FE 410095 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
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IN THE MATTER OF THE ADMINISTRATIVE ADMINISTRATIVE REVIEW
APPEAL OF DOCKET NO.: FE 410095-RO
339 EAST 12TH STREET, ASSOCIATES,
DRO DOCKET NO.: ZBH-410155-R
TENANT: MICHELLE MYERS
PETITIONER
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ORDER AND OPINION GRANTING PETITION FOR ADMINISTRATIVE REVIEW
IN PART
On May 9, 1991 the above-named petitioner-owner filed a Petition for
Administrative Review against an order issued on April 19, 1991 by the
Rent Administrator, 92-31 Union Hall Street, Jamaica, New York
concerning the housing accommodations known as 339 East 12th Street, New
York, New York, Apartment No. 1 wherein the Rent Administrator
determined that the owner had overcharged the tenant.
The Administrative Appeal is being determined pursuant to the provisions
of Sections 2525.1 and 2526.1 of the Rent Stabilization Code.
The issue herein 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 in August, 1987 by the filing
of a rent overcharge complaint by the tenant, who stated in substance
that the owner had set an arbitrary market value of $925.00 for the
prior tenant after renovating the apartment, even though the apartment
had a registered 1984 stabilization rent of $223.08; that the owner had
sent her an RR-1 registration form erroneously stating that the April 1,
1984 rent was $925.00; that the owner took a vacancy allowance to which
it was not entitled; and that she had not been given a refund for the
period between September 15 and September 23, 1985 even though she was
not permitted to move into the apartment until the latter date because
the owner took that long to complete a credit check.
In answer to the complaint, the owner stated in substance that it was
entitled to a new base rent of $925.00 for the prior tenant because the
apartment had been gutted and completely renovated at a cost of
$18,125.18; that even if a free market rent were not to be permitted,
treble damages should not be imposed, since the owner had believed
itself entitled to a first rent based on the renovations, and because it
had reduced the tenant's rent to $841.23 on January 26, 1990 and given
her a refund of $18,203.88 in the form of a credit.
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In Order Number ZBH-410155-R, the Rent Administrator established the
lawful stabilization rent as $716.33 effective September 15, 1985, and
determined that the tenant had been overcharged $54,792.08 as of January
31, 1990, including treble damages since the owner had not adjusted the
rent and tendered to the tenant a full refund of all excess rent plus
interest within the time afforded to interpose an answer.
In this petition, the owner alleges in substance that the subject
apartment was completely renovated at a total cost of over $18,000.00;
that the renovation included the demolition and reconstruction of the
entire apartment, including the creation of a bathroom where none had
previously existed; that the subject apartment was "substantially
altered" to the extent that it was not in existence in its present form
on the base date; that the owner was therefore entitled to charge a free
market rent to the next tenant, who commenced occupancy on December 1,
1984 at a rent of $925.00; that the Administrator's order failed to
reflect that as of January, 1990 the complainants had received a
substantial refund; that to minimize any potential liability, the
tenants were informed on January 26, 1990 that their rent would be
decreased to $841.23 and that a refund of $18,203.84 would be made based
upon the reduced rental amount; that treble damages should not be
imposed because the refund was made prior to the Administrator's order;
that Policy Statement 89-2 does not require the imposition of treble
damages in the present case, since the requirement that the refund be
made "within the time afforded to interpose an answer to the proceeding"
either does not apply if meant to require a refund immediate after
service of the tenants' complaint, since the complaint was filed long
before Policy Statement 89-2 was in existence, or else was complied with
if intended to mean that the refund could be made within the time
allowed to respond to the Division of Housing and Community Renewal's
(DHCR's) notices, since the refund was made within the time to answer a
January 2, 1990 request for additional information; that treble damages
also should not be imposed since any overcharge resulted from the
owner's good faith belief that it was entitled to a market rent due to
substantial renovation, similar to the situation in Docket No. ARL
04966-L, where only $12,500.00 was spent in making improvements; and
that the Administrator's order failed to name both tenants.
