DOC. NO.: EH 410276-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. EH 410276-RO
                   WINDSOR PLACE CORP.,      :   DRO DOCKET NO. DF 410301-R
                                 PETITIONER  :   TENANT: THOMAS ORR
         ------------------------------------X


             ORDER AND OPINION DENYING PETITION FOR ADMINISTRATIVE REVIEW


         On August 24, 1990, the above named petitioner-owner filed a Petition  
         for Administrative Review against an order issued on July 20, 1990 by 
         the Rent Administrator at Gertz Plaza, Jamaica, New York, concerning 
         the housing accommodations known as apartment 9F at 157 East 57th 
         Street, New York, New York, wherein the Administrator established the 
         stabilized rent and directed the owner to refund $71,458.18, including 
         treble damages from April 1, 1984.

         The Commissioner has reviewed all of the evidence in the record and 
         has carefully considered that portion of the evidence relevant to the 
         issues raised in the administrative appeal.

         This proceeding was originally commenced on June 26, 1989, by the 
         filing of a complaint of rent overcharge by the tenant.  In the 
         complaint, the tenant alleged that he had taken occupancy under a one 
         year lease whose term commenced on January 1, 1988 and expired on 
         December 31, 1988 at a monthly rental of $2,500.00; and that the rent 
         had been subsequently raised to $2,726.09 under the tenant's first 
         renewal lease, whose term commenced on January 1, 1989.  The
         tenant also alleged that the registered rent for the prior tenant was 
         $1,158.40.

         The tenant's complaint was served on the owner by mail posted on July 
         11, 1989.

         The owner answered with a letter dated August 17, 1989 wherein the 
         owner stated that the subject apartment's rent should be computed on 
         the basis that the apartment represented a newly created housing 
         accommodation at the time it was rented to the tenant.  That is, the


















         DOC. NO.: EH 410276-RO


         owner claimed that "Upon the prior tenant vacating the subject 
         premises, it was discovered that a bedroom chamber was added to 
         apartment 9F increasing the interior space by 286 sq. ft."  The owner 
         asserted that the copy of a floor plan it sent with that letter 
         demonstrated how what the owner thought was a two bedroom apartment 
         was discovered to be a three bedroom apartment when the prior tenant 
         vacated.

         After receiving a Final Notice of Pending Default, the owner submitted 
         its answer of May 30, 1990.  In that answer the owner stated, in 
         substance, that effective June 1, 1990, the tenant's rent had been 
         reduced [from $2,726.09] to $1,426.80 and that the prior tenant's rent 
         had been $1,158.40.  The owner also stated it calculated that it owed 
         the tenant $23,297.15 [without interest]; that the tenant was in rent 
         arrears in the amount of $14,268.00 (ten months at $1,426.80 as no 
         rent had been paid from August 1, 1989 to May 31, 1990) and that it 
         had sent the tenant a check for $10,328.44 representing the balance of 
         the credit for overcharges (less arrears), plus a refund of the excess 
         security deposit.   The owner further stated that based on its above- 
         described actions, the proceeding should be dismissed and no treble 
         damages should be imposed.

         On June 26, 1990 in reply to the owner's answer, the tenant, in 
         substance, stated the following:

         1.   Treble damages should be imposed because the owner had not 
              overcome its burden of proof on the question of willfulness.  
              There was no hypertechnical rent calculation involved.  The 
              owner merely doubled the prior rent.  Further the owner 
              continued to press a claim for arrears through March of 1990 
              based on a rental of $2,726.09 per month in Landlord/Tenant 
              Court.

         2.   The owner is not exempt from treble damages under Policy 
              Statement 89-2 since the owner did not make an offer of a 
              refund within the time afforded to answer the complaint, the 
              refund was not voluntarily tendered and it was not for the 
              full amount of the overcharges plus interest.

         3.   The tenant paid the illegal rent through the end of July 
              1989.

         4.   The tenant returned the owner's check unnegotiated.






         In the owner's July 12, 1990 response to the tenant's reply, the 
         owner, in substance, alleged the following:




         DOC. NO.: EH 410276-RO


         1.   The Default Notice was dated May 17, 1990 and the owner's 
              answer was dated May 30, 1990.  Therefore, the check that 
              was sent to the tenant was sent within the twenty days 
              within which the owner had to respond to that May 17th 
              notice and the check was voluntarily tendered.

