706 Realty Co., LLC. v New York State Div. of Hous. & Community Renewal

[*1] 706 Realty Co., LLC v New York State Div. of Hous. & Community Renewal 2006 NY Slip Op 51882(U) [13 Misc 3d 1217(A)] Decided on July 28, 2006 Supreme Court, New York County Abdus-Salaam, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. As corrected in part through October 25, 2006; it will not be published in the printed Official Reports.

Decided on July 28, 2006
Supreme Court, New York County

706 Realty Co., LLC

against

New York State Division of Housing and Community Renewal, and Marjorie Charron



104782/06

Sheila Abdus-Salaam, J.

Upon the foregoing papers, it is ordered that this petition challenging the determination of respondent New York State Division of Housing and Community Renewal (DHCR) dated February 6, 2006, establishing the initial fair market rent for apartment 6C located at 706 Riverside Drive in Manhattan at $1,337.09 per month and directing petitioner 706 Realty Co., LLC. to refund to the tenant of the subject apartment, respondent Marjorie Charron, the sum of $10,778.74, and seeking remittal to DHCR directing the agency to consider new comparable rents offered by petitioner, is denied.

The February 6, 2006 determination challenged in this proceeding is the latest in a series of determinations issued by DHCR regarding the subject [*2]apartment since Ms. Charron filed a rent overcharge complaint with DHCR in July 2002, which was converted to a Fair Market Rent Appeal (FMRA) once petitioner informed DHCR that Ms. Charron was the first tenant to occupy the apartment after the previous rent controlled tenant vacated it. Thereafter, petitioner submitted to DHCR three apartments in the same building as comparable to the subject apartment. They were apartments 1C, 7C and 8E. DHCR rejected the latter two as unqualified and the FMRA proceeded with 1C as the sole comparable apartment. Although petitioner was notified of this determination in March 2003, petitioner did not offer any additional comparable apartments for consideration nor did petitioner file a Petition for Administrative Review (PAR) challenging the disqualification of apartments 7C and 8E as comparables.

Using the registered rent of $1,300 per month for apartment 1C on June 1, 2001(the date Ms. Charron took occupancy of apartment 6C), the DHCR Rent Administrator first determined that the fair market rent for the subject apartment according to the formula then in effect was $1,334.52. However, on May 13, 2003 the Rent Administrator sent the parties an Amended Summary Notice recalculating the rent for the subject apartment based upon a rent for apartment 1C of $2,000 per month, which was described in the Rent Administrator's August 26, 2003 order as the legal rent stated in the lease for that apartment rather than the preferential rent of $1,300 that the tenant was paying. Thus, the recalculated fair market rent for apartment 6C was $1,6842.52 per month, not the $1,900 that Ms. Charron was paying [FN1]. Ms. Charron filed a PAR challenging this determination, asserting, among other things, that the $1,300 per month rent that the tenant of apartment 1C was actually paying not the $2,000 per month stated in the lease for that apartment should have been used to determine the fair market rent for her apartment. As noted, petitioner did not file a PAR challenging the disqualification of the other two apartments petitioner submitted as comparables.

On 19, November 2003, the Deputy Commissioner issued an order denying Ms. Charron's PAR. As is relevant here, the Deputy Commissioner found that $2,000 was the legal monthly rent for apartment 1C; that pursuant to Rent Stabilization Code §2520.11(r)(4), the $2,000 rent for apartment 1C was an unregulated rent; and that it was proper for the Rent Administrator to use the $2,000 legal rent for apartment 1C in determining the fair market rent for the subject apartment, rather than the $1,300 preferential rent that the tenant of apartment 1C was paying.

Ms. Charron commenced an Article 78 proceeding challenging the Commissioner's November 19, 2003 order. By order dated May 17, 2004, Justice [*3]Saralee Evans of this Court remanded that proceeding to DHCR at the agency's request for further consideration and a new determination. After this remand, the Deputy Commissioner by order dated October 12, 2004, again denied Ms. Charron's PAR, reiterating that the legal rent for apartment 1C was $2,000 per month as set forth in the lease.

Ms. Charron commenced another Article 78 proceeding which resulted in a Decision and Judgment dated May 31, 2005 (Figueroa, J.), denying Ms. Charron's petition and essentially affirming the Deputy Commissioner's order.

However, DHCR moved to reargue that Decision and Judgment because the Deputy Commissioner's October 12, 2004 order had become untenable as a result of the decision in M & E Rubin, LLC v. New York State Division of Housing and Community Renewal, Index No. 12484/04, Sup. Ct., Queens County, October 26, 2004, aff'd 27AD3d 650 (2006), and DHCR's determination to defend that decision on appeal. As explained in DHCR's reargument motion and as Justice Satterfield found in M & E Rubin, the concept of a preferential rent does not apply to unregulated apartments. Where an apartment is unregulated the tenant of such an apartment is not rent stabilized and there is by definition no legal regulated rent in effect. Thus, there is no preferential rent, but only the rent freely negotiated and paid by the tenant. DHCR asked for a remand for the express purpose of modifying the calculation of the fair market rent for the subject apartment by using the rent actually paid by the tenant of apartment 1C, the $1,300 per month. By order dated October 20, 2005, Justice Figueroa granted DHCR's application and remanded the matter to DHCR to recalculate the fair market rent for apartment 6C using the $1,300 rent actually paid by the tenant in the unregulated comparable apartment 1C.