In answer, the tenant asserts in substance that no refund had been made
as of January, 1990 since the owner's letter of January 26, 1990
requested that they credit the rent prospectively against the amount of
$18,203.84; that this figure did not include interest as required by
Policy Statement 89-2; that the owner did not refund "most of the
overcharge" prior to the issuance of the Administrator's order on April
19, 1991, since credits of only $13,031.48 had been taken by that date,
whereas the total overcharge with interest through February 1, 1990 was
approximately $24,000; that the apartment was not entirely demolished
and reconstructed; that most walls were merely repaired; that the
bedroom door frames and doors were untouched and bear 50 years of paint,
which indicates that the bedroom wall was not demolished and
reconstructed; that the bathroom was created by simply closing off the
end of the kitchen where the toilet was located and installing a shower
unit and handbasin; that the outer dimensions and floor plan of the
apartment were not changed, and remain identical to every other
apartment in the same line; that the pipes in the bathroom were not
replaced until several years later, when necessitated by constant
flooding; that the apartment was not rewired and is in violation of the
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New York City Electrical Code; and that the owner therefore had no
reason to believe that the apartment had been "substantially altered" to
the extent that would entitle it to a free market rent.
The tenant also contends in substance that much of the work performed in
the subject apartment was in the nature of repairs and should not be
allowed to increase the rent; that her first lease commenced on
September 23, 1985, during the same Guidelines period that the prior
tenant commenced a vacancy lease; that neither a vacancy allowance or
Guidelines increase should have applied to her lease; that the owner has
refused, despite several letters from her, to refund eight days rent
from the time that she commenced her tenancy on September 15, 1985 to
the time that the owner allowed her to move into the apartment on
September 23, 1985; that the owner provided a fraudulent RR-1
registration statement stating that the April 1, 1984 rent was $925.00,
with her initial lease; that the legal base rent registered with the
DHCR was in fact $223.08; that she later requested an explanation when
she learned this and was told by the owner that the apartment had been
"reregistered"; that in fact the 1985 annual registration update had
already been filed; that the RR-1 provided by the owner was a fake
created in late 1985 to convince her that there had been no unlawful
rent increase; and that both named tenants join in the proceeding. With
her answer the tenant has enclosed an RR-1 registration form, prepared
on September 11, 1985, stating that the April 1, 1984 rent was $925.00
in a lease expiring September 30, 1986, and that the rent was changed
after April 1, 1984 to $1,031.37, effective September 15, 1985 due to a
new tenant. [The computerized DHCR rent registrations show a April 1,
1984 rent of $223.08 in a lease ending June 30, 1986, and an April 1,
1985 rent of $925.00 in a lease ending November 30, 1985 because of
"renew 1 year," even though the April 1, 1985 tenant was not the same
person as the one listed for 1984.]
In response, the owner asserts in substance that it offered the tenant
a credit against the rent to cover the refund amount, a method approved
by the DHCR in other cases; that the tenant agreed to this by ending all
rent payments in February, 1990, and had taken a credit of $13,031.48 as
of the time of the Administrator's April 19, 1991 order; that this is
"most of the overcharge" of $18,138.96 found by the Administrator, since
accrued interest does not constitute an overcharge; that Policy
Statement 89-2 was not in effect when the tenant filed her complaint and
therefore could not have been strictly complied with; that the tenant
did not challenge the owner's claims of apartment renovation in the
proceeding before the Administrator; that the renovation was extensive
enough to warrant a first rent, or was at lease more extensive than in
ARL 04966-L, where treble damages were not imposed; that the
Administrator properly included both vacancy and Guidelines increases in
the complaint's vacancy lease; and that the 1985 RR-1 form which the
tenant contends is "fake" expressly stated that it reflected rent in
effect as of September 15, 1985, and was consistent with the owner's
belief in 1985 that a new apartment had been created and a "first rent"
established at $925.00.