         2.   The tenant's rent, as shown in submitted copies of the 
              tenant's billing for June and July 1990, was adjusted.  The 
              owner, therefore, did comply with the requirements of Policy 
              Statement 89-2 in order to be deemed to have met its burden 
              of proof that the subject overcharges were not willfully 
              collected.

         3.   The owner correctly calculated the Guidelines increase due 
              under Guidelines 19 (3% one year increase plus 10% vacancy 
              allowance) and insofar as the owner knows, the tenant still 
              has the refund check.

         In the appealed order, the Administrator determined that the initial 
         legal registered rent for the subject apartment was $1,062.75; that 
         the legal stabilized rent under the tenant's one year vacancy lease 
         (under which the tenant paid $2,500.00 per month) was $1,309.00 
         (Guidelines #19: 3% Guidelines plus 10% vacancy allowance increase 
         over the prior tenant's September 30, 1987 rent of $1,158.40); and 
         that the legal stabilized rent under the tenant's two year renewal 
         lease (under which the tenant paid $2,726.90 through July 31, 1989) 
         was $1,426.81 (Guidelines #20: 9% Guidelines increase over the 
         September 30, 1988 rent of $1,309.00).  The Administrator further 
         determined that the rent overcharges to be refunded the tenant, 
         including treble damages, amounted to $70,158.99 and that in addition 
         thereto, excess security in the amount of $1,299.19 was to be 
         refunded; making a total refund due the tenant, as of July 31, 1989, 
         of $71,458.18.

         In the Petition, the owner asserts, in substance, the following:

         1.   Under cover of a DHCR notice dated July 10, 1990, Petitioner 
              received a copy of the tenant's reply to the owner's answer 
              to the complaint.  That notice afforded the Petitioner the 
              opportunity to respond to the tenant's reply on or before 
              July 31, 1990.  The Petitioner did respond thereto and that 
              response was received by the DHCR on July 17, 1990.  Said 
              response showed that Petitioner's collection of the 
              overcharges herein was not willful.  The order herein
              assessed treble damages and was issued shortly after receipt


              by the Division of that response.  Therefore, it is clear that 
              the appealed order was issued without regard to that response 
              and,  ergo, the order was issued in violation of the Petitioner's 
              right to due process.












         DOC. NO.: EH 410276-RO


         2.   The subject apartment was newly created by the addition of 
              approximately 286 square feet from an adjoining apartment 
              [9-G] and the owner was entitled to the first rent of $2,500 
              charged the tenant.  The work done to create this addition 
              was done prior to the time that Petitioner assumed 
              management of the building and was discovered when the prior 
              tenant vacated.

         3.   It would be inequitable to lower the tenant's rent after the 
              tenant freely agreed to pay that rent in a lease wherein the 
              tenant acknowledged that the apartment was a newly created 
              apartment and that the tenant would not be able to challenge 
              the rent charged.

         4.   Under Code Section 2521.1(c)(2) the rent first charged and 
              paid on the date the new housing accommodation became 
              subject to the registration requirements of the Code shall 
              be the initial legal registered rent.  Since the apartment 
              did not exist in its current form prior to the complainant's 
              initial
              lease of June 1, 1988, the initial legal registered rent was 
              the rent set forth in the tenant's vacancy lease: $2,500.00.

         5.   The CAB and DHCR have repeatedly held that where a dwelling 
              unit was altered to the extent that it was not in existence 
              in its present form on the base date, the first rent charged 
              after the apartment was created becomes the initial legal 
              stabilized rent.

         6.   The combining of the subject apartment with a room from 
              apartment 9G created a housing accommodation not previously 
              in existence.  Thus the petitioner should be permitted to 
              charge the tenant a first rent.

         7.   If for some reason an overcharge is found, treble damages 
              should not be assessed because Petitioner was not afforded 
              an opportunity to be heard on the issue of treble damages 
              below as its submission dated July 12, 1990 was not 
              considered by the Division when it issued its order of July 
              20, 1990.  That submission showed that Petitioner had 
              complied with the requirements of the Division's Policy 
              Statement 89-2 and therefore, had it been seen at all before 
              the order would not have assessed treble damages.


