Matter of Sugihara v State of New York Div. of Hous. & Community Renewal Off. of Rent Admin.

[*1] Matter of Sugihara v State of New York Div. of Hous. & Community Renewal Off. of Rent Admin. 2006 NY Slip Op 52186(U) [13 Misc 3d 1239(A)] Decided on October 5, 2006 Supreme Court, New York County Madden, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 October 5, 2006
Supreme Court, New York County

In the Matter of the Application of Juliet E. Sugihara, Petitioner for a Judgment Pursuant to CPLR Article 78 annulling or modifying a determination denying Petition for Administrative Review, Petitioner,

against

State of New York Division of Housing and Community Renewal Office of Rent Administration, Immanuel Lutheran Church, & JTF Management Associates, Respondents.



117899/05

Joan A. Madden, J.

In this Article 78 proceeding, the Court is called on to determine whether respondent New York State Division of Housing and Community Renewal ("DHCR") erred in interpreting the 2003 amendment to the Rent Stabilization Law to permit an owner to eliminate a tenant's preferential rent upon renewal of her lease, even though the parties agreed to continue the preferential for the duration of the tenancy.As discussed below, this Court concludes that the statutory provision giving a landlord the option to renew a lease based upon either the legal regulated rent or the preferential rent, was not intended to abrogate the parties' unequivocal lease agreement to calculate all lease renewals on the basis of the preferential rent amount. The Court further concludes that these issues of statutory and contract interpretation were properly raised for consideration in the administrative proceeding before DHCR.

BACKGROUND

By lease dated October 1, 1991, petitioner Juliet E. Sugihara became the tenant of a rent stabilized apartment located at 122 East 88th Street, Apt. No.3W in Manhattan. Respondent Immanuel Lutheran Church is the owner and landlord of the premises, and respondent JTF Management Associates is the managing agent. Attached to the October 1, 1991 standard form apartment lease is a "Lease Rider," also dated October 1, 1991, in which the parties agreed that the tenant would pay a preferential rent of $800, and that the $800 preferential amount would continue as the basis for "all lease extensions after the first year." The lease rider specifically states as follows:

Tenant Hereby agrees that effective, October 1, 1991, the legal registered rent for the apartment is $1,139.65 for a one year lease commencing October 1, 1991 and ending September 30, 1992. [*2]Tenant agrees to pay a monthly rent of $800.00 (EIGHT HUNDRED DOLLARS) for a one year lease. It is agreed that all lease extensions after the first year will be based on $800.00 and increased in accordance with the guideline increases at the expiration of such lease. It is also agreed that the tenant will deposit a security deposit of $800.00 (EIGHT HUNDRED DOLLARS). [emphasis added]

In accordance with the above lease rider, the rent in all lease renewals from 1992 through 2003 was calculated based upon the initial $800 preferential rent amount.[FN1] In 2005, however, the owner offered Sugihara a renewal lease based upon the legal regulated rent, rather that the lower preferential rate.[FN2]

On or about June 9, 2005, Sugihara filed lease violation complaint with DHCR. In Part III of the DHCR form complaint entitled "Nature of Complaint," Sugihara checked off box numbered "6," stating: "The owner refuses to offer me a renewal lease on the same terms and conditions as were contained in my expiring lease. The owner has made changes in the new lease." Annexed to the DHCR complaint is a copy of a letter dated April 28, 2005 from Sugihara's attorney to the owner, advising that the 2005 renewal lease "recites an incorrect rent for the renewal term. Ms. Sugihara is seeking and is entitled to a renewal lease whose rent increase is calculated on her preferential rent, rather than the legal regulated rent." The owner responded to Sugihara's complaint by asserting that it had revoked her preferential rent in accordance with the recently enacted amendment to the rent stabilization law.[FN3] [*3]

By an order dated August 12, 2005, the DHCR Rent Administrator denied Sugihara's complaint, determining as follows:Pursuant to Chapter 82 of the Laws of 2003, as amended, where a tenant pays a preferential rent (i.e. a rent less that the Legal Regulated Rent) the owner may, at his or her option, charge the higher previously established Legal Regulated Rent upon renewal or vacancy, as adjusted by the most recent applicable guidelines increase and other increases authorized by law. Based on the above, the owner is entitled to offer the renewal lease based on the Legal Regulated Rent.

