EA410111RO
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
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IN THE MATTER OF THE ADMINISTRATIVE : ADMINISTRATIVE REVIEW
APPEAL OF DOCKET NO.EA410111RO
:
Windsor Plaza Company, DRO DOCKET NO.ZAG410489R
PETITIONER : TENANT: Rafael Efrat
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ORDER AND OPINION GRANTING PETITION FOR ADMINISTRATIVE REVIEW
IN PART
On January 8, 1990 the above-named petitioner-owner filed a
Petition for Administrative Review against an order issued on
December 14, 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. 5B
wherein the Rent Administrator determined that the owner had
overcharged the tenant.
The Administrative Appeal is being determined pursuant to the
provisions of Sections 2522.4(a) and 2526.1 of the Rent
Stabilization Code.
The issue in this appeal is whether the Rent Administrator's order
was warranted.
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.
This proceeding was originally commenced by the filing in July,
1986 of a rent overcharge complaint by the tenant, who stated that
he had commenced occupancy on July 1, 1986 at a rent of $2,150.00
per month, and that the prior tenant had a rent of $722.25.
In answer to the tenant's complaint, the owner stated in substance
that the subject apartment had been substantially renovated, to the
extent that it was not in the same form that it had been on the
base date, at a total cost of $9,097.88. The owner submitted an
invoice and cancelled check for $1,597.88 for new equipment, and a
July 19, 1988 letter from Bau Contracting Corp. stating that:
Late in 1985 this apartment was substantially demolished,
enlarged materially and rebuilt as a new apartment.
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Six insulated double hung aluminumwindow units were
installed with required masonry, interior partitions were
all demolished and new interior partitions installed in
new locations, new closets were constructed, bedroom and
kitchen were greatly enlarged, dining area was created,
etc., new flooring, living room greatly enlarged, etc.
The total cost of $7,500.00 was paid to us by ownership.
In a April 18, 1989 letter Bau Contracting said the same
things, and additionally stated that:
Previously a substantial area of the old apartment was
blocked off in apartment 5B, and it was added to the
adjacent apartment 5C as a second bedroom as altered.
Thus the total area of apartment 5B was substantially
reduced, while apartment 5C was materially enlarged in
adding a second bedroom to it. Also in apartment 5B the
living room was increased in area.
In a later submission the owner enclosed a copy of a floor plan
allegedly showing a change in the size of the subject apartment.
The owner described it as "a copy of a floor plan which typically
represents the change in square footage by taking space from the B
line apartment and adding it to the C line apartment." The plan
consisted of a portion of a plan sheet. It did not contain a title
block describing what the sheet was or giving an address, apartment
number or date. The page contained a symbol of short parallel
lines within long parallel lines signifying a wall. While this
appears to signify the addition of walls, there are no symbols or
lines to indicate the removal of any walls. The only notes on the
page describing work to be done concern toilet ventilation.
In a proceeding (Docket Nos. AH410127R and EJ410096RO) concerning
another apartment in this building, the owner had also described an
identical copy of this as "a copy of a floor plan which typically
represents the change in square footage by taking space from the
'B' line apartment which was added to the 'C' line apartments."
Because of the deficiencies in the sheet allegedly showing the plan
for changing the size of the apartment, and because the
Administrator had requested an Altered Certificate of Occupancy
[which would typically not have been issued unless there was a
change in the use of one or more apartments or in the number of
apartments on one or more floors], rather than a building permit
application, the owner was requested in the appeal proceeding to
submit a legible copy of the complete architect's plan sheet or
sheets concerning the movement of the outer wall of the apartment
to change its area, including the title block, any list of symbols
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used, notes, and stamped approvals present on the plan. The owner
was also requested to submit a complete copy of the application for
the building permit, showing the work to be done, and of the
approved building permit. In response, the owner submitted the
same floor plan sketch as before; stated that it was the entire
plan which was used, that it was not filed with the Building
Department, and that there was no building permit application,
stamped approval or approved permit; and contended that the
Division of Housing and Community Renewal (DHCR) had not and should
not require that approved plans be used to show that the outer
configuration of an apartment had been changed. Because of the
"typical" floor plan, the similar letters from Bau Contracting, and
the fact that those constitute the only evidence submitted by the
owner in the present case to establish that the subject apartment
was changed in size, it is presumed that there is no approved
building permit and no architect's plans pertaining specifically to
alleged changes in the subject apartment herein.
In another case (Docket Nos. ED410084RT and ED410230RO) where the
same floor plan was submitted for work done by Bau Contracting in
the apartment immediately above the subject apartment, a DHCR
inspector visited Apartment 6B and, while noting that the kitchen
and bathroom were comparatively new, also stated "[a]s the wall in
the bedroom between the two apartments 6B and 6C is a solid
supporting wall, and there is no evidence of there ever having been
a door in that wall, I think this room has been there all the time,
or it was with the livingroom one large studio." In that case, as
well as in Docket No. EJ410096RO (Apartment 7B), and Docket Nos.
DK410054RT and DK410269RO (Apartment 7A) the Commissioner
disallowed the "first rent" claim.
In the order issued on December 14, 1989 and appealed herein, the
Administrator found that the conditions to charge a "first rent"
had not been satisfied, and determined a lawful rent of $863.32 in
the complainant's first lease after allowing a rent increase for
$1,597.88 worth of claimed improvements. An overcharge of
$57,900.60, including treble damages, was found for the period from
July 1, 1986 to September 30, 1987. No overcharge was found on and
after October 1, 1987 because the tenant was listed as having
actually paid $800.00 per month due to a court stipulation.