         8.   The Petitioner's compliance with 89-2 consisted in its 
              adjusting the tenant's rent and tendering a refund prior to 
              July 31, 1990, the last date the Petitioner's submission of 
              July 12, 1990 was due.  Therefore, the Petitioner adjusted 
              the rent and tendered a refund "within the time afforded to 
              interpose an answer to the proceeding" as required by 89-2.




         DOC. NO.: EH 410276-RO


         9.   Further, since the overcharge, if any, was the result of the 
              owner's wrongful application of the law relating to first 
              rents and when they may be charged, treble damages should 
              not have been imposed.

        10. The Division has never established objective standards for 
             the imposition of treble damages and therefore its imposition 
             of them would be arbitrary and capricious.

         In the tenant's answer to the Petition, the tenant, in substance, 
         asserts the following:

         1.   The owner has set forth no facts or law which would warrant 
              a reversal or modification of the order below.

         2.   The Administrator issued his order only after receiving the 
              owner's July 12, 1990 submission.

         3.   The owner has raised the issue of its entitlement to collect 
              the overcharges based on its interpretation of the law 
              relating to first rents for the first time on appeal.  It is 
              therefore beyond the scope of review on appeal.

         4.   Moreover, even on appeal, the owner submits no evidence to 
              prove that the apartment was altered in any way that would 
              entitle the owner to a first rent.

         5.   Some of the owner's statements are patently untrue; for 
              example, the statement at paragraph 12 of the Petition that 
              "Clearly, since Apt. 9F did not exist in its current form 
              prior to the complainant's initial lease of June 1, 1988 
              [Sic], Apt. 9F's initial legal registered rent was $2,500."

         6.   The tenant denies that he ever understood or acknowledged 
              that the apartment was newly "created" and that the rent 
              could not be challenged or objected to.  Paragraph 39 of the 
              lease makes no specific reference to Apt. 9F as having been 
              newly created.  That paragraph merely summarizes the 
              regulations relating to newly created apartments.  Moreover, 
              that part of



              the Stabilization Rider explaining the calculation of the 
              "new" rent was left blank.  On March 15 and October 17, 
              1988, the tenant, in writing, asked the owner to supply this 
              information, but that request was never granted.

         7.   The purported additional room the owner claimed was added to 
              the tenant's apartment was, clearly, not added immediately 
              prior to the tenant's occupancy.  At paragraph 9 of the 












         DOC. NO.: EH 410276-RO

         Petition, the owner, speaking of the work involved in 
              allegedly adding this room, states "This work was done prior 
              to the Petitioner's management of the subject premises, and 
              it was only discovered by the Petitioner upon vacancy of the 
              subject apartment before the renting to the complainant, 
              when upon inspection, it was found that the subject 
              apartment did not conform to the original floor plan for the 
              building.  "Indeed, upon taking occupancy the tenant found 
              the entire apartment to be in a state of neglect.  The 
              condition of the apartment was consistent in all of the 
              rooms, including the alleged added room.  Upon information 
              and belief, the tenant asserts that there had been no change 
              in the configuration of the apartment since 1966 and 
              clearly, there was no such change immediately preceding the 
              tenant's occupancy.  The tenant asserts that the owner has 
              submitted no documentation, such as building plans, building 
              permits and the like, to support its contention.  The tenant 
              further asserts that the burden of proof as to this issue is 
              on the owner.

         8.   The tenant states that the Petitioner would have the 
              Commissioner believe that its tenure as the manager of the 
              building began fairly recently.  The tenant claims that 
              there
              has been no change in the principals which control this 
              building since the mid 1960's.  The tenant states that the 
              building has been continuously owned, or controlled, by Sol 
              Goldman and the Estate of Sol Goldman.  Therefore, the 
              tenant asserts, the implied premise proffered by the owner 
              that it has acted under the burden of a lack of records 
              and/or a lack of sophistication in the real estate business, 
              is false.

