Hillside Park 168 LLC v Khan

[*1] Hillside Park 168 LLC v Khan 2017 NY Slip Op 27451 Decided on December 29, 2017 Civil Court Of The City Of New York, Queens County Thermos, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and subject to revision before publication in the printed Official Reports.

Decided on December 29, 2017
Civil Court of the City of New York, Queens County

Hillside Park 168 LLC, Petitioner,

against

Md. Assaduzzaman Khan and JOHN & JANE DOE, Respondents.



79824/15



Appearing for Petitioner: Curtis Harger, Esq., By: Donna Levine, Esq.

Appearing for Respondent: Queens Legal Services, By: George C. Gardner III, Esq.
Kimon C. Thermos, J.

Petitioner commenced this holdover proceeding seeking possession of the subject rent stabilized apartment on the basis that the tenant of record, Respondent Md. Assaduzzaman Khan ("Respondent"), failed to sign a properly offered lease renewal, upon expiration of a vacancy lease. The lease renewals offered to Respondent depicted two rents, a higher legal rent and a lower preferential rent, with increases on both. The first renewal lease offered to Respondent dated June 18, 2015 and effective October 1, 2015, sought to renew the lease with the applicable rent guidelines increases known at that time. The renewal offer depicted both a reserved base legal rent of $1,320.00, which was being increased, and an offer to extend the preferential rent at $1,200.00 for a one year period or $1,215.00 for a two year period. In June 2015, upon the Rent Guidelines Board's ("RGB") setting the new increases, Petitioner issued another lease renewal offer reflecting the appropriate adjustments to the increases, but also modified the preferential rent offer by increasing it to $1,320.00 for a one year period and $1,336.50 for a two-year period. Respondent refused to sign both of the lease renewal offers, which precipitated the commencement of the instant holdover proceeding.

After several adjournments, a trial commenced on September 27, 2017 and concluded on October 10, 2017. Post-trial memoranda of law were also submitted by the parties on November 14, 2017.

Petitioner contends that the subject vacancy lease provided for both a legal rent of $1,320.00 and a preferential rent of $1,175.00. Petitioner asserts that there was provision for the two rents in a New York State Division of Housing and Community Renewal ("DHCR") informational rider annexed to the vacancy lease, which comprised part of the entire lease, and that both were signed contemporaneously. Petitioner further argues that Respondent is [*2]collaterally estopped from raising the defense that Petitioner cannot demand the legal rent in the lease renewal, since a rent overcharge complaint filed by Respondent with the DHCR was dismissed.

Respondent contends that he properly refused to sign the renewal leases offered by Petitioner, since they demanded a monthly rent exceeding the RGB guidelines and that the renewal leases improperly based the increases upon a legal rent that did not exist in the vacancy lease. Respondent argues that the vacancy lease provided for only one rent amount of $1,175.00, now improperly deemed by Petitioner as a limited preferential rent, which must be treated as the legal rent in the renewal lease. Respondent further argues that a rider providing for two rents was not annexed to the vacancy lease when he signed the vacancy lease. Respondent also contends that the DHCR decision dismissing his overcharge claim has no estoppel effect on the issue of whether Petitioner can demand the legal rent in the lease renewal.

TRIAL EVIDENCE

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On its prima facie case, Petitioner called witness, Shairomie Mansukh, who has been employed by Petitioner's managing agent, Zara Realty, for 15 years. For the last 6 years, she has held the position of Office and New Acquisition Files Manager. Petitioner introduced 12 trial exhibits into evidence, which established, inter alia, standing to maintain the proceeding and the facial propriety of the predicate notices and pleadings. Among those exhibits were documents from a DHCR proceeding filed by Respondent claiming rent overcharge. At the end of the trial in this matter, the Court was provided with subpoenaed certified copies of all papers in that proceeding, including the Rent Administrator's Order dismissing Respondent's rent overcharge complaint, of which the Court took judicial notice.

Ms. Mansukh testified that Petitioner acquired the subject property on March 12, 2014. Her duties included reviewing all tenant files turned over by Petitioner's predecessor in interest, Executive Arms Realty, LLC. She further testified that Respondent entered into possession of the subject apartment pursuant to a two-year vacancy lease effective October 1, 2013. She remembered that, in Respondent's file, she found a copy of a two-page boiler plate apartment lease (Bloomberg form #T-327 — 12/87). This was the first lease entered into between Respondent and Executive Arms Realty, LLC, the previous landlord, commencing on October 1, 2013 for a two-year term. The first page indicates that the monthly rent was $1,175.00 and that a security deposit was taken in the same amount. Near the end of the second page, the clause referring to the existence of a rider was left blank. In the file, she also found the DHCR informational rider at issue, consisting of 9 pages, which did not appear to have been attached to the boiler plate lease.