On or about September 19, 2005, Sugihara filed a Petition for Administrative Review (PAR), appealing the Rent Administrator's August 12, 2005 determination. In support of the PAR, Sugihara argued that the dismissal of her lease violation complaint was "in direct opposition to a case recently decided on April 29, 2005 by the Appellate Court entitled Aijaz v. Hillside," 8 Misc 3d 73 (App Term, 1st Dept 2005), which held that the 2003 amendment to the Rent Stabilization Law "was not intended to preclude the parties to a lease or stipulation from agreeing to a rent preference that would endure beyond the term of the lease into renewal periods." Sugihara asserted that in the instant matter "it is undisputed that the parties contracted to base the lease renewal increases after the first year' on the preferential rent ($800.00) basis," and that "the Rent Administrator erred in dismissing the underlying Lease Violation Complaint [as it] was the intent of the parties to use the preferential rent and not the Registered Rent as the base rent for lease renewal increases after the first year.'"

On December 1, 2005, DHCR Deputy Commissioner Paul A. Roldan issued an order and opinion denying Sugihara's PAR. Citing to the 2003 amendment to section 26-211(c)(14) of the Rent Stabilization Law, as well as section 2521.2(a) of the Rent Stabilization Code, the Deputy Commissioner concluded that "an owner may charge the legal regulated rent upon the renewal of a lease of a tenant who was paying a preferential rent or when the tenant vacates the apartment."

In other words, where a rent stabilized tenant is paying a preferential rent and the lease is renewed, the Rent Stabilization Law gives the owner the option of eliminating the preferential rent and base the renewal lease on the higher legal regulated rent. Reasoning as follows, the Deputy Commissioner rejected Sugihara's arguments in toto: Pursuant to section 2526.1(a)(2)(ii) of the Rent Stabilization Code, the rental history of a housing accommodation prior to the four-year period preceding the filing of an overcharge complaint may not be examined. The four-year limitation period on the review of rent records applies in the instant lease violation complaint where the complaint involves the amount of rent stated in the most recent lease renewal offer. The 1991 lease precedes the four-year limitation period and will not be examined. The record indicates that the tenant's last renewal lease, which commenced on September 1, 2003, set forth the legal regulated rent. Pursuant to Section 2521.2 of the Rent Stabilization Code as amended, since the legal regulated rent was set forth in the tenant's prior lease, the owner was entitled to base the tenant's renewal lease rent on the legal regulated rent, rather than the preferential rent. Regarding the case of Aijaz v. Hillside that is cited by the [*4]tenant, the DHCR was not a party to that case and is not bound by the decision in that case. Moreover, since the tenant's 1991 lease is not being considered, the question of breach of contract in connection with the 1991 lease rider need not be addressed. The Commissioner finds that the Rent Administrator properly determined that the owner was entitled to offer the tenant a renewal lease based on the legal regulated rent and that the Rent Administrator properly denied the tenant's complaint.

On December 28, 2005, Sugihara commenced the instant Article 78 proceeding, seeking reversal of DHCR's denial of her lease violation complaint, on the ground such denial was affected by errors of law and was an abuse of discretion. Specifically, Sugihara argues that DHCR failed to take into account the decision of the Appellate Term First Department in Aijaz v. Hillside Place, LLC, supra, as well as two other decisions reaching the same result, Les Filles Quartre LLC v. McNeur, 9 Misc 3d 179 (Civ Ct, NY Co 2005) and New Haven Place v. Beaufort, 9 Misc 3d 1130(A), 2005 WL 3079088 (Dist Ct, Nassau Co 2005). Sugihara contends that

DHCR is bound by all court decisions affecting its rulings, and that DHCR's reasoning that it is

was not bound by Aijaz since it was not a party to that case, "makes little or nor sense." She further argues that DHCR's reliance on the four-year statute of limitations period for rent overcharge complaints in refusing to consider the 1991 lease, "is again without merit," as by renewing the lease, all terms of the original lease were incorporated by reference, and, as such, the terms of the 1991 lease are still binding on the parties.

