DOCKET NO.:  FE 430242-RO
                              STATE OF NEW YORK
                            OFFICE OF RENT ADMINISTRATION
                                     GERTZ PLAZA
                               92-31 UNION HALL STREET
                               JAMAICA, NEW YORK  11433

      APPEAL OF                                 ADMINISTRATIVE REVIEW  
                                            :   DOCKET NO. FE 430242-RO           
                                 PETITIONER :   


      This Order and Opinion is issued pursuant to a Mandamus Order after an 
      Article 78 Proceeding before the Supreme Court, County of New York, Justice 
      Nardelli, dated May 6, 1992, Index Number 3402/92, which directed the 
      Division to issue an Order and Opinion in the underlying Petition for 
      Administrative Review.

      On May 21, 1991, the above named petitioner-owner filed a Petition for 
      Administrative Review against an order issued on April 29, 1991, by the Rent 
      Administrator, 92-31 Union Hall Street, Jamaica, New York, concerning 
      housing accommodations known as various apartments, 168 Rivington Avenue, 
      New York, New York, wherein the Rent Administrator determined that the 
      subject building was subject to the Rent Stabilization Law and Code because 
      the work done thereto did not constitute a substantial rehabilitation in 
      accordance with Rent Stabilization Code ("Code") Section 2520.11(e).

      The issue in this appeal is whether the subject building had been 
      substantially rehabilitated within the meaning of the Code.

      The Commissioner has reviewed all of the evidence in the record and has 
      carefully considered that portion of the record relevant to the issues 
      raised by the administrative appeal.

      The owner commenced this proceeding on June 11, 1990 by filing an 
      application to determine whether the subject building was exempt from Rent 
      Stabilization by virtue of a substantial rehabilitation.

      In its application the owner alleged that it had purchased the subject 
      building on May 29, 1990; that it had been substantially rehabilitated by 
      the prior owner in or about 1983; that the building had been "a vacant 
      shell" prior to the rehabilitation; that ten new housing units were created 
      thereby; that the prior owner had registered the building with the Division 
      as stabilized through error.

      Attached to the owner's application was a copy of a letter to the DHCR from 
      the prior owner, dated May 28, 1990 (the day before the sale of the 
      building) stating the owner's belief that the building is exempt from 
      stabilization for the reasons set forth in a second application form for 
      exemption attached to the letter.  The second application form, dated May 

          DOCKET NO.:  FE 430242-RO

      28, 1990 shows the prior owner as the owner and includes, in substance, the 
      same allegations as made by the current owner-petitioner in its application.

      Also attached to the application is a copy of a February 6, 1984 Certificate 
      of Occupancy for the building showing a cellar plus ten apartments divided 
      equally among floors one through five.  However, the application did not 
      contain any specification of the work done, the cost thereof, or proof of 

      Several tenants objected to the owner's application based, in part, on the 
      allegations that none of the work upon which the application was based had 
      been done by the current owner; that the prior owner had charged market 
      rents of $700.00 to $750.00 per month after the building had been 
      "completely renovated in 1983"; that the tenants took occupancy subsequent 
      to the renovations under leases which stated apartments were subject to Rent 
      Stabilization; and that the rents being paid already reflect the work done 
      in 1983.

      On October 18, 1990 and December 7, 1990 the Administrator requested the 
      following additional information and evidence, stating that only clear 
      readable copies would be accepted:

               "1.  A detailed description of the subject premises 
                    before the alteration and after (please include 
                    sketches of same).  The description must 
                    include the work actually performed by each 
                    contractor with proof of same (i.e. contracts, 
                    invoices, etc.).
           .    2.  A copy of past Certificates of Occupancy.
                3.  A copy of approved alteration plans (with 
                    specifications) and all required permits.
                4.  Proof of the cost of the alteration (proof can 
                    be in the form of cancelled checks bills, 
                    contracts, etc.).
                5.  Proof that no tax abatement or governmental 
                    loans were used to finance the alteration.
                6.  Rent roll for the building indicating the names 
                    of each tenant, apartment number date of first 
                    occupancy, amount of rent being paid, number of 
                    rooms and status of each apartment.
                7.  Any other pertinent information regarding the 
                    status of the subject premises."              

      On January 10, 1991 the owner filed a response to the objections of one of 
      the tenants and to the Administrator's request for addition information.  
      The owner noted that the tenant had "admit(ted)" that the building was 
      "completely renovated in 1983."  The owner argued that the tenant's 
      objection that the renovation had been performed by the prior owner was 
      irrelevant.  However, the owner failed to dispute that after the renovation 
      the prior owner had charged market rents based thereon.

      In response to the Administrator's request for additional information the 
      owner submitted floor plans of typical floors of the building before and 
      after the alteration.  The owner alleged the building had had 17 apartments 
      and two stores (all vacant) prior to the alteration.  The owner further 

          DOCKET NO.:  FE 430242-RO

      alleged that no prior Certificate of Occupancy was on file at the Department 
      of Buildings of New York City.  However, the owner did submit a copy of an 
      Altered Building Application dated November 2, 1983 which describes the 
      proposed alteration as the "complete rehabilitation of existing building 
      including structural repairs and revised plumbing and heating, reducing the 
      number of apartments from 4 apartments per floor to 2 apartments per floor."  
      Also submitted to the Administrator was a copy of the Contractor's Cost 
      Affidavit which had been part of the 1983 application stating the proposed 
      work would cost $150,000.00.  No other evidence of the cost of the 
      alteration, such as invoices, contracts, and/or cancelled checks, was 
      submitted to the Administrator.

