Spring of 1984 when the apartment was rehabilitated
at a cost of more than $60,000 by among other things adding
formerly non-residential space to double it in size; and that the
incorrect claim of non-residence by the prime tenants was the sole
factual predicate for the Administrator's finding of an illusory
prime tenancy. As part of their petition the prime tenants have
incorporated their November 5, 1991 answer in Docket No. DL410177R.
Among the contentions and statements contained in it are that the
subject apartment is "owner-occupied" under both a familial and
agency relationship to the owner; that the apartment has been
registered as exempt each year, although no registration was ever
required to be served on the exempt apartment; that the prime
tenants paid a rent of $250.00 per month from March, 1983 through
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April 1984 for a two room, one bath apartment; that in the Spring
of 1984 more than $60,000 was spent to convert it, together with
unfinished storage space and a raw basement with a dirt floor, to
a loft-typed luxury duplex of approximately 1,000 square feet, with
three rooms, two baths, and a deck [In a January 18, 1990 answer
enclosed as part of exhibit A of the petition, the owner Harold
Pine states that the renovation and expansion took place "[i]n
approximately February of 1983, subsequent to vacation of the
apartment by the last rent stabilized tenant of record"]; that this
renovation entitled the owner to charge a "first rent"; that the
prime tenants paid no rent for the new apartment through the time
that they sublet it to the complainant; that they continue to pay
no rent; that the complainant's rent payments to them are declared
on their income tax returns; that they sublet the apartment in
July, 1987 because they were intending to have another child, and
because it would be difficult for Brenda Rohlman to negotiate the
spiral staircase while pregnant and attend to the needs of their
existing toddler at the same time; that they moved to Tenafly, New
Jersey; that [as stated by Harold Pine in his January 18, 1990
answer] "Thomas and Brenda Rohlman will, at the termination of the
sublease, be returning to the subject apartment, using it as their
primary residence within the City of New York", and "no co-op or
condo plans exist for this property"; that [as stated in an August
2, 1989 Affidavit In Support of Cross-Motion and In Opposition to
Motion to Strike in Index No. 7479/89] "[a]t all times, it has been
our intent to utilize the apartment as our primary residence in the
State and City of New York and to begin living there again once Ms.
Skaler vacates," and "[f]requently, my duties as Vice President of
Pine Management, Inc. require my presence in the City of New York
during the evening hours and as a result, require me to stay in the
City overnight. Thus, it was my intention to return to the subject
apartment after the expiration of our sublease"; that the Courts
have ruled that where an owner has permanently resided in an
apartment for a period of time, thereafter subletting it without
"irrevocably" severing his ties to the apartment, said owner cannot
be considered an illusory tenant; that the prime tenants occupied
the subject apartment for four and one-half years prior to
subletting it; that the owner himself has never profited as a
result of the sublease; and that there would be no overcharge even
if the apartment were stabilized. In a response to the denial of
their request for reconsideration the prime tenants contend among
other things that in the recent decision in Bozzi v. Golblatt, 587
N.Y.S.2d 658 (A.D. 1st Dept. 1992), the Supreme Court's direction
of a renewal lease to a subtenant (based upon an "illusory
tenancy") was unanimously reversed by the Appellate Division in a
case with facts very similar to the present one.
In answer, the subtenant asserts among other things that the prime
tenants claim that they lived in the apartment during substantial
renovations, but in fact there were no substantial renovation but
rather just some cosmetic changes which were legalized by a simple
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filing with the appropriate City agency; that the owner of the
building acknowledges that he has never charged or collected any
rent from his daughter and son-in-law, the alleged tenants, from
the time of the construction in 1984 through the present; that the
Rohlmans live in a large house that they own in New Jersey; that
they have a son and daughter who are being raised in New Jersey,
and who attend schools in New Jersey from their residence in New
Jersey; that case law makes it clear that the tenancy of the
Rohlmans is illusory; that the so-called 10- year oral prime lease
is contrary to the Statute of Frauds, and is contradicted by the
fact that under the so-called lease they had not been required to
pay rent since 1984; that the retention and subletting of a rent-
stabilized apartment by the Rohlmans for personal advantage
directly evades the intent of the rent stabilization system; that
the DHCR has consistently taken the position that where there is an
illusory tenancy, the owner will be required to recognize the
actual occupant as the real tenant, disregarding the illusory
tenancy; that the Administrator's order incorrectly stated that the
complainant had stated that the Rohlmans had never resided in the
apartment; that, while they did live in the apartment, they have
conceded that they have no intention of ever returning to it; and
that it is very clear that the Administrator considered all of the
relevant evidence.
