BF 410304-RT, CH 410103-RT

                                STATE OF NEW YORK
                          OFFICE OF RENT ADMINISTRATION
                                   GERTZ PLAZA
                             92-31 UNION HALL STREET
                             JAMAICA, NEW YORK 11433

      APPEAL OF                              DOCKET NO. BF 410304-RT,
                                                        CH 410103-RT

                                          :  DISTRICT RENT OFFICE
           Gary Tinterow,                    DOCKET NO. AL 410332-R,
                                                        AL 410411-R
                            PETITIONER    : 


      The instant appellate proceeding is the consolidation of two identical 
      petitions for administrative review by the tenant against two separate 
      Administrative orders by the Rent Administrator concerning the housing 
      accommodations known as 51 West 86th Street, New York, New York, 
      Apartment 1701, wherein the tenant's fair market rent appeal and 
      overcharge complaints were dismissed.

      The Administrative Appeal is being determined pursuant to the provisions 
      of Section 2526.1 of the Rent Stabilization Code.

      The issue herein is whether the Rent Administrator's order was 

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

      This proceeding was originally commenced by the filing of a rent 
      overcharge complaint and a fair market rent appeal by the tenant on 
      November 29, 1986 in separate applications.  The tenant had assumed 
      occupancy of apartment 1701 as the first stabilized tenant pursuant to 
      a two year lease commencing on February 1, 1986.

      Apartment 1701 is adjacent to Apartment 1702 on the 16th floor of the 
      subject building.  The two apartments had formerly been a single rent 
      controlled unit consisting of 8 rooms, and had been occupied by a single 
      tenant.  Subsequent to the departure of the rent controlled tenant, the 
      owner submitted an application to the Department of Buildings, dated 
      October 6, 1983, requesting permission to amend the Certificate of 
      Occupancy by, inter alia, subdividing the (former) apartment 1701 into 
      2 apartments.  This application was approved on January 5, 1984.  
      Subsequently, the proposed renovations were completed in accordance with 

          BF 410304-RT, CH 410103-RT

      departmental standards, as documented in an inspection report dated 
      August 7, 1985 (Although the application mis-identified the subject 
      apartment as "1501", it is not disputed that it is the same as the 
      subject apartment).

      In administrative order number AL 410332-R, dated May 5, 1987, which is 
      appealed herein, the Administrator dismissed the tenant's fair market 
      rent appeal because the subject apartment had undergone a substantial 
      rehabilitation thereby establishing the initial rent as not subject to 
      challenge.  The order stated in addition that all future increases were 
      to be in accordance with the rent guidelines.  

      In its petition of the first order, the tenant argues that, while the 
      owner has the right to determine the initial rent stabilized rent, the 
      tenant has the "absolute right" to challenge such rent through a fair 
      market appeal.  Moreover, the order was incorrect in applying Section 66 
      from the former Rent Stabilization Code because that provision is only 
      meant to apply to apartments that were vacant on the base date, which is 
      not the present case.  Petitioner also contends that the subject 
      apartment is comparable to all the other apartments in the #1 line, with 
      the exception that the kitchen contains new appliances and that the 
      living room is larger.  Included with the petition is a letter from the 
      tenant to the Office of Rent Administrator dated December 1, 1986 which 
      describes the prior rent controlled apartment, the manner in which it 
      was subdivided by the owner and the resulting two rent stabilized 
      apartments and their dimensions.  In the letter, the tenant states that 
      not only is the rent far in excess of others in the same line, but is 
      also much higher than apartments of similar dimensions in any pre-war 
      building in the area.

      In response, the owner disputes the contention that Section 66 does not 
      apply, and cites CAB Opinion 8410 for the ruling that a fair market 
      appeal is only available to existing apartments which transfer from rent 
      control to rent stabilization in the same form.

      On July 13, 1988, the Rent Administrator issued an order under docket 
      number AL 410411-R, herein appealed under docket number CH 410103-RT, 
      wherein the Administrator dismissed the tenant's overcharge complaint 
      because the initial legal registered rent of $2,500.00 had been lawfully 
      increased in accordance with the allowable amounts authorized in the 
      rent guidelines.  The order also reaffirmed the determination of the 
      prior order that the subject apartment underwent substantial 
      rehabilitation thereby establishing a first rental of $2,500.00.

      In its petition of the second administrative order, the tenant re- 
      submits the same statements from the first petition as well as a copy of 
      the December 1, 1986 letter.  In addition, it includes a letter from the 
      tenant to the DHCR, dated May 10, 1988, wherein the tenant claims that 
      1702 is actually the "new" apartment, and not his own, as evidenced by 
      the fact that 1702 did not have a mailbox, a door buzzer or separate gas 
      and electric meters when the tenant first moved into 1701, thereby 
      creating confusion at that time.  The tenant maintains that the owner 
      exploited a "loophole" that allowed him to collect a "first rent" simply 
      by taking an existing apartment and making it smaller, and not for 
      constructing new units, which is what the law intended.  The petition 
      also includes a letter from the tenant's attorney to the DHCR, dated 
      July 1, 1988, wherein it is argued that, contrary to the owner's claim 
      that apartment 1701 was not in existence on the base date, said 

          BF 410304-RT, CH 410103-RT

      apartment was already complete as part of the larger rent controlled 
      apartment, and that it was improper for the owner to charge an 
      exorbitant first rent simply for reducing its original size.  Finally, 
      the letter states that 1701 is actually inferior to other apartments in 
      the building because it lacks a second door or a fire escape.

