Matter of Partnership 92 LP v Division of Hous. & Community Renewal

[*1] Matter of Partnership 92 LP v Division of Hous. & Community Renewal 2005 NY Slip Op 52399(U) [22 Misc 3d 1102(A)] Decided on June 30, 2005 Supreme Court, New York County Smith, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on June 30, 2005
Supreme Court, New York County

In the Matter of the Application of Partnership 92 LP and BLDG Management Co. Inc., d/b/a Bristol Management Co., Inc., Petitioner,

against

Division of Housing and Community Renewal, Office of Rent Administration, Respondent.



106452/04

Karen Smith, J.

This petition pursuant to CPLR Article 78, seeking a judgment reversing, annulling and setting aside respondent Division of Housing and Community Renewal's (hereafter referred to as "DHCR") "Order and Opinion Granting Petition for Administrative Review in Part After Reconsideration", is denied and this proceeding is dismissed.

The undisputed facts are established in the submissions of the parties as follows: Petitioner (hereafter referred to as "92") is the owner of the premises known as 412 East 55th. Street, New York, New York (hereafter referred to as the "Building"). In March of 1986, Andrea Bunis (hereafter referred to as "Bunis") became the tenant of apartment 3D (hereafter referred to as the "Apartment") in the Building. At that time, Bunis's employer was the property manager for the prior owner of the Building. When Bunis moved into the Apartment, her rent was set by agreement with the prior owner. The owner of the building considered the Apartment to be temporarily exempt from Rent Stabilization for the period between April 1, 1980 and March, 1986 because the individual who leased it during that period of time, Robert Klimecki (hereafter referred to as "Klimecki"), did not occupy the Apartment as his "principal residence" but, instead, sublet the Apartment to various corporations for their use in temporarily providing accommodations for their officers, employees or guests while they were in New York City. Therefore, the prior owner calculated Bunis's rent by using the final monthly rental amount of the last rent stabilized tenant to occupy the apartment and adding guideline increases in accordance with orders issued by the New York City Rent Guidelines Board during the period of time the Apartment was purportedly exempt from rent stabilization. Bunis's rent was thus established at $903.62. 92 contends that this procedure was justified based upon RSC §2526.1(a)(3)(iii) which mandates that the first rent stabilized rent after a period of exemption is the amount agreed upon by the parties to the lease. [*2]

Nevertheless, in 1987, Bunis filed a Complaint of Rent Overcharge with DHCR. In 1992, the prior owner sold the Building to 92. In October of 1995 DHCR's rent administrator issued an order denying the Complaint of Rent Overcharge (Exhibit B to the Amended Verified Petition) finding that $903.62 was lawful stabilized rent for Bunis's apartment. Bunis filed a timely Petition for Administrative Review.

While Bunis's administrative appeal was pending, the New York State Legislature enacted the Rent Regulation Reform Act of 1997. In April of 1999, DHCR issued an "Order and Opinion Granting Petition for Administrative Review in Part" (Exhibit E to the Amended Verified Petition). The order: (1) found that the provisions of Rent Regulation Reform Act of 1997 (hereafter referred to as the "RRRA") were applicable to this case because the case was pending when the RRRA became effective; (2) determined, based upon the provisions of the RRRA, that the base rent date for determining Bunis's rent was May 8, 1983 (four years prior to the date Bunis filed her overcharge complaint); (3) found that Klimecki was not a bona fide tenant (because he was listed as occupying four apartments in the Building) and, therefore determined that Klimecki's rent could not be considered for purposes of establishing the rent on the base rent date; (4) found that 92's failure to provide an adequate explanation from Klimecki as to why he was renting four apartments in the building should be deemed a default in providing a rental history showing a lawful rent for the Apartment on the base rent date; (5) applied DHCR's default formula to determine that Bunis had been overcharged and; (6) determined that the overcharge was not willful and, accordingly, declined to impose a willfulness penalty of treble damages and freezing the rent.

