Upon the foregoing papers, petitioner Estate of Ernest Paniccioli, deceased by Wendy Panniccioli, administrator ("petitioner") seeks judicial review, under article 78 of the CPLR, of an order issued by respondent Division of Housing and Community Renewal ("DHCR") dated May 16, 2006, which denied petitioner's petition for administrative review ("PAR") and affirmed a decision of the Rent Administrator ("RA").

Petitioner is the owner of an apartment building located at 155 Hicks Street in Brooklyn. Cindy Goulder took occupancy of apartment 5A in the subject building in February 1971. Allegedly, after decedent petitioner Ernest Paniccioli ("Paniccioli") became the owner of the building in 1990, a dispute arose between Paniccioli and Goulder with respect to an occupant in the subject apartment characterized by Paniccioli as an illegal [*2]subtenant. On August 28, 1992, Paniccioli and Goulder entered into an agreement (hereinafter the "vacate agreement") whereby Goulder agreed to vacate the apartment by February 28, 1993 in return for $10,000 and free rent for the remaining six months of her occupancy. Goulder, however, did not vacate the apartment by February 28, 1993 as set forth in the vacate agreement. The vacate agreement was thereafter renegotiated between Goulder and Paniccioli to provide that Goulder could retain the $10,000 and continue her occupancy of the apartment for a decontrolled rent of $600 per month with annual increases of 10%. This arrangement continued through April 1998, at which time Goulder paid a rent of $726.

On February 24, 1999, the DHCR received a rent overcharge complaint from Goulder, wherein she alleged that Paniccioli had illegally increased the rent without obtaining the proper authorizations from the DHCR. Goulder thereafter submitted to the DHCR various documents demonstrating her continuous tenancy since February 1971 and claimed that she signed the vacate agreement under duress and without the benefit of counsel. On November 3, 2000, the RA issued an order determining that the apartment was still subject to rent control, and established the maximum collectible rent at $155.77. Paniccioli filed a PAR on December 4, 2000, wherein he argued that Goulder agreed to vacate the apartment or become a decontrolled tenant upon receiving $10,000 from Paniccioli. On February 27, 2001, the Deputy Commissioner issued an order granting the PAR in part and remanding the proceedings to the RA. The Deputy Commissioner determined that the RA properly found the apartment to be subject to rent control, and was justified in refusing to enforce the vacate agreement on the ground that it constituted a waiver of rent control benefits in violation of Section 2200.15 of the Rent and Eviction Regulations. However, the Deputy Commissioner stated that in light of the "peculiar circumstances" of the case, the proceeding should be remanded for a determination of whether the vacate agreement and the payment of $10,000 to Goulder might have kept Paniccioli from applying to the DHCR for the increases to which he would have been entitled under the Rent Control Law.

Following the remand of the proceeding and after accepting further submissions by the parties, the RA issued an order, dated September 18, 2003, whereby the maximum collectible rent was increased to $371.00 per month effective October 1, 2003. The RA determined that Goulder's acceptance of a lump sum payment for signing the vacate agreement, and Paniccioli's good faith reliance upon the same were unusual circumstances which caused Paniccioli to not apply for rent control increases since the execution of the vacate agreement, and as a result it was appropriate to grant an increase in rent pursuant to section 2202.7 of the Rent and Eviction Regulations (Unique and Peculiar Circumstances). On October 27, 2003, Paniccioli filed a PAR, wherein he contended that the RA's order "does not consider that [Goulder] illegally subletted the premises, took $10,000 to vacate and charged the subtenant $500 p/month." In additional submissions filed in support of the PAR, Paniccioli alleged that the RA's order ignored certain affidavits submitted to demonstrate that Goulder was illegally subletting the apartment and profiteering therefrom, and further argued [*3]that the agreement entered into by Goulder whereby she agreed to pay a decontrolled rent was enforceable under case law. In response, Goulder vehemently denied Paniccioli's allegations of illegal subletting and profiteering, stating that the alleged sublet was actually a roommate who paid her only 50% of the rent charged at the time, and further argued, inter alia, that the affidavits submitted by Paniccioli were of questionable probative value, the case law cited by Paniccioli was inapplicable as Goulder was not represented by counsel at the time she entered into the vacate agreement, and that the apartment was in need of various repairs.

By order dated April 22, 2004, the Deputy Commissioner denied Paniccioli's PAR, stating, in part: "[T]he owner's contention that the Administrator's order did not consider the owner's payment of $10,000 to the tenant and the alleged illegal sublet of the subject apartment is without merit.

The Rent Administrator considered the $10,000 payment because he granted the owner rent increases that had not been applied for, as is normally required, absent unique and peculiar circumstances. The claim of an illegal sublet may be the basis for future court action by the owner, but it cannot affect the establishment of the maximum rent.

The Commissioner finds that the initial determination of the Administrator addressed the issue of regulatory status of the apartment and not whether the subject tenant had illegally sublet the premises. Further, on remand, the Administrator's order properly addressed the issue of whether the owner was entitled rent increases based on unique or peculiar circumstance, and took into consideration all factors bearing on this issue."

The instant article 78 proceeding ensued. Petitioner challenges the DHCR's determination on several grounds, including the alleged failure of the agency to consider the affidavits submitted in support of the PAR , its failure to address or determine the illegal sublet and profiteering issues, the failure of the agency to set a market rent, and the failure of the agency to consider and enforce the vacate agreement entered into by Goulder and Paniccioli.