In response, the prime tenants' attorney contends in substance that
the sub-tenant is incorrect in asserting that an apartment that was
substantially rehabilitated and more than doubled in size just had
"some cosmetic changes"; that the unit newly created in 1984 was
effectively owner-occupied and was therefore exempt from the Rent
Stabilization Law and Code; that the Rohlmans have never conceded
that they do not intend to return to the apartment; that "[t]he
Rohlmans have every intention of utilizing the apartment in the
future. Whether they maintain the apartment as their sole primary
residence or as their primary residence in the City of New York,
their entitlement to recover the apartment is clear"; that it is
neither illegal, inappropriate or illusory for an owner to rent an
apartment to persons related to him; that the prime tenants'
several year residency in the subject apartment distinguishes it
from the normal illusory tenancy set forth in Hutchin vs. C.A.B.,
480 N.Y.S.2d 684 (Sup. 1984); and that the prime tenants have
neither severed their ties to the subject apartment nor engaged in
a conspiracy to evade or avoid the Rent Stabilization Law or Code.
In reply, the subtenant asserts in substance that when the Rohlmans
permanently vacated the apartment and moved to their new home in
New Jersey, the owner of the building would have entered into a
direct stabilized lease with the complainant except for a
conspiracy with his daughter and son-in-law whereby they pretended
to be the prime tenant pursuant to some kind of oral lease
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arrangement, which did not even require the payment of rent, and
then "subleased" the premises to the complainant; that it is clear
that this arrangement was entered into on behalf of the owner and
for the sole purpose of evading the rent stabilization laws and
possibly the co-op/condominium conversion laws; that if the
apartment was registered as exempt because of owner occupancy, then
the Rohlmans were owners when it became time to lease the
apartment, and the agreement with the complainant is therefore a
lease, not a sublease; that the rent for the subject apartment
should be based on the full rental history of the apartment; that
such rent should not include any increase for claimed improvements,
since no evidence of their cost has been submitted, and since the
owner would not be entitled to any increase for major capital
improvements because the apartment was never vacant and because
there was no written agreement between the prime tenant for the
increase of the rent, and where in fact the prime tenants were not
required to pay any rent; and that the owner appears to be in the
business of subletting apartments, as there are numerous other
apartments in the subject building occupied by members of the
immediate family of the owner, some apartments of which have been
sublet at excessively high rent with or without occupancy ever
having been commenced by the relatives.
In answer, the prime tenants' attorney contends in substance that
under rent regulation owners have always been granted a right of
"owner occupancy", a special exception to the norms under rent
regulation so that owners could provide housing for themselves
and/or persons related to them; that the Rohlmans, primary
residents of the apartment before the subletting, have never stated
that they have permanently vacated or abandoned the apartment; that
their ability to make use of the apartment has been stymied by the
complainant's holding over subsequent to the expiration of her
sublease; and that neither the owner nor the managing agent have
reaped an economic benefit from the sublet, since the rent paid by
the complainant has never been shared with the owner or managing
agent, but has in fact been reported by the Rohlmans as income.
With the answer is enclosed an affidavit by the Rohlmans asserting
some of the same points made by their attorney, and additionally
contending that it would have been useless to seek to evict the
complainant to get the apartment back, since the court would have
waited for a DHCR determination; that there are no other apartments
in the building occupied by members of the owner's immediate
family, although the owner and his son each had an apartment until
1991; that neither of those apartments were sublet; and that upon
vacancy they were duly rented to stabilized tenants. The Rohlmans
also enclosed various utility bills and tax returns listing them at
the subject apartment from February, 1983 through August, 1987.
