VR Equities v. New York City Conciliation & Appeals Board

Judgment of the Supreme Court, New York County (Robert E. White, J.), entered September 10, 1984, which denied and dismissed petitioner’s CPLR article 78 petition, challenging respondent’s determination which fixed the lawful stabilized rent of apartment 5A at 136 West 75th Street as $282.22 per month as of April 1978, and directed the owner to roll back the rent and make a refund of the overcharges, is reversed, on the law, the petition to annul the determination is granted and the matter remanded to respondent for a new determination, without costs.

By lease commencing April 15, 1978, Daniel Breheny became the tenant of an apartment on West 75th Street at a rental of $475 per month. Petitioner VR Equities became the new owner of the property on October 3, 1979. Breheny later executed a two-year renewal lease for the term April 15, 1980 to April 14, 1982, at a rental of $476 per month and a three-year renewal for the April 15, 1982 to April 14, 1985 period at a rental of $552.16. In October of 1980, Breheny, who was active in the building’s tenants’ association, distributed rent overcharge forms to other tenants in the building. However, he waited until February 25, 1983 to file a rent overcharge complaint with the Conciliation and Appeals Board (CAB), alleging only that he was paying the highest rent in the building. Breheny’s apartment, however, was the largest in the building. The timing of the overcharge complaint coincided with that of an agreement for a cooperative conversion plan, under which the tenants could purchase their apartments at prices below market value.

By mailing of March 9, 1983, VR Equities was served with an administrative complaint from the CAB regarding the alleged overcharge. The complaint included a demand for copies of all leases entered into by the owners and any tenants who had been in occupancy of the subject apartment since the applicable base date. May 31, 1968 was the applicable base date for an apartment, which had continuously been subject to the Rent Stabilization Law. The base date for an apartment which became stabilized as a result of the Emergency Tenant Protection Act (L 1974, ch 576, § 4) was the latter of two dates: June 30, 1974, or the date on which the last rent-controlled tenant vacated the apartment. If any gaps existed in the submission of leases, the owner was required to submit rent ledgers or current rent rolls. The complaint advised petitioner owner that he would be in default and the building could be expelled from the Rent Stabilization Association if he failed to comply with these demands in 30 days.

The owner obtained a 10-day extension to April 19, 1983. By letter dated April 14, 1983, the owner explained to the Board that as of then he was unable to obtain the leases of the apartment’s prior tenants from the previous owner, who had been retired for some time, and he requested that he be permitted to submit any prior leases or other relevant information when he obtained it. This letter received no reply.

A staff member of CAB then proceeded to contact the lower Manhattan District Rent Office and learned that there was no statutory report on file stating the date of decontrol of this apartment and that the last officially established rent for the apartment was the 1972 maximum base rent (MBR) of $229.17 per month. However, this information, which appears to have been obtained through a telephone conversation, is not contained in the record. On the basis of this information, the Board rendered an opinion, dated June 9, 1983 and issued June 15, 1983, in which it found that the owner had defaulted in providing a full rental history. However, rather than expel the owner from the Rent Stabilization Association as to the entire building, it exercised its right to establish a new stabilization base rent for the apartment. For these purposes, it was assumed that the apartment was decontrolled prior to June 1, 1974. Then, the 1972 MBR of $229.17 was increased by 8.5% to $248.65 to arrive at the assumed 1974 MBR for the period 1974 to 1975. A further adjustment upward resulted in a 1978 MBR of $282.72. This was the figure applied to Breheny’s first two-year lease. Thereafter an MBR of $316 was arrived at for the period 1980 to 1981, $324 for the period 1981 to 1982 and $366 for the period 1982 to 1985. The order directed that the rent be rolled back accordingly, entitling Breheny to a refund of $13,872.

By letter dated June 24, 1983, the owner requested that CAB reopen the matter to allow it to submit rent records it was endeavoring to obtain from the prior owner. The Board denied the request on July 8, 1983. By letter dated July 11, 1983, the owner submitted certified copies of the maximum base rent master building rent schedules for the years 1976 to 1979, which had been filed in the Office of Rent Control. The records demonstrated that the subject apartment was, prior to Breheny’s occupancy in 1978, occupied by a statutory rent-controlled tenant and that the MBR in 1978 was $330.65. Since the apartment had been subject to rent control, no prior leases existed. The Board, nevertheless, denied the owner’s request for reconsideration.

Petitioner then timely commenced this article 78 petition, dated October 4, 1983, challenging the alleged arbitrary and capricious determination of the base rent and CAB’s decision not to reopen the proceeding despite newly submitted information. The court below dismissed the petition, finding that the rent determination was rationally based and that the information submitted on July 11, 1983 was "unverified and of questionable accuracy” and did not justify a reconsideration of the matter.