This court is limited by CPLR article 78 to a review of the record before the DHCR and to the question of whether its determination was arbitrary and capricious (Matter of Windsor Place Corp. v DHCR, 161 AD2d 279, 280 [1990]; Mazel Real Est. v Mirabal, 138 AD2d 600 [1988]; Matter of Bambeck v DHCR, 129 AD2d 51, 55 [1987], lv denied 70 NY2d 615 [1988]; Villas of Forest Hills v Lumberger, 128 AD2d 701, 703 [1987]). If a rational basis exists for its determination, the decision of the administrative body must be sustained (Matter of Pell v Board of Educ., 34 NY2d 222, 230 [1974]; Matter of Tener v DHCR, 159 AD2d 270 [1990]). Stated simply, this court cannot substitute its judgment for that of the agency, so long as the agency's decision is rationally based in the record (Colton v Berman, 21 NY2d 322 [1967]).

A review of the record reveals that the DHCR's determination was rationally based and was neither arbitrary nor capricious in the manner in which the maximum collectible rent as of October, 2003 was determined. However, said decision was irrational, arbitrary, and capricious to the extent that it ignored the diminution of said maximum collectible rent vis-a-[*4]vis the $10,000.00 payment that the tenant obtained and which resulted in negating the rent increase to which it found that the petitioner was entitled.

This court does not find irrational the DHCR's finding that the apartment was subject to rent control, despite the existence of the agreement wherein Goulder agreed to pay a decontrolled rental amount, on the ground that the agreement constituted an impermissible waiver of rent control benefits. There is a well established principle that courts should not generally intervene in matters involving discretionary administrative conduct (see Rodgers v Koch, 111 AD2d 727 [1985]). "An administrative agency's application of its regulations, and its interpretation and construction of the statute under which it functions, are entitled to the greatest weight" (see Chessin v New York City Conciliation and Appeals Bd., 100 AD2d 297, 301 [1984]). The Rent and Eviction Regulations provide that "[a]n agreement by the tenant to waive the benefit of any provision of the Rent Law or these regulations is void" (9 NYCRR § 2200.15). While courts have held that the no-waiver provision is not applicable to stipulations and agreements entered into by tenants voluntarily with representation by counsel and in settlement of a bona fide dispute (Merwest Realty Corp. v Prager, 264 AD2d 313 [1999]; 437 Palisade Ave. Realty Corp. v Boyd, 124 Misc 2d 759 [1984]), this matter is distinguishable in that Goulder was not represented by counsel at the time she entered into the agreement, and it is not conclusive from the record that the agreement was otherwise made "at arms length." Equally true, however, is the fact that the tenant was in no way shown to be entitled to receive a $10,000.00 abatement of the existing rent ($155.51 as of 1/1/74) or the increase awarded ($371.00 as of 10/1/03). Hence, there can be no fair, equitable, or just basis whereby the tenant is allowed to reap such a benefit.

While this court is cognizant of petitioner's plaint that the maximum collectible rent of $371.00 is far below the market rate for the subject apartment, the DHCR employed the proper methodology in establishing the base rent of $155.77 as of January 1, 1974 and continuing through 1990 (as there were no Maximum Base Rent filings made by the prior owner during this period) and also allowing petitioner retroactive increases from 1992 based on the "unique and peculiar circumstances" provision of section 2202.7 of the Rent and Eviction Regulations. Petitioner has offered no authority to support the proposition that a maximum rent otherwise correctly established under the formulas of the Rent and Eviction Regulations must be set aside by the courts because it is substantially lower than the market rate of similar apartments in the same neighborhood. The tenant also offered no basis for a $10,000.00 payment on her behalf by the petitioner as of 1992 to the present.

Though it may not have been irrational for the DHCR to disregard petitioner's contentions with respect to the alleged illegal sublet and profiteering since such issues had no bearing on the calculation of the maximum collectible rent. However, it is unclear to this court what "independent redress" the petitioner had the right and opportunity to seek in a court of competent jurisdiction. If the tenant collected sub-lease rents in excess of the permissible rent control amount on the apartment, and if according to DHCR such acts do not decontrol an apartment, then it also follows that the petitioner could not seek the [*5]equitable relief of ejectment in court, so what remedy would he then have? In other words, what would be the petitioner's damages?

The court finds merit in the petitioner's arguments, and is persuaded that DHCR's determination was arbitrarily, irrationally, and capriciously arrived at in determining that the petitioner's rent increase should commence only as of 10/1/03 without regard to the $10,000.00 payment that the tenant received. By failing to take into account the $10,000.00 unjustly received by the tenant, such determination, though correctly awarding the petitioner the rent increase to which he is entitled, in actuality negates the increase. A rental raise from $155.51 to $371.00 results in an increase of $215.00 per month ($2,580 per year). At such a rate, it would take the petitioner 46.51 months or 3.89 years to recoup the $10,000.00 payment and for his rent increase to actually take effect. DHCR's decision fails to explain why this should be the case.

It would be inherently unfair for DHCR to allow this tenant to retain a $10,000.00 payment made to decontrol an apartment that is retaining its rent-control status. By doing so, DHCR would either be awarding the tenant an abatement of approximately $75.76 per month from 1992 to 2003 (11 years; i.e., from the date of the parties' agreement to the date of the rent increase) or deferring the rent increase for 46.51 months or 3.89 years (($10,000.00 divided by the net rent increase of $215.00), as aforementioned, for no discernible reason. Both outcomes constitute an abuse of discretion that this court cannot sanction as rationally or non-arbitrarily arrived at.

Wherefore, the instant article 78 petition is granted and the matter is remitted directing that the petitioner must be afforded a rent increase under the "unique and peculiar" analysis, effective as of the parties' agreement date of 9/92, and in such manner as would compensate for the $10,000.00 credit (in effect) that the tenant reaped as a result of the parties' agreement that has already been determined to have created the unique and peculiar circumstances warranting a rent increase.

The foregoing constitutes the decision, order and judgment of the court.

E N T E R,

J. S. C.