CC 730456-RO
                                  STATE OF NEW YORK
                            OFFICE OF RENT ADMINISTRATION
                                     GERTZ PLAZA
                               92-31 UNION HALL STREET
                               JAMAICA, NEW YORK 11433

          APPEAL OF                            DOCKET NO. CC 730456-RO

               Country Estates Associates,     DISTRICT RENT ADMINISTRATOR
                                               DOCKET NO.  HBD  7-1-0006-OM

          The above-named petitioner-landlord  timely  refiled  a  Petition
          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 14  Elk  Street,
          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  (41  units)  initiated  the
          proceeding below by filing with the  Rent  Administrator  in  May
          1987 a rent increase application predicated on  seven  (7)  items
          of improvements at a claimed cost of $291,021.00.

          The order of the Rent Administrator  appealed  herein  authorized
          rent  increases   for   the   following   items:   pointing   and
          waterproofing  ($90,000.00),  burner  ($7,250.00)  plus   windows

          Various claimed  costs  were  disallowed  on  grounds  that  they
          represented work  which  did  not  qualify  as  a  major  capital
          improvement (elevator  repairs,  carpeting,  painting  of  public
          areas sales tax on windows and contractor's fees of  $88,711.00).
          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.

          The  landlord,  in  its  petition  for   administrative   review,
          contends, in substance, that it was error for  the  Administrator
          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; and  that
          carpeting is a site improvement as was the work performed on  the
          disallowed elevators.

          After  a  careful  consideration  of  the  entire   record,   the
          Commissioner is of the opinion that  landlord's  petition  should
          be remanded  to  the  Administrator  for  further  processing  in
          accordance herewith.

          CC 730456-RO

          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.   The
          replacement of door operators, safety  edges  and  hall  and  car
          stations standing alone with respect to the two elevators in  the
          subject  premises,  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. 

          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 as part of 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  bona   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 this Petition for Administrative Review 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.


          CC 730456-RO
                                                       ELLIOT SANDER
                                                       Deputy Commissioner

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