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

      APPEAL OF                              DOCKET NO. DG410230RT

                                          :  DISTRICT RENT ADMINISTRATOR'S
            Sal Viviano                      DOCKET NO. L003739R
                                             OWNER: Two Associates/      
                                                    WGS Management
                            PETITIONER    : 


      On July 20, 1989, the above-named tenant filed a petition for 
      administrative review of an order issued on June 15, 1989 by a District 
      Rent Administrator concerning the housing accommodations known as 262 West 
      22nd Street, Apartment No. 15,  New York, New York, wherein the 
      Administrator determined that no overcharged occurred because when the 
      tenant took occupancy of the subject apartment the owner had created a new 
      dwelling unit and was entitled to a first rent.

      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 by the administrative appeal.

      This proceeding was commenced by the filing of an overcharge complaint.  
      The tenant stated, among other things, that he took occupancy of the 
      subject apartment on July 1, 1985 at a monthly rental of $795.00 and that 
      the prior tenant paid $96.27 per month.  The tenant acknowledged that the 
      subject apartment had been renovated and had several new appliances, but 
      claimed that the workmanship and materials were shoddy and that the cost 
      of the renovations could not have accounted for the rental increase.  

      In its answer to the petition, the owner alleged that this tenant had no 
      standing to challenge the initial rent because he was the first tenant 
      after vacancy  decontrol and could only challenge his initial rent via a 
      fair market rent complaint.  The owner concluded that because the tenant 
      was personally served with the initial apartment registration form and the 
      DC-2 notice, and because no fair market rent appeal was filed, the 
      overcharge complaint should have been dismissed.  The owner submitted a 
      copy of the tenant's first lease in which the tenant acknowledged that he 
      had been personally served with the RR-1 and DC-2 forms and a managing 
      agent's affidavit confirming the personal service.

      In the alternative, the owner alleged that even if the Division of Housing  
      and Community Renewal (DHCR) is of the opinion that the DHCR has the 
      authority to examine the first stabilized rent, it would still be a lawful 
      first stabilization rent.  The owner alleged that the renovations made 
      during the vacancy period prior to the tenant's occupancy  were of such a 
      substantial nature as to constitute a new dwelling unit not in existence 
      in its present form prior to the occupancy by this tenant, and the owner 


      was, therefore, allowed to charge a first stabilized rent.  In support of 
      this position, the owner alleged that the former unit, which was 
      classified as a Old Law Tenement, did not contain a toilet and the former 
      tenant used a hallway water closet.  The "new" apartment contained a full 
      bathroom, augmented kitchen area, closet and loft bed as well as new 
      carpeting and bathroom tiles at a cost of over $20,000.  The owner also 
      alleged that he made a substantial number of building-wide capital 
      improvements at costs exceeding $40,000.

      During the course of the proceeding before the Administrator the owner 
      submitted the following documentation to bolster its argument: (1) the  
      current Certificate of Occupancy which indicated that the subject building 
      was formerly an Old Law Tenement and now consisted of class "A" apartments 
      exclusively; (2) floor plans, allegedly depicting a likeness of the 
      subject apartment before and after these renovations; (3) copies of 
      contractor's plans, invoices and cancelled  checks for work both inside 
      the subject apartment and building-wide; (4) two contractors' affidavits 
      certifying the in-apartment renovations.

      Finally, the owner made a third alternative argument involving the 
      inclusion of an allowance for vacancy improvements if any calculation of 
      the initial lawful stabilization rent were made by DHCR and asserted that 
      under no circumstances should treble damages be assessed on an overcharge, 
      if any.

      In the Administrator's order, the Administrator determined that, based on 
      the evidence, and taking into account all factors bearing on the equities 
      involved, it was determined that the subject apartment did not previously 
      exist in its present form and the owner was entitled to a first rent of 
      $795.00 per month.  Subsequent rent increases were within rent guidelines 
      and no overcharges were collected.

      In his petition for administrative review, the tenant states, among other 
      things, he has been denied due process because he did not see the 
      documents submitted by the owner in the proceeding before the 
      Administrator and further states that he believes the owner may have 
      submitted false information about the apartment and its renovations.

      In its answer to the petition for administrative review, the owner 
      reasserts the arguments made below and resubmits copies of the documents 
      which constituted the owner's supporting evidence in the proceeding before 
      the Administrator.  In addition, the owner asserts that the tenant's 
      petition for administrative review was filed in an untimely manner.  This 
      answer to the petition for administrative review was forwarded to the 

      Subsequently, the tenant, through his authorized representative, filed a 
      request for reconsideration and various other supplemental pleadings.  The 
      request for reconsideration was denied.  All supplemental pleadings filed 
      by the tenant are made part of the record and are being fully considered 
      by the Commissioner in this Order and Opinion.

      In substance, the tenant claims that the Administrator erred by processing 
      this case as a rent overcharge instead of a fair market rent appeal.  The 
      tenant goes on to address the merits of the case in a point-by-point 
      manner.  The tenant argues, among other things, that the addition of a 
      toilet is not enough to warrant an uncontested first rent.


      The Commissioner is of the opinion that this petition for administrative 
      review should be remanded for further processing.

      The Commissioner finds that this petition for administrative review was 
      filed in a timely manner.  The postal cancellation stamps indicates that 
      the petition was mailed to the DHCR on July 20, 1989 which is within the 
      permissible 35 days period from the date of the issuance of the 
      Administrator's order.

      The Commissioner is of the opinion that the Administrator erred in his 
      determination that the owner was entitled to collect a first rent from the 
      tenant.  Where a dwelling unit is substantially altered to the extent that 
      a new unit is created the owner is entitled to a first rent.  To avoid 
      possible abuse of this procedure by owners, both DHCR and the courts have 
      strictly interpreted the term "substantially altered."  It is the well- 
      established policy of the DHCR that for an owner to be entitled to collect 
      a first rent the exterior walls of the apartment must be changed to create 
      a unit of new dimensions  along with renovations made inside the unit.  An 
      owner is not permitted to charge a first rent if the apartment remains the 
      same size regardless of the improvements made within the subject 
      apartment.  In the instant case all the parties acknowledge that no 
      changes were made to the outer dimensions of the subject apartment.  
      Accordingly, the owner was not entitled to a first rent.

      The Commissioner is further of the opinion that the DHCR may, in its 
      discretion, convert an overcharge complaint to a fair market rent appeal 
      in accordance with Section 2527.2 of the Rent Stabilization Code.  In the 
      instant case, it is acknowledged that the complainant was the first tenant 
      after vacancy decontrol, was served with the DC-2 form, and that his 
      complaint was filed within 90 days of this service.  Accordingly, this 
      remanded proceeding will be processed as a fair market rent appeal.  The 
      owner will be given a full opportunity to submit comparable apartments and 
      the Administrator will fully consider the alleged vacancy improvements in 
      this reprocessing. 

      A copy of this order and opinion is being sent to the current tenant.

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

      ORDERED, that this petition for administrative review be, and the same 
      hereby is, granted to the extent of remanding the proceeding to the Rent 
      Administrator for further processing in accordance with this order and 
      opinion, and that the Rent Administrator's order be, and the same hereby 
      is, revoked.

                                      JOSEPH A. D'AGOSTA
                                      Deputy Commissioner


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