Opinion
105263/08.
Decided August 11, 2008.
Petitioner was represented by : Sidrane Schwart-Sidrane, LLP.
Respondent DHCR was represented by: Jason Parpas NYS Division of Housing and Community Renewal.
Petitioner, St. Nicholas 184 Holding, LLC (St. Nicholas) is the owner of a building at 608 West 184th Street, New York, New York, (the building) where respondent Victor Patricio(Patricio) lives in apartment 32 (the apartment). The amount of rent charged for the apartment is governed by Rent Stabilization Law and the Rent Stabilization Code, and those laws are administered and enforced by respondent New York State Division of Housing and Community Renewal (DHCR).
The apartment became vacant on September 1, 2003 and the previous owners undertook certain construction work over the course of the next year. On September 1, 2004, Patricio took possession of the apartment and agreed to pay $1,375.00 monthly rent. St. Nicholas bought the building from the previous owners on July, 26, 2007 and, on the same day, Patricio filed a rent overcharge complaint with DHCR.
Under the Rent Stabilization Code, an owner may only raise rents in accordance with specific guideline increases, except under certain circumstances. One such instance is where individual apartment improvements (IAIs) have been made. These improvements do not include the repair and normal maintenance of an apartment. If an owner makes IAIs, then it is permitted to increase the rent in an amount equal to 1/40 of the costs of the IAIs.
In October, 2006, petitioner was informed by DHCR that it had received a rent overcharge complaint for the apartment and that St. Nicholas was required to submit documentation of the apartment's rental history along with proof that it had submitted the required apartment registration for the years 2004 and 2006. Petitioner was informed that its failure to submit such documentation "will result in penalties." This request was repeated on a "reminder" printout dated November 7, 2006, which included the handwritten notation "You must submit the above information. Your failure to comply with these notices will result in freezing the rent on the base date and all rent increases will be disallowed."
By letter dated February 15, 2007, petitioner provided DHCR with the rent history for the apartment and noted that the prior owner failed to register the apartment for 2004 and 2006. The letter stated that the new owner made these filings and "[t]here is no penalty incurred as the new owner has remedied this omission in a timely manner."
By notice mailed on February 20, 2007, petitioner was informed that the Rent Administrator (RA) proposed to disallow all rent increases and impose treble damages for its failure to submit full documentation of the apartment's rental history and proof of annual apartment registration for 2004 and 2006. The notice also stated that petitioner was "hereby afforded a final opportunity to show that there was no rent overcharge and/or that any overcharge was not willful."
By letter dated March 19, 2007, petitioner informed DHCR that it had already provided the rental history and missing registrations for 2004 and 2006. The letter also included "proof of improvements" made to the apartment before Patricio moved in. This proof consisted of cancelled checks, a bill from a contractor for labor costs totaling $4,800.00 and other checks related to the cost of materials. It stated that the new owner was in the process of obtaining the necessary invoices and receipts to document this claim. The letter requested that DHCR reverse its proposal to impose treble damages.
In response, DHCR requested further information from petitioner. Petitioner provided copies of checks from the building's former owner for labor costs. Additionally, it provided a letter from a warehouse store containing a cost estimate for materials and supplies and copies of checks from the former owner which petitioner stated represented "bulk payments for improvements for several apartments." Tenant Patricio also responded to this letter and denied that, other than a toilet replacement in Spring, 2007, the claimed improvements were made.
By notice mailed May 24, 2007, DHCR informed petitioner St Nicholas that its proposed findings were that there had been a rent overcharge and it was contemplating a penalty of treble damages unless St. Nicholas was able to establish by a preponderance of the evidence that the overcharge was not willful. The notice stated that the evidence in DHCR's files failed to prove the actual costs associated with purchasing of materials and appliances. The notice stated that the checks provided as support for the claimed labor costs were not contemporaneous with the date of the alleged repairs/installation and the memo portion of each check was marked "repairs." It further noted that the building's owner filed late apartment registrations for the years 2004 and 2006. The notice concluded again that petitioner would be "afforded a final opportunity to show that there was no overcharge and/or that any overcharge was not willful."
