DHCR Decisions
CA 710220 RT
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
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IN THE MATTER OF THE ADMINISTRATIVE ADMINISTRATIVE REVIEW
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
and
Country Estates Associates,
PETITIONER
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ORDER AND OPINION REMANDING PETITION FOR ADMINISTRATIVE REVIEW
DOCKET NO. CC 710448-RO AND DENYING PETITION
FOR ADMINISTRATIVE REVIEW DOCKET NO. CA 710220-RT
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
increases.
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
documented.
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
improvement.
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
scrutinized.
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.
ISSUED:
ELLIOT SANDER
Deputy Commissioner
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