Respondent DHCR served a verified answer asserting that the "Commissioner's finding constitutes a rational interpretation and application of the Rent Stabilization Law and regulations, including the 2003 amendment, and is neither arbitrary nor capricious," and that the "construction placed on a statute by an agency responsible for its administration is entitled to great weight" and "deference." DHCR argues that the court decisions Sugihara cites "are not applicable in the context of this Article 78 proceeding," and that the enforcement of the preferential rent clause in the lease "does not rely on enforcement of the Rent Stabilization Law." DHCR maintains that its role is limited to administering the rent law and regulations, and that it rationally found that it was not necessary to address the breach of contract issue, since the 1991 lease "predates the four-year period relevant to determinating the appropriate rent under the Rent Stabilization Law and cannot be reviewed by the Commissioner." DHCR asserts that its determination does not "affect any claim the tenant may have for breach of contract." DHCR relies on recently issued regulations implementing the 2003 amendment to the Rent Stabilization Law, which according to DHCR, "mirror the statutory amendment."[FN4] [*5]

Respondents Immanuel Lutheran Church and JTF Management Associates also served a verified answer, asserting that the rent stabilization law "plainly states that the landlord can at its option raise the rent to the Legal Regulated Rent." With respect to the preferential rent provision in the rider to the parties' lease, the owner argues that the lease "merely recites" the law as it existed at the time the lease was executed in 1991, and that as a result of the law changing, "rights that had accrued to the tenant were lost." The owner notes that leave to appeal was granted in the Aijaz case, so "it may not be relied on as precedent," and further argues that since none of the prior lease renewal offers recites "the perpetual preferential rent provision," it has been "superceded by the more current lease renewals."

DISCUSSION

It is well settled that "[w]here the interpretation of a statute involves a specialized knowledge and understanding of underlying operational practices or entails an evaluation of factual data and inferences to be drawn therefrom,' the courts should defer to the administrative agency's interpretation unless irrational or unreasonable." KSLM-Columbus Apartments, Inc. v. New York State Division of Housing & Community Renewal, 5 NY3d 303, 312 (2005)(quoting

Kurcsics v. Merchants Mutual Insurance Co., 49 NY2d 451, 459 [1980]); accord Matter of Dworman v. New York State Division of Housing & Community Renewal, 94 NY2d 359, 371 (1999); Missionary Sisters of the Sacred Heart, ILL v. New York State Division of Housing & Community Renewal, 283 AD2d 284, 286 (1st Dept 2001). "By contrast, where, as here the question is one of pure statutory interpretation dependent only on accurate apprehension of legislative intent, there is little basis to rely on the special competence or expertise of the administrative agency and its interpretive regulations are therefore to be accorded much less weight.'" KSLM-Columbus Apartments, Inc. v. New York State Division of Housing & Community Renewal, supra at 312 (quoting Kurcsics v. Merchants Mutual Insurance Co., supra at 459); accord Matter of Dworman v. New York State Division of Housing & Community Renewal, supra at 371; Missionary Sisters of the Sacred Heart, ILL v. New York State Division of Housing & Community Renewal, supra at 286.

In the instant proceeding, as DHCR's final determination denying Sugihara's PAR turns solely on its interpretation and application of section 26-511(c)(14) of the Rent Stabilization Law, there is little basis to rely on the agency's expertise or competence. DHCR urges that the 2003 amendment to the Rent Stabilization Law gives the owner the right to issue a renewal lease based upon the legal regulated rent, notwithstanding the existence of a preferential rent rider in the parties' lease. Such interpretation, however, is not a correct reading of the unambiguous statutory language. Although section 26-511(c)(14) provides that on renewal of a lease with a preferential rent, the owner has the option of calculating the rent based upon either the preferential rent or the legal regulated rent, nothing in the plain language of the statute

indicates or even suggests that it was intended to have the effect of revoking a landlord's and [*6]tenant's clear contractual agreement to continue the preferential rent indefinitely as the basis for calculating the rent for each and every renewal lease.

Rather, as several courts have recognized, the 2003 amendment to the Rent Stabilization Law was merely intended to codify the holding in Missionary Sisters of the Sacred Heart, ILL v. New York State Division of Housing & Community Renewal, supra, in which the Appellate Division First Department rejected DHCR's position, known as the "Collingwood Rule," that once a preferential rent was granted, it became the permanent base rent on which all future rent increases were calculated, even after the tenant who received the preferential rent vacated the apartment. See Aijaz v. Hillside Place, LLC, supra at 75-76; 448 West 54th Street Corp. v. Doig-Marx, 5 Misc 3d 405 (Civ Ct, NY Co 2004), aff'd 11 Misc 3d 126(A), 815 NYS2d 494, 2006 WL 295214 (App Term, 1st Dept 2006); Warren A. Estis and Jeffrey Turkel, "Rent Regulations Eight-Year Extension, New Legislation Renews Rent Law Through 2011," NYLJ, July 22, 2003, p 5, col 2. In Missionary Sisters, the First Department found that Century Operating Corp. v. Popolizio, 60 NY2d 483 (1983) was controlling, and that DHCR's position, "ignores or attempts to circumvent" the Court of Appeals holding in that case, which "indicates that the parties' intent clearly manifested in a written agreement controls." Missionary Sisters of the Sacred Heart, ILL v. New York State Division of Housing & Community Renewal, supra at 289-290. The First Department concluded that the clear and express language in the parties' lease limiting the preferential rent concession to the term of the tenant's lease controlled over the agency's interpretation of the regulations, which would have extended the preference into a vacancy lease. Id.

