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

          ------------------------------------X  SJR 4597
          APPEAL OF                               DOCKET  NO.  DB  430282-RT
                                                 D.R.O.      DOCKET      NO.
                                                 BD 410514-OM     
          201      EAST       19TH       STREET       TENANTS'             :
          ASSOCIATION,           BEVERLY           FRANCUS,           PRES.,

                                 PETITIONER   :  

                  IN PART

               On February 14, 1989  the  above-named  petitioner  filed  an
          Administrative Appeal against an order issued on January 17,  1989
          by the District  Rent  Administrator,  92-31  Union  Hall  Street,
          Jamaica, New York, concerning the housing accommodations known  as
          201 East 19th Street, New York, New York, Various Apartments.  

               Subsequent thereto, the petitioner filed a  petition  in  the
          Supreme Court pursuant to Article 78 of the Civil Practice Law and 
          Rules requesting that the Court direct the Division  to  determine
          its administrative appeal. 

               On August 2, 1989, an order was signed by  Justice  David  B.
          Saxe  directing  the  Division  to  expeditiously  determine   the
          petitioner's administrative appeal.

               On October 18, 1989, the Commissioner  issued  an  order  and
          opinion denying the petitioner's administrative appeal. 

               Subsequent thereto, the petitioner filed a  petition  in  the
          Supreme Court pursuant to Article 78 of the Civil Practice Law and 
          Rules requesting that the Commissioner's order be annulled.

               On December 3, 1990, an order was signed by Justice David  B.
          Saxe  remitting  the  proceeding  to  the  Division  for   further

               The Administrative Appeal is being determined pursuant to the 
          provisions of 9 NYCRR 2522.4.

               The issue herein is whether the District  Rent  Administrator
          properly determined the owner's application for  a  rent  increase

          ADM. APPEAL DOCKET NO. DB 430282-RT 
          based upon claimed major capital improvements.

               The District Rent  Administrator's  order,  appealed  herein,
          increased the rents for  the  subject  housing  accommodations  by
          $2.88 per room per month, effective as of September 1,1987,  based
          upon the installation of a new roof and pointing and waterproofing 
          at a total, approved cost of $85,585.00.   It  was  noted  in  the
          order that the owner's  claimed  expenditure  of  $108,882.23  for
          replacement windows was disallowed as such windows were  installed
          piecemeal from 1977 to 1983 and no contract  was  submitted;  that
          $5,520.23 was deducted from the  approved  cost  for  purposes  of
          calculating the rent  increase  as  said  amount  represented  the
          benefit from  the  major  capital  improvements  received  by  the
          commercial tenants of the subject premises; that  various  tenants
          objected to the  owner's  application  alleging  that  there  were
          active leaks from the roof and/or exterior walls and  leak  damage
          to the  walls  of  their  apartments;  that  physical  inspections
          conducted on July 15, 1988 and July 22, 1988 revealed that repairs 
          had been made in all but two apartments, 17B and 17H; and that  on
          September 23, 1988, the owner submitted a  work  order  indicating
          that work was done to correct conditions  in  apartments  17B  and