Respondent testified that, upon receipt of Petitioner's new owner introductory letter, he visited Petitioner's management office in March 2014 to discuss the issues raised by the letter, in [*3]particular the misstatement that there was no security deposit on file. Upon arrival, he was greeted by a receptionist and then by another office employee, whom he believed was named "Daniel." He was advised that there were some papers that had to be executed. Shortly thereafter, a female employee, the name of whom he did not recall, brought approximately 5 or 7 different documents requiring his signature, including a rent auto payment authorization and a copy of the lease rider in question, which he was asked to sign as a formality. He had never seen any of these documents before. When he hesitated, he was told by these employees that signing the lease rider, which showed a higher rent, would not result in the rent being raised to that level. He reluctantly signed. After signing, he was told that copies would be sent to him. He later returned to request copies, but was told to pick them up from the superintendent. When he approached the superintendent about obtaining the papers, the superintendent became indignant and told him to go back to management. As such, Respondent does not have a copy of the rider. He only has a copy of his vacancy lease. Respondent subsequently filed a rent overcharge complaint with DHCR. He never paid any of the rents depicted in the disputed renewal leases, but continued to tender rent at the vacancy lease rate.

In rebuttal, Petitioner recalled Ms. Mansukh, who stated that she specifically recalled seeing both the lease and the rider together with some rent bills in the file turned over by the prior owner and that the documents were not altered after her receipt. She recounted that the file contained only copies of the documents and that there was bad record keeping by the former owner. She further testified that the introductory letter generated by Petitioner and sent to Respondent was prepared based on what she was able to glean from the Respondent's tenant file and the vacancy lease. Ms. Mansukh could not explain the discrepancy between the introductory letter, which, inter alia, informs that there is no record of a security deposit on file and the vacancy lease provision that states that a security deposit was taken. She also had no knowledge about the circumstances of Respondent's visit to the Petitioner's management office in March 2014.

In further rebuttal, Petitioner called Daniel De Castro, who testified that he is employed by Petitioner in the Department of Legal Affairs and holds the position of Building Representative. He was employed and present at Petitioner's management office on March 19, 2014 when Respondent visited the office. He stated that he did not meet the Respondent at the office, but saw him later for the first time in court. He testified that he never takes vacation and stays in the office throughout the entire day. However, in contradiction, he acknowledged that his responsibilities require him to periodically leave the office during business hours to visit the subject building and other buildings that he manages. It was inferred from his testimony that he is the only person named Daniel employed at Petitioner's management office. His testimony was not entirely credible and lacked any real probative value.

Notably, Petitioner did not call as witnesses any of the personnel, who ostensibly dealt with Respondent when he visited Petitioner's management office in March 2014 and executed the several documents presented to him, including the rent auto payment authorization documents.

DISCUSSION

The central issue before this Court is whether Respondent properly refused to sign the offered renewal leases, which were based on a vacancy lease that purportedly included a provision for both a legal rent and preferential rent. The answer to this issue hinges upon the DHCR informational lease rider in question, to wit: whether it served to establish both a legal [*4]rent and a revocable preferential rent and whether it was signed contemporaneous with the vacancy lease as alleged by Petitioner or in March 2014 as Respondent contends. Notably, neither party can produce the original vacancy lease or rider signed by Respondent.

Issue Preclusion/Collateral Estoppel

Petitioner argues that Respondent is collaterally estopped from raising the defense that Petitioner cannot demand the legal rent in the lease renewal, given the DHCR Rent Administrator's Order dismissing Respondent's rent overcharge complaint. Petitioner asserts that, since the DHCR examined the same lease documents presented herein, found that no overcharge occurred and dismissed Respondent's overcharge complaint, the DHCR also inherently determined the issue of the terms of the vacancy lease, thereby supporting Petitioner's position that the vacancy lease provided for both a legal monthly rent of $1,320.00 and a preferential monthly rent of $1,175.00. As such, Petitioner contends that the renewal offers based upon such terms were, therefore, proper and Respondent unjustifiably refused to accept the offers, thereby creating grounds for the instant holdover proceeding. Petitioner argues that since this issue was decided by a forum with concurrent jurisdiction in a proceeding involving the same parties, a determination by this Court on this issue is prohibited by the doctrine of collateral estoppel.

Respondent argues that the DHCR decision has no estoppel effect on the issue of whether the legal rent can be demanded in the lease renewal, because said issue was not necessarily raised and determined by the DHCR relative to the overcharge claim and that a finding on said issue was not inherently required to reach its determination on the overcharge claim. Respondent alternatively argues that, if adjudication of said issue was necessary to determine the overcharge claim, then the issue could not have properly been determined without a hearing. Respondent asserts that a request for a hearing was denied by the DHCR. Respondent further argues that the Rent Administrator's Order is not final, since it is being appealed, in that Respondent filed a Petition for Administrative Review ("PAR"), which is still pending.

