Order and judgment (one paper), Supreme Court, New York County (Karen S. Smith, J.), entered September 15, 2005, which denied the petition to annul a certain determination of respondent State of New York Division of Housing and Community Renewal, dated February 25, 2004, that, inter alia, had directed
Petitioner Partnership 92 LP and Building Management Co., Inc., doing business as Bristol Management Co., Inc. (92 LP) is the owner and landlord of the residential building designated as 412 East 55th Street, New York, New York. Apartment 3D, which residence is at the core of this matter, is subject to regulation under the Rent Stabilization Law and Code. Patricia Moore was the tenant of the apartment pursuant to a lease which ran from March 1979 to February 1981, at a rate of $520.87 per month. Ms. Moore subsequently renewed the lease, effective March 1, 1981, at a monthly rent of $583.30.
Robert Klimecki began renting the apartment commencing August 1, 1981, although he never resided therein, but instead, pursuant to an agreement he had with the then owner-landlord, rented the apartment to commercial entities for use by their employees or officers. Initially, Klimecki entered into a three-year vacancy lease, which he subsequently renewed for a two-year period effective August 1, 1984. Andrea Bunis leased the apartment in early 1986 and, since it had not been occupied by a rent-stabilized tenant for five years, the prior owner determined the rent by applying the Rent Guidelines Board increases for a three-year vacancy and two-year renewal lease, and arrived at a monthly rent of $903.62.
Bunis, on May 8, 1987, filed an overcharge complaint with respondent State of New York Division of Housing and Community Renewal (DHCR). The prior owner submitted an answer in June 1987, and provided a chart of the rental history of the apartment, which indicated how the rent was calculated. The DHCR, inexplicably, served a second copy of the complaint on the prior owner in 1990, and the owner again provided the DHCR with an answer and rent history for the apartment. Bunis, in response to the owner’s allegation that she had been employed by the building’s managing agent and had access to all of the apartment’s records and the method of calculation, denied that she had any managerial responsibility and alerted the DHCR to the fact that Klimecki was listed as the tenant of four different apartments as of April 1, 1984.
The matter then lay dormant for approximately 2>xh years, during which time the building was sold to 92 LE The DHCR, in April 1994, paradoxically served a third copy of the complaint on 92 LR to which 92 LP served an answer. The DHCR, in
Bunis thereafter filed a petition for administrative review (PAR) and, after a series of adjournments granted to 92 LP, issued an order, dated April 1,1999, granting the PAR. The DHCR found, in part, that the Rent Regulation Reform Act of 1997 (RRRA), which was applicable to all pending cases, prohibited the examination of rental events occurring more than four years prior to the filing of a complaint. As a result, the DHCR employed May 8, 1983 as the base rent date and, by using “the court approved DHCR default procedure,”1 arrived at $416.56 as the lawful stabilization rent as of the date of occupancy of Bunis. The DHCR opined that it found the owner in default because it failed to provide an explanation as to why Klimecki was leasing four apartments in the building at the same time and, “[i]n the absence of such explanation, it must be considered that the owner had defaulted in its obligation to provide a rental history showing the lawful rent on the base date of May 8, 1983.” The DHCR also concluded that treble damages were not warranted since the owner could have surmised, in good faith, that it had properly calculated the rent by using the last stabilized rent.
Bunis and 92 LP commenced separate CPLR article 78 proceedings challenging different aspects of the DHCR’s order, and Supreme Court remitted the matter to the DHCR for further proceedings, including an oral hearing. At the hearing, which was conducted between June 2001 and March 2002, Klimecki testified, inter alia, that he rented the apartments, furnished them, and sublet them to various corporate entities. Klimecki provided utilities, house cleaning and linens and it was left undisputed that he did not, and never intended to, use the subject apartment as his primary residence.
The Administrative Law Judge (ALJ) issued a report, dated October 27, 2003, in which she recommended, inter alia, that the DHCR Commissioner render an order stating that there was no proof an initial rent registration (RR-1) form had been served upon Bunis, or filed with the DHCR, and that treble damages were not warranted because 92 LP had rebutted the presumption of willfulness.
The Deputy Commissioner, by order and opinion dated Febru
92 LP subsequently commenced the proceeding at bar, alleging that Klimecki’s tenancy was not illusory, but was exempt from rent stabilization due to the fact that it was a nonprimary residence and that his subtenants were exempt because they were commercial tenancies. 92 LP also maintained that the RRRA was inapplicable since it did not take effect until 10 years after the rent overcharge complaint was filed, and because the DHCR had unreasonably and negligently delayed processing this proceeding. 92 LP concluded that the law existing at the time of the complaint was, therefore, applicable and, accordingly, there was no overcharge.
Supreme Court denied the petition and dismissed the proceeding, holding that the DHCR’s determination was neither arbitrary nor capricious, nor without a rational basis. Supreme Court found that 92 LP failed to demonstrate the delay in this matter was due to the negligent or willful conduct of the DHCR and, absent such a showing, the law in effect at the time of the determination applies. Supreme Court determined that, in any event, the four-year cutoff date set. forth in the RRRA may not be waived. Supreme Court further found that, given Klimecki’s testimony, his lease of the apartment in question was clearly illusory. 92 LP appeals and we now affirm.