In reply, the complainant's attorney asserts in substance that the
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claim of illusory tenancy is based not just on the Rohlman's
business and familial relationship to the principal of Pine
Management, Inc., but also on the fact that at the time of the
sublease the Rohlmans concealed their relationship to the owner of
the property; that only owners are entitled to collect a "first
rent"; that the Rohlmans cannot claim on the one hand that they are
prime tenants who are simply subletting the apartment, while on the
other hand assert that they are the owners of the apartment
entitled to collect a "first rent"; that this is especially the
case where their supposed prime lease is oral and does not call for
the payment of rent; that their failure to commence a holdover
proceeding is a clear indication that they had abandoned the
apartment and did not want to be questioned in court regarding
their true motivations and status; that while the Rohlmans assert
that they have never shared any of the complainant's rental
payments with the owner, it may be that such rental income is part
of the consideration being paid to Thomas Rohlman in light of his
position as Vice President of the company that manages the
building; that the utility bills submitted by the Rohlmans are not
inconsistent with their using the apartment as a pied-…-tere, or
for some other purpose which remains unknown to the complainant;
and that, but for the collusion between the Rohlmans and the owner,
the complainant would have been entitled to have her own lease, and
to file a fair market rent appeal since the apartment has never
been registered.
In answer, the prime tenants contend among other things that the
complainant was fully aware of a familial relationship, since she
was informed of the available sublet by an acquaintance of hers who
shared a house with the owner's son; that upon her vacating the
Rohlmans will recover possession of the unit; that they intend to
maintain the unit as their primary residence in the City of New
York; that their failure to pursue eviction proceedings is only a
recognition of the reality that a Court would have deferred to
pending DHCR proceedings; and that the complainant's failure to
pursue a proceeding which she commenced in Supreme Court is
evidence that she recognizes the paucity of proof supporting her
case.
The Commissioner is of the opinion that this petition should be
denied, and that the Administrator's order should be modified.
An apartment otherwise subject to stabilization is exempt during
the time that it is occupied by its owner as her or his primary
residence. If the owner occupies the apartment from the base date,
then the rent charged the first tenant becomes the initial legal
stabilized rent, and the lawful rent for subsequent tenants is
based on lawful increases above the initial legal stabilized rent.
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A tenant who occupies a rent stabilized apartment as his or her
primary residence may generally, with approval of the owner, sublet
the apartment, at a lawful rent no greater than his or her rent
plus an increase for any additional services such as furniture that
the subtenant receives which are not already included in the prime
tenant's rent. For the sublease to be a legitimate sublease,
rather than an assignment, the prime tenant must intend to resume
occupancy at the conclusion of the sublet.
As noted in Hutchins v. C.A.B., two types of illusory tenancy have
generally been recognized. One is that of a "strawman", acting as
the landlord's agent or in cooperation with him or her, subleasing
an apartment to enable a landlord to circumvent obligations,
including those relating to cooperative conversion, under the rent
laws. The other is that of a prime tenant subletting for a profit
one or more apartments that are not his or her primary residence.
The facts of the present case evidence an attempt by the owner and
the Rohlmans to create a third type of illusory prime tenancy, or
rather a new class of landlord having aspects of both tenant and
owner. They cannot have it both ways, and the appeal fails whether
the Rohlmans are hypothecated as tenants or as owners.
