FL 410297 RT and FK 410175 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 SJR No.: 6336
IN THE MATTER OF THE ADMINISTRATIVE : ADMINISTRATIVE REVIEW
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,
owner,
PETITIONERS :
------------------------------------X
ORDER AND OPINION GRANTING THE OWNER'S PETITION FOR
ADMINISTRATIVE REVIEW IN PART AND DENYING THE
TENANT'S PETITION FOR ADMINISTRATIVE REVIEW
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withdrawn on condition that the DHCR render a determination of the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
protected.
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
Corp.
ISSUED:
JOSEPH A. D'AGOSTA
Acting Deputy Commissioner
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