EC 410074 RO

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

      APPEAL OF                              DOCKET NO. EC 410074 RO

                                          :  DISTRICT RENT OFFICE
        West End Avenue Syndicate Inc.,      DOCKET NO. CE 410242 R
                                             TENANT: Diane Carey              
                            PETITIONER    : 

                                     IN PART

      On March 16, 1990, the above-named petitioner-owner filed a Petition for 
      Administrative Review against an order issued on February 9, 1990, by 
      the Rent Administrator, 92-31 Union Hall Street, Jamaica, New York, 
      concerning the housing accommodations known as 348 West End Avenue, 
      New York, New York, Apartment No. 3C, wherein the Rent Administrator 
      determined that the owner had overcharged the tenant.

      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.  

      The tenant commenced this proceeding on May 19, 1988 by the filing of a 
      complaint of rent overcharge.

      In response to the complaint, the owner stated that it had altered the 
      configuration and the spacial dimensions of apartment 3C by adding a 
      greenhouse to the outside deck area, thereby creating a new apartment 
      with greater living space and therefore was entitled to set a "first 
      stabilized rent."  In the alternative, the owner asserted that should a 
      "first rent" be disallowed, the owner should be permitted to add 1/40th 
      of the cost of the greenhouse to the rent.  Subsequently, the owner 
      submitted a copy of an amended Certificate of Occupancy in support of 
      its claim for a "first rent."

      In January 31, 1990, an inspection of the subject apartment was 
      conducted by a staff member of the DHCR who reported that there was a 
      greenhouse but that there were no utilities: electrical system, water 
      system or heat services to accommodate the greenhouse.

      In the order here under review, the Rent Administrator established the 
      lawful stabilized rent at $737.39 as of March 16, 1988, allowing the 
      owner 1/40th of the cost ($225.00 per month) for new equipment and 
      directed the owner to refund to the tenant an overcharge of $32,336.92 
      inclusive of excess security and treble damages.

      In its appeal, the owner contends that the Administrator erred in not 
      finding that a new apartment had been created for which the owner was 

          EC 410074 RO

      entitled to set a "first rent."  In previous decisions by the DHCR, a 
      new Certificate of Occupancy has been considered prima facie evidence of 
      the creation of a new apartment.  The owner further contends that treble 
      damages are inappropriate because ample evidence has been submitted to 
      show the owner's good faith in setting the rent and that this evidence 
      meets the burden of establishing non-willfulness as stated in 
      Operational Bulletin 89-2.

      The tenant seeks an affirmance of the order with respect to the finding 
      that the owner overcharged the tenant but seeks a reversal of that part 
      of the order which permits the owner a rent increase for new equipment.  
      The tenant contends that the overcharge was willful: 1) the placement of 
      a greenhouse on an existing terrace did not create a "new apartment; 2) 
      the DHCR inspection showed that the greenhouse is uninhabitable and 
      added no new living space; 3) the new Certificate of Occupancy was 
      issued because the owner added new apartments at the same time it 
      installed the greenhouse; 4) the greenhouse was installed after the 
      tenant moved in; and 5) the owner's answers to the complaint are legally 
      defective and do not rebut the complaint because they were not verified 
      or affirmed.  The tenant also contends that notwithstanding her failure 
      to file her own appeal, her request for reversal of a portion of the 
      Administrator's order may be granted on the authority of Sakraf 
      Properties Inc. v. Eimicke, 139 Misc. 2d 519, 527 N.Y.S. 2d 951 (Sup. 
      Ct. N.Y.C. 1988) where the court held that the tenants' failure to file 
      their own petition for administrative review did not warrant a dismissal 
      of their Article 78 proceeding.  The court reasoned that although the 
      tenants in that case did not initially seek administrative review, when 
      confronted with the landlord's petition, they responded in effect with 
      a counterclaim.  The court stated that rejection of the claim on 
      procedural ground exalts form over substance.  Similarly, the tenant 
      herein contends that although she did not file her own PAR, she did 
      write to the DHCR seeking to modify the order on the same claim.  
      Because the evidence shows that the greenhouse was installed during her 
      tenancy, not during a vacancy, the tenant contends that the cost of the 
      greenhouse cannot be grounds for a rent increase.