               On appeal, the petitioner-tenants alleged, in substance, that 
          the owner's application was untimely by the standards of the  Rent
          Stabilization Code, and delayed beyond a reasonable time after the 
          work  was  allegedly  completed,  thus  prejudicing  the  tenants'
          ability to answer; that the owner made a "bare bones"  application
          on April 30, 1987 in order  to  evade  the  requirement  that  the
          application be filed within two years after completion of work  as
          provided in 9 NYCRR 2522.4(a)(8) of the  current  Code;  that  the
          owner's application was still substantially incomplete as  of  the
          date of issuance of the District Rent Administrator's order;  that
          it  appears  that  the  owner  failed  to   submit   a   completed
          contractor's or vendor's certification with regard to the pointing 
          and waterproofing work; that the tenants were denied a  meaningful
          opportunity to rebut certain evidence submitted by the owner, most 
          notably the "work order" of September 23, 1988 referred to in  the
          District  Rent  Administrator's  order;  that  the  District  Rent
          Administrator  failed  to  consider  evidence  that  the  roofing,
          pointing and waterproofing were not  performed  in  a  workmanlike
          manner as stated in an Engineer's Report submitted by the tenants; 
          that pointing and waterproofing should  not  be  considered  major
          capital  improvements  as  the  costs  therefor  are  not   deemed
          depreciable under  the  Internal  Revenue  Code,  but  rather  are
          deductible as ordinary operating expenses, citing a 1946  decision
          of a District Court in Connecticut; that the rent increases should 
          expire when the owner's  costs  are  fully  amortized  after  five
          years; and that since the owner's application is not complete, the 
          effective date of September 1,  1987  for  the  rent  increase  is

               After a careful  consideration  of  the  entire  evidence  of
          record as then comprised, the Commissioner was of the opinion that 
          the administrative appeal should be denied.

               The  Commissioner's  determination   was   based   upon   the

          ADM. APPEAL DOCKET NO. DB 430282-RT 
          following discussion:   

               It was the opinion of the Commissioner that a review  of  the
          record indicated that the  District  Rent  Administrator  properly
          determined the owner's application for a rent increase based  upon
          claimed major capital improvements, providing the tenants adequate 
          notice  and  reasonable  opportunity  to  respond  throughout  the
          processing of said application.  

               On appeal, the tenants characterized the owner's  application
          as  being  "bare  boned."   It  was  within  the   District   Rent
          Administrator's proper scope of authority and discretion  to  deem
          the owner's application as filed on April 30, 1987 acceptable  for
          purposes of instituting these proceedings.  It was not unusual for 
          the Division to request such additional information or evidence as 
          was requested herein from an  owner  to  supplement  its  original
          filing.  Such requests did not alter the  filing  date  previously

               Contrary to the tenants' allegation on appeal that the  owner
          failed  to  provide   a   completed   contractor's   or   vendor's
          certification with regard to the pointing and waterproofing  work,
          the record contained such completed certification which was  filed
          with the Division on September 15, 1987.

               With regard to the "work order" filed on September  23,  1988
          which referred to plastering work performed  in  two  of  the  one
          hundred and eighty-nine apartments in the  subject  premises,  the
          Commissioner noted that in response to  several  of  the  tenants'
          complaints  that  their  apartments  displayed  evidence  of  leak
          damage, the District Rent Administrator directed  two  inspections
          which revealed that leak damage in all but two apartments had been 
          adequately and systematically repaired.  It was not  improper  for
          the District Rent Administrator to accept  said  "work  order"  as
          sufficient evidence  that  the  remaining  repair  work  had  been
          performed.  In any event, considering that the outstanding surface 
          repair work involved only two of the one hundred  and  eighty-nine
          apartments in the subject premises, the  Commissioner  found  that
          the District Rent Administrator properly determined that the owner 
          had sufficiently addressed the tenants' complaints  so  as  to  be
          entitled to an appropriate rent adjustment for the  major  capital
          improvements.  The Commissioner's order  and  opinion  was  issued
          without prejudice to the right of any tenant to file an individual 
          statement of complaint relating to conditions within  his  or  her
          apartment, and seeking a rent reduction therefor.       

               Also contrary to the tenants' claim that  the  District  Rent
          Administrator failed to consider the contents of their  Engineer's
          Report, the record revealed that said Report was duly considered 

          by  the  District  Rent  Administrator  and  resulted  in  further
          processing of the owner's application, including the physical 
          inspections noted herein above.  Said inspections revealed,  among
          other things, that the roofing, pointing  and  waterproofing  work
          performed was  effective  in  stanching  water  seepage  from  the
          building's exterior.  Contrary  to  the  tenants'  assertion  that
          their Engineer  found  that  the  work  was  not  performed  in  a
          workmanlike manner, the tenants' Engineer noted in his report that 

          ADM. APPEAL DOCKET NO. DB 430282-RT 
          the roof "appeared generally in satisfactory condition" more  than
          four years after its installation.

