Opinion
101701/2015
07-18-2017
In the Matter of the Application of Tony NOTARBERARDINO, Petitioner v. NEW YORK STATE DIVISION OF HOUSING AND COMMUNITY RENEWAL, Respondent
Robert Grimble Esq., Grimble & LoGuidice, LLC, 7 Broadway, New York, NY 10007, For Petitioner Sandra A. Joseph Esq., New York State Division of Housing and Community Renewal, 25 Beaver Street, New York, NY 10004, For Respondent
Robert Grimble Esq., Grimble & LoGuidice, LLC, 7 Broadway, New York, NY 10007, For Petitioner
Sandra A. Joseph Esq., New York State Division of Housing and Community Renewal, 25 Beaver Street, New York, NY 10004, For Respondent
Lucy Billings, J.
I. PRIOR ADMINISTRATIVE PROCEEDINGS
Petitioner, a tenant of apartments 629 and 631 in the Chelsea Hotel at 222 West 23rd Street, New York County, took occupancy of apartment 631 in 1999, as a month-to-month tenant at a rent of $2,000 per month. On August 21, 2007, petitioner filed a complaint of rent overcharge with respondent New York State Division of Housing and Community Renewal (DHCR) against the owner of the Chelsea Hotel at that time, the current owner's predecessor. Petitioner claimed the prior owner had violated the New York Rent Stabilization Law (RSL) by failing to register the hotel's units as rent stabilized, deregulating apartment 631 due to its high rent, and failing to provide specified hotel services. Petitioner therefore sought reclassification of the entire building as rent stabilized and a refund of overcharged rent.
DHCR's Rent Administrator treated apartments 631 and 629 as separate apartments because, when petitioner first rented apartment 631 in 1999, apartment 629 was not vacant, and no significant work was performed to merge the two apartments. The Rent Administrator determined that, upon the vacancy of apartment 631 preceding petitioner's rental, the apartment qualified for deregulation based on high rent because the limitations period of four years before petitioner's overcharge complaint August 21, 2007, precluded examination of the rent history back to 1999 when petitioner agreed to the $2,000 monthly rent. The Rent Administrator further determined that the owner's failure to register the apartment's rent was not enough evidence of fraud to warrant examination of the apartment's rental history beyond four years before petitioner's overcharge complaint.
Petitioner filed a petition for administrative review (PAR) of the Rent Administrator's determinations. Petitioner claimed the owner's history of failing to register rents for the building's apartments, failure to provide rent stabilization riders to leases, arbitrary rents, and failure to provide hotel services, considered together, amounted to enough evidence of fraud to warrant examination of apartment 631's rental history beyond four years before his complaint. He sought application of the Rent Stabilization Code's default formula to set the rent for the apartment.
DHCR's Deputy Commissioner denied the PAR and affirmed the Rent Administrator's conclusions. (1) Petitioner failed to sustain his burden to show fraud warranting examination of apartment 631's rent history beyond four years before his overcharge complaint. (2) Absent that evidence of fraud, the Rent Stabilization Code (RSC) precluded examination beyond the four years. (3) Therefore apartment 631 was permissibly deregulated due to high rent. In this proceeding for judicial review pursuant to C.P.L.R. Article 78, petitioner challenges the Deputy Commissioner's rulings regarding apartment 631 and has moved to supplement the administrative record with evidence regarding transient tenants' previous occupancy of the apartment.
II. STANDARDS OF REVIEW UNDER THE RENT STABILIZATION FRAMEWORK
The court may overturn a determination by DHCR, an administrative agency, only if the determination was arbitrary, lacked a rational basis in the administrative record, or lacked a basis in law. London Terrace Gardens L.P. v. New York State Div. of Hous. & Community Renewal , 149 AD3d 521, 521 (1st Dep't 2017) ; Partnership 92 LP & Bldg. Mgt. Co., Inc. v. State of NY Div. of Hous. & Community Renewal , 46 AD3d 425, 428 (1st Dep't 2007), aff'd , 11 NY3d 859, 860 (2008). DHCR's interpretation of its own regulations is entitled to deference as long as that interpretation is rational, consistent with governing statutes, and constitutional. Murphy v. New York State Div. of Hous. & Community Renewal , 21 NY3d 649, 654–55 (2013) ; Roberts v. Tishman Speyer Props., L.P. , 13 NY3d 270, 285–86 (2009) ; IG Second Generation Partners L.P. v. New York State Div. of Hous. & Community Renewal, Off. of Rent Admin. , 10 NY3d 474, 481 (2008) ; KSLM–Columbus Apts., Inc. v. New York State Div. of Hous. & Community Renewal , 5 NY3d 303, 312 (2005). See Lighthouse Pointe Prop. Assoc., LLC v. New York State Dept. of Envtl. Conservation , 14 NY3d 161, 176–77 (2010) ; Chesterfield Assoc. v. New York State Dept. of Labor , 4 NY3d 597, 604 (2005).
