ED 410208 RO
                                  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. ED 410208 RO

                                              :  DISTRICT RENT OFFICE
               300 West 49th Street Assoc.,      DOCKET NO. BB 410042 R
                                                 
                                                 TENANT: James Shepard  and
                                                         Frank Post

                                PETITIONER    : 
          ------------------------------------X 

            ORDER AND OPINION GRANTING PETITION FOR ADMINISTRATIVE REVIEW 
                                       IN PART


          On April 18, 1990, the above-named owner  filed  a  petition  for
          administrative review of an order issued on March 14, 1990, by  a
          District    Rent    Administrator    concerning    the    housing
          accommodations known as 300 West 49th Street, New York, New York, 
          Apartment No. 501, wherein the Administrator determined  that  an
          overcharge had occurred.

          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 petition for review.  

          This proceeding was commenced on February 3, 1987 upon the filing 
          of an overcharge complaint by  the  tenants.   The  tenants  took
          occupancy of the subject apartment on February 1,  1986  under  a
          lease which labelled the  subject  apartment  as  a  "Substantial
          Alteration Apartment."

          The owner was served with a copy of the  tenants'  complaint  and
          filed an answer through its attorney.  In its answer,  the  owner
          claimed  that  no  overcharges  occurred  because   the   subject
          apartment  had  been  substantially  altered  which   effectively
          created a new apartment.  The  owner  alleged  that  these  facts
          would entitle it to establish a  new  first  stabilization  rent.
          Alternatively, the owner contended that the owner's  expenditures
          for work done in the subject apartment during  a  vacancy  period
          qualified for a 1/40th rent increase pursuant to  Section  2522.4
          of the Rent Stabilization  Code.   Finally,  the  owner  asserted
          that, if the  Administrator  did  determine  that  an  overcharge
          occurred, the record contained enough evidence to prove a lack of 
          willfulness on the part of the owner,  and  that  the  overcharge
          was merely the result of a good faith error made by the owner.

          In the order here under review, the Administrator  established  a
          lawful stabilization rent of $804.71  for  the  lease  period  of
          February  1,  1989  to  January  31,  1991  and  determined   the
          overcharges to be $48,211.12 including excess security and treble 






          ED 410208 RO
          damages through March 31, 1990.  It was determined the owner  was
          not entitled to a first stabilized rent.  Also, the Administrator 
          found  that  the  owner  had  documented  $18,776.97  in   costs.
          However, it was determined  that  only  $13,196.97  qualified  as
          vacancy improvements  while  the  remaining  $5,580  were  merely
          maintenance or demolition.  Finally, the Administrator ruled that 
          the owner had failed to prove a lack of willfulness and  assessed
          trebles damages.

          In its petition for  administrative  review  the  owner  requests
          modification of the  Administrator's  order.   First,  the  owner
          repeats the allegation made below  that  the  work  done  in  the
          apartment was of sufficient substance to entitle it  to  a  first
          stabilized rent.  Second, in the alternative, the  owner  alleges
          that the items  rejected  by  the  Administrator  as  permissible
          vacancy  improvements  should   have   been   included   in   the
          determination of the  lawful  stabilization  rent.   Namely,  the
          owner maintains that the  painting and plastering  of  the  walls
          and scraping and sanding of the  floors  were  extensive  and  an
          integral part of the work done.  Further, the owner asserts  that
          the demolition costs should have been included.  Third, the owner 
          restates its contention that treble damages should not have  been
          assessed and stresses that the owner was unrepresented by counsel 
          when the overcharges, if any, began.

          In their answer to the petition for review, the tenants urge that 
          the Administrator's order be sustained.   They  assert  that  the
          improvements in the subject apartment were not  as  extensive  as
          claimed by the owner.  The tenants maintain that  treble  damages
          were correctly assessed.

          After careful consideration, the Commissioner is of  the  opinion
          that this petition should be granted in part.

          First, the Commissioner finds that the owner was not entitled  to
          a first stabilization rent  after  improvements  to  the  subject
          apartment were made.   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 alterations 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 outer dimensions  of
          the apartment.  Although  the  owner  does  document  substantial
          alterations, the outer dimensions of the subject  apartment  were
          not  changed.   Accordingly,  the  subject  apartment   was   not
          sufficiently altered as to create a new apartment.

