CA 710220 RT
                                  STATE OF NEW YORK
                            OFFICE OF RENT ADMINISTRATION
                                     GERTZ PLAZA
                               92-31 UNION HALL STREET
                               JAMAICA, NEW YORK 11433

          APPEALS OF                           DOCKET NOS. CA 710220-RT
                                                            CC 710448-RO

               Various Tenants at              DISTRICT RENT ADMINISTRATOR
               451 Fulton Avenue               DOCKET NO. HBD 7-1-0005-OM
               Country Estates Associates,

                    DOCKET NO. CC 710448-RO AND DENYING PETITION

          The above-named petitioners landlord and  tenants,  respectively,
          filed and timely refiled Petitions for Administrative  Review  of
          an order issued on December 18, 1987 by the  Rent  Administrator,
          50  Clinton  Street,  Hempstead,  New  York,  concerning  housing
          accommodations known as 451 Fulton Avenue, Hempstead,  New  York,
          various apartments, wherein the Administrator granted,  in  part,
          the  owner's  application  for  major  capital  improvement  rent

          The landlord of the subject premises (263  units)  initiated  the
          proceeding below by filing with the  Rent  Administrator  in  May
          1987 a rent increase application predicated on ten (10) items  of
          improvements at a claimed cost of $1,058,850.00.

          The order of the Rent Administrator  appealed  herein  authorized
          rent  increases   for   the   following   items:   pointing   and
          waterproofing   ($165,000.00),   upgrading   of   two   elevators
          ($26,450.00), compactors ($14,810.00), burners ($54,800.00)  plus
          windows ($215,674.67).

          Various claimed  costs  were  disallowed  on  grounds  that  they
          represented work  which  did  not  qualify  as  a  major  capital
          improvement (partitioning  of  seven  apartments,  sales  tax  on
          windows and contractor's fees of $318,668.00).  As to the  latter
          item the Administrator noted that the  general  partners  of  the
          landlord herein, Country Estates Associates, are shareholders  of
          the prime contractor, RHP Development Corp.

          Other costs were disallowed as expenditures for ordinary  repairs
          or maintenance (repairs to two of four elevators,  carpeting  and
          painting of public areas).  In addition, the cost of a  roof  was
          disallowed, without prejudice to refiling, upon correction  of  a
          water accumulation problem as evidenced by physical inspections.

          The  landlord,  in  its  petition  for   administrative   review,
          contends, in substance, that it was error for  the  Administrator

          CA 710220 RT
          to have disallowed the general contractor's fee which included  a
          net profit of 13.5 percent as the scope of work performed by  RHP
          Development Corp.  included  obtaining  bids,  site  preparation,
          supervision of the work,  and  payment  to  subcontractors;  that
          carpeting is a site improvement as was the work performed on  the
          disallowed elevators; and that slight pooling of water is  always
          present on a flat roof, the replacement of which  was  adequately

          In their petition  for  administrative  review  various  tenants,
          while not contesting the quality of the work performed, urge  the
          reversal of the Administrator's order on grounds that  RHP  could
          not have acted "objectively" due to the relationship between  the
          landlord and the prime contractor.

          After  a  careful  consideration  of  the  entire   record,   the
          Commissioner is of the opinion that the tenants' petition  Docket
          No. CA 710220-RT  should  be  denied;  and  that  the  landlord's
          petition Docket No.  CC  710448-RO  should  be  remanded  to  the
          Administrator for further processing in accordance herewith.

          Concerning the tenants' appeal, the Commissioner notes  that  the
          Administrator's  determination  was  predicated  upon  supporting
          documentation in the form of separate contracts  with  individual
          subcontractors,     subcontractors'     proposals,      invoices,
          subcontractors' certifications of the work performed and  receipt
          of payment thereof and cancelled checks in substantiation of  the
          cost of the work  performed  to  the  extent  recognized  by  the
          Administrator.   While  there  is  a  relationship  between   the
          principals of the landlord and prime contractor,  the  record  is
          devoid of any indication  that  the  dealing  between  the  prime
          contractor and the individual subcontractors was other than on an 
          "arms-length" basis.  In this respect it is significant  to  note
          for example that installation of windows at a cost of $146.50 per 
          window is far from excessive from agency experience.