      The owner's answer contains the same material that is submitted in 
      response to the first petition, with the addition of its letter to the 
      DHCR, previously sent in response to the tenant's letter of January 1, 
      1988, and dated August 18, 1988, wherein the owner reaffirms its 
      contention that the substantial rehabilitation of the apartment is the 
      proper basis  for Section 66, and that actual alteration of the 
      apartment in accordance with Department of Buildings standards is fully 
      documented in the record.

      In a letter dated March 9, 1989 the tenant responds that it is the 
      intention of the Rent Stabilization Code as expressed in Section 2520.3, 
      to avoid the kind of "unjust result" that has occurred in the instant 
      case.  The owner then responds, in a letter dated March 13, 1989, that 
      the tenant is avoiding the real issue by emphasizing the diminution of 
      size of the apartment, and claims that the law exempts the apartment 
      from a fair market appeal as long as the apartment "is not in the same 
      condition" as on the base date, even if it was made smaller.

      The Commissioner is of the considered opinion that these petitions 
      should be denied.

      Under the system of rent stabilization, an apartment's legal regulated 
      rent is computed by adding guidelines increases and other permitted 
      increases to an initial base rent.  This system assumes that the 
      apartment will remain essentially the same throughout its stabilized 
      rental history.

      Prior administrative decisions have created an exception to this rule.  
      Where an owner substantially alters an apartment to the extent that it 
      was not in existence in its new state on the base date, the owner is 
      permitted to collect a free market rent from the first tenant to take 
      occupancy after the alteration.  A review of these cases shows that this 
      special rule has been applied where the outside walls of the apartment 
      were either enlarged or contracted.  In such cases, the alteration had 
      in effect broken the rental history of the apartment.  It makes no sense 
      to continue to base the current legal regulated rent on a base rent and 
      stabilized increases collected for an apartment that no longer exists.  
      Therefore, after the new apartment is created, the owner is entitled to 
      collect a free market rent, which becomes the new base rent upon which 
      future stabilized increases are to be computed. 

      In the present case, the record establishes that the subject apartment 
      did not exist in its present form on the base date of June 30, 1974.  On 
      that date, the space that presently includes the subject apartment 1701 
      and the adjacent apartment 1702 was a single rent-controlled unit which, 
      according to the records for the Office of Rent Control, consisted of 8 
      rooms on the 17th floor.  Subsequent to the departure of the rent 
      controlled tenant, the owner submitted an application to the Department 
      of Buildings to subdivide this unit into 2 apartments.  Apparent 
      inconsistencies in the documentation as to the identity of the unit in 
      question - namely the reference on the D.O.B. application to unit "1503" 
      being located on the 16th floor - are not of major importance; rent 

          BF 410304-RT, CH 410103-RT

      control records prove that no other apartment in the building had more 
      than 4 rooms.  The application was approved, and an inspection report 
      from the D.O.B. dated August 7, 1985 indicates that the work was 
      completed in a satisfactory manner.

      Complainant assumed occupancy of the subject apartment 1701 on February 
      1, 1986 as the first stabilized tenant at a rent of $2,500.00 per month.  
      Apartment 1702 was first rented on March 16, 1986 at a rent of $1,200.00 
      per month.    Although the complainant contends that to strictly 
      interpret Section 66 is unjust in this case because the owner gets the 
      benefit of a first rent simply by reducing the size of the subject 
      premises, the Commissioner must rely upon the interpretation that has 
      been used in all other cases presenting this issue, namely that for an 
      owner to qualify for a free market rent, an owner must alter the outer 
      dimensions of the apartment (Accord: AL 410418-RO, ARL 10644-L).  This 
      policy has also been upheld in the courts (Merits Management Co. v. DHCR 
      (Dec. 15 1986, Sup. Ct. N.Y.C., Bowman, J.)).  Moreover, contrary to the 
      tenant's contention that it is improper to interpret Section 66 as 
      applying to cases where an existing unit is made smaller, the CAB has 
      followed this interpretation.  In CAB Opinion Number 16,172 a first rent 
      was approved for a unit that was approximately one half its original 
      size after substantial alterations.  In the instant case, the actual 
      subdivision of the former apartment 1701 into the two units currently in 
      that same space, now 1701 and 1702, created two separate apartments that 
      were not in existence on the base date of June 30, 1974, when the 
      subject building became subject to the Rent Stabilization Law.  This 
      situation is to be distinguished from those cases where a   first rent 
      was denied when the owner simply constructed or removed interior walls 
      within an existing apartment, thereby changing interior dimensions only.  
      Here the outer dimensions of both units were created by the construction 
      of an interior wall within an existing unit which, by that construction, 
      eliminated the former unit entirely.  Therefore, the Commissioner 
      recognizes that the rent control Maximum Base Rent should not properly 
      be used to determine the first stabilized rent, as it would in a usual 
      fair market rent appeal, since the Maximum Base Rent only applied to a 
      unit that is no longer in existence.  A fair market appeal is 
      unavailable for the two newly created units, since there is no rental 
      history to draw upon.  Accordingly, the Administrator properly dismissed 
      both proceedings insofar as the relief requested was a fair market rent 
      appeal.  In addition, the Administrator in order number AL 410411-R 
      correctly determined that there were no overcharges because all rent 
      increases subsequent to the first stabilized rent were in accordance 
      with the guidelines.

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

      ORDERED, that the tenant's petitions of administrative orders AL 410441- 
      R and AL 410332-R be and the same hereby are denied, and that the 
      administrative orders AL 410411-R and AL 410332-R be and the same hereby 
      are affirmed.


          BF 410304-RT, CH 410103-RT

                                      JOSEPH A. D'AGOSTA
                                      Deputy Commissioner


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