DEPARTMENT OF STATE

OFFICE OF THE SECRETARY OF STATE

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In the Matter of

DEPARTMENT OF STATE

DIVISION OF LICENSING SERVICES,

                                    Appellant,                                            DECISION AND ORDER                                                                                4 DOS APP 02- against -

HECHT GROUP CORP., et al,

                                    Respondent.

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            The Division of Licensing Services [hereinafter “Appellant”] appeals to the Secretary of State from a decision of the Office of Administrative Hearings that found the Hecht Group Corp. and Mr Amnon Hecht [hereinafter “Respondents”] demonstrated incompetency.

            Appellant submitted a Memorandum of Appeal requesting that the decision be affirmed in part and modified in part.

            Respondents submitted a Memorandum of Appeal requesting that the decision be reversed.

ISSUE

            This appeal considers whether Respondents’ conduct amounts to untrustworthiness under section 441-c of the Real Property Law.

FACTS

            Respondents are in the business of securing rent stabilized apartments for their clients, prospective tenants. Respondents are able to offer the rent stabilized apartments and subsequent lower rent because of the exclusive-listing relationship created with landlords. Based on this ability to find apartments for lower than market-value rent, Respondents charge a higher commission.

            In July 1999, Respondents were approached by Mr. Christopher Ullrich, who had seen a Hecht Group apartment advertised. After seeing the Manhattan apartment, Mr. Ullrich agreed to rent the apartment for $1,681.83 per month ($20,181.96 annually) and to pay a commission of $9,850. Respondents calculated their commission rate by comparing rental costs of an equivalent apartment to the cost of a Hecht Group Apartment. In Mr. Ullrich’s case, a comparable apartment would cost $2,500 per month ($30,000 annually), $9,818.04 more expensive then the Hecht Group apartment offered to Mr. Ullrich. Respondents are of the opinion that they should receive a share if not all of the savings created. Based on the above facts, Appellant filed a complaint against Respondents. Respondents requested a hearing.

            At the hearing Appellant submitted expert testimony pertaining to typical commission rates charged for apartment rentals in Manhattan, the boroughs and Long Island. The typical rate was between 10%-15% the annual rent. Appellant also submitted past commission agreements from various clients of Respondents. Each commission agreement was in excess of the typical commission rate of 15% and varied between 23% - 47% of the annual rent.

            Mr. Amnon Hecht spoke on behalf of himself and the Hecht Group. He testified that the Hecht Group commission rate was determined as follows: (1) take the annual rent charged for the rent stabilized apartment and subtract it from the annual rent charged for a comparable apartment at market value, (2) the amount remaining is the savings Respondents have created, therefore they will ordinarily take 50% of the savings value. Mr. Hecht did not submit any evidence showing the Respondents offered special services beyond the normal services rendered by a real estate broker to prospective tenants.

            The Administrative Law Judge (ALJ) found that Respondents demonstrated incompetency and required them to refund Mr. Ullrich $6,822.17 of the $9,850 commission. Respondents were permitted to keep $3,027.83 (15% of $20,181.96) for the services rendered to Mr. Ullrich. Appellant appeals this determination in part. Respondents appeal the determination entirely.

OPINION

            Appellant made three arguments in its Memorandum of Appeal: (1) objecting to the timeliness of Respondents’ appeal, (2) asserting Respondents are guilty of illegal business practices, and (3) claiming that the ALJ’s sanction was inadequate. As to Appellant’s first argument, the General Counsel to the Secretary of State received Respondents’ request for an appeal on or around January 4, 2002. This receipt was sufficient service upon the Department of State constituting timely notice of Respondents’ intent to appeal the determination of the ALJ. Appellant’s first claim lacks merit.

            Appellant’s second argument claims that Respondents have been engaging in illegal business practices. They base this argument on the fact that Respondents have charged excessive commission rates in the past as well as in the case at bar. Since Respondents’ conduct is only now being reviewed for untrustworthiness, their past acts cannot be used against them as evidence of repeated misconduct. However, if Respondents continue to charge excessive fees, their conduct may amount to unlawful business practices.

            Thirdly, Appellant refutes the ALJ’s determination of Respondents’ incompetence and the sanction imposed. Appellant asserts that Respondents’ conduct amounts to untrustworthiness and requires a stiffer penalty. Under Real Property Law (RPL) § 441-c, the Department of State is empowered to revoke, suspend and/or fine a licensed real estate broker upon a finding that he/she has demonstrated untrustworthiness or incompetency to act as a real estate broker. Precedent has established that when a real estate broker deviates from professional norms, such conduct amounts to untrustworthiness. Gold v. Lomenzo, 29 N.Y.2d 468 at 470 (1972). In Gold, the court held that charging fees in excess of professional norms, absent a showing of unique services offered above and beyond those services normally rendered by a real estate broker, do in fact demonstrate untrustworthiness as defined by RPL § 441-c. Id.

            Here, expert testimony was admitted at the hearing distinguishing the commission rates of Respondents from that of real estate brokers in the five boroughs and Long Island. In fact, Respondents’ commission rates are far in excess of rates established by custom and usage for a real estate broker in Manhattan. Respondents’ conduct is a deviation from the professional norms and therefore demonstrates untrustworthiness and incompetency. The ALJ’s decision is modified in part.

DETERMINATION

         Pursuant to RPL § 441-c and the forgoing, Mr. Amnon Hecht and Hecht Group Corp. have demonstrated untrustworthiness and incompetency, and the license issued to Hecht Group Corp., designating Mr. Amnon Hecht as the representative real estate broker, is suspended effective immediately. The suspension will end one month after Mr. Amnon Hecht and the Hecht Group Corp. refunds Mr. Christopher Ullrich the sum of six thousand eight hundred twenty-two and seventeen one hundredth ($6,822.17) dollars plus interest at the legal rate for judgments (currently 9%) from July 19, 1999, by certified check or money order. The ALJ ’s decision is otherwise affirmed.

So ordered on:

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                                                                                                         Randy A. Daniels

                                                                                                         Secretary of State