         9.   The imposition of treble damages is appropriate herein.  The 
              collection of the overcharges here was willful and the 
              fixing of the unlawful rent by the owner was not based on an 
              error involving a hypertechnical rent calculation.  Further 
              the owner pressed the collection of these unlawfully 
              excessive rents in various nonpayment actions throughout the



              pendency of this overcharge proceeding.  The owner has not 
              overcome the presumption that its collection of the subject 
              overcharges was willful.  The owner did not timely tender a 
              refund as the time (twenty days) for doing so ran from the time 
              of the service of the complaint [in 1989]; the tender was not 
              voluntary and it was not properly calculated.

        10. The owner did not provide the tenant with a complete vacancy 
             lease in that the portion of the Stabilization Rider wherein 
             the basis upon which the tenant's rent had been calculated 




         DOC. NO.: EH 410276-RO

        should have been spelled out was left blank; therefore, any 
             Guidelines increases the owner would otherwise have been 
             entitled to under the tenant's vacancy lease, should have 
             been denied it in the order below.

        11.  The owner has acted in bad faith from the time the tenant 
             first rented the apartment.

         The Commissioner is of the opinion that the Petition should be denied.

         The Commissioner finds that whether the Rent Administrator considered 
         the owner's submission of July 12, 1990 or not, the July 12, 1990 
         papers added nothing to the owner's May 30, 1990 answer to the 
         complaint.  The July 12, 1990 papers merely contained another 
         recitation of the contention, which the owner had already advanced in 
         its May 30, 1990 answer.  That contention was that  the owner had 
         complied with Policy Statement 89-2 by responding to a Pending Notice 
         of Default and tendering a refund (without interest) within twenty 
         days of the date of the Default Notice, so as to rebut the presumption 
         that it acted willfully in collecting the subject overcharges.

         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 
         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 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 
         was 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. (Accord: ARL 04062-L.)

         The Commissioner finds that the owner's argument in support of the 
         contention that it was entitled to charge the tenant a first rent is 
         based on the following proposition:  an owner may manage a building 












         DOC. NO.: EH 410276-RO

         relying solely on the original floor plans as evidence of the size of 
         each apartment and, if, at any point in time, that owner finds a 
         variation between the actual exterior dimensions of a given apartment 
         and those dimensions as depicted on the floor plan, the owner can 
         charge the next tenant a first rent.  The Commissioner finds this 
         proposition to be devoid of even a colorable relationship to the law 
         relating to first rents.  Further, the Commissioner notes, there is no 
         evidence to support the assertion that the floor plan attached to the 
         Petition was in fact the final floor plan followed in the construction 
         of the apartments on the 9th floor; there is no evidence to show who 
         made the alleged changes or, perhaps most significant, when they were 
         made.  Indeed, the Commissioner finds that the owner has submitted no 
         evidence that proves that the exterior dimensions of this apartment 
         were ever changed.

         The Commissioner finds that the owner's claim, that it was inequitable 
         to lower the tenant's rent after the tenant had "freely" agreed to pay 
         that rent (as set forth in the vacancy lease) and after the tenant had 
         acknowledged that the apartment was a newly created apartment and that 
         the rent could not be challenged, is specious.  Code Section 2520.13 
         provides that (except under certain circumstances which do not obtain 
         herein) a tenant may not waive the benefit of the Rent Stabilization 
         Law or the Code.  One of the most significant of these benefits is 
         protection from being charged rents in excess of the legal stabilized 
         rent.  If an owner overcharges a tenant it is neither unjust nor 
         inequitable to adjust that tenant's rent.  Further, the lease 
         provision relied on by the owner as the tenant's acknowledgement that 
         the apartment was a newly created accommodation, paragraph 39, reads, 
         in full, as follows:

                   39. Where a dwelling unit was substantially 
                   altered to the  extent that  it was not  in 
                   existence in its present form on May 31, 1968.  
                   The first rent charged after the apartment was 
                   created becomes the stabilized rent.




         The Commissioner finds no acknowledgment of any facts nor any waiver 
         of any right by the tenant in the language of paragraph 39.

                 Policy Statement 89-2 reads, in pertinent part, as follows:

                   DHCR has determined that the burden of proof in 
                   establishing lack of willfulness shall be deemed 
                   to have been met and, therefore, the treble 
                   damage penalty is not applicable, in some 
                   situations, where
                   it is apparent or where it is demonstrated that 
                   an overcharge occurred under certain specified 
                   circumstances.  Examples of such circumstances 




         DOC. NO.: EH 410276-RO

                   are as follows:

                        *         *         *         *  

              2.   Where an owner adjusts the rent on his or her own 
                   within the time afforded to interpose an answer 
                   to the proceeding and submits proof to the DHCR 
                   that he or she has tendered, in good faith, to 
                   the tenant a full refund of all excess rent 
                   collected, plus interest.