      In reply, the owner asserts, that the installation of the greenhouse 
      commenced before the tenant moved in; that the greenhouse would receive 
      heat from the living room but for the tenant's desire to have a door; 
      that the new certificate of occupancy was issued for both the new 
      greenhouse and the new penthouse apartment; and that structural work was 
      done in order to install the greenhouse.

      The Commissioner is of the opinion that this petition should be granted 
      in part.

      The Division of Housing and Community Renewal (DHCR) has long held that 
      in order for an owner to qualify for a "first rent," the apartment 
      alternations must be so substantial as to create a new unit.  DHCR 
      policy and numerous precedents state that in order to qualify for a 
      first stabilization rent the owner must change the dimensions of the 

      In this case, the owner asserts that the creation of new interior space 
      is sufficient to entitle it to a first stabilization rent.  The 
      Commissioner finds that where, as here, the new interior space was 
      merely a different usage of pre-existing exterior space which was part 

          EC 410074 RO

      and parcel of the subject apartment, a new unit was not created so as to 
      qualify for a first rent.  Accord: FL 410297 RT, FK 410175 RO.  The 
      issuance of the new certificate of occupancy is not determinative of 
      whether the owner made substantial alterations that would warrant a 
      "first rent."  The Rent Stabilization Code, not the Department of 
      Buildings, determines whether alterations to an apartment warrant a new 
      legal rent.  Accordingly, the owner was not entitled to collect a first 

      Further, the Commissioner is of the opinion that treble damages should 
      not have been assessed by the Administrator.  Section 2526.1 of the Rent 
      Stabilization Code imposes a penalty of treble damages on all willful 
      overcharges.  All overcharges are presumed willful unless the owner 
      overcomes the presumption by a preponderance of the evidence that the 
      overcharge was not willful.  In prior cases before the DHCR where the 
      owner's allegation that it was entitled to a first rent was rejected, 
      the issue of treble damages was determined on a case-by-case basis.  The 
      Administrator must determine if the extent of the work done was of 
      sufficient substance to warrant a conclusion that the owner had a good 
      faith belief that it was entitled to a first rent.  The evidence of 
      record, including the inspection report, and new Certificate of 
      Occupancy, indicates that the extent of work required to install the 
      greenhouse was substantial, consisting of reflooring the converted space 
      and enclosing the pre-existing terrace as a greenhouse.  Accordingly, 
      the record demonstrate a lack of willfulness and the imposition of 
      treble damages is not appropriate.

      Therefore the Rent Administrator's order is hereby modified to eliminate 
      the treble damages and to impose interest on the overcharge.  The total 
      amount of the overcharge plus interest and excess security is 

      Section 2527.4 of the Code requires that every answer or reply shall be 
      affirmed or verified but sets no penalty for the failure to do so and 
      sets no requirement as to who must make the affirmation or verification.  
      In the instant case, the attorney for the owner-corporation affirmed its 
      answer and a principal of the corporation verified the petition.  
      Accordingly, the Commissioner accepts the owner's submissions for the 

      With respect to the rent increase for the cost of new equipment 
      permitted by the Administrator, the Commissioner notes that although the 
      tenant requested reconsideration of the issue, she did not file her own 

      An administrative appeal is not a de novo proceeding and it is not the 
      Division's policy to impose harsher penalties on a party seeking 
      administrative review unless the other party files its own "PAR."  The 
      case cited by the tenant, Sakraf Properties Inc. v. Eimicke, does not 
      control on this issue because in that case the court held that the 
      tenants' failure to file a PAR did not require dismissal of their 
      Article 78 proceeding.

      This order may, upon the expiration of the period in which the owner may 
      institute a proceeding pursuant to Article 78 of the Civil Practice Law 
      and Rules, be filed and enforced in the same manner as a judgment or not 
      in excess of twenty percent per month thereof may be offset against any 
      rent thereafter due the owner.

          EC 410074 RO

      Because this determination concerns lawful rents only through February 
      28, 1990, the owner is cautioned to adjust subsequent rents to an amount 
      no greater than that determined by the Rent Administrator's order and to 
      register any adjusted rents with this order and opinion being given as 
      the explanation for the adjustment.

      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 in part, and that the order of the Rent Administrator 
      be, and the same hereby is, modified to exclude treble damages and find 
      a total overcharge of $12,558.76 including interest and excess security.  
      In all other respects, the Rent Administrator's order is affirmed.


                                      JOSEPH A. D'AGOSTA
                                      Acting Deputy Commissioner


          EC 410074 RO


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