It is a long-standing, well-established standard that the judicial review of an administrative determination is limited to whether such determination was arbitrary or capricious or without a rational basis in the administrative record (see Matter of Pell v Board of Educ. of Union Free School Dist. No. 1 of Towns of Scarsdale & Mamaroneck, Westchester County, 34 NY2d 222, 230-231 [1974]; Matter of Cohen v State of New York, 2 AD3d 522, 525 [2003]), and “once it has been determined that an agency’s conclusion has a ‘sound basis in reason’ . . . the judicial function is at an end” (Paramount Communications v Gibraltar Cas. Co., 90 NY2d 507, 514 [1997], quoting Matter of Pell, 34 NY2d at 231; see also Matter of Smith v New York State Div. of Hous. & Community Renewal, 27 AD3d 1063 [2006]). Indeed, the determination of an agency, acting pursuant to its authority and within the orbit of its expertise, is entitled to deference (Matter of Salvati v Eimicke, 72 NY2d 784, 791 [1988]; Matter of Tockwotten Assoc. v New York State Div. of Hous. &
Initially, we can discern no reason, nor are we presented with a viable one, to disturb that branch of the DHCR’s determination which found that Klimecki’s lease of the apartment constituted an illusory tenancy. In Matter of Badem Bldgs. v Abrams (70 NY2d 45, 52-53 [1987]), the Court of Appeals defined an illusory tenancy as a “residential leasehold created in a person who does not occupy the premises for his or her own residential use and subleases it for profit, not because of necessity or other legally cognizable reason. Such tenancies are condemned because they permit the unscrupulous to use the provisions of the rent stabilization laws for financial gain, at the expense of those entitled to the laws’ protections to obtain living quarters at reasonable cost, and thereby frustrate the laws’ purposes. Thus, both the courts and the administrative agencies charged with overseeing rent stabilization have readily formulated remedies to prevent the use of illusory tenancies . . . .” ([citations omitted]; see also Primrose Mgt. Co. v Donahoe, 253 AD2d 404, 405 [1998]). Accordingly, any such lease is not merely voidable, but void as against public policy (Drucker v Mauro, 30 AD3d 37 [2006], lv dismissed 7 NY3d 844 [2006]; Aurora Sportswear Group Ltd. v Eng, 29 AD3d 445, 446 [2006]).
In this matter, in view of the testimony of Klimecki, during which he admitted that he never occupied the apartment but, instead, leased it solely for the purpose of re-leasing it, at a profit, to corporate entities to use as temporary housing for their employees, we can only agree with the DHCR’s determination that Klimecki’s tenancy falls squarely within the definition of an illusory tenancy. Moreover, 92 LP’s argument that the
Finally, 92 LP takes issue with the DHCR’s application of the four-year limitations period set forth in the RRRA in establishing a base rent date of May 8, 1983. 92 LP maintains that if the DHCR had processed the initial complaint promptly,2 and adjudicated the matter within a reasonable time, it would have found that the rent for the apartment was properly calculated. In that regard, we observe that the Court of Appeals has unequivocally stated that “[t]he Legislature specifically directed that the RRRA of 1997 apply to all cases pending before the DHCR” (Matter of Gilman v New York State Div. of Hous. & Community Renewal, 99 NY2d 144, 149 [2002]; see also Levinson v 390 W. End Assoc., L.L.C., 22 AD3d 397, 401 [2005]), and that the purpose behind this legislative enactment was to alleviate the burden on honest landlords of having to retain rent records ad infinitum, and not to immunize dishonest ones from compliance with the law (Thornton v Baron, 5 NY3d 175, 181 [2005]; Matter of Gilman, 99 NY2d at 149). Moreover, rather than establishing a new statute of limitations, the RRRA merely “clarified and reinforced the four-year statute of limitations [already] applicable to rent overcharge claims (see Rent Stabilization Law of 1969 [Administrative Code of City of NY] § 26-516 [a])” (Thornton, 5 NY3d at 180).
In the matter at bar, despite the DHCR’s inordinate delay, we decline to disturb its application of the RRRA in rendering its determination. We reach this conclusion not only in view of the Court of Appeals pronouncement that the RRRA applies to “all” cases pending before the agency, but also in light of the public policy considerations raised with regard to the Rent Stabilization Law and the clearly illegal tenancy which sought to circumvent them.
In sum, the Deputy Commissioner declined to look back to the last rent-stabilized tenant’s rent in order to determine that there was no overcharge because of the status of Klimecki’s tenancy and, in that regard, we find that the DHCR’s determination was neither arbitrary nor capricious, nor without a rational basis.
To the extent that the dissent finds our result is unjustly imposed at the expense of an owner that purchased the building five years after the rent overcharge complaint was filed, we note that it was simply a matter of due diligence for 92 LP to have determined, when it purchased the building, that not only was there a rent overcharge proceeding pending before the DHCR, but that one tenant, in a rent stabilized building, was warehousing apartments in order to circumvent the Rent Stabilization Law and Code and realize an illegal profit for both himself and the prior owner.
We have considered 92 LP’s remaining arguments and find them to be without merit. Concur—Tom, J.P., Nardelli and Gonzalez, JJ.
1.
Pursuant to the default procedure, the rent of the subject apartment is set as of the date of occupancy at the lowest stabilized rent for an apartment in the same building, containing the same number of rooms, as of that date.
2.
While we find the DHCR’s approximately eight-year delay in reaching its initial determination, during which time it served the rent-overcharge application three times on two different owners, to be shocking, and its decision to not so much as address this delay in its submissions to this Court to be disturbing, we note that it has been acknowledged that the DHCR, during this time period, had a substantial backlog of cases, with over 26,000 cases pending in 1992, which number had purportedly been reduced to 2,000 pending overcharge proceedings by May 2002 (see Matter of Gilman v New York State Div. of Hous. & Community Renewal, 99 NY2d 144, 152 n 1 [2002, Graffeo, J., dissenting]).