| Matter of Boyd v New York State Div. of Hous. & CommunityRenewal |
| 2013 NY Slip Op 06966 [110 AD3d 594] |
| October 29, 2013 |
| Appellate Division, First Department |
| In the Matter of Kelley S. Boyd, Appellant, v NewYork State Division of Housing and Community Renewal et al.,Respondents. |
—[*1] Gary R. Connor, New York (Jack Kuttner of counsel), for New York State Divisionof Housing and Community Renewal, respondent. Rappaport, Hertz, Cherson & Rosenthal, P.C., Forest Hills (David I. Paul ofcounsel), for 232/242 Realty Co., LLC., respondent.
Judgment, Supreme Court, New York County (Barbara Jaffe, J.), entered May 18,2012, insofar as appealed from as limited by the briefs, denying the petition anddismissing the proceeding brought pursuant to CPLR article 78 to annul thedetermination of respondent New York State Division of Housing and CommunityRenewal (DHCR), issued July 19, 2011, which denied petitioner's petition foradministrative review (PAR) of the denial of her rent overcharge complaint, reversed, onthe law, without costs, the judgment vacated, and the matter remanded to DHCR forfurther proceedings consistent herewith.
Although petitioner filed her overcharge complaint more than four years after thebuilding owner registered the monthly rent, she contends that DHCR should not haveaccepted $1,750 as the registered monthly rent on the base date, April 7, 2005, becausethere are substantial indicia of fraud.
The owner increased the registered monthly rent from $572 in July 2004, when along time tenant vacated the apartment, to $1,750 in October 2004. More than 90% ofthe increase reflects an adjustment for "individual apartment improvements" (IAIs) underthe Rent Stabilization Law of 1969 (Administrative Code of City of NY § 26-501et seq.) and the Rent Stabilization Code (9 NYCRR 2520.1 et seq.). Tojustify that adjustment, the owner would have had to spend about $39,000 to renovate theapartment in 2004. Petitioner, who moved into the apartment in 2007, is currently payingrent of over $2,000 a month.
In a letter to DHCR, petitioner set forth a specific and detailed description of theapartment in 2007, alleging that, based on its condition when she moved in, the ownercould not have spent $39,000 for improvements to the building, which was constructedin 1932. Among other things, petitioner stated that the hardwood floors, bathtub, doors,and fixtures are original to [*2]the apartment, and that thekitchen had been updated with low-quality appliances which she estimated cost less than$1,000. She described the kitchen as having "very inexpensive Home Depot cabinets,"slat floors, and a used or recycled sink that did not fit in the cutout in the wall. The ownerhas never submitted any evidence rebutting petitioner's claim that the IAIs were minimaland cost far less than claimed.
Under the standard set forth in Matter of Grimm v State of N.Y. Div. of Hous. & CommunityRenewal Off. of Rent Admin. (15 NY3d 358 [2010]), petitioner made asufficient showing of fraud to require DHCR to investigate the legality of the base daterent (see also Bogatin vWindermere Owners LLC, 98 AD3d 896 [1st Dept 2012]). Although the"look-back" for an apartment's rental history is ordinarily limited to the four-year periodpreceding the date that the petitioner files the complaint (see Thornton v Baron, 5 NY3d175, 180 [2005]), where fraud is alleged and there is "substantial indicia of fraud onthe record," DHCR is obliged to investigate whether the base date rate was legal and"act[s] arbitrarily and capriciously in failing to meet that obligation" (Grimm, 15NY3d at 366).
Thus, we find that DHCR's disparate treatment of the parties' claims was arbitrary.While the agency made no attempt to evaluate the legitimacy of petitioner's claimsdespite their consistency and degree of detail, DHCR credited the owner's implicit claimthat it spent $39,000 to renovate the apartment simply because "it would not be difficultfor anyone with any experience in this industry to believe it could have taken $39,000 inIAIs to update the appearance and equipment in an apartment which had not changedhands for thirty-two years." This justification for the agency's determination is irrational.Finding that the owner "could have" spent $39,000 in IAIs, where the owner neversubmitted any evidence controverting petitioner's claims is not equivalent to finding thatthe owner actually made improvements costing that much. Accordingly, this mattershould be remanded to DHCR to give the parties the opportunity to present evidence inconnection with the legality of the base rate rent.
Under the circumstances presented, DHCR acted within its discretion by resolvingthe PAR on the merits even though petitioner filed it outside the 35-day statutory timeframe (9 NYCRR 2529.2), and, contrary to the owner's contention, the record doesprovide a basis to amend the caption. Concur—Mazzarelli, J.P., Freedman andFeinman, JJ.
Sweeny and Gische, JJ., dissent in a memorandum by Gische, J., as follows: Irespectfully dissent. I do not agree with the majority, that petitioner presented sufficientevidence of a fraudulent increase in the legal registered rent for the subject apartment,justifying the examination of the apartment's rental history beyond the statutory four-yearlook-back period (see Rent Stabilization Law of 1969 [Administrative Code ofCity of NY] § 26-516 [a] [2]).
