Landlord Can't Charge First Rent

Facts: Tenants moved into rent-stabilized apartment in 1986 at a monthly rent of $950. Tenants complained of a rent overcharge. Landlord claimed that a new apartment had been created and that it could charge tenants a first stabilized rent. The DHCR ruled against landlord. While substantial renovation work was done, the outer dimensions of the apartment weren't changed. Therefore, landlord was entitled only to a 1/40th increase for the cost of improvements. So tenants' rent was reduced to $800; there was a $15,000 overcharge. Landlord appealed. The court ruled for landlord, finding that the DHCR's ruling was an unreasonable interpretation of the Rent Stabilization Law. The DHCR appealed. Court: Landlord loses. The lower court's ruling was incorrect. There is no provision in the Rent Stabilization Law or Code for a first rent when a new apartment is created. The Code only states that landlord can get a monthly rent increase equal to 1/40th of the cost of renovations or improvements. Under DHCR policy, landlord can charge a first rent only when the perimeter walls of the apartment are substantially moved and changed, and the previous apartment essentially ceases to exist. This policy is reasonable. To allow landlord a first rent when the outer dimensions of the apartment aren't changed is irrational and encourages profiteering.

300 W. 49th St. Assoc. v. DHCR: NYLJ, p. 25, col. 3 (6/23/95) (App. Div. 1 Dept.; Ellerin, JP, Kupferman, Williams, Tom, JJ)