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Muller v. New York State Div. of Hous. and Communtiy Renewal

February 8, 2000


The opinion of the court was delivered by: Sullivan, J. P.,Judge


At issue in this CPLR article 78 proceeding is a tenants' challenge to the initial monthly stabilized rent, established 10 years earlier with respect to a luxury six-room apartment overlooking Central Park, in Manhattan. In September 1990, the tenants, petitioners herein, took possession of apartment 9A, located at 327 Central Park West, under a vacancy two-year lease at an agreed monthly rent of $3,353.74. Admittedly, petitioners' annual income exceeds the monetary threshold for deregulation under the Rent Regulation Reform Act of 1993 ([RRRA 1993] L 1993, ch 253). They argue, however, that, because the basis for the "initial registered rent" for the apartment was grossly inflated pursuant to an earlier illegal and fraudulent nonprimary residence lease, the legal rent should be less than the $2,000 monthly threshold for deregulation. Faced with the untimeliness of their challenge, petitioners, for the first time and contrary to their arguments before the Division of Housing and Community Renewal (DHCR), argued on article 78 review that they are the first rent-stabilized tenants.

On September 30, 1994, petitioners filed a tenant objection and complaint of overcharge challenging the apartment's initial April 1, 1984 registered rent of $2,383.70 and questioning their 1990 rent. As DHCR's records show, by order of June 24, 1980, the Office of Rent Control decontrolled the apartment on the ground that the tenant did not occupy the premises as her primary residence. At the time, the maximum collectible rent was $484. The tenant vacated the apartment in August 1980.

Thereafter, on or about October 1, 1980, the predecessor to the current landlord, respondent 327 Central Park, L. L. C., leased the apartment to Edwin Einbender for a two-year term at a "free market" rent of $2,167 monthly, which was never challenged. In 1984, the predecessor landlord served and filed the Initial Apartment Registration with DHCR, using the then rent of $2,383.70 as the initial registered rent, and continued to register annually thereafter. Einbender and, after his death in 1987, his wife executed successive rent-stabilized renewal leases which, by 1989, had raised the monthly rent to $2,771.69. Einbender's wife continued to reside in the apartment until 1989.

On September 18, 1990, the predecessor landlord leased the apartment to petitioners for a two-year term, commencing September 24, 1990, at a monthly rental of $3,353.74, which, based on Einbender's last rent, conformed with the 9% increase for a two-year lease and 12% vacancy allowance provided by Rent Guidelines Board Order (RGBO) No. 21. Petitioners executed successive rent-stabilized renewal leases with rent increases in accordance with the particular RGBO then in effect.

On September 30, 1994, petitioners filed both a Complaint of Overcharge and Fair Market Rental Appeal (FMRA) challenging, in each instance, the initial registered rent as illegal and the product of a "sweetheart deal" between the landlord and the first stabilized tenant, Einbender. Recognizing the untimeliness of their appeal, petitioners alleged that there was "no proper initial registration of the initial stabilized lease in the early 1980s establishing fair market value" and "no proper registration of 90 day right of appeal of initial stabilized lease." Petitioners concluded that because of this improper registration, they were entitled to the rights of "the first proper stabilized tenant to the decontrolled fair market [rent]."

To rebut this claim and prove service of the 1984 Initial Apartment Registration, respondent landlord offered the affidavit of the Director of Finance of the Rent Stabilization Association (RSA), accompanied by a complete copy of its mailing list for the building, including Einbender, and a United States Postal Service certification of bulk mailing postmarked July 2, 1984, certifying the date and number of pieces of mail. Petitioners offered nothing to demonstrate that the Initial Apartment Registration had not been served in 1984, attempting, instead, to discredit the RSA affidavit, the list of apartments and even the receipt for bulk mailing certified by the Postal Service. DHCR rejected petitioners' challenge to RSA's proof of service.

Respondent landlord also provided DHCR with a complete rent history from April 1, 1990. Petitioners do not dispute that the required registrations were filed from 1984 to 1994 or DHCR's calculation demonstrating that there has been no overcharge from the base date. The landlord also submitted the June 1980 decontrol order, as well as the 1984 Initial Apartment Registration and argued that an FMRA did not lie because apartment 9A had never been vacancy decontrolled. The landlord also denied ever charging tenants more than the legal registered rent based on the Initial Apartment Registration.

To support their theory that the 1984 Initial Apartment Registration had been improper, petitioners submitted an affidavit from Polly McCall, a tenant, who stated that when she rented her apartment in 1980, the predecessor landlord forced her to sign "a second residence lease", which, she learned in "speaking with other tenants," was required of all tenants. In a successful challenge to the rent brought by her and other tenants, the Conciliation and Appeals Board (CAB) reduced her rent and ordered that the tenants be reimbursed for overcharges in the sum of almost $30,000.

McCall also stated that after conversations with Einbender she understood that he had also signed a second residence lease and that "he was paying a rent that did not follow the applicable guidelines and was substantially higher than that of the previous tenant." Based on that information, petitioners argued that because Pennsylvania was Einbender's primary residence and other tenants held similar second residence leases the FMRA should be granted or, at a minimum, a hearing held. Respondent landlord argued that the petitioners' allegations of fraud were unsubstantiated. Despite petitioners' repeated requests, the landlord refused to produce Einbender's original lease, citing Rent Stabilization Law (Administrative Code of City of NY) § 26-516 (g), which limits the obligation of the owner of a registered housing accommodation to maintain or produce "any records relating to rentals ... [to] four years prior to the most recent registration."

By May 7, 1997 order, the Rent Administrator denied petitioners' complaint, finding that, as the second rent-stabilized tenants, they had no right to challenge the initial rent, which had been properly registered and that the Initial Apartment Registration had been duly served upon the first rent-stabilized tenant, Einbender. Moreover, the Rent Administrator held that the first rent-stabilized tenant was not entitled to file an FMRA because the prior rent-control tenant did not occupy the apartment as her principal residence and, thus, the apartment had been decontrolled for reasons other than vacancy.

Petitioners promptly filed a Petition for Administrative Review (PAR) challenging, inter alia, the Rent Administrator's finding that the Einbenders had been properly served with the initial registration, as well as his determination that an FMRA will not lie in the absence of vacancy decontrol. Interestingly, petitioners eschewed the argument that they were the apartment's first rent stabilized tenants. DHCR denied the PAR, finding that petitioners, as the second rent-stabilized tenants, lacked standing to challenge the initial rent, which had been properly registered with DHCR in 1984, and could not, in any event, maintain an FMRA complaint because apartment 9A was decontrolled for a reason other than vacancy. Finally, the Commissioner rejected petitioners' claim of fraud for insufficiency of evidence.

Petitioners sought reconsideration on the basis of an earlier CAB opinion, referred to by McCall in her affidavit, which, they claim, proved the predecessor landlord's fraudulent attempt to evade the Rent Stabilization Law. Again, they reiterated their position that Einbender was the first rent-stabilized tenant. DHCR denied reconsideration on the ground that petitioners had not, as required by Rent Stabilization Code (9 NYCRR) § 2529.9, demonstrated that the Commissioner's order was the result of fraud.

Petitioners thereafter commenced this article 78 proceeding against DHCR. By stipulation, respondent landlord was permitted to intervene. In an amended petition, petitioners, for the first time, made explicit the argument that, by virtue of the predecessor landlord's fraudulent use of second residence leases, as demonstrated by a CAB ...

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