In the case of Gersten v 56 7th Ave, LLC, relying the Court of Appeals' decisions in Ryan v. New York Tel. Co. and Gramatan Home Invs. Corp v Lopez, the elements of collateral estoppel were set forth as follows:

"Collateral estoppel applies when (1) the issues in both proceedings are identical; (2) the issue in the prior proceeding was actually litigated and decided; (3) there was a full and fair opportunity to litigate in the prior proceeding; and (4) the issue previously litigated was necessary to supporta valid and final judgment on the merits [Ryan v New York Tel. Co., 62 NY2d 494, 500-501(1984); Gramatan Home Invs. Corp. v Lopez, 46 NY2d 481, 485 (1979)]. Collateral estoppel is equally applicable to confer conclusive effect to the quasi-judicial determination of an administrative agency [ Ryan, 62 NY2d at 499]. While the proponent of collateral estoppel has the burden of demonstrating that the issue in question is identical and decisive, it is the opponent's burden to show the absence of a full and fair opportunity to litigate the issue in the prior determination [Id. at 501]." Gersten v. 56 7th Ave, LLC, 88 AD3d 189, 201 (1st Dept. 2011). See also, Ryan v New York Tel. Co., supra. and Gramatan Home Invs. Corp. v Lopez, supra.

Petitioner's argument that the issue of the propriety of the lease renewal has been previously determined by DHCR and, thus, Respondent is precluded from seeking its reconsideration herein fails to satisfy the above criteria. A PAR is properly pending with the agency seeking a commissioner's review of the Rent Administrator's Order. Therefore, said [*5]Order cannot be deemed the agency's final decision. Moreover, the Rent Administrator's determination was limited to the question of whether Respondent was overcharged in the rent actually paid. The decision, strictly limited to this issue, would be correct, since Respondent did not pay more than the rent provided for in the vacancy lease. As Petitioner did not collect more than the maximum allowed by the RGB guidelines, there was no overcharge. Furthermore, if the DHCR Order is construed to have also resolved the issue of the existence of a legal rent and a separate preferential rent in the first lease, then Respondent was deprived of due process and the right to a full and fair opportunity to present testimony at a hearing, given the credibility-dependent nature of the facts and circumstances.

Upon examination of the DHCR Order and findings, it appears that the Rent Administrator may have erroneously transgressed beyond the limited scope of the overcharge issue before it. The Rent Administrator's Order relies upon a "calculation chart." The chart cannot be supported by the evidence presented, contravenes the agency's own rules and is, therefore, erroneous. For example, the chart indicates that a lease renewal is in effect from October 1, 2015 through September 30, 2017, the period over which the parties contend there is no renewal, and which is the basis of this holdover. This is clearly erroneous. Additionally, the Rent Administrator could not, and should not, have considered the informational lease rider as part of the lease terms in clear contravention of its plain language that the terms contained therein are for informational purposes only and do not serve to modify the terms of the lease. Moreover, as will be discussed below, if the DHCR Order were to stand, it would be in contravention of DHCR's "waiver rule," which is applicable in these circumstances, since the vacancy lease depicts only one rent that is within the RGB guidelines, with no provision for a preferential rent, and the landlord appears to have acquiesced.

Based on the foregoing, the DHCR Order, as it stands, cannot serve to preclude adjudication herein of the issue of the propriety of the lease renewal, and since it is fraught with major errors. It will likely to be reversed, or at least modified, on appeal to remove the extraneous findings.

DHCR's Waiver Rule

The Court now moves on to consider Respondent's argument that the vacancy lease terms were all contained in the two-page Bloomberg form and not in the informational rider. Petitioner has not offered any argument on this issue in its memorandum.

Upon consideration of the vacancy lease, the rider and the trial testimony, this Court finds that the vacancy lease, which did not provide for a higher legal rent and a lower preferential rent, comprised the entirety of the parties' agreed lease terms. As such, Petitioner waived the right to collect the higher legal rent, pursuant to DHCR's waiver rule and Rent Stabilization Code §2521.2.