By letter dated June 14, 2007, petitioner responded to DHCR, largely making the same arguments that it makes in this Article 78 petition. Specifically, petitioner argued that the use of the word "repairs" on the checks was simply to differentiate the labor costs of the work done in the apartment from the contractor's wages as building superintendent; that the fact that the dates of the checks were not contemporaneous with the repairs should not invalidate their usefulness as evidence of the work; and that DHCR was required to apply the "equitable hand" doctrine to permit the owner to claim the fair value of the materials it claims it used for the improvements. The letter stated that the imposition of treble damages and/or freezing the apartment's rent would be egregious penalties. It stated that to negate the improvement costs would be arbitrary, capricious and an abuse of discretion.
By notice dated July 2, 2007, DHCR advised petitioner that it would inspect the apartment on July 26, 2007. Prior to the inspection, by letter dated July 11, 2007, petitioner sent DHCR an affidavit from the former owner of the building which was intended to verify that he had done "extensive improvements" to the apartment. The apartment was inspected as scheduled.
On August 20, 2007, DHCR issued an "Order Finding Rent Overcharge" which substantiated the rent overcharge. Citing to DHCR's Policy Statement 89-2, the order imposed treble damages on the overcharge beginning two years before the tenant's complaint because the owner did not establish that the overcharge was not willful. It directed the owner, inter alia, to roll back the rent, recompute it and make a full refund or credit to the tenant. The notice also informed petitioner that it had the right to file a Petition for Administrative Review (PAR) and the procedures for doing so. Petitioner submitted a PAR on September 17, 2007.
Petitioner further supplemented its PAR submission by letter dated September 28, 2007 in which it quotes from the inspection report. The inspection report is one page consisting of five questions which must be answered by the inspector. Each question pertains to one claimed improvement in the apartment that was supposedly done around July, 2004. The inspector's answer to each question is variations on the phrases "[it] appears to have possibly been installed in 2004" and "good condition." Petitioner's letter characterizes the report as favorable to it and its letter states that "in light of DHCR's inspection report, there is clear justification for reversing DHCR's refusal to give the owner credit for the improvement costs."
On February 14, 2008, DHCR issued an "Order and Opinion Denying Petition for Administrative Review." The order reiterates the findings of the Rent Administrator that the owner only provided adequate documentation for certain labor costs but other work constituted normal maintenance. It notes that the Rent Administrator approved $4000.00 worth of improvements, thereby allowing petitioner a 1/40, or $100.00 per month, increase in rent for the apartment. The Order notes petitioner's position that it should be permitted to use the materials cost estimate provided as proof of the materials used; that based upon the inspection, DHCR should have confirmed the improvements and given the owner 50 % of the value; that the Rent Administrator wrongfully froze the rent since the owner cured the missing registrations; that there was no willful intent to overcharge the tenant; and that the affidavit from the prior owner proves petitioner's position.
However, the DHCR Deputy Commissioner found that the Rent Administrator properly disallowed the rent increase for work that it finds as normal maintenance. The order states that DHCR's inspection was not despositive as to whether the claimed improvements were installed in 2004 and the evidence submitted by the owner was unacceptable. The Order notes that many of the supplies that are listed on the cost estimate from the warehouse store are materials for which no rent increase is allowed. The Order states that the Rent Administrator properly froze the rent due to the owner's failure to file registrations for 2004 and 2006, its failure to adequately document improvements and its inclusion of items for which no rent increase is permissible. It states that petitioner failed to rebut the presumption of willfulness and, once the overcharge was revealed, failed to adjust the rent and offer the tenant a full refund as is required by DHCR Policy Statement 89-2 for the overcharge to be deemed not willful. The Deputy Commissioner upheld the Rent Administrator's finding that the tenant had been overcharged in the amount of $27, 259.50, including treble damages. Thereafter, petitioner filed this Article 78 proceeding.
