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

          ------------------------------------X
          IN THE MATTER OF THE ADMINISTRATIVE :    ADMINISTRATIVE REVIEW
          APPEAL OF                                DOCKET NO.EA410111RO
                                              :    
              Windsor Plaza Company,               DRO DOCKET NO.ZAG410489R
                                                   
                               PETITIONER     :    TENANT: Rafael Efrat
          ------------------------------------X

            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












          EA410111RO

          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 






          EA410111RO

          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












          EA410111RO

          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






          EA410111RO

          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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