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.: CB-210036-RT
                                         :  
                                            DRO DOCKET NO.: K-3103853-R/T
       FONS IANNELLI,                                       CDR 21622
                           PETITIONER    : 
     ------------------------------------X         OWNER:       J.       WINTER
             

           ORDER AND OPINION GRANTING PETITION FOR ADMINISTRATIVE REVIEW
                    IN PART, AND REMANDING PROCEEDING ON APPEAL

     On February 8, 1988 the above named petitioner-tenant filed a Petition for 
     Administrative Review against an order issued on October 23, 1987  by  the
     District Rent Administrator,  10  Columbus  Circle,  New  York,  New  York
     concerning housing accommodations known as Apartment  1R  at  636  Eastern
     Parkway, Brooklyn,  New  York  wherein  the  District  Rent  Administrator
     determined that there had been no overcharge.

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

     The applicable sections  of  the  Law  are  Section  26-516  of  the  Rent
     Stabilization  Law  Sections  2522.4(a)  and   2526.1(a)   of   the   Rent
     Stabilization Code.

     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 appeal.  

     This proceeding was originally commenced by the filing in March, 1984 of a 
     rent overcharge complaint by the tenant, in which he stated  that  he  had
     commenced occupancy on July 15, 1982 at a rent of $475.00 per month.   (He
     enclosed a lease at a rent of $485.00).

     The owner was served with a copy of the complaint  and  was  requested  to
     submit rent records to prove the lawfulness of the rent being charged.   
     In answer to the complaint,  the  owner  contended  that  the  complaint's
     initial rent was lawful in that it was a "first rent" due  to  substantial
     renovation and/or increased space; that a prior tenant in early  1981  had
     asked to rent the basement beneath the first-floor subject apartment  with
     the plan of building an interior staircase to create a  duplex  apartment;
     that such tenant vacated several weeks after the owner's architect drew up 
     plans for a duplex apartment; that the complainant, prior to  renting  the
     subject apartment in July, 1982, told the owner that  he  would  be  using
     part of the apartment as a studio to develop, print and edit film; that 
     the owner asked him if he would be interested in including the basement 
     space below the apartment in the same rent of $485.00 per month, and 







          DOCKET NUMBER: CB 210036-RT
     eventually connecting the basement to the ground  floor  apartment  by  an
     interior staircase; that the tenant agreed to this  but  asked  that  such
     plan be put off until he was fully moved in; that the owner  was  prepared
     to supply all materials for the creation of an interior staircase  if  the
     tenant would supply the labor; that in the meantime the owner informed the 
     tenant that he would have all rights to the basement and  could  obtain  a
     key for it at any time; that the tenant therefore rented both  the  ground
     floor apartment and the basement in July, 1982 and was free to connect the 
     two units with an interior staircase at any time without any  increase  in
     rent; and that since the parties contemplated that the  subject  apartment
     would eventually become a duplex  apartment  the  owner  was  entitled  to
     collect a first rent.  The owner also contended in  substance  that,  even
     absent any reference to the basement space, he was entitled  to  charge  a
     first rent because of substantial renovation consisting mainly of  removal
     of some interior walls and resulting in larger and fewer rooms;  that  the
     tenant and owner agreed that the tenant was free to  remove  all  non-load
     bearing walls as he saw fit, if he would supply the labor; that  this  was
     in fact done; that the intention of the  parties  that  the  apartment  be
     substantially renovated is evidenced by a lease rider  providing  for  the
     owner to supply materials including paint and oak flooring,  and  for  the
     tenant to replace the flooring, paint the apartment and finish  up  wiring
     and electrical matters that the  former  Conciliation  and  Appeals  Board
     policy regarding substantial renovation should be  applied,  and  not  the
     later DHCR policy requiring an  increased  apartment  size;  and  that  an
     increase of $112.43 per month should be allowed for improvements  and  new
     equipment if a first rent was not  to  be  allowed.   The  owner  included
     copies of invoices and cancelled  checks  from  1981  to  1983,  with  the
     invoices for appliances and for most of the oak  flooring  being  dated  8
     months to a year after the tenant commenced occupancy in July,  1982,  and
     with at least the gas range going to 640 Eastern Parkway.

     The tenant indicated that the subject apartment  "was  7  room  apt.  some
     walls removed, incomplete, unfinished, unpainted, no  doors,  now  4  room
     apt."