               With  regard  to  the  tenants'  claim  that   pointing   and
          waterproofing should not be considered major capital improvements, 
          the Commissioner  was  of  the  opinion  that  the  District  Rent
          Administrator properly applied the provisions of  9  NYCRR  2522.4
          which specifically provides that pointing  and  waterproofing,  as
          necessary on exposed  sides  of  a  building,  are  major  capital
          improvements.  In addition, the Commissioner considered  that  the
          owner  may  have  relied  on  the  inclusion   of   pointing   and
          waterproofing in a schedule of  major  capital  improvements  made
          part of 9 NYCRR 2522.4 and it is the long-standing policy  of  the
          Division to encourage such work to preserve the housing  stock  by
          allowing it to be the subject of a major capital improvement  rent
          increase application. 

               The tenants' claim that the rent increase should expire after 
          five  years  is  not  supported  by  the   applicable   laws   and

               Lastly,  the  Commissioner  held  that  the   District   Rent
          Administrator properly established the effective date of the  rent
          increase as of September 1, 1987 in accordance with the provisions 
          of 9 NYCRR 2522.2.

               In  their  Article  78   petition,   the   petitioner-tenants
          requested that the Commissioner's order be  annulled,  maintaining
          that the overall work performed was not  comprehensive  enough  to
          qualify as major capital improvements and  that  pointing  is  not
          depreciable under the Internal Revenue  Code  and  thus  does  not
          qualify for MCI treatment.    

               In his order and decision remitting  the  proceeding  to  the
          Division, Justice  Saxe  specifically  directed  the  Division  to
          reconsider the following issues:  1) the comprehensiveness of  the
          overall work performed and 2) the tax treatment of pointing. 

               On April 16, 1991, the Division mailed a notice to the  owner
          and the tenants advising the parties that, in accordance with  the
          December 3, 1990 order and decision of Justice Saxe, they had  the
          opportunity to submit  any  additional  material  they  wished  to
          submit regarding 1) the comprehensiveness of  the  work  performed
          and 2)  whether  the  pointing  work  performed  could  be  deemed
          depreciable under the Internal Revenue Code.

               On April 30, 1991,  the  owner  submitted  a  response  which
          included the Tax Court's Memorandum and Opinion in the  matter  of
          Bank of Houston v. Commissioner, 19 TCM 589 (1960) to support  its
          position that pointing is depreciable under the  Internal  Revenue
          Code.  No response from the tenants was received.

               By letters dated March 5, 1991 and May 3, 1991, the  Division
          also requested from the Internal Revenue Service a formal  written
          interpretation  regarding  whether  the  complete   pointing   and
          waterproofing, as necessary, of a multiple dwelling is depreciable 
          under the Internal Revenue Code.  On May 31,  1991,  the  Division

          ADM. APPEAL DOCKET NO. DB 430282-RT 
          received such formal written interpretation, dated May  28,  1991,
          from the Internal Revenue Service.

               As interpreted by the Internal Revenue Service, the  relevant
          sections  of  the   Internal   Revenue   Code   and   accompanying
          regulations, as  applied  to  the  matter  at  issue,  provide  as

                    "Payments for the purpose of keeping the property
                    in ordinary efficient operating condition, such as
                    replacement of short lived parts, and that do not 
                    add to its value or appreciably prolong its life are  
                    in the nature of incidental repairs.  Subject to  
                    specific facts and circumstances, examples of such
                    repairs and maintenance could include repainting, 
                    mending leaks, patching a roof, replastering, etc.
                    Tuck pointing of limited, specific areas of a brick 
                    wall showing weathering damage would generally not
                    prolong the life of the property, nor materially
                    add to its value, and would be currently deductible.