          Regarding the landlord's petition, it  is  the  well  established
          position of the Division that for a partial elevator upgrading to 
          qualify as a major capital  improvement,  the  installation  must
          include a new controller/selector, the electronic  brain  of  the
          elevator.  New controllers were installed for  two  of  the  four
          elevators in the subject premises for which a rent  increase  was
          granted.  The replacement of door  operators,  safety  edges  and
          hall and car stations standing alone, with  respect  to  the  two
          other  elevators,   constitutes   a   repair   item   which   the
          Administrator properly found not to qualify as  a  major  capital

          Furthermore, the installation of carpeting and  the  painting  of
          public hallways are cosmetic in  nature  rather  than  structural
          improvements required for the continued  operation,  preservation
          and maintenance of the building.   The  partioning  of  walls  in
          seven apartments clearly was not a building wide improvement  and
          was properly rejected by the Administrator.

          However,  the  record  discloses  that  the  landlord   submitted
          documentation in the proceeding below for the installation  of  a
          new roof at the subject premises.  While the reports of  physical
          inspection reveal pooling  of  water  which  could  lead  to  the

          CA 710220 RT
          deterioration thereof, the inspector did not report  evidence  of
          current water seepage, albeit there was evidence of water  stains
          in two apartments which the  landlord  subsequently  advised  had
          been corrected.  The Commissioner is of  the  opinion  that  this
          proceeding should be remanded to the Rent Administrator for  such
          further processing as may be necessary to verify the  extent  and
          qualify of the work performed with respect to the  roof  and,  if
          found warranted, to adjust on the allowable cost of the roof.

          With respect to the claimed general contractor's fee, it  is  the
          judicially recognized position of  the  Division  to  disallow  a
          major capital  improvement  rent  increase  for  supervision  and
          related activities to the extent that the work  is  performed  by
          the landlord's own employees in  connection  with  their  regular
          duties.  In the instant matter it is conceded that the principals 
          of the landlord are shareholders of RHP  Development  Corp.,  the
          prime contractor.  The record also shows that they share the same 
          business address.  Said factor alone  is,  however,  insufficient
          grounds for the Administrator to have disallowed the cost to  the
          landlord of a general contractor's fee to  the  extent  such  fee
          represents  a  bone   fide   expense   for   services   rendered.
          Nevertheless, because of the relationship  between  the  landlord
          and  prime  contractor  and  the  absence  of  an   arms   length
          transaction,  such  alleged  costs   must   be   most   carefully

          The Administrator did not afford the  owner  the  opportunity  to
          supply underlying documentation to substantiate  the  extent  and
          nature of the services actually rendered by RHP Development Corp. 
          for "operational services, basement cleaning, overhead  and  site
          preparation" as summarized in the proceeding below or the
          reasonableness  of  the  overhead  costs  when  compared  to  the
          recognized costs of the approved major capital improvements.

          Upon the remand the Administrator should undertake  such  further
          processing as may  be  deemed  necessary,  which  may  include  a
          hearing, to ascertain such portion of the landlord's expenses  as
          may represent a reasonable profit  that  the  general  contractor
          was entitled to receive for  its  services  attributable  to  the
          major capital improvement items allowed herein and to adjust  the
          rent increase accordingly.

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

          ORDERED, that Petition for Administrative Review  Docket  No.  CA
          710220-RT be, and the same hereby is denied;  that  Petition  for
          Administrative Review Docket No. CC 710448-RT be,  and  the  same
          hereby is granted to the extent of remanding this  proceeding  to
          the Rent Administrator for further processing in accordance  with
          this order and opinion. The order and determination of  the  Rent
          Administrator remains in full force and effect until a new  order
          is issued upon the remand.


                                                       ELLIOT SANDER
                                                       Deputy Commissioner

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