Docket Number: BE 410390-RO
                                 STATE OF NEW YORK
                     DIVISION OF HOUSING AND COMMUNITY RENEWAL
                           OFFICE OF RENT ADMINISTRATION
                                    GERTZ PLAZA
                              92-31 UNION HALL STREET
                              JAMAICA, NEW YORK 11433

        -----------------------------------X 
        IN THE MATTER OF THE ADMINISTRATIVE    ADMINISTRATIVE REVIEW
        APPEAL OF                              DOCKET NO.: BE 410390-RO
                                              
           SAUL SCHULMAN,                      DRO DOCKET NO.: L3112617-R

                              PETITIONER       Tenant: James Greenhut
        -----------------------------------X                           
          
           ORDER AND OPINION DENYING PETITION FOR ADMINISTRATIVE REVIEW

        On May 14, 1987, the above-named petitioner  filed  a  petition  for
        administrative review against an order issued on April 29, 1987,  by
        an Administrator concerning the housing accommodation known  as  228
        East 14th Street, New York, New  York,  apartment  4C,  wherein  the
        Administrator established the legal rent of $337.49 as of  September
        1, 1983, and directed the owner to refund $21,022.84 in  overcharges
        including interest on overcharges collected after April 1, 1984.

        The issue in this appeal is whether the  Administrator's  order  was
        warranted.

        The Commissioner has reviewed all of the evidence in the record  and
        has carefully considered that portion of the record relevant to  the
        issues raised in the administrative appeal.

        The Commissioner notes that this proceeding was initiated  prior  to
        April 1, 1984.  Sections 2526.1(a)(4)  and  2521.1(d)  of  the  Rent
        Stabilization  Code  (effective  May   1,   1987)   governing   rent
        overcharge  and  fair   market   rent   proceedings   provide   that
        determination of these matters  be  based  upon  the  law  and  code
        provisions  in  effect  on  March  31,  1984.    Therefore,   unless
        otherwise   indicated,   reference   to   Sections   of   the   Rent
        Stabilization Code (Code)  contained  herein  are  to  the  Code  in
        effect on April 30, 1987.

        This proceeding was originally commenced on March 29, 1984,  by  the
        filing of an overcharge complaint by the tenant.   The  tenant  took
        occupancy of the subject  apartment  pursuant  to  a  two  (2)  year
        vacancy lease commencing on  September  1,  1983,  and  expiring  on
        August 31, 1985, at a monthly rent of $765.00.

        On October 15, 1986, the owner in reply to  the  tenant's  complaint
        asserted that it took title to the subject building on or about June 
        10, 1981, at which time apartment 4C was vacant  and  uninhabitable.
        As a result of the uninhabitability of  the  subject  apartment  the
        current owner rehabilitated and renovated the apartment.  The  owner
        asserted that the first rent was  in  accordance  with  CAB  Opinion
        Number 16,172, which established that  where  a  dwelling  unit  was
        substantially altered to the extent that it was not in existence  in
        its present form on May 31, 1968, the first rent charged  after  the
        apartment was  created  becomes  the  stabilized  rent  pursuant  to
        Section 66 of the Code.  Therefore,  the  owner  contends  the  rent






          Docket Number: BE 410390-RO

        collected from the tenant was lawful.   Lastly,  the  owner  alleged
        that the former owner filed  a  vacancy  decontrol  report  for  the
        subject apartment in December 1977.

        In Order Number CDR 30,071, the Administrator  determined  that  the
        improvements made to the apartment did not constitute a  substantial
        alteration, therefore, the owner was not entitled to  a  first  rent
        pursuant to Section 66  of  the  Code.   The  Administrator  further
        determined that pursuant to Section 20(c)(1) of the Code, the  owner
        was entitled to 1/40th of  the  total  cost  of  $4,367.55  for  new
        equipment and improvements made to the subject apartment for a  rent
        increase of $109.19 added on to the lawful stabilized rent.  Lastly, 
        the Administrator  established  the  lawful  stabilized  rent  using
        default procedures because the owner failed to  provide  a  complete
        rental history.

        In this petition, the owner contends that the Administrator erred in 
        its determination that he did not substantially  alter  the  subject
        premises thus entitling him to a first rent.   Moreover,  the  owner
        contends that the first rental was in accordance  with  CAB  Opinion
        16,172  and  Section  66  of  the  Rent  Stabilization  Code.    The
        petitioner also asserted that the prior stabilized tenant failed  to
        challenge the initial rent within 90 days of receipt of the  initial
        legal regulated rent notice and, therefore, the  complaining  tenant
        cannot challenge the initial rent.  The owner  reiterated  that  the
        former owner filed a Report of Statutory Decontrol in 1977 and  that
        subject apartment remained vacant until September 1, 1981.

        The owner also asserted that the Administrator did not  include  the
        cost of reconstruction of several walls, a new  bathroom vanity  and
        the cost of installing paneling in calculating 1/40th of the cost of 
        the improvement.  Lastly, the owner contends that the  Administrator
        has deprived him of  due  process  by  not  affording  the  owner  a
        hearing.  He also asserts that the  Administrator  lacked  statutory
        authority to establish the rent by using the  lowest  rent  for  the
        same size apartment in the building.

        The tenant in response to the owner's  petition  contends  that  the
        Administrator's order should be upheld.  The tenant  asserts,  among
        other things, that the owner's renovation was not  as  extensive  as
        indicated in his petition.  The tenant alleges that  only  one  wall
        was reconstructed in the kitchen and that several of the  new  items
        installed within the apartment are defective.

