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
------------------------------------X
IN THE MATTER OF THE ADMINISTRATIVE : ADMINISTRATIVE REVIEW
APPEALS OF DOCKET NOS.:
WHITEHALL REALTY COMPANY AND : EE610002RT/EE610006RT/
VARIOUS TENANTS EE610008RT/EE610083RT/
3333 HENRY HUDSON PARKWAY EE610085RT/EE610141RT/
BRONX, NY PETITIONERS : EE610142RT/EE610145RT/
------------------------------------X EE610148RT/EE610150RT/
EE630116RT/EE610267RT/
EF610214RT/EF610218RT/
EF610221RT/EF610335RT/
EF610336RT/EG610031RT/
EG610190RT/EG610590RT/
EH620471RT/EH610366RT/
EE610378RT/ED610189RT/
EE630200RO/EF610361RT/
EF610254RT
RENT ADMINISTRATOR'S
DOCKET NO.: BS0001110M
ORDER AND OPINION DENYING OWNER'S PETITION FOR ADMINISTRATIVE
REVIEW UNDER DOCKET NO. EG630200RO AND GRANTING TENANTS'
PETITIONS FOR ADMINISTRATIVE REVIEW
The above named petitioner-tenants and owner timely filed and
refiled administrative appeals against an order issued on April 12,
1990 by a Rent Administrator (Gertz Plaza, Jamaica, New York)
concerning the housing accommodations known as 3333 Henry Hudson
Parkway, Bronx, New York, various apartments, wherein the
Administrator granted, in part, the owner's major capital
improvement (MCI) rent increase application by authorizing a rent
increase adjustment for a new roof, roof insulation and copings at
parapet walls. Disallowed by the Administrator was the claimed
cost ($2,626,941,22) for the restoration of a glazed brick curtain
wall.
The Commissioner has reviewed all the evidence in the record and
has carefully considered that portion of the record relevant to the
issues raised by these administrative appeals.
Since these appeals pertain to the same order and involve common
issues of law and fact, they have been consolidated herein for a
uniform disposition.
On appeal, the petitioner-owner contends, in substance, that the
Rent Administrator improperly disapproved the restoration of the
glazed brick curtain wall; that the mere fact that the work in
question was required for the maintenance of the structure is no
bar to an MCI rent increase; that the owner submitted a detailed
statement from the contractor in lieu of a contract which should
ADMIN. REVIEW DOCKET NO.: EE610002RT, et al
suffice, especially in light of the fact that the DHCR request came
eleven years after the contract was executed and five years after
the application was filed; that the Administrator improperly relied
on Section 2522.4(a)(3) of the Rent Stabilization Code as that
section has been declared null and void by the courts; that the
work commenced in 1979 and, therefore, the former Code should
apply; that the work in question meets the requirements for an MCI;
and that the statement in an amendment to the offering plan by the
owner to "pay for all cost and expenses" for the work in question
should not disqualify the owner to from an MCI rent increase.
The tenants alleged in their responses to the owner's petition that
the brick replacement was an ongoing repair program which took
eight years to complete; that the facade work is shoddy,
inadequate, cosmetic in nature and was not done building-wide; that
Ambassador Associates was the former owner of the building at the
time it filed the application and therefore lacked standing to
file; that a portion of the cost of the brick restoration work was
charged against the co-op's reserve fund; that the alleged expenses
were not properly substantiated or documented and improperly
included litigation expenses; that the commercial income for the
building was grossly miscalculated; and that the owner's promise to
pay for the work precludes an MCI increase.
The tenants filed separate administrative appeals, contending, in
substance, that Ambassador Associates is the former owner of the
building and lacked standing to file the MCI application; that the
roof installation does not qualify as an MCI because only half the
roof was repaired; that the roof installation was necessary due to
the owner's failure to perform necessary repairs; that the owner is
further culpable regarding the deterioration and destruction of the
roof by decorating and installing "roof gardens" and "trees"
without installing a functional and suitable water drainage system,
causing additional water backup and accumulation; that a penthouse
tenant was permitted to remove a section of the roof covering to
construct an extension to his apartment without a water drainage
system in place which resulted in additional water back-up and
accumulation; that the owner greatly understated the commercial
revenues on its MCI application; that the partial roof replacement
was necessitated due to damage caused by the brick repair
contractor which is an insurable causality rather than an MCI; that
the Sponsor promised to pay for the roof repair in the Third
Amendment to the Offering Plan; and that the alleged expenses have
not been properly substantiated or documented.
In response to the tenants' appeals, the owner contends, in
substance, that the application was properly filed in November of
1989 by the then owner of the building; the roof replacement
qualifies as an MCI as all of the roof level area was replaced;
that the tenants' claim of a partial roof replacement was raised
for the first time on appeal; that the cost for the roof
replacement was completely substantiated; that the MCI application
accurately represented the rental income derived from commercial
space; that there is absolutely no basis for the denial of the
increase based on the alleged and unproven negligence of the
ADMIN. REVIEW DOCKET NO.: EE610002RT, et al
owner; that the fact that the roof replacement was done out of
necessity is not a relevant factor to the propriety of an MCI; and
that there was no promise made to the rent regulated tenants that
they would not receive a rent increase for the roof replacement.
After a careful consideration of the entire evidence of record, the
Commissioner is of the opinion that the owner's administrative
appeal should be denied; and that the tenants' administrative
appeals should be granted.