          Second, the Commissioner finds that the  Administrator  correctly
          excluded painting and plastering of the walls  and  scraping  and
          sanding the  floors  from  the  permissible  vacancy  improvement
          increase  allowed.   Painting  and  plastering   is   a   routine
          maintenance requirement in all regulated units.   The  fact  that
          there are new walls or different walls or  more  walls  does  not
          elevate this  maintenance  requirement  to  level  of  a  vacancy
          improvement.  Similarly, the scraping and sanding of floors is  a
          routine safety and maintenance requirement.  Again, the fact that 
          the  warped  floor  conditions  were  discovered  by  virtue   of
          rearranging the living space does not raise it to the level of  a
          vacancy improvement.






          ED 410208 RO

          However, the owner correctly asserts that  the  demolition  costs
          associated with vacancy improvements should have  been  permitted
          by the Administrator.  In  Policy  Statement  91-1,  DHCR  stated
          that demolition costs are included in  the  calculations  of  the
          permissible  rent  adjustment  if  these  demolition  costs   are
          necessary  and  performed  contemporaneously  with  the   vacancy
          improvements.  The Commissioner finds  that  the  owner  supplied
          sufficient  documentation  to   show   it   complied   with   the
          requirements  of  Policy  Statement   91-1.    Accordingly,   the
          Administrator should have permitted demolition costs of $2,580.00 
          in the calculations.

          Third, the Commissioner is of the  opinion  that  treble  damages
          should not have been assessed by  the  Administrator.   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 a first  rent.   The
          evidence  in  the  record  includes  architectural  floor  plans,
          construction contracts, bills and invoices.   This  documentation
          indicates  that  many  systems  in  the  subject  apartment  were
          changed.   The changes included: the kitchen area  was  moved  to
          another part of the apartment, a new entranceway  and  door  were
          provided, electrical and plumbing lines and  electrical  fixtures
          were  installed,  several  new  interior  apartment  walls   were
          erected,  and  the  bathroom  and  kitchen   were   substantially
          upgraded.  The  Commissioner  finds  that  the  quantity  of  the
          changes is sufficient evidence of a  good  faith  belief  by  the
          owner that it was entitled to a first rent.  

          The tenants, in their answer to the petition for  review,  raised
          issues involving the quality of the work done and the  amount  of
          work  required  for  the  individual   changes.    However,   the
          Commissioner finds that the quantity of systems involved and  the
          quantity of the changes were sufficient evidence of a good  faith
          belief by the owner  that  it  was  entitled  to  a  first  rent.
          Accordingly, the record demonstrates a lack  of  willfulness  and
          the Administrator should not have assessed treble damages.

          Accordingly, the Commissioner  finds  that  lawful  stabilization
          rent for the lease period of February 1, 1989 through January 31, 
          1991 should have been $885.07 and that the overcharges, including 
          excess security and interest, are $14,968.80  through  March  31,
          1990 as indicated on the attached rent calculation chart.

          Because this determination concerns  lawful  rents  only  through
          January 31, 1991, the owner is  cautioned  to  adjust  subsequent
          rents to an  amount  no  greater  than  that  determined  by  the
          Commissioner in this order and opinion plus any lawful increases, 
          and to register any rents with this order and opinion being given 
          as the explanation for the adjustment.

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

          ORDERED, that this petition be, and the same hereby  is,  granted






          ED 410208 RO
          in part, and that the Administrator's  order  be,  and  the  same
          hereby is, modified as described hereinabove and  as  appears  on
          the annexed Rent Calculation Chart, which is hereby made fully  a
          part of this order and opinion; and it 

          FURTHER ORDERED, that the owner 300 West 49th  Street  Associates
          shall immediately refund to  the  tenants  all  amounts  not  yet
          refunded representing overcharges, interest and excess  security.
          These amounts are to include overcharges  occurring  after  March
          31, 1990 as well as those stated on the annexed Rent  Calculation
          Chart; and it is 

          FURTHER  ORDERED,  that  if  the  owner,  300  West  49th  Street
          Associates, has refunded no such amounts, upon the expiration  of
          the period for seeking judicial review of this order pursuant  to
          Article 78 of the Civil Practice Law and Rules, the  tenants  may
          recover such amounts by deducting them from the rent due  to  the
          owner.  If the tenants have not made  any  such  deductions  from
          the rent as an offset, then the tenants may file  and  enforce  a
          copy of this order as a judgment for  the  amount  of  $14,968.80
          against 300 West 49th Street Associates.

          ISSUED:

                                                                        
                                          JOSEPH A. D'AGOSTA
                                          Acting Deputy Commissioner




                     

































          ED 410208 RO




    

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