The waiver rule was applied by DHCR in a decision with similar facts to the instant proceeding in the Matter of 251 FT Realty, LLC c/o BMH Realty d/b/a Heller Realty AR Docket no. RF410055RO (2003). Pages 3-4 of the decision reads as follows:

"However, an owner must still recite both the higher rent and the lower rent being charged in the tenant's lease in order to establish the higher rent as the legal rent and to establish that the lower rent being charged is a preferential rent. In this case, the owner failed to recite both the higher and the lower rent being charged in the December 1, 1999 and December 1, 2001 leases and theowner submitted no lease at all for the period covering the base date. The registration of the higher rent as the legal rent from the base date forward does not render the registered rent lawful.Therefore, the rent provided for in the first and only lease between the parties is found pursuant to DHCR's waiver rule to have become the legal regulated rent for the duration of this tenancy.A proper renewal should not have included the higher rent demanded by Petitioner since it utilized an erroneous base rent and exceeded the RGB guidelines on renewal leases at the time of the renewal. In the absence of a lease listing both the higher, registered rent and the lower rent being charged, the rent charged and paid on the base date was the lawful base rent upon which all increases must be computed and the owner is considered to have waived any right to collect the higher, registered rent." (emphasis added).

See also, DHCR's fact sheet #40, discussing its policy on preferential rents and the application of the "waiver rule."

In addition, Rent Stabilization Code §2521.2, which addresses preferential rents, provides, in pertinent part, 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 as well as preferential rent shall be set forth in the vacancy lease or renewal lease pursuant to which the preferential rent is charged

Review of the rider in question reveals that it is DHCR's required informational rider form RA-LR1, revised in September 2011. On the upper right corner of the first page, appears the year 2013 circled and just below that is the property address and the designation 4F purportedly referring to the subject apartment. Page three of this form contains the required disclosure relative to vacancy leases regarding the method used to calculate the new legal rent and preferential rent, if any. This page discloses that the prior vacating tenant's legal rent was $1,100.00 per month and that after applying the applicable vacancy increase, amounting to $220.00, the new legal rent is $1,320.00 per month. In the right-hand margin, next to the $1,320.00 amount, is a signature acknowledged by Respondent to be his; notwithstanding, the dispute as to the date that he signed the rider. At the very bottom of this page, it reads "* New Tenant's Rent DISCOUNTED RENT (handwritten) $1,175.00." Below that, the asterisk is explained, in that if the rent is a preferential rent, the landlord reserves the right to seek the legal rent on all renewals.

The Court notes that the rider is not signed by Petitioner or his predecessor in interest. Indeed, nowhere in the entire 9 pages is there a place to affix signatures. In addition, the document does not appear to have any sign of a staple mark or other indication that it was ever attached to the vacancy lease. Moreover, it does not depict the parties' names or a date. Crucially, the first page of the rider contains the following introductory language:

"This Rider is issued by the New York State Division of Housing and Community [*6]Renewal ("DHCR"), pursuant to the Rent Stabilization Law ("RSL"), and the Rent Stabilization Code ("Code"). It generally informs tenants and owners about their basic rights and responsibilities under the RSL. This Rider does not contain every rule applicable to rent stabilized apartments. It is only informational, and its provisions are not part of and do not modify the lease. (emphasis added) However, it must be attached as an addendum to the lease. It does not replace or modify the RSL, the Code, any order of DHCR, or any order of the New York City RentGuidelines Board. . Tenants should keep a copy of this Rider and of any lease they sign. (emphasis added)"

In light of the foregoing, this Court finds credible and uncontroverted, Respondent's recitation of the facts and circumstances surrounding his execution of the informational rider, that it was presented to him for signature months after the lease was executed and at the behest of the new owner, Petitioner herein, on the date he visited their offices in March 2014. Therefore, his signature on that document cannot serve to establish his assent retroactively to the legal rent requested by Petitioner. Regardless of when the signature was affixed however, the rider in question would not serve Petitioner's purpose, since by its own clear terms, it does comprise or modify the lease between the parties. Should Petitioner have wished to establish a legal rent higher than the lower purported preferential rent collected, then a separate lease rider containing such terms was required to be simultaneously executed and made a part of the boiler plate lease modifying its terms. Moreover, the boiler plate lease itself proves the nonexistence of such a term modifying rider, since the section referring to its potential existence was intentionally left blank.

CONCLUSION

Based upon the aforesaid findings of fact and law, this Court finds that the vacancy lease terms were contained exclusively in the two-page Bloomberg form, which depicted only one rent at $1,175.00 per month. The DHCR informational rider does not serve to supplement or modify those terms, but is merely informational. Respondent's signature on this document does not make the provisions therein binding, particularly since it was signed several months after execution of the vacancy lease. Furthermore, the Rent Administrator's Order has no estoppel effect on the issue of the propriety of the offered lease renewals. Respondent was entitled to a renewal lease using the base rent of $1,175.00 per month as provided in the expired vacancy lease. Respondent was justified in refusing to accept the renewal leases offered, which sought to establish unjustified legal and preferential rents.

Accordingly, this holdover proceeding is dismissed, with prejudice, for failure to state a cause of action.

This constitutes the Decision and Order of the Court.

Dated: December 29, 2017

Queens, New York

____________________________________

Kimon C. Thermos, J.H.C.