     On July 29, 1987 the DHCR received a change - of - address card  from  the
     tenant indicating that he had moved to Jersey City as of  April  1,  1987.
     The DHCR later received another such card mailed September 17, 1987.

     In an order issued on October 23, 1987  the  District  Rent  Administrator
     found that a new dwelling unit  had  been  created,  that  the  owner  was
     entitled to a "first rent" of $534.66 [note: this was actually the rent in 
     the tenant's last lease; his first lease was for $485.00], and that  there
     had been no overcharge.  Despite the two change - of - address  cards  the
     order was sent to the tenant at the subject apartment only.

     In this petition, filed 108 days after the order was  sent  to  the  wrong
     address, the tenant contends in substance that the owner is  not  entitled
     to a "first rent" as the apartment did not change in size;  that  although
     the kitchen appliances and bathroom fixtures were replaced before he moved 
     in, the apartment was not renovated, as walls  and  ceilings  were  ripped
     down and not replaced, leaving big holes in  the  floor  where  the  walls
     oncestood; that he rejected making the basement part of his  apartment  as
     he did not want to install an interior staircase; that  the  basement  and
     the apartment were never joined during his tenancy;  that  he  never  gave
     any written consent for rent increases for new equipment; that in fact no






          DOCKET NUMBER: CB 210036-RT
     improvements were made or new equipment installed during his tenancy; that 
     there was considerable delay in receiving  the  DHCR  order  sent  to  the
     subject apartment and forwarded to his Jersey City  address;  and  that  a
     court decision against the owner in a case brought by the Attorney General 
     should resolve all the similar issues in this case.  With his petition the 
     tenant has enclosed an opinion by Justice Wilk of  the  New  York  Supreme
     Court finding that the owner had undertaken an illegal scheme  in  several
     buildings to evade the Rent Stabilization Law and Code by charging  "first
     rents" based on removal of interior walls, or rents based  on  anticipated
     improvements, in apartments in bad repair for which tenants were  expected 
     to provide the necessary uncompensated labor; by charging  rent  increases
     for items of normal maintenance; by charging rents in access even of those 
     arguably  justified  by  claimed   improvements;   by   charging   illegal
     "renovation fees" and excessive  security  deposits;  and  by  failing  to
     provide rental histories.

     In answer, the owner asserts that the tenant's petition was filed 73  days
     late  and  that  the  tenant  did  not  state   when   he   received   the
     Administrator's order.

     In a December 28, 1988 supplement the owner contended  in  substance  that
     the tenant had died four months ago, as reported in the  New  York  Times;
     that the tenant's petition should therefore be dismissed as moot; that the 
     subject apartment has remained vacant since the tenant  vacated  in  1986;
     and that at no time in the proceeding before  the  Administrator  did  the
     tenant rebut the owner's claim that it was the intention  of  the  parties
     that the tenant would be renting a duplex apartment.  The owner  has  also
     incorporated its answer submitted in the earlier proceeding.

     The Commissioner is of the opinion that the tenant's  petition  should  be
     granted in part, and that this proceeding should be remanded to  the  Rent
     Administrator.

     In the case where an order is sent to a wrong address even though the DHCR 
     has the party's current address, due process considerations  require  that
     the 35-day appeal period not be considered to have begun  at  least  until
     such party has notice of the order.  Because there is no evidence  of  the
     date that the tenant received notice of the order, the  tenant's  petition
     cannot be considered to be untimely.  The tenant's death does not make his 
     petition moot, since the question of the correct lawful stabilization rent 
     for the subject apartment is still of significance to the tenant's  estate
     for the refund of overcharges and to subsequent tenants.  

     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,  he  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  was
     applied where the outside walls of the apartment were either  enlarged  or
     contracted.  For example, in CAB Opinion Number 9358, an owner had created 
     a new duplex apartment from three previously separate apartments located 






          DOCKET NUMBER: CB 210036-RT
     on two different floors.  The administrative agency concluded that in such 
     cases the substantial alteration had in effect broken the  rental  history
     of each of the three apartments.  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 computed.

