In the Matter of Kwik Realty LLC v. New York State Div. Of Hous. & Community Renewal, 2009 NY Slip Op 32665(U) (N.Y. Sup. Ct. 11/6/2009), 115320/08.
| Decision Date | 06 November 2009 |
| Docket Number | Motion Seq. No. 01.,No. 115320/08.,115320/08. |
| Citation | 2009 NY Slip Op 32665 |
| Parties | In the Matter of the Application of KWIK REALTY LLC, Petitioner, For a Judgment Pursuant to Article 78 of the Civil Practice Law and Rules v. NEW YORK STATE DIVISION OF HOUSING & COMMUNITY RENEWAL, Respondent, and STEPHAN C. WISHART, Respondent. |
| Court | New York Supreme Court |
Petitioner, Kwik Realty LLC (Kwik), a landlord, moves, pursuant to CPLR Article 78 to annul, reverse and set aside the September 19, 2008 administrative order (the Order) of Deputy Commissioner Leslie Torres (the DC) of respondent the New York State Division of Housing and Community Renewal (DHCR) determining (1) that an apartment occupied by respondent Wishart (the Apartment) was not high-rent deregulated; (2) that the legal regulated rent for the Apartment was $1,198.80 per month on June 26, 2003, and (3) that petitioner was liable to Wishart (the Tenant) for $16,482.81 for rent overcharges and penalties. DHCR opposes the petition, and requests that the court render a judgment dismissing the petition in its entirety.1
In the underlying proceeding at the DHCR, the DC confirmed a DHCR rent administrator's (RA) determination that Kwik had, pursuant to Rent Stabilization Code (RSC) § 2526.1,2 overcharged the Tenant. It is undisputed that the Tenant moved into the Apartment in April 2001, pursuant to a one-year lease and was then charged the rent specified in the lease of $1,095 monthly. It is also undisputed that, commencing in the year 2003, the rent that Kwik charged to the Tenant was in excess of New York City Rent Guidelines Board increase allowance (Guidelines Increases) for rent-stabilized apartments.
After the RA found that Kwik had improperly overcharged the Tenant, and awarded overcharge and treble damages to him, Kwik and the Tenant each filed a petition for administrative appeal (PAR) with the DHCR. In its PAR, Kwik appealed the RA's overcharge finding and decision to award treble damages. The Tenant appealed only the RA's calculation of treble damages.
In the Order, the DC granted the Tenant's petition and denied Kwik's petition. The DC found that Kwik's argument that the Apartment was vacancy high-rent deregulated pursuant to RSC § 2520.11 lacked merit because it relied on pre-base date rental events. The base date to which the DC refers is "the date four years prior to the date of the filing of [the] complaint" (RSC § 2520.6 [f] [1]), in this case June 26, 2003. The Order states that the lease for the Apartment, on the June 26, 2003 base date, listed the rent as $1,198.90 per month, without indication that this amount was a preferential rent.3 The Order further provides that the RA correctly determined that the Apartment was not exempt from rent stabilization because the base date rent, and the subsequent legal regulated rents calculated for the period thereafter, were less than the $2,000 per month rent required for vacancy high-rent deregulation pursuant to RSC § 2520.11 (r). The DC also opined that to make a determination of the rent based on calculated guidelines and lawful adjustments would require examination of the rent history prior to the base date in violation of RSC § 2526.1. Specifically, the DC stated that RSC § 2526.1 does not permit review of the rental history of a housing accommodation, or apartment,4 prior to the base date where the issue to be determined is whether the housing accommodation was deregulated due to vacancy high-rent deregulation.5 The DC also found that although the legal regulated rent in the instant case was subject to lawful yearly Guidelines Increases, the RA's decision to freeze the collectible rent at the $1,198.80 level was warranted because the RSC does not permit an owner to collect Guidelines Increases if registration is not current and Kwik had failed to register the Apartment. The DC advised Kwik that the rent freeze would be lifted upon the filing of all missing registrations.
Regarding treble damages, the DC also found that Kwik did not establish by a preponderance of the evidence that the overcharge was not willful, as is required to overcome the RSC § 2526.1 (a) (1) presumption of willful overcharge. Although Kwik argued that did not act willfully because it believed that the Apartment was deregulated, and had filed an amended rent registration setting forth that the Apartment was permanently exempt, the DC found Kwik's purported belief, and amended filing only after the tenant's complaint was filed, unpersuasive to demonstrate lack of willfulness. The DC's finding appears predicated on a 2000 rent registration filing listing the Apartment as rent stabilized with a tenant named "Flores" paying a rent of $698.79 and another rent registration filing for 2001 which lists the Tenant as paying a stabilized rent of $1,095.