Petitioner, who moved into the subject apartment in March 2007 pursuant to aone-year lease at a monthly rent of $2,000, filed a rent overcharge claim with DHCR onApril 7, 2009, alleging that the owner had obtained a fraudulent increase in the legalregistered rent for the apartment from $571.70 per month in July 2004 to $1,750 permonth in October 2004, when a new tenant took occupancy. This allegation of fraud wassupported only by a letter containing [*3]petitioner'spersonal observations of the improvements to the subject apartment (IAIs) and hercomparison to unidentified fixtures at a big box home improvement store. She estimatedthat, based upon her research and calculations, the most the improvements could havecost was $5,000. Thus, she maintains that allowing for permissible increases, the legalrent for the first vacancy tenant in October 2004 should have been $974, not $1,750.Petitioner provides no real evidence for her conclusions on value, nor does she accountfor labor costs or assert that she has any relevant experience qualifying her to opine onthe value of the work done. Thus, whether the letter adequately details her complaintsabout the nature or condition of the IAIs she admits were made to the subject apartmentis of no moment in concluding their value.
While acknowledging that the "look-back" period for her overcharge complaint wasonly four years from the filing date, petitioner argues that DHCR should nonethelesshave investigated the basis for the IAI increase claimed by the owner before the four-yearperiod because of the poor quality of the improvements.
After initially issuing an erroneous order dated April 15, 2010, dismissingpetitioner's rent overcharge complaint on the basis that the subject apartment was notrent-stabilized, DHCR, on its own initiative, reopened the proceeding after the thenrecent Court of Appeals decision in Roberts v Tishman Speyer Props., L.P. (13 NY3d 270[2009]), and accepted further submissions by the parties.
In its superseding order dated October 4, 2010, DHCR determined that the subjectapartment was, in fact, rent-stabilized because the building was receiving J-51 benefits(see Roberts, 13 NY3d at 279-286). However, using the base date of April 7,2005, which was four years prior to the filing date of petitioner's rent overchargecomplaint, at which time the lease rent was $1,750, DHCR determined that there hadbeen no rent overcharge. Petitioner filed a petition for administrative review which wasdenied by DHCR on July 19, 2011 on the basis that there was no reason to deviate fromthe four-year look-back rule, or put the owner to its proof as to the IAIs made over fouryears before the overcharge complaint was filed. The court below upheld the agency'sdetermination and dismissed the petition.
In general, no determination of an overcharge and no calculation of an award of theamount of an overcharge may be based upon an overcharge having occurred more thanfour years preceding the filing of an overcharge complaint (Rent Stabilization Law of1969 [Administrative Code of City of NY] § 26-516 [a]). In order to effectuate thepurpose of the four-year limitation period, the legal regulated rent is set at the base date,which is four years prior to the filing of the overcharge complaint, plus any subsequentlawful increases (Rent Stabilization Code [9 NYCRR] § 2520.6 [e], [f] [1]; 2526.1[a] [3] [i]). The Court of Appeals culled out a common-law exception to the four-yearlook-back period where the rent was set by the landlord as part of a fraudulent scheme.Only where there is a "colorable" claim of fraud may the rental history outside thefour-year period be examined (see Matter of Grimm v State of N.Y. Div. of Hous. & CommunityRenewal Off. of Rent Admin., 15 NY3d 358, 364 [2010]; Thornton v Baron, 5 NY3d175, 180 [2005]). A colorable claim of fraud requires that the tenant presentsomething more than a mere allegation of fraud. It requires some evidence that the ownerengaged in a fraudulent act or scheme more than four years prior to the tenant's filing ofthe rent overcharge claim, justifying the agency's examination of the entire rent history(Matter of Grimm, 15 NY3d at 367).
The fact that there has been a sizeable increase in the rent for the subject apartmentprior to the look-back period does not, alone, support or establish that the tenant has acolorable claim of fraud. This is true even where, as here, the bump up in rent was basedupon the installation of [*4]improvements to anapartment which did not require prior DHCR approval (id.). Significantly, theowner complied with all of the rent registration requirements. Accordingly, theinformation on which petitioner's overcharge claim is based was known to her when shemoved into the apartment in 2007, at which time she was within the four-year periodpermitting a challenge to the rent without having to show a fraudulent predicate.
Petitioner's subjective belief that the IAIs could not have cost more than $5,000 doesnot satisfy her initial burden of showing that the fraud exception to the four-year statuteof limitations should be applied, requiring DHCR to review a rent charged more thanfour years before her overcharge complaint (Thornton v Baron, 5 NY3d at 180).A conclusory claim, without more, is insufficient for the agency to disregard thefour-year look-back period established in the Rent Stabilization Law, as codified in theRent Stabilization Code, requiring that an owner retain records relating to rents forhousing accommodations for four years prior to the date of the most recent registration(CPLR 213-a; Rent Stabilization Law of 1969 [Administrative Code of City of NY]§ 26-516 [a] [2]; Rent Stabilization Code [9 NYCRR] § 2526.1 [a] [2] [ii]).Thus, DHCR's decision to employ the four-year look-back rule rather than the fraudexception in determining the overcharge complaint filed by petitioner had a rational basisin the record and was not arbitrary and capricious or affected by an error of law (seeMatter of I.G. Second Generation Partners v New York State Div. of Hous. &Community Renewal, 284 AD2d 149 [1st Dept 2001], lv denied 98 NY2d607 [2002]). The majority's conclusions that petitioner's letter triggered an inquiryeviscerates the four-year statutory rule whenever a tenant alleges fraud, even without anyparticularity. I do not believe that Grimm has such wide ranging implications.
Additionally, contrary to petitioner's argument, it was not arbitrary or capricious forDHCR to draw upon its own expertise and resources in concluding that $39,000 was notan inordinate expenditure to renovate an apartment that had become vacant for the firsttime in 32 years. [Prior Case History: 2012 NY Slip Op 31260(U).]