IN RE: 612 WEST 144 REALTY LLC (2024)

Judgment (denominated an order), Supreme Court, New York County (Richard Latin, J.), entered November 3, 2023, denying the petition to annul the order of New York State Division of Housing and Community Renewal (DHCR), which granted in part the petition for administrative review (PAR) of Monica Mendonca Reis and found petitioner responsible for rent overcharges, interest, and treble damages, and dismissing the proceeding brought pursuant to CPLR article 78, unanimously reversed, on the law, without costs, the judgment vacated, the petition reinstated, and the matter remanded to the Rent Administrator for petitioner to provide itemized proof of costs for work performed by the general contractor and electrician in connection with purported individual apartment improvements (IAIs).

Pursuant to DHCR Policy Statement 90–10, if DHCR intends to require additional documentation from a property owner, such as an itemized breakdown of costs, DHCR must request that documentation.  In this case, DHCR never requested itemized breakdowns for the contractor or electrician.  However, in granting the overcharge application, DHCR faulted petitioner for not providing them.  Because DHCR did not follow its own rules and regulations, DHCR's PAR order granting in part Reis's rent overcharge complaint was arbitrary and capricious and in violation of lawful procedure (see generally Matter of Gilman v. New York State Div. of Hous. & Community Renewal, 99 N.Y.2d 144, 151, 753 N.Y.S.2d 1, 782 N.E.2d 1137 [2002]).  Accordingly, we remand the matter to the Rent Administrator for the limited purpose of permitting petitioner to submit itemized documentation of costs for work performed by the contractor and electrician in connection with the purported IAIs.

The PAR order clearly states that DHCR relied on the Attorney General's Assurance of Discontinuance (AOD) in analyzing the overcharge complaint.  Based on the AOD's prohibition on its use against affiliates of the respondents, DHCR's reliance on the AOD to justify additional scrutiny of petitioner's documents lacked a rational basis and was arbitrary and capricious.  Any future DHCR decision in this matter should not rely on the AOD.