To determine whether the owner overcharged rent, DHCR first must determine the legal regulated rent, defined as rent charged on the base date plus any subsequent lawful increases. 9 N.Y.C.R.R. §§ 2520.6(e), 2526.1(3)(i). The base date is defined as the most recent of (1) the date four years before the overcharge complaint or (2) the date when the apartment became rent regulated. 9 N.Y.C.R.R. § 2520.6(f) ; Gordon v. 305 Riverside Corp. , 93 AD3d 590, 592 (1st Dep't 2012).
C.P.L.R. § 213–a, the RSL, N.Y.C. Admin. Code § 26–516(a), and the RSC, 9 N.Y.C.R.R. § 2526.1(a)(2), all expressly provide that no determination, calculation, or award of any overcharge may be based upon an overcharge more than four years before commencement of the overcharge proceeding. Both C.P.L.R. § 213–a and the RSC, 9 N.Y.C.R.R. § 2526.1(a)(2)(ii), also preclude examination of the rental history of an apartment more than four years before commencement of the overcharge proceeding. The intent behind the limitation of four years was to "alleviate the burden on honest landlords to retain rent records indefinitely, not immunize dishonest ones from compliance with the law." Thornton v. Baron , 5 NY3d 175, 181 (2005). See Gilman v. New York State Div. of Hous. & Community Renewal , 99 NY2d 144, 149 (2002).
The RSC was amended in 2014 to add exceptions to this limitation on examination of rental history that the Court of Appeals had carved out, including to determine whether an owner engaged in a fraudulent scheme to destabilize an apartment. 9 N.Y.C.R.R. § 2526.1(a)(2)(iii) ; Conason v. Megan Holding, LLC , 25 NY3d 1, 16 (2015) ; Grimm v. State of NY Div. of Hous. & Community Renewal Off. of Rent Admin. , 15 NY3d 358, 366 (2010) ; Taylor v. 72A Realty Assoc., L.P. , 151 AD3d 95, 102 (1st Dep't 2017) ; Park v. New York State Div. of Hous. & Community Renewal , 150 AD3d 105, 114 (1st Dep't 2017). To examine an apartment's rental history more than four years retroactively, petitioner must make more than "a mere allegation of fraud alone" against the owner, as such a claim, "without more, will not be sufficient to require DHCR to inquire further." Conason v. Megan Holding, LLC , 25 NY3d at 16 ; Grimm v. State of NY Div. of Hous. & Community Renewal Off. of Rent Admin. , 15 NY3d at 367. See Taylor v. 72A Realty Assoc., L.P. , 151 AD3d at 104.
The 2014 amendment also provided for examination of rental history regarding an apartment's status under the RSL or RSC:
except in the case of decontrol pursuant to section 2520.11(r) or (s) of this Title, nothing contained in this section shall limit a determination as to whether a housing accommodation is subject to the RSL and this Code....
9 N.Y.C.R.R. 2526.1(a)(2)(iii) (emphasis added). The RSC's provision for high rent decontrol exempts apartments that became vacant after June 1997 but before June 2011, with a legal regulated rent of $2,000 or more per month, from the RSC. 9 N.Y.C.R.R. § 2520.11(r)(4). The RSL includes a similar high rent decontrol provision that exempts apartments vacated after April 1997 with a legal regulated rent of $2,000 or more per month. N.Y.C. Admin. Code § 26–504.2.
III. PETITIONER'S OVERCHARGE COMPLAINT
A. Examining Apartment 631's Rental History to Determine Its Regulatory Status under the RSL and RSC
The DHCR Deputy Commissioner's ruling that the limitations period of four years in C.P.L.R. § 213–a and the RSC, 9 N.Y.C.R.R. § 2526.1(a)(2), precluded an examination of apartment 631's rental history more than four years before petitioner's overcharge complaint in 2007 was rational and supported by the law, if the examination was to determine the apartment's status under the RSL and RSC. Petitioner's claim that the apartment's regulatory status is not subject to the limitations period and may be challenged at any time contravenes the amended 9 N.Y.C.R.R. 2526.1(a)(2)(iii), expressly excepting apartments decontrolled due to high rent from the regulation's provision that lifts the limitations period for determinations of an apartment's status under the RSL or RSC. For this purpose, DHCR's application of the RSC's limitations period on examination of apartment 631's rental history because the apartment had been decontrolled due to high rent was a reasonable interpretation of DHCR's regulation and is entitled deference. Terrace Ct., LLC v. New York State Div. of Hous. & Community Renewal , 18 NY3d 446, 454 (2012) ; IG Second Generation Partners L.P. v. New York State Div. of Hous. & Community Renewal, Off. of Rent Admin. , 10 NY3d at 481 ; Blue Star Props., Inc. v. New York State Div. of Hous. & Community Renewal , 133 AD3d 461, 462 (1st Dep't 2015) ; Partnership 92 LP & Bldg. Mgt. Co., Inc. v. State of NY Div. of Hous. & Community Renewal , 46 AD3d at 428.