An agency determination is not to be disturbed unless that determination is contrary to lawful procedure or is arbitrary and capricious and constitutes an abuse of discretion. (Matter of Pell v Board of Educ., 34 NY2d 222, 231-232.) An agency’s action is arbitrary when it "is without sound basis in reason and is generally taken without regard to the facts.” (Supra, at p 231.) We conclude that the CAB made its determination in an arbitrary and capricious manner, without regard to the facts which should have been a part of its determination.

When the CAB exercised its discretion not to expel the owner from the Rent Stabilization Association and decided instead to establish a new base rent, it had the obligation to do so lawfully, with due regard to the essential evidence and in a nonarbitrary fashion. Yet, the manner in which the Board proceeded to establish the new base rent was haphazard, careless and manifested a concern only for expediency rather than the soundness of the result.

The information used to arrive at the base rent for this apartment was obtained from an informal telephone call to the Office of Rent Control from which the Board learned that the last officially recorded rent for the apartment was the 1972 maximum base rent of $229.17. The Board then assumed that the apartment became subject to regulation under the Rent Stabilization Law on July 1, 1974, the date the Emergency Tenant Protection Act took effect, and then updated the maximum base rent using applicable guideline increases.

However, had the CAB been thorough enough to at least inspect the filings on hand at the Office of Rent Control, it would have discovered the certified copies of the maximum base rent master building rent schedules for the years 1976 to 1979, the same information the owner eventually submitted upon its motion for reconsideration. Contrary to respondent’s argument that this material is dehors the record, the material was cited in respondent’s own brief as part of its administrative return and was not presented for the very first time on this article 78 proceeding. (Cf. Matter of Fanelli v New York City Conciliation & Appeals Bd., 90 AD2d 756, 757, affd 58 NY2d 952.) In fact, it is the information on which CAB relied that is not in the record.

The information in these filings, moreover, provides strong evidence that the owner did not truly default in providing the rental history of this apartment. The Board’s complaint demanded that the owner provide the rental history for the subject apartment subsequent to the applicable base date. The base date applicable here was the date on which the last rent-controlled tenant vacated the apartment, which was when the instant complainant commenced his tenancy. Thus, the rental history the owner was required to provide actually began with Breheny’s lease. This rental history was already before the Board. Further, because Breheny was the first rent-stabilized tenant by reason of the vacating of the premises by the prior rent-controlled tenant, his rent could lawfully be set at the fair market level. (Rent Stabilization Law of 1969 [Administrative Code of City of New York] § YY51-6.0.2.) Therefore, this action should have been treated as a tenant fair market adjustment proceeding applicable to a first rent-stabilized tenant. The fact that no report of statutory decontrol was ever filed and that the tenant herein was not notified of the fact that he was the first rent-stabilized tenant are matters that were never raised in the administrative proceeding.

Unfortunately for petitioner, it was not the building’s owner at the time Breheny commenced his lease and, for whatever reason, was never aware that the apartment had been rent controlled up to the time Breheny leased the premises. Nevertheless, the owner embarked upon a search for a prior rental history that was not required after all and for prior leases that did not exist. All that had to be shown was that the apartment was decontrolled in 1978 and Breheny was the first stabilized tenant, a fact which the 1976-1979 rent schedules strongly demonstrated. Having decided to make its own record and its own determination of a new base rent, the Board was obliged to act in a careful or prudent fashion. Had it done so, it would have obtained these schedules which would properly change the character of the proceeding from an overcharge proceeding to a fair market adjustment proceeding.

Respondent’s argument that the information in these filings is "unverified” because they were prepared and filed by the prior owner should be dismissed out of hand. That argument overlooks the fact, which even respondent recognizes, that the Rent Stabilization Law establishes a self-regulating, self-policing system which gives the owner the responsibility of calculating the lawful rent and maintaining the necessary records. This is true even as to the 1972 MBR information upon which respondent relied in making its decision. The Board fails to explain in any rational manner how it could rely on the 1972 filing without also relying on the later filings.

Moreover, the authenticity of the 1976-1979 MBR filings was established by the District Director’s certification. Their accuracy is indicated by the information therein that the 1975 MBR for the subject apartment was $248.65, precisely the same figure that the Board utilized as the applicable base rent for 1974-1975. The Board’s refusal to credit the information as reliable is arbitrary and capricious as was its negligence in not producing this information in the first instance. For all these reasons, the judgment below is reversed and the petition granted to the extent of annulling the Board’s determination and remanding the matter for a new determination by the Board’s successor, the State Division of Housing and Community Renewal. Concur — Sullivan, J. P., Carro, Kassal and Rosenberger, JJ.