STATE OF NEW YORK
DIVISION OF HOUSING AND COMMUNITY RENEWAL
OFFICE OF RENT ADMINISTRATION
92-31 UNION HALL STREET
JAMAICA, NEW YORK 11433
IN THE MATTER OF THE ADMINISTRATIVE : ADMINISTRATIVE REVIEW
APPEALS OF DOCKET NO. DK410054RT
: DISTRICT RENT OFFICE
Eugene Hanfling, tenant, DOCKET NO. ZBK410053RP
Windsor Plaza Company, (CDR01741)
owner, (CDR01741 As Amended)
ORDER AND OPINION GRANTING PETITIONS FOR ADMINISTRATIVE REVIEW
On November 3, 1989 and November 24, 1989 the above-named petitioner-
tenant and petitioner-owner filed Petitions for Administrative Review
against an order issued on October 31, 1989 by the Rent Administrator,
92-31 Union Hall Street, Jamaica, New York concerning the housing
accommodations known as 952 Fifth Avenue, New York, New York, Apartment
No. 7A wherein the District Rent Administrator determined that the owner
had overcharged the tenant.
As they involve common grounds of law and fact, these two petitions are
being merged and decided in one order and opinion.
The Commissioner notes that this proceeding was filed 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 or 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.
The issue in these appeals 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 42A and 66 of the former Rent Stabilization
Code, and Section 2526.1(a) of the current 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 appeals.
This proceeding was originally commenced by the filing in March, 1984
of a rent overcharge complaint (Docket No. L3112951R) by the tenant, in
which he stated that he had commenced occupancy pursuant to a lease
commencing February 16, 1984 at a rent of $2,300.00 per month, and that
the prior tenant was paying a rent of $300.00 per month.
The file of the proceeding before the Administrator did not contain any
answer from the owner, other than a request for an extension of time.
In an order issued on January 4, 1985 the Administrator used DHCR
default procedures to set a lawful rent of $300.00, and found an
overcharge of $47,000.00 as of January 31, 1985.
The owner appealed that order in Docket No. ARL01788L, contending that
its submissions had not been considered. It enclosed a copy of answers
date-stamped by the DHCR, one being a contention that the apartment had
been substantially altered and that $2,300.00 was therefore the free
market base date rent, and the other being a letter from Bau Contracting
Corporation to the owner stating that the contractor had made
improvements in the subject apartment in early 1984 at a total cost of
In an order issued on May 29, 1985 the Commissioner remanded the
proceeding for consideration of the owner's submissions.
On remand, the Administrator ordered a physical inspection of the
subject apartment. On August 14, 1985 an inspector visited the
apartment and reported that the outer walls of the apartment had not
been moved, and that an interior wall between the living room and
bedroom had been partially removed.
On August 21, 1985 the Administrator issued an amended order, using the
default procedure since the owner had not submitted a rental history,
disallowing any increases for claimed improvements since the owner had
not submitted invoices showing costs and dates of purchase, and again
finding an overcharge of $47,000.00.
The owner appealed that order in Docket No. ARL04952L, alleging that it
should be entitled to a free market rent based on a letter from the
contractor and cancelled checks for $7,500.00 paid to it, and that the
tenant had paid rent for only the first month or two of his tenancy. In
an order issued on October 28, 1987 the Commissioner denied a free
market "first rent," but remanded the proceeding to give the owner an
opportunity to submit evidence to substantiate the costs of various
On remand the proceeding was assigned Docket No. BK410053RP. The owner
submitted cancelled checks in support of the work that Bau Contracting
Corporation claimed to have done. In an order issued on October 31,
1989 the Administrator disallowed a free market "first rent," used the
default procedure to establish the base rent, allowed an increase of
$227.14 for improvements and new equipment, and found an overcharge of
$4,432.15 for the first six weeks of the complainant's tenancy. There
was no further overcharge through the time of the order since the tenant
had paid either no rent or else a rent less than the lawful
In this petition (Docket No. DK410269RO) the owner contends in substance
that it was entitled to a "first rent", since Section 66 of the former
Rent Stabilization Code required only a reconfiguration of an apartment
and not a change in size; that the owner was not required to produce
rent records more than four years prior to the most recent registration
statement as of the time the tenant filed his complaint, and that the
order should not have directed a refund of over $4,000.00 when the
tenant owed arrears of more than $24,000.00.
The tenant did not submit an answer, although given an opportunity to do
In his petition (Docket No. DK410054RT) the tenant asserts in substance
that no new intercom nor re-wiring was ever performed in the subject
apartment, as claimed by a check dated more than one year after the
claimed work, and that cancelled checks dated three, ten and thirteen
months after he filed his complaint, together with Bau Contracting's
vague letters dated nearly one year and five years after the complaint,
and with no invoices, are not adequate to prove $9,085.79 worth of
In answer, the owner contends in substance that the tenant was served
with a copy of its submissions but did not respond; that he may not now
raise these issues for the first time on appeal; and that the documents
clearly show that the work was performed in the subject apartment.
In reply, the tenant asserts in substance that he raised the issues in
an August 15, 1988 letter in Docket No. BK410053RP.
The Commissioner is of the opinion that these petitions should be
granted in part.
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
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 or she 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 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 be 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 20C(1) of the former 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
20C(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 20C(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 owner has not submitted evidence, or even
claimed, that the apartment was changed in size, so the owner was not
entitled to charge a "first rent."