                    "However, if replacement, repair or renovation acts
                    to retard deterioration and prolong the life of a 
                    property, then such expense should be capitalized 
                    and depreciated.  This is because there is a  
                    resulting increase in value, extension of useful 
                    life or improvement in useability of the property,
                    factors that tend to indicate a capital expenditure.
                    Examples of such expenditures would include a new or
                    resurfaced roof, complete waterproofing of brick walls
                    or roof (rather than repair of specific leaks), added
                    structural support, etc.

                    "Improvements made in anticipation of economic benefits
                    continuing over an indefinite period of time are capital
                    in nature.  Thus, while a particular expense which by 
                    itself would be a repair, when a component of a larger 
                    overall   plan   of   renovation,   rehabilitation,   or
                    improvement, are also in the nature of permanent 
                    improvements and are capitalized.

                    "The complete pointing and waterproofing of a multiple
                    unit dwelling is in the nature of a permanent 
                    improvement or betterment, and thus would appear
                    to be capital in nature and depreciable subject to
                    specific facts and circumstances.  Repair of specific
                    leaks and limited tuck pointing of specific 
                    trouble spots, if not part of some larger, overall
                    plan of renovation, rehabilitation or improvement of
                    the property, would likely constitute incidental
                    repairs and be a currently deductible expense."

               The  above-stated  interpretation  by  the  Internal  Revenue
          Service  fully  supports  the  Division's   policy   to   consider
          comprehensive pointing and waterproofing on  exposed  sides  of  a

          ADM. APPEAL DOCKET NO. DB 430282-RT 
          building,  as  qualifying   for   treatment   as   major   capital
          improvements.  The work performed, for example,  must  be  greater
          than mere spot patching to repair current leaks or  trouble  spots
          so as to be in the nature of an improvement or betterment  of  the
          structure.  The tenant's administrative appeal to the extent  that
          it asserts, as a matter  of  law,  that  costs  for  pointing  and
          waterproofing are never depreciable  under  the  Internal  Revenue
          Code should therefore be denied.

               With regard to the remaining issue which the  Court  directed
          the Division to reconsider, a review of the record in the  instant
          proceeding indicated that the record was not adequate to determine 
          the comprehensiveness of the overall work performed.  The  record,
          for example, did not contain a diagram indicating  the  extent  to
          which the exposed sides of  the  subject  premises  were  pointed.
          Such diagram was previously requested by notices dated  March  16,
          1988 and August 17, 1988.  As such the  Commissioner  was  of  the
          opinion that further processing  was  required  to  determine  the
          comprehensiveness of the overall work performed in accordance with 
          the Court's directive.  A determination could then be made  as  to
          whether the work was comprehensive enough to qualify for treatment 
          as major capital improvements under the  standards  enunciated  by
          the Internal Revenue Service.   

               On  August  1,  1991,  the  Division  mailed  a   Notice   of
          Opportunity to Present Further Information  and  Evidence  to  the
          owner advising it of the Internal Revenue Service's formal written 
          interpretation and  requesting  that  the  owner  submit  evidence
          indicating the comprehensiveness of the pointing and waterproofing 
          work performed, such as the type of diagram which  was  previously
          requested by the notices dated March 16, 1988 and August 17, 1988, 
          mentioned hereinabove.  The owner was directed to serve a copy  of
          its response on the tenants who were afforded  an  opportunity  to
          submit evidence or comments in rebuttal thereto.  