Bunis and 92 both filed timely Article 78 proceedings to challenge the determination. In December of 1999, upon DHCR's motion, the court (Lehner, J.) remitted the matter to DHCR for a rehearing and determination of all the then pending issues (Exhibit B to the Verified Answer to the Amended Petition).

After the Court's remand, 92 made a motion to DHCR to dismiss Bunis's complaint contending that the Rent Regulation Reform Act of 1997 should not be applied to the instant matter based upon DHCR's delay in deciding the complaint and that, based upon the law in effect at the time of the complaint, there was no overcharge. In October of 2003, a Hearing Report (Exhibit C to the Verified Answer to the Amended Petition) was issued by an Administrative Law Judge based upon a hearing of the matter which commenced in June of 2001 and ended in March of 2002. The hearing report was detailed and demonstrated a thorough consideration of all the information before the Administrative Law Judge. The report specifically states: "The matter was referred to the Hearings Unit for a hearing to determine whether the owner had ever served a proper initial registration on the DHCR and the tenant (relating to the issue of the propriety of the rent increases), as well as whether the owner could establish by a preponderance of the evidence that the overcharge was not willful" (Exhibit C to the Verified Answer Amended Petition). The Administrative Law Judge found that (1) there was no proof of the service or filing of the initial registration and (2) the owner had rebutted the presumption of willfulness of the overcharge. The hearing report further recommended that DHCR issue an order based upon the Administrative Law Judge's findings.

In February of 2004, the DHCR issued its "Order and Opinion Granting Petition for Administrative Review in Part After Reconsideration" (Exhibit A to the Verified Answer to the [*3]Amended Petition). The order denied 92's motion to dismiss Bunis's complaint concluding that it was appropriate to apply the Rent Regulation Reform Act of 1997 to this matter noting that the owner had requested and received ten adjournments of the proceedings over the two years between 1996 and 1998 and that, even if the old law was applied, there would still be an overcharge as Klimecki's tenancy was illusory and the landlord was not entitled to any rent increases during the period of that tenancy. The balance of the order made determinations consistent with the recommendations of the Administrative Law Judge. 92 filed the instant Article 78 proceeding to challenge the February, 2004 order of the DHCR.

92 now seeks a reversal of the order and opinion of respondent DHCR on the ground that it is arbitrary, capricious, in violation of law and an abuse of discretion. 92 continues to press its argument that the Rent Regulation Reform Act of 1997 should not be applied to this matter and further argues that, even if the 1997 act is applicable, the four year limitation period for considering past leases and rental records may, like a statute of limitations, be waived. Additionally, 92 contends that DHCR's determination that Klimecki's tenancy was illusory is "conclusory" and not based upon a proper interpretation of the Rent Stabilization Code and relevant case law. 92 argues that, instead of being illusory, Klimecki's tenancy should be considered a temporary exemption from rent stabilization therefore making the appropriate rent charge the amount of rent agreed upon by the prior owner and Bunis when Bunis became the tenant of the apartment and the temporary exemption no longer applied.

DHCR opposes the petition contending that its decision is not arbitrary, capricious, in violation of law or an abuse of its discretion. Instead, DHCR contends that its determination has a rational basis in the record and, to the extent that it has interpreted and applied the governing statutes and regulations, DHCR's interpretations should also be given great weight as they are supported by a rational basis.

In reply, 92 argues that DHCR's interpretations of the statutes involved should be given no deference as those interpretations do not relate to any matter within the agency's expertise. Rather, they relate to a legal determination concerning the applicability of the new statute to an existing case and the legal definition of an illusory tenancy. Therefore, 92 contends that they are within the discretion and expertise of the court rather than the administrative agency. Further, 92 argues that DHCR has not offered any facts to dispute the conclusion that Klimecki's tenancy constituted a temporary exemption of the Apartment from rent stabilization.