In its petition the owner contends in substance that it had
submitted information showing that the apartment had been
materially enlarged and rebuilt at a cost of over $9,000, and that
the enlargement of the apartment to create a new unit not in
existence on the base date entitles the owner to charge a free
market rent. The owner has enclosed the same "typical floor plan"
submitted earlier, stating that Section 66 of the former Rent
Stabilization Code required only a reconfiguration, and not a
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change in size, of an apartment in order to charge a first rent;
that the size of the apartment was changed in any event, since
"footage was taken from the C line and added to the B line
apartments" [Bau contracting claims the reverse]; that the
$7,500.00 paid to Bau Contracting should have been allowed; and
that, as stated in the earlier proceeding, the tenant had paid only
sporadic rent. With its petition the owner has enclosed computer
printouts of the tenant's rent payments. As of the September 23,
1987 date of a stipulation for the owner to accept $800.00 pending
a DHCR determination, the printout shows the tenant as having paid
only one month's rent, and one month's security deposit, during the
initial 15-month period. It shows him as having paid approximately
$19,200 for the 26-month lease term. This is an average of less
than $800 a month.
In answer, the tenant asserts in substance that the owner was not
entitled to a free market rent, since the building was not
substantially rehabilitated; that the changes to the apartment were
merely cosmetic; that the owner may not in the guise of providing
new equipment require the tenant to pay for normal repairs and
maintenance; and that the owner should not be credited for months
in which the tenant did not pay rent, since the tenant while being
billed at a rent of $2,150.00 per month remains personally liable
for the rent charged, which is equivalent to actually having paid
the amount due.
The Commissioner is of the opinion that this petition 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 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
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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 2522.4(a)(1) of the 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
2522.4(a)(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.
Section 2522.4(a)(1) requires a tenant to consent in writing to the
installation of new equipment, except that a rent increase for new
equipment installed during a vacancy prior to the commencement of
a new tenancy may be collected without the new tenant's consent to
pay such increase.
In the present case the owner has submitted evidence of the
expenditure of $9,097.88 for improvements in the subject apartment
prior to the time that the tenant commenced occupancy. The owner
claims the right to collect a "first rent" by virtue of having
changed the size of the apartment. The Commissioner does not
consider that the owner has proven that there has been such a
change. The floor plan sketch is claimed by the owner to be a
"typical" sketch of work done in the 'B' and 'C' lines. There is
no evidence on the sketch to indicate that any such work was done,
or even intended to be done, specifically in the subject apartment.
The fact that the owner apparently did not obtain or even apply for
the building permit that would typically be required, based on a
detailed application showing work to be done, also argues against
the likelihood that the apartment was changed in size. In
addition, even the "typical" sketch submitted by the owner appears
to be internally inconsistent, in that its use of a single,
unlabelled symbol for a change in walls means either that a wall
was added without removing another one, or that a wall was removed
without adding another one. The letters from the President of Bau
Contracting Corp. are not sufficient to establish a change in size,
particularly since, by stating that the alleged shifting of
bedrooms was done "previously," he is not necessarily even claiming
that the work was done by Bau Contracting. The Administrator was
therefore warranted in concluding that the owner had not proven its
entitlement to a "first rent."
The Commissioner considers that the contemporaneous cancelled
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checks to Bau Contracting, coupled with the later letters from its
President, constitute sufficient proof to allow an increase for the
work done in the subject apartment. Together with the previously-
allowed invoices for new equipment, this total of $9,097.88 results
in an increase of $227.45 per month. When added to the $823.37
obtained by increasing the Initial Legal Regulated Rent of
$722.25 by 14% (7 1/2% vacancy allowance plus 6 1/2% for a two year
lease), the lawful stabilization rent becomes $1,050.82 per month
in the lease from July 1, 1986 to August 31, 1988. Since the
tenant paid an average of less than $800.00 a month during the
lease term, no overcharge has been shown. Since no overcharge was
in fact paid, it follows that the imposition of treble damages was
not warranted. It does not matter that the owner may have been
billing the tenant for tens of thousands of dollars in arrears at
the lease rent. The tenant did not pay those and, in fact, appears
to have never (other than during the first couple of months of his
lease) caught up to even the lawful amount of rents that could be
charged. In addition, the owner may not now lawfully charge the
tenant an amount in excess of the lawful stabilized rent, so it
cannot be said that the tenant is still somehow "liable" for paying
the unlawful portion of the $2,150.00 rent in his lease.
The Commissioner notes that the $800.00 rent charged pursuant to
the September 23, 1987 stipulation was subject to a DHCR
determination, so the owner is not considered to have waived the
right to collect an amount higher than $800.00 for that period now
that it has been determined that the lawful stabilization rent was
$1,050.82 per month.
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 increases.
THEREFORE, in accordance with the Rent Stabilization Law and Code,
it is
ORDERED, that this petition be, and the same hereby is, granted in
part and that the Rent Administrator's order be, and the same
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hereby is, modified in accordance with this order and opinion. The
lawful stabilization rent is $1,050.82 per month in the lease from
July 1, 1986 to August 31, 1988.
ISSUED:
JOSEPH A. D'AGOSTA
Deputy Commissioner
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