Policy Statement 89-9 issued August 28, 1989 is entitled "Sponsor
Representations, in Cooperative or Condominium Offerings, to Bear
Cost of MCI's: Effect on Entitlement to MCI Increases" and states
as follows:
The DHCR has several MCI applications from sponsors of
converted buildings in which the offering plan states
that an improvement or improvements will be made at the
sponsor's "sole expense" or "sole cost and expense". The
agency has received correspondence from the State of New
York Department of Law stating, "This representation can
only be interpreted to mean that no non-purchasing tenant
would bear any responsibility" for the improvement. The
Department of Law regards the owner who makes a statement
such as this in an offering plan as ineligible to recover
the cost of the subject improvement in an MCI increase.
After reviewing the applications along with the offering
plans, the Division of Housing and Community Renewal
concurs with the Department of Law's interpretation of
the phrase "sole cost and expense". Any MCI application
for a cooperative or condominium converted building,
where the offering plan includes this (or similar)
language without additional exclusionary language
relating to an MCI application, will be denied to the
extent that the costs for the improvements mentioned are
included in the application.
With regard to the restoration of the glazed brick curtain wall,
the Commissioner notes that the first amendment to the offering
plan of cooperative ownership states as follows:
Owner hereby represents that it shall pay for all costs
and expenses of the repair and restoration work performed
pursuant to its contract with the Grenadier
Corporation...
It is clear from the record that the owner made a binding
representation in a public offering during the cooperative
conversion process "to pay for all costs and expenses" associated
with the restoration of the glazed brick curtain wall. The tenants
of the subject premises, whether they chose to purchase their
respective apartments or remain as tenants, as permitted by law,
had every right to rely on the clear language of the offering plan.
The owner may not renege on its previous commitment and attempt to
ADMIN. REVIEW DOCKET NO.: EE610002RT, et al
have non-purchasing tenants subsidize the cost for this particular
item. In this regard, the Commissioner notes that nowhere in the
offering plan or its amendments has the owner conditioned its
unqualified promise to bear all the costs for the brick restoration
by reserving a right to apply for an MCI rent increase.
Furthermore, any ambiguities in the offering plan and its
amendments must be resolved against the owner/sponsor. The
Commissioner finds, therefore, that the owner's statement in the
offering plan to perform the work in question at its sole expense
clearly precludes the owner from recovering the cost of said work
in an MCI increase pursuant to Policy Statement 89-9 cited above.
In this connection, the Commissioner notes that Policy Statement
89-9 does not reflect a change in policy, but rather reflects a
line of administrative rulings (AE730001RT; ART13197-8L; and
BL420122-4RT) rendered prior to the issuance of this policy
statement which precluded MCI rent increases where the sponsor or
owner undertook to perform the work at no expense to the tenants,
but rather at the owner's or sponsor's sole cost and expense.
Based on the foregoing, the Commissioner finds that the
Administrator properly denied the owner's MCI application with
regard to the brick curtain wall.
The Commissioner also finds that the restoration of the glazed
brick curtain wall does not qualify as an MCI, but rather
constituted an ongoing maintenance program (a replacement of only
10% of the bricks over a four year period [1979-1983]). Moreover,
said work was defective and/or not comprehensive in scope since the
owner's very engineer, in a report just six years later (April 19,
1989), states that a comprehensive program of exterior masonry
repair work was needed. Another reason that said brick restoration
work does not qualify as an MCI is because the original brick
curtain wall had clearly not exhausted its useful life as the
subject building was newly constructed in 1969-70, yet the brick
restoration program began just nine years later in 1979. Clearly,
the free market rents charged when the subject premises first
became subject to stabilization jurisdiction (1974) reflected the
value of this newly constructed building, and the tenants have
every reason to expect that the building was properly constructed
and should not have to bear a rent increase to restore a 9 year old
exterior wall.
Additionally, the Commissioner notes that the Cooperative Offering
Plan states as follows:
Pursuant to Local Law 70, the amount of the Reserve Fund
will be reduced to take into account the cost of major
capital replacement of parapets and portions of the
exterior brick curtain wall aggregating approximately
$2,608,850.00...
In this respect, the Commissioner notes that it is the well
established policy of the Division, as restated in Supplement No.
1 to Operational Bulletin 84-4 and Section 2522.4 of the Rent
Stabilization Code, that improvements paid for out of a cooperative
corporation's negotiated cash reserve fund contributed by the
ADMIN. REVIEW DOCKET NO.: EE610002RT, et al
sponsor to entice purchases or under compulsion of law, may not
form the basis for a rent increase. Accordingly, since a reserve
fund credit was taken for the work in question, said work does not
qualify for an MCI rent increase. (Accord: FE430432RO et al).
Finally, with regard to the roof replacement, the Third Amendment
to the Cooperative Offering Plan states as follows:
Sponsor shall cause the quarry tile roof of the Building
to be replaced at its own cost and expenses...
The Commissioner finds that the above-cited owner's statement in
the offering plan to replace the roof "at its own cost and expense"
precludes the owner from recovering the cost of the work in an MCI
increase as discussed, supra. Accordingly, the Commissioner finds
that the Rent Administrator improperly granted the owner an MCI
rent increase for the roof installation.
THEREFORE, in accordance with the applicable provisions of the Rent
Stabilization Law and Code, it is
ORDERED, that the owner's petition for administrative review be,
and the same hereby is, denied; that the tenants' petitions for
administrative review be, and the same hereby are, granted; that
the order of the Rent Administrator be, and the same hereby is,
modified in the manner and to the extent indicated above to deny an
MCI rent increase for the roof installation and related work, and
that as so modified, said order be, and the same hereby is,
affirmed; and it is further
ORDERED, that as to the rent stabilized tenants, the owner shall
credit any excess rent collected at the rate of 20% per month,
commencing on the first rent payment date after issuance of this
order of the Commissioner, until all overpayments have been
refunded.
ISSUED:
JOSEPH A. D'AGOSTA
Deputy Commissioner
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