In a CPLR Article 78 proceeding, the question before the court is whether an agency's determination "was made in violation of lawful procedure, was effected by error of law or was arbitrary and capricious or an abuse of discretion."An agency's determination is considered arbitrary when it is "without sound basis in reason and is generally taken without regard to the facts." (Pell v Bd of Education, 34 NY2d 222, 231 [1974]). It is well established that "DHCR's interpretation of the statutes it administers, if not unreasonable or irrational, is entitled to deference [citations omitted]) (Salvati v. Eimicke, 72 NY2d 784, 791 [1988]).

It cannot be said that DHCR's decision in the instant matter is in violation of lawful procedure, effected by error of law, irrational, without sound basis in reason or taken without regard to the facts of the case.

First, with respect to the issue of whether DHCR should be obligated to consider the instant matter under the law as it existed before 1997, 92 has merely asserted that the proposition [*4]and failed to offer a sufficient showing that the delay in this matter was due to the negligence or wilful conduct of DHCR. Absent such a showing, the law in effect at the time of the determination (ie: post 1997) applies (see, Goldman v New York State Division of Housing and Community Renewal, 270 AD2d 169 [1st Dept, 2000]).

Next, the four year cut-off date for consideration of prior rent history and registration filings may not be waived. The case law makes it clear that there is an outright prohibition on considering such information beyond the four year period (see Zafra v Pilkes, 245 AD2d 218 [1st Dept, 1997]).

Finally; "[a] case presenting the issue of illusory tenancy requires that the court examine the bona fides of the tenancy of the person asserted to hold the status of prime tenant over the party in occupancy as subtenant." (Bruenn v Cole, 165 AD2d 443, 447 [1st Dept, 1991]). In the case presently before this court, DHCR considered the bona fides of Klimecki, as the primary tenant, to determine that he was, in fact, an illusory tenant. DHCR based its determination upon Klimecki's own testimony that he never resided in the Apartment and never intended to. It cannot be said that this determination is arbitrary, unreasonable or irrational.

92's urging that DHCR should look beyond Klimecki's status to the status of the intermediary sub-tenants (ie: the corporations who sub-leased the Apartment to provide temporary housing for their employees, officers or guests) is not persuasive. Where a sub-lease agreement is entered into, the terms of the sub-lease are, by definition, subordinate to the terms of the prime lease. In other words, by contract, the rights and benefits of the sub-tenant (as well as his obligations) are derived from those of the primary tenant (the sub-tenant steps into the shoes of the tenant). By contrast, the position asserted by 92 seeks to allow a primary tenant to derive and assert rights (exempt status) from a sub-tenant.

In the case presently before the court, Klimecki was the primary tenant at the Apartment. By his own admission, he leased the Apartment solely for the purposes of re-leasing it to other entities for a profit rather than occupying it as his primary residence. Therefore, the facts surrounding Klimecki's tenancy fall squarely within the definition on an illusory tenancy. It is undisputed that the owner of the Building participated in Klimecki's profits by charging Klimecki more than the lawful stabilized rent for the Apartment. Such profiteering and the resultant loss of rent stabilized housing units is precisely the harm that the doctrine of illusory tenancy seeks to prevent. Thus, there is a rational basis to support DHCR's determination that Klimecki's tenancy was illusory rather than a temporary exemption from rent stabilization as urged by 92. Since DHCR's determination has a such a basis and directly relates to matters within DHCR's expertise, (to wit; the best means effectuate the intent of the rent stabilization laws) the court must grant deference to DHCR's determination, is not at liberty to substitute its judgment for that of DHCR and cannot annul DHCR's determination in these proceedings.

The court has considered the remaining contentions of the parties and found them to be without merit. Accordingly, it is

ORDERED, ADJUDGED AND DECREED: that the petition is denied and this proceeding is dimissed.

The foregoing constitutes the decision, order and judgment of the court.

Dated: June 30, 2005 [*5]

ENTER:

_________________________

Karen S. Smith, J.S.C.