ART 10459-K

                                  STATE OF NEW YORK
                            OFFICE OF RENT ADMINISTRATION
                                     GERTZ PLAZA
                               92-31 UNION HALL STREET
                               JAMAICA, NEW YORK 11433

          APPEAL OF                               DOCKET NO.:   
                                                  ART 10459-K              
                    VARIOUS TENANTS,              RENT ADMINISTRATOR'S
                                                  DOCKET NO.:
                                                  KCS 000267-OM
                                  PETITIONER     OWNER: EDITH FRIED  


          On May 23, 1986, the  petitioner-tenants  filed  a  Petition  for
          Administrative review against an order issued on April 22,  1986,
          by the Rent Administrator, 92-31 Union Hall Street, Jamaica, 
          New York, concerning housing  accommodations,  known  as  various
          apartments, 1013 East 13th Street, Brooklyn,  New  York,  wherein
          the Rent  Administrator  determined  that  the  owner  should  be
          granted a rent increase for the  installation  of  certain  Major
          Capital Improvements (MCI's), namely new windows, a new boiler/-
          burner and a new roof.  

          The Administrator disallowed an MCI increase for a heat timer and 
          two doors.  In addition, the Administrator found that  the  owner
          had failed to properly document $14,800 of  the  alleged  $38,000
          cost of the boiler/burner and $1,825.00 of the alleged $11,625.00 
          cost of the new roof.   Accordingly,  the  Administrator  allowed
          only $23,200.00 and $9,800.00 for those two items, respectively.

          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  November  14,  1984,  by
          filing an application for an MCI rent  increase.   On  March  28,
          1985, the owner certified that all tenants had been  served  with
          the application.  The application stated that the contractor for

          the boiler/burner and the roof had an ownership interest  in  the
          subject building.  Also submitted were a  Certificate  of  Eligi-
          bility promulgated by the New York  City  Department  of  Housing
          Preservation and Development  (HPD)  stating  that,  pursuant  to
          Section J51-2.5(f) of the  Administrative  Code,  the  reasonable
          costs for the boiler/burner, roof, and windows  were  $23,200.00,
          $9,800.00 and $37,900, respectively, i.e., the costs  allowed  by
          the Administrator herein.

          ART 10459-K
          In their petition, the tenants restate certain objections, all of 
          which had previously been  raised  before  the  Administrator  in
          response to the owner's application.  In particular, the  tenants
          contend that the Administrator's order is incorrect and should be 
          modified because the MCI increase  "will  create  undue  economic
          hardships" on many tenants  in  the  building,  including  senior

          In addition, the tenants allege a "conflict of interest"  between
          the owner and the contractor for the roof and  boiler/burner  and
          that this "obvious suspicion of collusion . . . warrants  a  more
          thorough investigation by the DHCR."

          The tenants also allege that the owner-contractor used  non-union
          labor, in violation of the Article 8-A Loan Program  under  which
          the improvements were financed.

          Furthermore, the tenants contend that certain alleged  violations
          of the Warranty of Habitability Law enabled the owner to  collect
          excess rent at least in the past.

          Finally, the tenants question why  they  rather  than  the  owner
          should bear these costs and request  a  hearing  to  examine  the
          issues herein.

          In response to this petition, t e  owner  contends  the  Adminis-
          trator's order  should  be  affirmed  because  the  MCI  increase
          therein can only be applied in 6% annual  increments,  the  total
          increase is less than that requested by the owner, and the  owner
          has complied with all DHCR regulations in seeki g  the  rent  in-

          The Commissioner is of the opinion that this petition  should  be

          The Rent Control and Rent Stabilization Laws provide for  a  rent
          increase when qualifying major  capital  improvements  have  been
          made by the owner.  The record indicates that the owner  has  met
          the requirements of both laws.  There was  no  provision  at  the
          time the MCI increase herein was granted to exempt  tenants  from
          all or part of the MCI  increase  based  on  the  income  of  the
          tenants.  (The 15% maximum yearly increase under Rent Control and 
          the 6% maximum increase under Rent  Stabilization  apply  to  all
          tenants equally.)  More recently, senior citizens under the SCRIE 
          (Senior Citizens Rent Increase Exemption) program a e  not  obli-
          gated to pay that portion of an MCI increase  which  would  raise
          their total rent to over one-third of  their  disposable  income.
          However, this provision applies only to MCI orders issued  on  or
          after September 1, 1986 and is therefore not  applicable  in  the
          present proceeding.  Accordingly, there is no  error  of  law  or
          fact in the Administrator's order on this issue and therefore  no
          ground on which the order can be  modified  to  accommodate  such
          tenants.  (The SCRIE program is not administered by the DHCR  but

          ART 10459-K
          rather by HPD.)

