FL 410297 RT and FK 410175 RO
                                  STATE OF NEW YORK
                            OFFICE OF RENT ADMINISTRATION
                                     GERTZ PLAZA
                               92-31 UNION HALL STREET
                               JAMAICA, NEW YORK 11433

          ------------------------------------X  SJR No.: 6336
          APPEALS OF                             DOCKET NO. FL 410297 RT
                                                            FK 410175 RO

               Francis & Virginia Reid,       :  DISTRICT RENT              
                                   tenants,      ADMINISTRATOR'S            
                        and                      DOCKET NO. DB 410078 R
               Second 82nd Corp,                 

                                  PETITIONERS : 


          On November 25, 1991, the above-named owner filed a petition for 
          administrative review of an order issued on November 14, 1991 by a 
          District Rent Administrator concerning the housing accommodations 
          known as 240 East 82nd Street, New York, New York, Apartment No. 
          9A, wherein the Rent Administrator determined that an overcharge 
          had occurred.

          On December 11, 1991, the above-named tenants filed a petition for 
          administrative review of the same Administrator's order.

          Subsequently, and after more than ninety days had elapsed from the 
          time it filed its petition for administrative review, the owner 
          deemed its petition as having been denied, and sought judicial 
          review in the Supreme Court of the State of New York pursuant to 
          Article  78 of the Civil Practice Law and Rules. 

          By stipulation dated June 2, 1992, the court proceeding was 
          withdrawn on condition that the DHCR render a determination of the 
          owner's petition for administrative review within 90 days of June 
          2, 1992.

          The Commissioner is consolidating these two petitions for 
          administrative review.  This order and opinion shall be dispositive 
          of both.

          The Commissioner has reviewed all of the evidence in the record and 

          FL 410297 RT and FK 410175 RO

          has carefully considered that portion of the record relevant to the 
          issues raised in the administrative appeals.  

          This proceeding was commenced on February 3, 1989 by the filing of 
          a complaint of rent overcharge by the tenants.  The tenants 
          acknowledged in the complaint that vacancy improvements had been 
          made in the subject apartment prior to their occupancy, but stated 
          that these improvements were insufficient to account for the 
          alleged rent overcharges.

          In its answer to the complaint, the owner asserted that it was 
          entitled to charge a first stabilization rent because the subject 
          apartment had been substantially altered and a new apartment had 
          been created.  The owner alleged that, by enclosing a balcony, the 
          bedroom was enlarged by 55 square feet and the remainder of the 
          balcony was enclosed to create a greenhouse.  Further, the owner 
          alleges that extensive interior work was required to effectuate 
          these improvements.  Finally, the owner contends, in the 
          alternative, that even if an overcharge were to be found, no treble 
          damages should be assessed.  The owner submitted documents 
          including a floor plan, a contractor's proposal, cancelled checks, 
          an architect's inspection report and a City of New York Department 
          of Buildings Building Notice.

          In the order here under review, the Administrator found that an 
          overcharge had occurred.  It was determined that the subject 
          apartment had been appropriately registered and therefore the 
          registered rent of April 1, 1985 served as the base amount.  The 
          lawful stabilization rent was determined to be $1,557.05 per month 
          for the lease period ending August 31, 1991, and the total 
          overcharges were determined to be $36,469.26 including treble 
          damages and excess security.  

          In their petition, the tenants assert, among other things, that the 
          improvements were not done completely and could have been done more 
          cheaply.  An architect's statement was included with the petition.

          In its petition, the owner repeats the allegations made below.  The 
          owner reasserts that, by virtue of enclosing the balcony, it has 
          created new interior living space and a new apartment unit.  
          Further, the owner alternatively reasserts that no treble damages 
          should have been assessed by the Administrator.  The owner also 
          alleges that the Administrator's order was issued before its time 
          to respond to a final notice had expired.

          After careful consideration, the Commissioner is of the opinion the 
          owner's petition for administrative review should be granted in 
          part.  The tenant's petition should be denied.

          FL 410297 RT and FK 410175 RO

          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 
          dimensions of the apartment.

          In this case, the owner asserts that the creation of new interior 
          space is sufficient to entitle it to a first stabilization rent.  
          The Commissioner finds that where, as here, the new interior space 
          was merely a different usage of pre-existing exterior space which 
          was part and parcel of the subject apartment, a new unit was not 
          created so as to qualify for a first rent.  Accordingly, the owner 
          was not entitled to collect a first rent.

          Further, 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 to a first rent.  The documentation in 
          the record indicates that many systems in the subject apartment 
          were changed.  The changes included: converting a portion of the 
          pre-existing balcony space to interior bedroom space, relocating 
          the radiator, reflooring the converted interior space, enclosing 
          the remainder of the balcony as a greenhouse, and renovating 
          certain walls between the converted areas.  The Commissioner finds 
          that the quantity of systems involved and the quantity of 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.

          The Commissioner also finds that the issuance of the 
          Administrator's order before the owner's time to respond to a final 
          notice did not result in a denial of due process.  The Commissioner 
          has fully considered the entire record including any materials 
          submitted for the first time with the petition for administrative 
          review.  Accordingly, all the owner's due process rights have been 

          Finally, the Commissioner is of the opinion that the tenants' 
          allegation that the vacancy improvements could have been done at 
          lower cost is insufficient to change the Administrator's order.  
          Section 2522.4(a)(4) of the Rent Stabilization Code authorizes an 
          increase in the lawful stabilization rent of 1/40th of the total 

          FL 410297 RT and FK 410175 RO

          cost of the improvements.  The statute requires that the owner 
          prove actual costs.  In this case the tenant does not claim that no 
          work was done but merely speculates on the reasonableness of the 
          costs of the vacancy improvements.  Clearly, the tenant has the 
          burden of proof in showing unreasonably high costs.  In this case, 
          the Commissioner is of the opinion that the tenants have not 
          sustained their burden of proof.

          Therefore, the Administrator's determinations that the lawful 
          stabilization rent should be $1,557.05 per month and that the 
          overcharge (without treble damages) was $12,041.74 shall remain.  
          However, treble damages shall not be assessed.  Instead, the 
          assessment of interest ($2,487.01) and excess security ($344.06) 
          results in a total overcharge of ($14,872.81).

          Because this determination concerns lawful rents only through     
          August 31, 1991, the owner is cautioned to adjust subsequent rents 
          to an amount no greater than that determined by the Rent 
          Administrator's 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 the owner's petition be, and the same hereby is, 
          granted in part, and, that the Administrator's order be, and the 
          same hereby is, modified in accordance with this order and opinion; 
          and it is 

          FURTHER ORDERED, that the tenants' petition be and the same hereby 
          is denied; and it is 

          FURTHER ORDERED, that the owner Second 82nd Corp. shall immediately 
          refund to the tenants all amounts not yet refunded representing 
          overcharges, interest and excess security; and it is

          FURTHER ORDERED, that if the owner Second 82nd Corp. has not 
          refunded the stated 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 at a rate not in 
          excess of twenty percent of the amount to be refunded for any one 
          month's rent.  If the owner has refunded no such amounts and the 

          FL 410297 RT and FK 410175 RO

          tenant have not made any such deductions from their rent as an 
          offset, then the tenants' may file and enforce a copy of this order 
          as a judgment for the amount of $14,872.81 against Second 82nd 

                                          JOSEPH A. D'AGOSTA
                                          Acting Deputy Commissioner



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