In reply, the tenant contends in substance that accrued interest does
constitute overcharge; that in any event she had benefited only by
$841.23 by the end of the time afforded to interpose an answer to the
DHCR's January 2, 1990 notice, since the owner did not attach a check to
its January 26, 1990 letter; that the outer walls of an apartment must
be moved to justify a "first rent"; that the Administrator did not allow
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the unlawful vacancy and Guidelines increases which the owner charged in
her lease, allowing those only for the prior tenant's lease, since
Guideline 16 expressly stated that only one vacancy allowance could be
taken in any Guidelines period; that the RR-1 form attached to her
initial lease expressly stated that the rent was $925.00 as of April 1,
1984, not September 15, 1985 as contended by the owner in this
proceeding; that as a result she believed that the legal rent in 1984
was $925.00; and that the blatantly false RR-1 form was carefully
prepared to conceal overcharges.
The Commissioner is of the opinion that this petition should be granted
in part.
Pursuant to Section 2521.1 of the Rent Stabilization Code, an owner is
entitled to charge an initial free market rent if a dwelling unit has
been substantially altered to the extent that it was not in existence in
its present form on the base date. This requires that the boundary
walls of the unit be moved so that the apartment is larger or smaller
than previously. There is no evidence or even contention that this was
done in the present case. The Commissioner finds that the work
performed did not constitute a substantial alteration which would
warrant an initial free market "first rent." The present case is
similar in that respect to cases cited by the owner (Docket Nos. ARL
05480-L and ARL 04966-L / ART 05064-L), in which a first rent was not
allowed because there had been no change in the total living space.
Those cases were actually submitted by the owner on the issue of treble
damages. In Docket Nos. ARL 04966-L / ART 05064-L, the work had
consisted of new windows, new fireproof door, repair of ceilings and
walls throughout the apartment, new closet walls and doors, rebuilding
of walls between bathrooms and kitchen, replacement of crotons and
fixtures in bathrooms, retiling of bathrooms, relocation of partitions,
and new kitchen equipment, all at a cost of approximately $13,000 in
1983. In Docket No. ARL 05480-L the work had consisted of the removal
of the kitchen, the creation of a bedroom in its place, the conversion
of a section of the living room to a kitchen with new equipment, some
new equipment and tilework in the bathroom, new wiring throughout the
apartment, installation of a wall-length closet, new wiring throughout
the apartment, floor refinishing, and a new door lock, all done in 1982.
In both of these cases the Commissioner found that the overcharges were
not willful since the owners had believed themselves entitled to charge
a first rent based upon their expenditures for substantial renovations
in the units. In the present case the owner spent $649.39 for a new
refrigerator and stove, and $17,475.79 for the following work done
beginning November 1984: "Renovated apartment, including demolition,
sheetrock work, all electrical, plumbing, carpentry, painting, floor
covering, and tile work. Constructed new bathroom, with all plumbing
and tile. Furnished and installed new kitchen cabinets for new
kitchen." The Commissioner considers that, similarly to the other cases
cited above, the owner's charging of a "first rent" based upon the
expenditure of over $18,000 on substantial renovations in the subject
apartment should not be considered a willful overcharge, and that treble
damages should therefore not be imposed. Because treble damages are
being removed on this ground, it is not necessary to decide whether the
owner's granting of a prospective rent credit, without interest,
beginning in February, 1990, nearly a year after the issuance of Policy
Statement 89-2, and which the tenant would not have obtained the full
benefit of for approximately 20 months, would have warranted treble
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damages not being imposed. While the RR-1 registration form given to
the tenant by the owner was incorrect in stating that the April 1, 1984
rent was $925.00, and while this could have misled the tenant into not
challenging the lawfulness of her rent, the Commissioner considers the
fact that in the form it was stated that the form was prepared on
September 11, 1985 [and which therefore indicated that it was a newly-
prepared document and not a copy of the initial registration filed with
the DHCR] to be evidence that the form was an attempt by the owner to
claim what it believed was its entitlement to a free market "first rent"
of $925.00 rather than being an attempt to defraud.