     This doctrine is not applied to apartments which have received renovations 
     or improvements but whose outer walls have not  been  changed.   The  Rent
     Stabilization Code takes account of apartments whose  internal  characters
     may be  changed  without  their  outside  walls  being  changed.   Section
     2522.4(a)(1) of the Rent Stabilization Code permits an owner to collect  a
     rent increase equal to one-fortieth (1/40th) of the cost of new  equipment
     installed or improvements made in  the  apartment.   Section  2522.4(a)(1)
     does not  permit  the  owner  to  charge  whatever  it  wishes  after  the
     improvements  are  made.   The  improvement  allowance  is  added  to  the
     existing legal regulated rent; the apartment's rental history has not been 
     interrupted by the internal improvements.  Although  Section  2522.4(a)(1)
     requires a tenant to  consent  in  writing  to  the  installation  of  new
     equipment, the Courts have ruled that new  equipment  installed  during  a
     vacancy  prior  to  the  commencement  of  a  new  tenancy  or  upon   the
     commencement of a new tenancy and reflected in  the  lease  rent,  may  be
     collected without the new tenant's consent to pay such increase.

     In the present case the tenant signed a lease calling for  the  rental  of
     "apartment no. 1R consisting of all rooms on  the  ground  floor."   There
     was no mention of basement space, either  as  a  contiguous  part  of  the
     apartment, or as an increased service (requiring Conciliation and  Appeals
     Board  approval  for  a  rent  increase  based  thereon).   While   actual
     conversion of the apartment into a duplex might have  warranted  a  "first
     rent" after the conversion, the fact remains that such conversion did  not
     ocurr, and mere intentions in the owner's head plus some lines drawn by an 
     architect do not suffice to so alter an apartment that it  canbe  said  to
     have not previously existed in its present form.  Even if it were true, as 
     the owner contends and the tenant denies, that the parties considered that 
     the tenant was renting a duplex apartment, no "first rent" could have been 
     charged until such duplex apartment actually  physically  existed.As  also
     found in other cases (AK 210128-RT/AK 210275-RO and  AK  210272-RO)  where
     this owner similarly removed interior walls and claimed  a  "first  rent,"
     the record in this case supports  a  determination  that  the  apartment's
     alteration was not substantial enough to create a new apartment and a  new
     initial legal regulated rent.  While certain improvements were made in the 
     apartment  for  which  Section  2522.4(a)(1)   rent   increases   may   be
     appropriate, the owner has not shown that the apartment's outer dimensions 
     were changed so as to  create  a  new  apartment.   While  the  owner  has
     referred to Docket No. TA 011413/Order No. CDR 22714 As Amended, in  which
     it was found that an apartment owned by the same owner  was  substantially
     altered such that it was not in existence in its present form on  May  31,
     1968, permitting the owner to charge a first rent, the Commissioner  finds
     that the referenced decision does not require  any  change  in  the  order
     reviewed  herein.   An  Administrator's  order  is  not  binding  on   the
     Commissioner and the correct standard is as enunciated herein.








          DOCKET NUMBER: CB 210036-RT
     Because the owner was not allowed to charge a  "first  rent",  the  lawful
     stabilization rent for the subject apartment consists of the base date 
     rent plus lawful increases.  The base date is April 1, 1980 because of the 
     recent decision in the case of J.R.D. Mgt. v. Eimicke, 148 A.D.2d 610, 539 
     N.Y.S.2d 667 (App. Div. 2d Dep't 1989, motion for leave to reargue or  for
     leave to appeal to the Court  of  Appeals  denied  (App.  Div.  2d  Dep't,
     N.Y.L.J., June 28, 1989, p.25, col.1), motion for leave to appeal  to  the
     Court of Appeals denied (Court of Appeals, N.Y.L.J., Nov. 24, 1989, p. 24, 
     col.4)., motion for leave to reargue denied (Court of  Appeals,  N.Y.L.J.,
     Feb. 15, 1990, p. 25, col. 1).  This proceeding is being remanded  to  the
     Rent Administrator to give the owner an opportunity  to  submit  a  rental
     history  from  the  base  date  to  the  time  the  complainant  commenced
     occupancy.  The Administrator  should  also  consider  whether  the  owner
     qualifies  for  rent  increases  based  on  new  equipment  and   eligible
     improvements.

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

     ORDERED, that this petition be, and the same hereby is,  granted  in  part
     and that this proceeding be, and the same hereby is, remanded to the  Rent
     Administrator for further processing in accordance  with  this  Order  and
     Opinion.

     ISSUED:









                                                                   
                                            ELLIOT SANDER
                                         Deputy Commissioner


                                         
    

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