               On August 14, 1991, the owner  responded  by  letter  stating
          that the contractor, in his affidavit of April 4, 1988,  which  is
          already part of the record, asserted that a thorough inspection of 
          the premises was made prior to the commencement of work  and  work
          was actually performed, where necessary, on all elevations of  the
          premises; that in accordance with the Division's existing  policy,
          the work completed was therefore comprehensive  in  nature  as  it
          addressed all exposed building elevations, as necessary; that  the
          Division's request for additional evidence,  such  as  a  diagram,
          made more  than  ten  years  after  the  work  was  performed,  is
          unreasonable; that the contractor cannot now be expected to recall 
          and diagram the exact location and extent  of  the  work  on  each
          elevation;  that  the  evidence  already  in  the  record  clearly
          substantiates  the   comprehensiveness   of   the   pointing   and
          waterproofing in accordance with the definition  provided  by  the
          Internal Revenue Service  and  rent  agency  precedent;  that  the
          District Rent Administrator and the Commissioner have  both  found

          ADM. APPEAL DOCKET NO. DB 430282-RT 
          that the pointing and waterproofing work performed at the  subject
          premises qualified as major  capital  improvements  in  accordance
          with the existing Division policies and procedures;  and  that  no
          factual question remains as the Commissioner  may  rely  upon  the
          factual determination previously made.    

               On August 16, 1991, the tenants submitted their  response  in
          rebuttal wherein they stated,  in  substance,  that  the  Internal
          Revenue   Service's    interpretation    requires    comprehensive
          waterproofing as well as comprehensive pointing; that there was no 
          waterproofing performed in the instant proceeding whatsoever; that 
          the contractor's formal proposal of May 26, 1981  refers  only  to
          tuck pointing operations (specific "necessary repairs") and  makes
          no reference to the  application  of  any  kind  of  waterproofing
          materials; that the pointing work performed was simply maintenance 
          and would be so regarded by the Internal Revenue Service; and that 
          the owner, who filed its  major  capital  improvement  application
          approximately six years after allegedly completing  the  work  and
          who has sought court adjournments, should  not  now  be  heard  to
          complain that it is "unreasonable" for the Division to require the 
          requested data after all this time.    

               After a careful  consideration  of  the  entire  evidence  of
          record, the Commissioner is of the opinion that the administrative 
          appeal should be granted, in part, as provided hereinbelow. 

               The owner has failed  to  establish  that  the  pointing  and
          waterproofing  work  performed  at  the   subject   premises   was
          comprehensive enough to qualify for  treatment  as  major  capital
          improvements  under  the  standards  enunciated  by  the  Internal
          Revenue  Service.   The  owner  relies  on   evidence   previously
          submitted despite the Division's latest notice advising the  owner
          that additional evidence was necessary to determine the matter. In 
          view of the owner's recent default,  the  Division  is  unable  to
          ascertain  the  comprehensiveness  of  the   work   performed   as
          specifically directed to do so by the Court.  

               The Commissioner is therefore of the opinion that the owner's 
          application for a rent increase based upon  claimed  pointing  and
          waterproofing work performed at the  subject  premises  should  be
          denied.   Deleting  the  approved  cost  of   the   pointing   and
          waterproofing from the Administrator's calculations results  in  a
          reduction of the per room per month rent increase  from  $2.88  to
          $0.78.  The owner is hereby directed  to  refund  to  the  tenants
          within thirty days of the issuance of this order and  opinion  any
          overpayments in rent arising as  a  result  of  this  order.   The
          Commissioner's prior determination of the remaining allegations of 
          the tenants' administrative appeal is hereby affirmed.  

               THEREFORE, in accordance with  the  provisions  of  the  Rent
          Stabilization Law and Code, it is

               ORDERED, that this administrative appeal  be,  and  the  same
          hereby is, granted, in part, as provided hereinabove, and that the 
          order of the District Rent Administrator be, and the  same  hereby
          is, modified, to provide that the owner's application for  a  rent
          increase based upon pointing and  waterproofing  is  denied.   The

          ADM. APPEAL DOCKET NO. DB 430282-RT 
          Commissioner's prior determination of the remaining allegations of 
          the tenants' administrative appeal is hereby affirmed.         


                                          ELLIOT SANDER
                                          Deputy Commissioner



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