        The Commissioner is of the opinion that the owner's petition  should
        be denied.







          Docket Number: BE 410390-RO

        A review of the record indicates that on March 2,  1987,  the  owner
        was requested to submit floor plans to substantiate that the subject 
        apartment did not exist in its present form prior to June 1981.  The 
        owner submitted receipts for the renovation and the cost of the  new
        equipment purchased, however he did not provide floor  plans.   DHCR
        has held and the courts have affirmed that in order to  qualify  for
        a free market rent, an owner must either enlarge or reduce the outer 
        dimensions of the apartment (ARL 4062-L, AL 410148-RO).   See  Merit
        Management Co. v. DHCR, (Dec.15, 1986, Sup.  Ct.  N.Y.  Co.  Bowman,
        J.).  The Commissioner  notes  that  the  alteration  in  this  case
        consisted of extensive renovations of the apartment,  including  but
        limited to: the installation of kitchen cabinets, floor leveling and 
        general apartment reconstruction, including the installation of  new
        sheet rock.   Although,  the  owner  cites  CAB  Opinion  16,172  to
        establish that his work was a substantial alteration, that  case  is
        distinguishable from  the  petitioner's  because  a  review  of  CAB
        Opinion 16,172 reveals that in that case the owner reduced the  size
        of  the  apartment.   This  determination  is  in  conformity   with
        established policy that the outer dimensions of an apartment must be 
        altered in order to be eligible for a first  rent.   Therefore,  the
        Administrator was correct in its determination that the improvements 
        claimed were not a substantial alteration.

        Regarding, the  petitioner's  contention  that  the  Administrator's
        calculation of the 20(c)(1) increase was arbitrary, a review of  the
        record reveals that the Administrator accurately  allowed  $4,368.21
        worth of the renovations, entitling the owner $109.19 added  to  the
        base rent.  Copies of cancelled  checks  totalling  $14,000.00  were
        submitted, however,  since  the  owner  did  not  provide  bills  or
        notations on the cancelled checks substantiating the work which  was
        performed, this  expenditure  was  properly  disallowed.   DHCR  has
        previously held that an owner will not be granted  a  portion  of  a
        section 20(c)(1) increase if it fails  to  provide  a  breakdown  of
        costs and bills to establish that the work performed covered work to 
        the  subject  premises.   In  the  absence  of   adequate   evidence
        substantiating  new  equipment  or  improvements  to  a   particular
        apartment, a rent increase  pursuant  to  Section  20(c)(1)  is  not
        warranted.

        Concerning, the petitioner's allegation that it was deprived of  Due
        Process by not being granted a  hearing  a  review  of  the  records
        indicates that the owner did not request a  hearing  throughout  the
        review of the initial proceeding.  Moreover, the  owner  is  advised
        that the granting of a hearing is discretionary upon the part of the 
        agency and is warranted only when a factual  dispute  requires  oral
        testimony and an examination of the  credibility  of  witnesses  for
        resolution.  Because the owner was afforded an ample opportunity  to
        present evidence a hearing on the issue  of  substantial  alteration
        was not warranted.

        The  petitioner's   contention   that   the   Administrator   lacked
        jurisdiction to entertain the tenant's complaint because the prior 






          Docket Number: BE 410390-RO

        tenant failed to challenge  the  initial  rent  within  90  days  is
        without merit.  The owner is  apparently  referring  to  a  tenant's
        right to file a fair market rent appeal within 90 days of receipt of 
        a Notice of Initial Legal Regulated Rent  (DC-2  Notice).   In  this
        case, there is no evidence that a DC-2 Notice was ever served on any 
        tenant commencing, the 90 day period.  This is not pertinent in  any
        event because the complaining tenant retains the right to  have  his
        rent determined based on a complete  rental  history  regardless  of
        whether a prior tenant failed to exercise a right to  challenge  the
        initial rent.  Moreover, the record reveals that there was a  tenant
        in occupancy pursuant to  a  lease  commencing  September  1,  1979,
        establishing that the tenant prior to the complainant  was  not  the
        first stabilized tenant and that contrary to the owner's allegations 
        the apartment was not vacant and  uninhabitable  from  decontrol  in
        1977 until 1981.

        Section 42A of the Rent Stabilization Code requires  that  an  owner
        retain complete rent records for each stabilized apartment from  the
        base date and produce them to the Division of Housing and  Community
        Renewal upon demand.  If the apartment  was  decontrolled  from  the
        Rent Control Law, the owner must  provide  satisfactory  documentary
        evidence of the apartment's date of decontrol.

        In the instant case, the owner was directed  to  submit  a  complete
        rental history.  The owner failed to submit leases or  rent  ledgers
        dating back to December 6, 1977, the date of decontrol.

        The evidence of record indicates that from  the  time  the  tenant's
        complaint was initially filed until the  Administrator's  order  was
        issued in April 29, 1987, the owner was asked to  submit  leases  or
        other rental documents for the subject apartment from the base date, 
        but failed to comply.

        THEREFORE, in accordance with the Rent Stabilization Law  and  Code,
        it is

        ORDERED, that this petition be, and the same hereby is, denied,  and
        that the Rent Administrator's be, and the same hereby, is affirmed.

        ISSUED:




                                                                      
                                        ELLIOT SANDER
                                        Deputy Commissioner         
         
    

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