B. Examining Apartment 631's Rental History Due to the Owner's Fraud
Even if 9 N.Y.C.R.R. § 2526.1(a)(2)(iii) does not require examination of apartment 631's rental history beyond the statutory period of four years to determine the apartment's regulatory status, DHCR still was authorized to examine the apartment's rental history beyond four years if petitioner presented sufficient evidence of the owner's fraud. 9 N.Y.C.R.R. § 2526.1(a)(2)(iv). DHCR erred in finding that he offered insufficient evidence of fraud to warrant examining the earlier rental history. Grimm v. State of NY Div. of Hous. & Community Renewal Off. of Rent Admin. , 15 NY3d at 366–67, delineates three categories of factors that in combination warrant DHCR's investigation of an apartment's rental history beyond the statutory period of four years. (1) The tenant alleges circumstances that indicate the landlord's violation of the RSL and RSC in addition to charging an illegal rent. (2) The evidence indicates a fraudulent scheme to remove the rental unit from rent regulation. (3) The rent registration history is inconsistent with the lease history. Petitioner has shown these factors.
Apartment 631's owner violated the RSL and RSC repeatedly by not registering the apartment initially and never filing annual rent registrations with DHCR. N.Y.C. Admin. Code § 26–517(a) and (f) ; 9 N.Y.C.R.R. §§ 2528.1, 2528.3(a). The absence of rent registrations warrants DHCR's investigation into the reliability and legality of the $2,000 rent charged in 1999 that removed the apartment from rent stabilization. Grimm v. State of NY Div. of Hous. & Community Off. of Rent Admin. , 15 NY3d at 366 ; Thornton v. Baron , 5 NY3d at 181 ; Taylor v. 72A Realty Assoc., L.P. , 151 AD3d at 105–106 ; Altschuler v. Jobman 478/480, LLC. , 135 AD3d 439, 440 (1st Dep't 2016).
The owner's failure to file an initial registration and annual registrations satisfies both the first and the third categories of Grimm factors. In failing to file the registrations, the owner not only violated the RSL and RSC, but simultaneously precluded any comparison between rent registrations and the lease history to determine if the $2,000 rent charged was legal under the RSL and RSC. The very absence of a registration history, when neither the owner nor DHCR in the administrative proceedings suggested a complete absence of lease history, shows an inconsistency between the registration history and the lease history. Moreover, even if the preclusion of a comparison between the registration history and the lease history does not show an inconsistency between the two, the preclusion of such a showing is enough to satisfy the third category. See Grimm v. State of NY Div. of Hous. & Community Off. of Rent Admin. , 15 NY3d at 366 ; Altschuler v. Jobman 478/480, LLC. , 135 AD3d at 440 ; Taylor v. 72A Realty Assoc., L.P. , 151 AD3d at 105–106.
Petitioner also satisfies the second category of Grimm factors. First, the $2,000 rent disputed by petitioner removed apartment 631 from rent regulation under the high rent decontrol provisions of both the RSL and the RSC. N.Y.C. Admin. Code § 26–504.2 ; 9 N.Y.C.R.R. § 2520.11(r). Removing the apartment from rent regulation is more than simply charging an illegal rent. Grimm v. State of NY Div. of Hous. & Community Renewal Off. of Rent Admin. , 15 NY3d at 366–67. The owner's failure to file rent registrations and the $2,000 per month rent, just enough to remove the apartment from rent regulation under the high rent decontrol provisions, both indicate a fraudulent scheme to remove the apartment from rent regulation. Grimm v. State of NY Div. of Hous. & Community Off. of Rent Admin. , 15 NY3d at 366 ; Taylor v. 72A Realty Assoc., L.P. , 151 AD3d at 105–106.