          The Commissioner notes that in a building where, as here, an  MCI
          increase  is  approved  under  the  Section  J-51  Tax  Abatement
          Program, the rent controlled tenants have a right to a two-thirds 
          reduction in their MCI increase during  the  period  of  the  tax
          abatement.  The Owner's Individual Unit of the DHCR has  an  open
          proceeding with Docket No. ED 230001-X to recalculate  the  rents
          for the effected rent controlled tenants.   That  proceeding  has
          been held in abeyance pending the issuance of this Order.   (Rent
          stabilized tenants are now eligible  for  a  one-half  reduction,
          but only for MCI's whose work commenced  after  June  28,  1988.)
          Upon issuance of this Order, that proceeding will be reactivated.

          As noted above, the owner had admitted to the Administrator  that
          the contractor for the boiler/burner and roof  had  an  ownership
          interest in the subject building.   Such  an  interest  does  not
          preclude the granting of an MCI increase.  However, the owner  in
          such a case must present clear and unambiguous  evidence  of  the
          cost of the alleged improvements because there exists  a  greater
          potential for inflated costs than in the case of an arm's  length
          transaction with an independent contractor.   See  Administrative
          Review Docket No. ARL 00719-L.  In the present case the  Adminis-
          trator  was  cognizant  of  the  relationship   and   accordingly
          disallowed $14,800.00 of  the  alleged  $38,000.00  cost  of  the
          boiler/burner and $1,825.00 of the alleged $11,625.00 cost of the 
          new roof.  

          Thus, this issue was  addressed  by  the  Administrator  and  the
          Commissioner finds no evidence in the record to warrant a further 
          reduction of the MCI increase on this ground.

          The allegation that the owner used non-union labor  in  violation
          of the terms of the Article 8-A Loan Program is not  relevant  to
          this proceeding.  The DHCR  does  not  administer  that  program.
          The owner's alleged failure to comply with the terms  thereof  is
          not a basis for denying an otherwise acceptable MCI increase.

          The allegation that the owner  had  previously  collected  excess
          rent due to alleged violations of the  Warranty  of  Habitability
          Law is also not a basis  to  deny  an  MCI  increase.   What  the
          tenants are apparently contending  s  that  the  conditions  cor-
          rected by these MCI's would have  warranted  rent  abatements  as
          violations of the Warranty of Habitability.   The  tenants  could
          have sought such rent abatements either in a court  of  competent
          jurisdiction or by means of  complaints  filed  with  DHCR.   The
          failure to do so does not affect the owner's  eligibility  for  a
          rent increase.  Furthermore,  the  Commissioner  notes  that  one
          function of the MCI increase is to encourage  owners  to  upgrade
          the housing stock under their control. Indeed, an  owner  is  not
          eligible for an MCI increase for an item which has  not  outlived
          its useful life.

          As to the tenants' request for a hearing, such a hearing is  dis-
          cretional.  There is nothing in the record to indicate  that  the

          ART 10459-K
          Administrator abused that discretion by not holding a hearing.  A 
          letter submitted by the tenants from the former Conciliation  and
          Appeals Board merely stated that the tenants would "be afforded a 
          full opportunity to express their views as  to  the  application"
          but did not promise a hearing.  The record shows that the tenants 
          were afforded the opportunity to respond and  availed  themselves
          of that opportunity before the Administrator.

          THEREFORE, in accordance with  the  Rent  Stabilization  Law  and
          Code, and the Rent Control Law and Regulations, it is       

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


                                                JOSEPH A. D'AGOSTA
                                                Deputy Commissioner


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