In its petition, Kwik avers that the Apartment was not subject to the Rent Stabilization Law of 1969 () (RSL) or the RSC. Kwik further avers that at the time it purchased the subject building in 2000, the Apartment was temporarily exempt, as it was occupied by the prior owner's building superintendent, Mr. Flores, for more than four years. Kwik states that when Kwik bought the building in 2000, Mr. Flores was terminated from his position, but then entered into a lease for the Apartment which permitted him to pay $900 per month in rent, but also indicated that the first rent was lawfully set at $2,000 per month, and that the Apartment was "exempt" and deregulated (the Flores Lease). Kwik notes that the Tenant indicated in his June 26, 2007 complaint to the DHCR that he had commenced occupancy of the Apartment on April 1, 2001, but did not file the overcharge complaint challenging the rent until 2007. Kwik contends that because the $2,000 rent set in the Flores Lease remained unchallenged for over four years, pursuant to the Rent Regulation Reform Act of 1997 (RRRA 97), the $2,000 rent set therein became the legal regulated rent, and is not now subject to challenge as it was not challenged within the four-year time period permitted under RRRA 97. Kwik maintains that because the Flores Lease rent was set at $2,000, the Apartment was vacancy high-rent deregulated, regardless of what was actually paid in rent.
Kwik contends that RSL § 26-504.2 and RSC § 2520.11 (r) (4) provide that an apartment is deregulated once the legal regulated rent is $2,000 or more per month, regardless of what rent an owner charges a tenant thereafter, and that once an Apartment is deregulated, an owner may set a negotiated rent without either DHCR restrictions or the apartment again becoming subject to rent stabilization, as there is no jurisdictional basis upon which to re-regulate such an apartment. Kwik argues that the DC erred in holding that the Apartment remained subject to rent stabilization because Kwik did not preserve a preferential rent on the base date because the very concept of a preferential rent, a part of rent-stabilization regulation, does not apply when an apartment is exempt from RSL.
Ironically, after maintaining that because the $2,000 rent set in the Flores Lease remained unchallenged for over four years, the rent can no longer be challenged, Kwik maintains that the DC erred by refusing to review the events prior to the base date, including the Flores Lease, because the DHCR is permitted to go beyond the four-year rule set forth in RSC § 2526.1 to determine whether an apartment is subject to rent regulation.6
Kwik also takes exception to the DC's assertion that Kwik's 2007 amendment of the Apartment rent registration for the years 2000-2001 is probative as to the issue of whether the Apartment is rent regulated. Kwik states that it had previously advised the DHCR that it had improperly registered the Apartment and claims that the registration filings, registering the Apartment at $698.79 in 2000 and $1,095 in 2001 were in error, with the error discovered upon the Tenant's Tiling of the overcharge complaint and remedied by amendment. Kwik also argues that status is not created by inaccurate annual registrations, and cites to RSL § 26-517 which, it contends, permits a landlord to amend registrations without adverse consequences.
As to the DC's finding of willfulness for the purposes of treble damages, Kwik argues that it proved by a preponderance of the evidence that it the overcharges were not willful because it established that it rationally believed the premises to be deregulated based on the $2,000 rent in effect, and unchallenged, since the year 2000. Kwik claims that the DHCR requested additional information and evidence about whether the Apartment's rent had been increased by Major Capital Improvement Orders granted, respectively, in August 2003 and August 2005. Kwik asserts that it responded to the DHCR that the rent had not been increased because the Apartment was deregulated. Kwik argues that its internal printouts, which were part of the record before the DC, also demonstrate that Kwik viewed the Apartment as exempt. Kwik argues that the scales tipped in its favor, and that the DHCR should have reviewed the Flores Lease to determine whether Kwik's belief that the Apartment was deregulated was rational, and accepted Kwik's rationale for viewing the premises as deregulated.
In opposition, the DHCR, through counsel, argues that RSC § 2526.1 (2) (ii) prohibits examination of rental history of the Apartment prior to the four-year period preceding the filing of the complaint, and that to determine the legal regulated rent pursuant to that section, the DHCR may only review the rental history from the June 26, 2003 base date forward. The DHCR contends that examination of any rent registration filed prior to the base date is prohibited regardless of whether the rent registration was filed before or after the base date.7 DHCR's counsel cites no case...
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