DHCR's recalculation resulted in an initial legal rent for the subject apartment of $1,337.09. On February 6, 2006, the Deputy Commissioner issued the order establishing that amount as the fair market rent for apartment 6C and directing petitioner to refund to Ms. Charron $10,778.74 in excess rent collected through May 31, 2003.

In this Article 78 proceeding challenging the February 6th order, petitioner contends that from 2002 until 2005 DHCR affirmed petitioner's use of apartment 1C as a comparable apartment for calculating the fair market rent for apartment 6C based upon the rent stated in the lease for apartment 1C of $2,000 per month rather than the preferential rent of $1,300 being paid by the tenant of that apartment, and that it was arbitrary, capricious and inequitable for DHCR to change its position regarding the use of the $2,000 without permitting petitioner to submit additional comparables for consideration. Petitioner asks that this proceeding be remanded to DHCR to allow petitioner to offer more comparables.

DHCR asserts, in opposition, that the Deputy Commissioner's February 6, [*4]2006 decision and order is neither arbitrary, capricious, unreasonable or inequitable. Rather, DHCR argues, the decision and order is rationally based in law and in the record, and should be upheld.

Ms. Charron also opposes the petition. However, without filing her own timely Article 78 petition, she attempts to challenge the determination as arbitrary and capricious in limiting the refund of excess rent to her to the period ending May 31, 2003, claiming that she is owed $25,880.20 for overcharges to date and that she is entitled to prejudgment interest on all overcharges. Ms. Charron further asserts that apartment 1C should not have been used as an apartment comparable to hers because DHCR improperly ignored evidence that apartment 1C was not a legal apartment, as the landlord had unlawfully subdivided apartment 1C into two separate apartments without a work permit from the NYC Buildings Department and contrary to the building's Certificate of Occupancy. She therefore maintains that her rent should have been set at the DHCR guidelines amount [FN2] of $1,034.48.

As an initial matter, I reject Ms. Charron's attempt to obtain the affirmative relief she seeks. If Ms. Charron wished to challenge the Deputy Commissioner's decision and order, she was required to commence her own Article 78 proceeding within 60 days of its issuance (Rent Stabilization Law § 26-516 (d)). She was well aware of this requirement, having commenced two previous Article 78 proceedings since filing her initial overcharge complaint in July 2002. Having failed to commence a third timely Article 78 proceeding, Ms. Charron is now precluded from obtaining the affirmative relief she seeks here.

I also find no merit to petitioner's claim that it was inequitable for the Deputy Commissioner to recalculate the fair market rent without giving petitioner an opportunity to submit additional comparable apartment rents for consideration. Justice Figueroa granted DHCR's motion to reargue for the express purpose of remanding this matter to recalculate the fair market rent for Ms. Charron's apartment by using the $1,300 actually paid by the tenant of apartment 1C. Petitioner failed to appeal Justice Figueroa's order and may not [*5]challenge it here.

Moreover, the Court of Appeals has held that DHCR may not consider additional comparables submitted by a landlord for the first time at the PAR level, absent a showing of good cause (Gilman v. New York State Division of Housing and Community Renewal, 99 NY2d 144 [2002]). On remand, petitioner neither submitted additional comparables nor made any attempt to show good cause why it would need to do so [FN3]. Instead, petitioner claims here that DHCR's acceptance for several years of the $2,000 per month rent for apartment 1C as comparable before changing its position and using the $1,300 per month rent, essentially lulled petitioner into a false sense of security. However, as is pointed out by DHCR, Ms. Charron's timely appeals from the Deputy Commissioner's previous orders always presented the potential for her to prevail. Petitioner should not now be heard to complain that she ultimately did. Accordingly, it is

ADJUDGED that this proceeding is dismissed.

Dated: July 28, 2006

J.S.C. Footnotes

Footnote 1:The Rent Administrator also directed the owner to refund or credit to Ms. Charron $2,069.58 in excess rent and security.

Footnote 2:This refers to Special Guidelines Order 32 which was in effect on the date Ms. Charron, as the first rent stabilized tenant took occupancy. The fair market rent for Ms. Charron's apartment is calculated pursuant to that order by adjusting the 2000 Maximum Base Rent for her apartment of $413.79 by an additional 150% plus the fuel cost of adjustment of 0. This results in a rent of $1,034.48. However, even if there were no comparable apartments whose rents would need to be factored into the equation, if, as here, the landlord has made documented improvements, 1/40th of the cost of those improvements must be added to the guidelines amount to arrive at an initial fair market rent. Thus, absent any adjustment for a comparable rent, Ms. Charron's rent would still be higher than $1,034.48.

Footnote 3:Because petitioner had a full and fair opportunity to submit to the Rent Administrator an unlimited number of apartments as comparables but only submitted three and did not seek a review of the Rent Administrator's determination to disqualify two of the three apartments, it is hard to imagine that petitioner can make a good cause showing for now submitting additional comparables for consideration.