Because treble damages are being removed, interest is instead being
imposed. Interest on the $4,095.52 of overcharges calculated by the
Administrator for the tenant's first lease is $1,873.70 as of April 30,
1991, the end of the month of the Administrator's order. There is
interest of $1,487.70 on the overcharges from October 1, 1986 to
September 30, 1987; $2,016.48 on the overcharges from October 1, 1987 to
September 30, 1989; and $196.98 on the overcharge from October 1, 1989
to January 31, 1990, all interest being calculated as of April 30, 1991,
for total interest of $5,574.86. When added to the overcharges of
$18,138.96 found by the Administrator the total overcharge, including
interest and excess security of $375.20, on rents paid through January
31, 1990 is $24,089.02.
In her answer to the owner's petition the tenant contended that much of
the work performed in the apartment was in the nature of repairs and
should not be allowed to increase the rent. However, an answer is
relevant only to the extent that it responds to points raised in the
other party's petition. Because the tenant did not file her own appeal
challenging the Administrator's allowance of all the owner's
expenditures, her contentions regarding that issue may not be considered
in this appeal proceeding. For the same reason her contention about not
being given a refund for the eight days that she was not allowed to move
into the apartment is also not being considered.
The tenant is incorrect in asserting that neither a vacancy allowance
nor a Guidelines increase should have been applied to her initial lease.
Her lease commenced during Guideline Period 16. On September 30, 1984,
the last day of Guideline Period 15, there was a lease in effect at a
rent of $223.08. Because it was in effect on April 1, 1984, and expired
on June 30, 1986, it must have commenced on July 1, 1983, which is
during Guideline Period 14. Because the next tenant commenced occupancy
on December 1, 1984, during Guideline Period 16, there was no vacancy,
and no vacancy allowance taken, during Guideline Period 15. Guideline
16 allowed a 7 1/2% vacancy allowance unless one was taken during
Guideline Periods 15 or 16. There was no vacancy during Guideline
Period 15. Rather than calculate the tenant's rent as an increase over
the $925.00 rent of the prior tenant whose lease commenced December 1,
1984, the Administrator calculated it as an increase over the September
30, 1984 rent of $223.08, with only one vacancy allowance. The
Administrator was therefore effectively ignoring the lease commencing
December 1, 1984 as if it had never existed: its rent of $925.00 was
not used because it was not in effect on September 30, 1984, and this
also means that the calculation of the tenant's rent did not include the
effect of any other vacancy allowance during Guideline Period 16.
The owner has expressed concern about the tenant receiving a double
refund if she is allowed to file a DHCR order as a judgment. Because
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the tenant acknowledged having received a credit of $13,031.48 as of
April 1, 1991, and because such credit against the rent presumably
continued for some additional, unknown period of time, this order may
not be filed as a judgment. Instead, the owner is directed to refund
any overcharge not previously actually taken by the tenant. Because of
the owner's concern about potential liability to the other tenant named
on the leases, and because the tenant has stated that they both join in
the complaint, the owner is directed to do one of the following:
1) Within thirty days of the issuance of this order,
tender to the tenants a check for the unrefunded
portion of the overcharge and penalties payable to
the order of "Michelle Myers and Anthony Pellicane";
or
2) Tender to either tenant (Michelle Myers or Anthony
Pellicane) a check for the unrefunded portion of the
overcharge and penalties upon presentation by such
tenant to the owner of a written instrument in
proper form duly executed by the other tenant
releasing the owner from any further liability for
such refund.
If the owner does not perform either of these two options, the tenants
may credit the unrefunded balance of the refund due in an amount up to
their monthly rent until the remaining balance has been taken.
If the tenants have already taken credits for an amount larger than the
overcharge found by this order, and owe money to the owner as a result
of this order, the owner is directed to allow the tenants to pay off the
arrears in 12 equal monthly installments if the arrears are less than
$5,000.00, or in 24 equal monthly installments if they are more than
$5,000.00.
Because this determination concerns lawful rents only through January
31, 1990, the owner is cautioned to adjust subsequent rents to an amount
no greater than that determined by this order plus any lawful increases,
and to register any adjusted 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 in part
and that the Rent Administrator's order be, and the same hereby is,
modified in accordance with this order and opinion. The total
overcharge is $24,089.02 as of January 31, 1990.
ISSUED
FE 410095 RO
JOSEPH A. D'AGOSTA
Acting Deputy Commissioner
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