The owner has cited In Re J.R.D. Management Corp. in support of its
position that it does not have to produce more than four years of rent
records. However, that case is applicable to the Second Department. On
July 20, 1989 the Appellate Division, First Department ruled in Lavanant
v. DHCR, 148 A.D.2d 185, 544 N.Y.S.2d 331 that the DHCR may properly
require an owner to submit complete rent records. The Court has
repeatedly continued to follow Lavanant (Matter of 60 Gramercy Park Co.
v. DHCR, N.Y.L.J. 12/14/92, p.26, col. 6). The Administrator was
therefore warranted in defaulting the owner for not furnishing a
complete rental history.
Policy Statement 90-10 provides in pertinent part that:
Any claimed MCI or individual apartment improvement cost must
be supported by adequate documentation which should include at
least one of the following:
(1) Cancelled check(s) contemporaneous with the
completion of the work.
(2) Invoice receipt marked paid in full contemporaneous
with the completion of the work.
(3) Signed contract agreement.
(4) Contractor's affidavit indicating that the
installation was completed and paid in full.
The December 5, 1984 letter from Bau Contracting referring to a balance
of $3,500.00 due for certain work, together with a cancelled check for
$3,500.00 dated three weeks after that letter, in combination with the
two earlier cancelled checks totalling $4,000.00, is considered
equivalent to both (1) and (2) above. While the final December 24, 1984
payment was made nearly one year after the work was completed, this is
not enough of a departure from the normal practice of paying contractors
in installments as to invalidate the letter from the contractor and the
fact that a significant amount of work actually was done. (The tenant
acknowledges that six windows were replaced and that part of the wall
between the living room and bedroom was removed. The contractor's
charges also included the installation, acknowledged by the tenant, of
equipment and kitchen cabinets supplied by others.) While there is no
invoice from Harry Klenoff Co., Inc. for refrigerator, range, cabinets
and sink top, the May 9, 1984 date of the $1,405.79 cancelled check is
contemporaneous enough with their installation to support their cost.
The same is not true of the March 6, 1985 check for $180.00 for a new
intercom. While it may be evidence of payment for work on an intercom,
it does not establish that a new intercom was installed in January or
February, 1984 for which a rent increase should be granted. The April
1, 1984 registration shows an intercom, bell and buzzer system as being
a building-wide service. Such a system is typically installed as a
whole, and it existed for all apartments at least as of a month after
the tenant moved in on February 20, 1984. It seems likely that the
system was in place long before February, 1984 and that, as contended by
the tenant, there was no new installation. Any work that was done would
likely have been more of a repair to an already-existing service, which
would not warrant a rent increase even if done during a vacancy. In
addition, the March 6, 1985 date of the check suggests that, even if
there had somehow been a new installation or an increase in service, it
occurred after the tenant moved in, so that no rent increase could be
charged without the tenant's written consent. The lawful rent in the
tenant's initial lease is therefore reduced by $4.50 ($180.00 divided by
40). The lawful stabilization rents are $522.64 per month in the lease
from February 15, 1984 to February 28, 1986; $556.61 per month in the
lease from March 1, 1986 to February 28, 1988; and $592.79 per month in
the lease from March 1, 1988 to February 28, 1990. The overcharge from
February 15, 1984 to March 31, 1984 is $2,666.04 ($2,300.00 - $522.64 =
$1,777.36 overcharge per month, x 1 1/2 months = $2,666.04), plus excess
security of $1,777.36 equals $4,443.40.
The Administrator's order, while not allowing the tenant to file the
overcharge award in the same manner as a judgment, did direct the owner
to refund $4,432.15 to the tenant. It is apparent from the record that,
at least as of the time of the Administrator's order, the tenant owed
arrears for far more than that. (In an August 15, 1988 letter the
tenant claimed to have paid a total of $9,989.10 from February 16, 1988
to August 31, 1988. At the lawful rents determined by the Administrator
the total rent for that period would have been approximately
$30,000.00.) The Administrator's order is therefore modified to direct
the owner to credit the overcharge award against monies owed the owner
by the tenant, rather than the owner having to make a direct refund to
The Commissioner notes that the $4,443.40 overcharge found by this order
assumes that the owner is still holding security of $2,300.00 and has
not applied any of it toward arrears.
The owner is directed to allow the tenant to pay off the arrears in
twenty four equal monthly installments. Should the tenant vacate after
the issuance of this order, or have previously vacated, said arrears
shall be payable immediately.
The owner is directed to reflect the findings and determinations made in
this order on all future registration statements, including those for
the current year if not already filed, citing this order as the basis
for the change. Registration statements already on file, however,
should not be amended to reflect the findings and determinations made in
this order. The owner is further directed to adjust subsequent rents to
an amount no greater than that determined by this order plus any lawful
THEREFORE, in accordance with the Rent Stabilization Law and Code, it is
ORDERED, that these Petitions be, and the same hereby are, granted in
part and that the Rent Administrator's order be, and the same hereby is,
modified in accordance with this order and opinion. The total
overcharge, including excess security of $1,777.36, is $4,443.40 from
February 15, 1984 to March 31, 1984. The lawful stabilization rent is
$592.79 per month in the lease from March 1, 1988 to February 28, 1990.
JOSEPH A. D'AGOSTA