As set forth above, the purpose of the time limitation on the rental history examined is to alleviate the burden on honest landlords to retain records indefinitely. Employing the time limitation to protect an owner who flouted the recordkeeping requirements of the RSL and RSC also flouts that purpose. Grimm v. State of NY Div. of Hous. & Community Off. of Rent Admin. , 15 NY3d at 366 ; Thornton v. Baron , 5 NY3d at 181 ; Taylor v. 72A Realty Assoc., L.P. , 151 AD3d at 105–106. The court may not permit the owner to use its lack of registrations and noncompliance with the RSL and RSC as a sword to establish a rent that is not subject to those laws and is advantageous to the owner. Taylor v. 72A Realty Assoc., L.P. , 151 AD3d at 106.
Absent any registration statements or rental history evidencing the reliability or legality of the $2,000 rent charged in 2003, DHCR erred in accepting that rent as the legal regulated rent. Grimm v. State of NY Div. of Hous. & Community Off. of Rent Admin. , 15 NY3d at 366–67 ; Altman v. 285 W. Fourth LLC , 143 AD3d 415, 415 (1st Dep't 2016) ; Altschuler v. Jobman 478/480, LLC. , 135 AD3d at 441. Petitioner was entitled to DHCR's consideration of apartment 631's entire rental history to determine whether the $2,000 rent charged in 1999 was permissible under the RSL and RSC or was part of a scheme to deregulate the apartment. DHCR's failure to consider that history necessitates a remand to the agency to consider that evidence. Grimm v. State of NY Div. of Hous. & Community Off. of Rent Admin. , 15 NY3d at 367 ; 72A Realty Assoc. v. Lucas , 101 AD3d 401, 402 (1st Dep't 2012).
Upon remand, DHCR shall determine whether any valid rent registrations or other reliable rental history shows that the $2,000 per month rent charged in 1999 complied with the RSL and RSC. If DHCR finds no evidence from which to make this determination, DHCR shall use the default formula provided in 9 N.Y.C.R.R. § 2522.6 to determine the legal rent on the base date of August 21, 2003. Grimm v. State of NY Div. of Hous. & Community Renewal Off. of Rent Admin. , 15 NY3d at 366–67 ; Thornton v. Baron , 5 NY3d at 181 ; Altschuler v. Jobman 478/480, LLC. , 135 AD3d at 440 ; Levinson v. 390 W. End Assoc., L.L.C. , 22 AD3d 397, 401 (1st Dep't 2005). The award to petitioner for any resulting rent overcharge, however, still is limited to four years before his overcharge complaint August 21, 2007. C.P.L.R. § 213–a ; N.Y.C. Admin. Code § 26–516(a) ; 9 N.Y.C.R.R. § 2526.1(a)(2).
IV. PETITIONER'S MOTION TO SUPPLEMENT THE RECORD
DHCR maintains that, since apartment 631 previously was occupied by transient tenants, who are not considered tenants under the RSL or RSC, the owner was not required to register the apartment. In the administrative proceedings, neither petitioner nor the apartment owner raised the issue of transient tenants in regard to apartment 631's status under the RSL and RSC. Consequently, neither the Rent Administrator nor the DHCR Deputy Commissioner ruled on this issue. Because the court's review is confined to the issues raised in the administrative proceedings, the court will not consider whether apartment 631 previously was occupied by transient tenants and whether they relieved the owner of the requirement to register the apartment. Basnight v. New York City Hous. Auth. , 132 AD3d 549, 550 (1st Dep't 2015) ; 10th St. Assoc., LLC v. New York State Div. of Hous. & Community Renewal , 110 AD3d 605, 620 (1st Dep't 2013) ; M & E Christopher LLC v. New York State Div. of Hous. & Community Renewal , 37 AD3d 162, 163 (1st Dep't 2007) Bluebird Realty Corp. v. Department of Envtl. Protection of City of NY , 300 AD2d 6, 7 (1st Dep't 2002). Therefore the court denies petitioner's motion to supplement the record regarding the issue of prior transient tenants.
V. CONCLUSION
For the reasons explained above, the court grants the petition to the following extent. C.P.L.R. § 7803(3). The court vacates DHCR's determinations of December 26, 2013, and August 6, 2015, that petitioner's apartment 631 is exempt from rent regulation, that petitioner may not challenge the 1999 rent of $2,000 per month, and that examination of apartment 631's rental history is limited to four years before his overcharge complaint. The court remands his overcharge claim to DHCR for further proceedings to investigate the entire rental history of apartment 631, to review any further evidence presented by the tenant or owner of the apartment's rental history, and to employ the RSC's default formula to determine the base date rent if the rental history does not permit DHCR to determine a reliable base date rent. C.P.L.R. §§ 409(b), 7806. The court otherwise denies the petition, denies petitioner's motion to supplement the record for judicial review, and dismisses this proceeding. This decision constitutes the court's order and judgment. C.P.L.R. §§ 411, 7806.