DK410054RT; DK410269RO

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

      APPEALS OF                             DOCKET NO. DK410054RT

                                          :  DISTRICT RENT OFFICE
           Eugene Hanfling, tenant,          DOCKET NO. ZBK410053RP
                     and                                (L3112951R)
           Windsor Plaza Company,                       (CDR01741)
                            owner,                      (CDR01741 As Amended)
                            PETITIONERS   : 

                                     IN PART

      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.

          DK410054RT; DK410269RO

      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 

          DK410054RT; DK410269RO

      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 
      claimed improvements.

      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 
      stabilization rent.

      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 

          DK410054RT; DK410269RO

      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 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 

          DK410054RT; DK410269RO

      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 

          DK410054RT; DK410269RO

      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 tenant.
      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 

          DK410054RT; DK410269RO

      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
                                      Deputy Commissioner


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