Relying on the authority of Century Operating and Missionary Sisters, courts have held that the 2003 amendment to the Rent Stabilization Law adding section 26-511(c)(14) does not alter the terms of a lease rider which calls for a preferential rent during the entire term of a tenant's occupancy. See Colonnade Management, LLC v. Warner, 11 Misc 3d 52 (App Term 1st Dept 2006); Aijaz v. Hillside Place, LLC, supra at 75-76; United West LLC v. Margulies, 12 Misc 3d 1159(A), 2006 WL 1417860 (Civ Ct, NY Co 2006); 45-55 Realty LLC v. Covin, 12 Misc 3d 1175(A), 2006 WL 1887457 (Civ Ct, Kings Co 2006);Les Filles Quartre LLC v. McNeur, supra; 448 West 54th Street Corp. v. Doig-Marx, supra. "Despite its seemingly broad sweep, the 2003 amendment was not intended to preclude the parties to a lease or stipulation from agreeing to a rent preference that would endure beyond the terms of the lease into renewal periods.'" Colonnade Management, LLC v. Warner, supra (quoting Aijaz v. Hillside Place, LLC, supra). Thus, where the owner and the tenant have expressly agreed "that the preferential rent will last for the life of the tenancy, the tenant is entitled to have such lease provision carried over into subsequent renewal leases." Id (citing Aijaz v. Hillside Place, LLC, supra).

Here, the language in the 1991 lease rider clearly and unambiguously provides for a preferential rent for the duration of the tenancy. As the parties' intent is unequivocally and explicitly manifested in the written agreement, the agreement controls, and Sugihara is entitled to the benefit of the preferential rent throughout her tenancy. See Century Operating Corp. v. Pololizio, supra; Missionary Sisters of the Sacred Heart, ILL v. New York State Division of Housing & Community Renewal, supra; Colonnade Management, LLC v. Warner, supra; 448 West 54th Street Corp. v. Doig-Marx, supra.

Contrary to DHCR's position, 1991 lease rider could have and should have been [*7]considered in determining Sugihara's lease violation complaint, as the rider provides for the preferential rent for the duration of the tenancy and thus, is inextricably related to the issue as to whether she was offered her a renewal lease on the same terms and conditions as the expired lease, in accordance with section 2522.5(g)(1) of the Rent Stabilization Code. See Century Operating Corp. v. Popolizio, supra at 487; Roxbourgh Apartments Corp. v. Becker, 296 AD2d 358 (1st Dept 2002).

Citing to the four-year limitations period for rent overcharge complaints, DHCR found that it could not consider the1991 lease and lease rider. Such reasoning, however, is misplaced, as section 2522.5(g)(1) requires that each renewal lease "shall be on the same terms and conditions as the expired lease." As a "term and condition" of the original lease, the 1991 lease rider, by virtue of section 2522.5(g)(1), is incorporated into each and everyone of Sugihara's subsequent renewal leases, including the renewal lease in issue and the immediately preceding one. See Century Operating Corp. v. Popolizio, supra at 488. Thus, since the 1991 rider with the preferential rent was incorporated into all previous renewal leases, DHCR's consideration of the 1991 rider would not violate the four-year rule.

Accordingly, the issue presented to DHCR was whether the landlord is entitled to discontinue the preferential rent, where the landlord is contractually obligated to continue such preferential rent for the duration of the tenancy. As indicated above, the parties' intent clearly manifested in the written agreement controls. See Missionary Sisters of the Sacred Heart, ILL v. New York State Division of Housing & Community Renewal, supra. In addition, DHCR's authority to consider the lease and the lease rider is clearly established by case law precedent. See Century Operating Corp. v. Popolizio, supra; Missionary Sisters of the Sacred Heart, ILL v. New York State Division of Housing and Community Renewal, supra.[FN5] [*8]

Thus, based upon the foregoing, this Court finds that DHCR's interpretation of the 2003 amendment to the Rent Stabilization Law is contrary to the plain language of the statute, which was not intended to abrogate the unequivocal terms of the lease rider giving Sugihara a preferential rent for the entire term of her tenancy. Sugihara, therefore, is entitled to a rent stabilized renewal lease in which the rent is calculated on the basis of the preferential rent.