As (prime) tenants, the Rohlmans are claimed to have a lease and to
be subleasing to the complainant. However, their rent would have
to be shown to be a lawful stabilized rent, whether by virtue of
being the first stabilized rent or by virtue of their having been
only lawful increases since the base date, and the complainant
could be charged no more than such lawful rent since there has been
no contention that the apartment is furnished or receiving
increased services. However, the Rohlmans claim to have paid
$250.00 per month through April, 1984, and to have paid no rent
since what they contend is a new base date based on an increase in
the size of the apartment. There is also some doubt about their
desire and intention to move back into the subject apartment as
their primary residence, based on their statements that they intend
to make the apartment their "primary residence in the City of New
York," rather than their only primary residence. Further their
failure to dispute allegations that they own their own home suggest
that their actual primary residence would remain in New Jersey,
with the subject apartment being just their (only or primary) pied-
…-tere in New York City and/or a place for Thomas Rohlman to stay
in Manhattan when he has to work late, whether or not they also
desire to retain it for financial gain, such as cooperative
conversion rights. Another problem with the concept of the
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Rohlmans being legitimate prime tenants with a right to sublease
and to return is that their purported 10-year oral lease would
generally be considered void under the Statute of Frauds (General
Obligations Law 5-703), and would in any event probably not have
envisioned them as stabilized tenants. In addition, Clause 6 of
the sublease agreement provides that "[u]undertenant recognizes
that subject apartment is Fair Market, exempt from Rent Control or
Rent Stabilization." This would be a rather unusual clause to
include in a subletting by genuine prime tenants, since the fact
that someone has a lease does not somehow exempt an otherwise
stabilized apartment.
However, the owner and the Rohlmans have contended that the
Rohlmans are owners under both familial and agency theories. While
they are "owners" for some purposes, such as refunding overcharges,
there are problems in considering them as owners for the purposes
of retaining rights to the apartment and exempting it from rent
stabilization. If they are "owners" it would seem unusual for them
to have a (purported) long-term lease for an apartment used for
residential purposes and to have paid rent for part of the period.
If the Rohlmans are regarded as exempt from rent stabilization
during the time that they occupied the apartment without paying
rent, then the first tenant after they vacated should have been
offered a stabilized lease with a right to renew, and a right to
purchase upon a conversion, rather than a non-stabilized sublease
specifically excluding those rights in clauses 6 and 8 of the
rider, since an apartment is not "occupied" by an owner once such
owner vacates and leases the apartment to a rent-paying tenant.
The present situation is dissimilar from that in Bozzi v.
Goldblatt. In that case the owner's daughter, who allegedly had an
oral lifetime leasehold at a rent of $244.37, paid that rent for at
least 34 years. At the time that she and her husband sublet the
apartment and moved to Putman County allegedly due to economic
necessity, the building was owned by three co-equal testamentary
trusts of herself and her two siblings, who resided in the
building. The Appellate Division felt that triable issues of fact
were present on the issue of illusory tenancy and of whether
Goldblatt and the corporate defendant conspired to evade the rent
laws. It is not apparent from the opinion whether Goldblatt
rented, rather than owned, a residence in Putman County. In the
present case the Rohlmans are not alleged to have a legal ownership
interest, such as by deed. Thomas Rohlman is corporate Vice
President of Pine Management, and Brenda Rohlman is (according to
an answer to an interrogatory in the court proceeding submitted to
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the DHCR) corporate Secretary as well as Harold Pine's daughter.
While it might be understandable, and considered not out of the
ordinary, for Harold Pine to let his daughter and son-in-law use
the apartment rent-free if they were not employees, and while the
Rohlmans would probably be considered legitimate tenants (whether
or not stabilized) during the time that they were actually living
there pursuant to such a "sweetheart" arrangement, in the present
case the Rohlmans have received in excess of $100,000.00 in rents
from the complainant since she commenced occupancy, allegedly
reporting the rent as their own income and not being obligated to
turn any of it over to Harold Pine. This is not a typical
arrangement between an owner and prime tenants. [While it would be
a typical arrangement for an owner to receive rent and to not have
to turn it over to someone else, it bears repeating that the
Rohlmans have not claimed to have an actual ownership interest,
that owners typically do not attain rights to an apartment through
an (alleged) prime lease, and that an owner not in occupancy should
not be subleasing, but rather leasing to a stabilized tenant.] The
fact that the apartment is allegedly "occupied" by two employees,
rather than by someone whose trust is a co-owner of the building,
makes the present situation less like Bozzi v. Goldblatt, and more
like a situation where a superintendent performing services worth
$1,900.00 a month is allowed to live without paying rent in an
apartment worth that much. In such a case, if the superintendent
were to vacate and sublease the apartment for $1,900.00 a month
without being required to pay any rent to the owner of the
building, it would be found that the apartment was no longer
temporarily exempt by reason of employee occupancy, and that the
owner's attempt to pay the superintendent by granting the usufruct
of the apartment had simply resulted in the apartment becoming
vacant when the superintendent left (whether or not the
superintendent "intended to return" someday), and in the under -
tenant having a right to a prime stabilized lease in her or his own
name, including the right to renew and rights related to
cooperative or condominium conversion.