         The above quoted rule is, in good measure, a rule of evidence.  It 
         delineates a set of facts under which the Division has found it 
         reasonable to recognize the probative value of certain specific post- 
         complaint conduct by an owner on the question of willfulness.  That 
         is, that the Division accepts as a preponderance of the evidence 
         sufficient to rebut the presumption of willfulness built into the 
         Code, the fact that after receiving an overcharge complaint, an owner 
         moves swiftly to correct its error and makes full restitution, 
         including interest, to the tenant.  Moreover, this rule furthers the 
         expeditious dispensation of justice in that it tends to reward errant 
         owners for acting quickly to resolve the controversy in question.  The 
         conduct of the owner herein did not in any way tend to disprove 
         willfulness.   Instead, that conduct, bespoke of an effort to further 
         delay having to reduce the rent to the correct amount by the purported 
         continued reliance on an absurd construction of the law while 
         attempting to evict the tenant for failing to pay an excessive rent.  
         The Commissioner finds that the owner's attempt to avoid treble 
         damages by belatedly tendering a refund that did not even include 
         interest does not meet the requirements of Policy Statement 89-2 and, 
         therefore, the administrator's imposition of treble damages was 
         appropriate.




         As noted above, the Commissioner finds that the owner submitted no 
         evidence that proved that the exterior dimensions of the subject 
         apartment had been altered. Moreover the Commissioner finds no basis 
         under Policy Statement 89-2, or otherwise, for finding that the owner 
         has met its burden of proof under Code Section 2526.1(a)(1) to prove 
         that the collection of the overcharges herein was not willful. 
         The Commissioner finds that the owner's collection of what it 
         characterized as a first rent was clearly not based on a reasonable 
         error in the application of the law, but rather (at the best) on a 
         reckless disregard for any reasonable interpretation of the law; with 
         no evidence to prove that the alteration were made, let alone to prove 
         when they were made.  The Commissioner therefore finds that the 
         imposition of treble damages herein was proper.

         The Commissioner finds that the Administrator acted correctly in not 
         crediting the owner with $10,328.44 (the amount of the refund check) 












         DOC. NO.: EH 410276-RO

         against the overcharges collected.   The Commissioner finds that the 
         owner's assertion that the check was still in the tenant's possession 
         was insufficient to rebut the tenant's statement that he had returned 
         the check to the owner but it did tend to imply that the check had 
         never been negotiated by the tenant.  If it had been, the owner would 
         have received the cancelled check back from its bank.

         The Code [Section 2526.1(a)(1)] is clear on the question of 
         willfulness.  An overcharge is presumed willful, absent evidence 
         constituting a preponderance of the credible evidence that proves 
         otherwise.  A Code provision has the same effect as a statute unless 
         that provision is duly set aside by a court of law or amended.  
         Neither is the case as to 2526.1(a)(1) to date.  The Commissioner 
         finds that the imposition of treble damages herein constituted a 
         proper application of the plain meaning of this section of the Code to 
         this proceeding and it was neither arbitrary nor capricious, but fully 
         in accord with the law.

         The Commissioner finds that in the absence of a PAR filed by the 
         tenant, the tenant's application for a modification of the order below 
         (to revoke the crediting of the owner with any Guidelines increase 
         under the tenant's vacancy lease) is not within the scope of review on 
         this appeal.

         The Commissioner notes that the Administrator's order may, upon the 
         expiration of the period in which the owner may institute a proceeding 
         pursuant to Article Seventy-eight of the Civil Practice Law and Rules, 
         be filed and enforced by the tenant in the same manner as a judgment 
         or not in excess of twenty percent thereof per month may be offset 
         against any rent thereafter due the owner.





         THEREFORE, pursuant to the Rent Stabilization Law and Code, it is

         ORDERED, that this Petition be, and the same hereby is, denied.

         ISSUED:
                                                                              
                                                 ELLIOT SANDER
                                                 Deputy Commissioner

    

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