A court may only interfere with the determination of an administrative agency if there is no rational basis or foundation in fact for the action complained of, and the exercise of discretion is arbitrary and capricious. Where a reviewing court finds that the administrative body has not acted arbitrarily but within its lawful authority, the court has no alternative but must confirm the determination.( Matter of Pell v.Board of Educ., 34 NY2d 222. (1974)). The determination must be supported by substantial evidence, based on the entire record. ( Purdy v. Kreisberg, 47 NY2d 354 (1979)). Substantial evidence is "such relevant proof as a reasonable mind may accept as adequate to support a conclusion or ultimate fact." ( 300 Gramatan Ave. Assoc. v. State Div. Of Human Rights, 45 NY2d 176, (1978)). An administrative agency is entitled to great deference in matters within its authority and in the interpretation of its own rules and regulations. ( Academic Health Professionals Insurance Association v. M.Q. of New York, Inc., 30 AD3d 165 [1st Dept. 2006]; Tommy and Tina Inc. v. Dep't of Consumer Affairs, 95 AD2d 724 [1st Dept. 1983]).
Petitioner argues that DHCR erred in holding that the petitioner wilfully overcharged tenant Patricio; in disallowing petitioner St. Nicholas's actual expenses in purchasing materials and parts of the labor costs; in failing to confirm both the scope of the improvements during the July 26, 2006 inspection of the apartment and that adequate supporting evidence was provided to DHCR; in wrongfully denying St. Nicholas $4,760.00 in permissible 1/40 improvements; in retroactively freezing the rent for missing registration when the omission was cured during the pendency of the proceeding; and for failing to act in accordance with DHCR Policy Statements 89-2 and 90-10. Petitioner states that DHCR's determination is arbitrary, capricious and demonstrates an abuse of discretion.
DHCR argues that it properly rejected petitioner's expenditures which fail to identify which apartment they were for. It states that the materials estimate that was provided as proof of improvements made to the apartment was inadequate. DHCR argues that it did, nonetheless, use equitable considerations by permitting petitioner to recoup some of its expenses by allowing a $100 per month increase. It states that petitioner was sent two separate notices informing it of the possible penalties and how to avoid them. It states that it was not only petitioner's failure to register the apartment that caused the penalties here, but also the rent overcharge and petition's failure to rebut the presumption the overcharge was willful. It argues that it has acted in accordance with its Policy Statements 89-2 and 90-10. DHCR argues that the burden is on Petitioner to substantiate its claimed expenses and petitioner failed to meet its burden. It states that its determination that petitioner was liable for rent overcharges was not arbitrary and capricious but rational and in accordance with the law.
An owner is not required to obtain prior approval before it incurs expenses on apartment improvements and implements an IAI increase in a tenant's rent. Nor does DHCR review IAI increases in the absence of a tenant's complaint. ( Rockaway One Co., LLC v. Wiggins , 35 AD3d 36 [2nd Dept. 2006]). However, when a complaint has been made and DHCR must confirm the costs of individual apartment improvements, DHCR Policy Statement 90-10 states, in pertinent part
Any claimed individual apartment improvement cost must be supported by adequate documentation which should include at least one of the following:
1. Cancelled checks contemporaneous with the completion of the work;
2. Invoice receipt marked paid in full contemporaneous with the completion of the work;
3. Signed contract agreement;
4. Contractor's affidavit indicating that the installation was completed and paid in full.
Whenever it is found that a claimed cost warrants further inquiry, the processor may request that the owner provide additional documentation.
. . .
Where proof is not adequately substantiated, the difference between the claimed cost and the substantiated cost will be disallowed.
DHCR Policy Statement 89-2 states that it was "issued to clarify DHCR's position on the application of treble damages upon the finding of a rent overcharge pursuant to the Rent Stabilization Law(RSL)." Policy Statement 89-2 addresses certain situations which are not present here but also states, in pertinent part
The RSL assesses treble damages where the overcharge is "willful." The statute, in fact, creates a presumption of willfulness subject to rebuttal by the owner showing non-willfulness of the overcharge by a preponderance of the evidence. In the absence of such affirmative proof by the owner or after the submission of inadequate proof, DHCR staff, shall assess treble damages where a determination of overcharge is made.