Accordingly, it is hereby

ORDERED AND ADJUDGED that the petition is granted and the determination of respondent DHCR is annulled, and respondent Immanuel Lutheran Church is directed to provide petitioner Juliet E. Sugihara with a rent stabilized renewal lease based upon the preferential rent.

This constitutes the decision, order and judgment of the court.

DATED: October 5, 2006ENTER

________________________

J.S.C. Footnotes

Footnote 1:The last lease prior to the 2005 renewal, was a two-year renewal lease for the period September 1, 2003 through August 31, 2005. The 2003 renewal provided for monthly rent of $1,003.18, which was based on the preferential rate, and also listed the legal regulated rent at that time as $1,485.76.

Footnote 2:The parties agree that the rent in the 2005 renewal is based upon the legal regulated rent, and as such, is higher than if calculated based on the preferential rate. However, the record before the court does not include a copy of the 2005 renewal lease, and neither the parties' submissions nor the documents in the record identify the precise amount listed in the 2005 renewal lease, or the dollar amount of the difference between the rent calculated at the legal rate as opposed to the preferential rate.

Footnote 3:Chapter 82 of the Laws of 2003, amended Rent Stabilization Law §26-511(c) by adding a new paragraph 14, which requires the Rent Stabilization Code to provide

that where the amount of rent charged to and paid by the tenant is less that the legal regulated rent for the housing accommodation, the amount of rent for such housing accommodation which may be charged upon renewal or upon vacancy thereof may, at the option of the owner, be based upon such previously established legal regulated rent, as adjusted by the most rent applicable guidelines increases and any other increases authorized by law. Where, subsequent to vacancy, such legal regulated rent, as adjusted by the most rent applicable guidelines increases and any other increases authorized by law is two thousand dollars or more per month, such housing accommodation shall be excluded from the provisions of this law pursuant to section 26-504.2 of this chapter.

Footnote 4:The 2005 amendments to the rent stabilization regulations, which in pertinent part amend section 2521.2, state as follows:

(a) Where the amount of rent charged to and paid by the tenant is less than the legal regulated rent for the housing accommodation, such rent shall be known as the "preferential rent." The amount of rent for such housing accommodation which may be charged upon renewal or vacancy thereof may, at the option of the owner, be based upon either such preferential rent or an amount not more than the previously established legal regulated rent, as adjusted by the most recent applicable guidelines increases and other increases authorized by law.

(b) Such legal regulated rent shall be "previously established" where:

(1) the legal regulated rent is set forth in either the vacancy lease or renewal lease pursuant to which the preferential rent is charged . . .

Footnote 5:DHCR contends that the tenant's right to assert a breach of contract claim is not "impaired" by DHCR's denial of the tenant's complaint. This contention is self-serving at best. Clearly, it cannot be disputed that the tenant has a right to commence a plenary action for breach of the lease. However, where as here the tenant filed a lease violation complaint with DHCR, the DHCR was not only authorized but also obligated to consider the lease and the lease rider.

DHCR's reliance on the decision in Aijaz is misplaced. Although the Court in Aijax draws certain distinctions between statutory rent overcharge violations and contract claims, those distinctions are inapplicable to instant proceeding. Aijax was a plenary action commenced by the tenant for damages for rent overcharges when he was not given the preferential rent provided for in his lease. While the Court found that the tenant could not assert a statutory claim for violations of the rent overcharge statutes since the 2003 amendment authorized the landlord to discontinue the preferential rent, the Court concluded that he was still entitled to damages for breach of the lease, since the 2003 amendment was not intended to override the parties' lease which provided for a preferential rent for the duration of the tenancy. Here, however, the tenant presented the issue directly to DHCR, by commencing an administrative proceeding. By declining to consider the lease and the lease rider, DHCR has essentially permitted the landlord to charge the tenant a rent that violates the parties' lease agreement and exceeds the amount to which he is entitled to under the law, a result which this Court cannot condone. See Rockaway One Co., LLC v. Wiggins, ___ AD2d ___, 2006 WL 2742707 (2nd Dept 2006).