      On April 29, 1991 the Administrator issued order number ZEF 410003-UC, 
      denying the owner's application for exemption, finding the "extent of the 
      work completed does not constitute a substantial rehabilitation in 
      accordance with Section 2520.11(e) of the Rent Stabilization Code."

      In its appeal the owner contends that the Administrator's order is incorrect 
      and should be modified because the subject building was "completely 
      renovated" in 1983, the work being a "gut renovation" including the 
      construction and installation of new heating and hot water systems 
      throughout the building; construction of new bathrooms and new kitchens at 
      new locations in all apartments; the installation of new plumbing, new 
      wiring and new gas and electric meters.  Attached to the owner's petition is 
      a copy of a letter from an appraiser to a bank stating the building was 
      "'gut' renovated in 1984."  Also attached is a portion of DHCR Policy 
      Statement 89-7 stating that a "gut rehabilitation" on or after January 1, 
      1974 exempts a building from Stabilization.

      In answer to this petition, several tenants contend that the order should be 
      upheld, in part because the underlying renovation of 1983 was done by the 
      prior owner and because the tenants' leases state that the apartments were 
      subject of Rent Stabilization.

      The Commissioner is of the opinion that this petition should be denied.

      Because the Commissioner finds that the alleged renovations which are the 
      subject of this proceeding do not constitute a substantial rehabilitation 
      within the meaning of Section 5(a)(5) of the Emergency Tenant Protection Act 
      ("ETPA") or the corresponding Section 2520.11(e) of the Code, it is not 
      necessary to address the issues raised in the tenants' answers to this 
      petition.  Nor is it necessary to determine whether the owner's submission 
      of an affidavit by the prior owner that it did not finance the renovation by 
      governmental loans or receive tax abatements constitutes sufficient proof of 
      that allegation.  Similarly, the Commissioner makes no finding as the 
      adequacy of the proof that the alleged renovations were actually done, or 
      the cost thereof.

      In general, for a renovation to be substantial rehabilitation within the 
      meaning of ETPA Section 5(a)(5) (or Policy Statement 89-7) the building must 
      have been vacant, such vacancy not being the result of harassment on the 
      part of the owner.  Further, Section 5(a)(5) exempts buildings completed or 
      substantially rehabilitated on or after January 1, 1974.  Thus, to be a 
      substantial rehabilitation the renovation must be akin to a new 
      construction, that is, there must have been a so-called "gut demolition" and 
      the replacement of all the major building-wide systems such as plumbing, 
      heating, roof,  windows, stairs, fire escapes, electrical, etc.  In 

          DOCKET NO.:  FE 430242-RO

      addition, the components within the individual apartments such as kitchens, 
      bathrooms, floors, ceilings, and non-loadbearing walls, etc., must be 
      replaced.  The fact that then parties and/or the appraiser or the contractor 
      refer to the work done as a gut renovation, or complete renovation or a 
      substantial rehabilitation or any other term does not, and can not, alter 
      the requirements of Section 5(a)(5) for a building to be removed from Rent 

      In the present proceeding there has not even been an allegation that the 
      roof, windows, stairs, floors, ceilings, or non-loadbearing walls had all 
      been replaced in the 1983 renovation.  Indeed, the plans for the renovation 
      explicitly state that the existing stairs, fire escapes and wood between the 
      left and right apartments on each floor were preserved.  This alone 
      constitutes proof that the renovation did not constitute a substantial 
      rehabilitation within the meaning of ETPA or the Code.  Therefore, the 
      Commissioner finds it is unnecessary to resolve whether the other building- 
      wide systems were replaced or not.  For example, the owner's allegations 
      that new plumbing, wiring, gas and electric meters were installed are 
      compatible with the installation of less than the entire building-wide 
      plumbing, heating and electric systems.  Indeed, the Altered Building 
      Application merely referred to "structural repairs and revised plumbing and 
      heating" (emphasis added). 

      According to the plans submitted by the owner, a typical floor before the 
      alteration had four apartments, say left front and rear and right front and 
      rear.  After the alteration there were left and right apartments running 
      from front to rear, i.e., the left front and rear apartments were combined 
      into one apartment, as were the right front and rear apartments.  It is 
      undisputed that the prior owner then charged market rents for these 
      apartments.  The record shows that the prior owner registered the apartments 
      in the subject building as stabilized.  This is alleged to have been an 
      "error" on the part of the prior owner.  The Commissioner notes with 
      interest that this "error"  of the former owner was first alleged in a 
      letter to the DHCR dated May 28, 1990 (the day before the closing on the 
      building) and submitted by the purchaser with its application.

      Based on the record as a whole, the Commissioner finds that the alleged 
      renovations amounted to the combining of the former four apartments on each 
      floor into two new apartments, for which it is undisputed that the former 
      owner charged market rents under the so-called "first rent" concept.  This 
      allows an owner who has so altered an apartment,  including its outer 
      dimensions, that it can be said the apartment did not exist on the base 
      date, to charge a market rent.  See Administrative Review Docket Number ARL 
      01231 (sic).  However, even such an alteration of every apartment does not, 
      in general, add up to a substantial rehabilitation within the meaning of 
      ETPA Section 5(a)(5), the essence of which is building-wide, as stated 
      above; and the Commissioner finds that it did not in this case.

      THEREFORE, in accordance with the Emergency Tenant Protection Act and 
      Regulations, it is 

      ORDERED, that this petition be, and the same hereby is, denied and the Rent 
      Administrator's order be, and the same hereby is, affirmed.


          DOCKET NO.:  FE 430242-RO

                                                     JOSEPH A. D'AGOSTA
                                                 Acting Deputy Commissioner  



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