Section 2524.4 of the Rent Stabilization Code provides grounds,
including primary residence by a member of an owner's immediate
family, for refusing to offer a renewal lease. However, the right
to commence a court proceeding to recover possession for owner
occupancy is limited to owners, who would, to recover possession
for personal or family use, have to give notice during a "window"
period of 120 to 150 days prior to the expiration of a lease. The
Rohlmans are attempting to retain the rights of owners vis-…-vis
the tenant, without any of the obligations and restrictions on
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them, and without the rights of the complainant, that would apply
if they were actually owners. They are also attempting to use the
defenses available to prime tenants but not owners (i.e., ability
to not give a stabilized lease, to refuse to renew, and to retain
conversion rights), but to also avoid the requirements (i.e.,
themselves having a written stabilized lease of one or two years
with the rents being registered and lawful, and having the
apartment as their primary residence). If Harold Pine, the actual
owner, were to commence a court proceeding to recover possession,
it would most plausibly be against the Rohlmans, in their attempted
role as prime tenants who can sublease and refuse to renew. For a
likely outcome of such an action, see Lindstrom v. Conte, N.Y. City
Civ. Ct., 448 N.Y.S.2d 636 (1982), where a prime tenant who merely
wanted the added convenience of a pied-…-tere was not allowed to
regain possession from a subtenant. See also Sommer v. Ann Turkel,
Inc., 522 N.Y.S.2d 765 (Sup. 1987), where the Appellate Term, First
Department found that an apartment was not the primary residence of
a tenant who spent 60-75 days there annually, who paid New York
City and State income taxes, who did not sublease it, and who
claimed that she regarded New York as her true home and intended to
return when her work permitted her to do so. The reality of the
present situation is that two employees of Pine Management vacated
the subject apartment, regardless of their reason and regardless of
whether they ever intended to make it their primary residence
again, and the complainant has been living in the apartment for
more than six years while the Rohlmans have lived elsewhere. The
Rohlmans have not shown adequate legal or equitable grounds why the
complainant should be denied her own lease from the owner and why
the owner or the Rohlmans should (ultimately) be able to require
her to vacate her residence. (The registrations show the owner as
Park Crest Apartments. C/o Pine Management, Inc., and the manager
as Harold Pine c/o Pine Management, Inc. If Thomas Rohlman were to
sign such a lease with the complainant it would be as an agent of
Pine Management, and not as either a prime tenant or as an "owner"
by virtue of his familial relationship. Also, if the building is
actually owned by a corporation, it is not even clear if it would
be possible to have "owner" occupancy [by Harold Pine, the
shareholder], as opposed to employee occupancy by two people who no
longer reside there.)
While the Administrator was correct to order the offer of a lease
to the complainant, the order should be modified to remove the
statement that the complainant stated that the Rohlmans never
resided in the subject apartment.
The owner is directed to reflect the findings and determination
made in this order on all future registration statements, including
those for the current year if not already filed, citing this Order
as the basis for the change. Registration statements already on
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file, however, should not be amended to reflect the findings and
determinations made in this order. Any rent registered should
indicate that it is subject to a pending DHCR overcharge
proceeding.
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.
ISSUED:
Joseph A. D'Agosta
Deputy Commissioner
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