The owner must prove by a preponderance of the evidence that the overcharge was not a willful act. This simply means that where an owner submits no evidence or where the evidence is equally balanced, the overcharge is deemed to be willful. The owner can submit such evidence after receiving notice of tenant's filing of an overcharge complaint prior to the final order being issued. When an owner receives a second and final notice that an overcharge has been determined and treble damages are about to be imposed, he or she will be notified to submit evidence within twenty(20) days to prove that the overcharge was not willful.
The burden is on the owner to establish entitlement to an IAI increase and the documentation the owner provides to DHCR "must be sufficiently specific to enable the DHCR to verify, by cost breakdown, whether some of the work claimed is merely repairs . . . for which an increase is not authorized." ( Birdoff Co. v. New York State Division of Housing and Community Renewal, 204 AD2d 630 [2nd Dept. 1994]). However, "[u]nder the plain wording of the policy statement, submission of such proof does not necessarily end DHCR's inquiry, and DHCR may conduct such inquiry as it deems appropriate to determine compliance with the laws it enforces." ( 201 East 81st Street Associates v. New York State Division of Housing and Community Renewal, 28 AD2d 89 [1st Dept. 2001]). When the evidence adduced establishes that an owner failed to file an annual registration and that a contractor's work was more repairs and normal maintenance rather than improvements, it is proper for DHCR to freeze the rent, disallowing rent increases and awarding treble damages. ( 425 3rd Avenue Realty Co., v. New York State Division of Housing and Community Renewal , 29 AD3d 332 [1st Dept. 2006]; Yorkroad Associates v. New York State Division of Housing and Community Renewal, 19 AD3d 217 [1st Dept. 2005]). Moreover, once a rent overcharge is established, there is a presumption that the overcharge was willful and the burden is on the owner to establish, by a preponderance of the evidence, that rent overcharges were not willful. ( 425 3rd Avenue Realty Co., v. New York State Division of Housing and Community Renewal, supra).
Here, petitioner does not dispute that the apartment was not registered for the years 2004 and 2006. Petitioner's documentary evidence supported the position that some work was done in the apartment but failed to support its contention that the claimed work was improvements rather than repairs . The cancelled checks state "repair" on the memo portion of them and most are not, as required by Policy Statement 90-10, contemporaneous with the completion of the work.
DHCR's decision to permit certain labor costs while disallowing materials costs is not, as petitioner suggests, arbitrary. Rather DHCR employed the "equitable hand" approach to the lack of adequate documentation by permitting an allowance for $4,000.00 in labor costs which, with 1/40 value allowed for an IAI increase, increases the apartment's legal rent $100.00 per month. However, the warehouse store's cost estimate of materials does not prove that those particular supplies were installed in the apartment in question and some of the items on the materials list cannot be used as the basis for an individual apartment improvement rent increase.
Moreover, while petitioner characterizes the apartment inspection report as "clear justification" for DHCR to reverse its decision to impose penalties, in fact the inspection report was inconclusive. Instead, the inspector repeatedly found that petitioner's claimed improvements were "possibly . . . installed in 2004." DHCR Policy Statement 89-2 explains that when considering the imposition of treble damages, if the evidence presented is "equally balanced," an owner has not met its burden to prove that an overcharge was not willful by a preponderance of the evidence and the penalty will be imposed.
DHCR is entitled to the deference accorded to any agency acting within its area of specialized knowledge and experience if its decision is not irrational or unreasonable. ( Mayfair York Company v. New York Sate Division of Housing and Community Renewal, 240 AD2d 158 [1st Dept. 1997]). Here, DHCR did act in accordance with its own policies and procedures as stated in Policy Statements 89-2 and 90-10 and its decision is neither irrational nor unreasonable. Additionally, the penalties imposed are not disproportionate to the offense but are those specifically enumerated under Rent Stabilization Law. ( Pell v. Board of Education, 34 NY2d 222). Under the circumstances presented here, it cannot be said that respondent New York State Division of Housing and Community Renewal's decision was arbitrary, capricious or an abuse of discretion. Accordingly, the petition must be denied. Wherefore, it is hereby
ORDERED that the petition is denied and the proceeding is dismissed.
This constitutes the decision and order of the court.