FD 230047-RO
                                  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 S.J.R. No. 6008
          IN THE MATTER OF THE ADMINISTRATIVE  ADMINISTRATIVE REVIEW
          APPEAL OF                            DOCKET NO.: FD 230047-RO
                                                           
               251 Pacific Street Associates,  DISTRICT RENT ADMINISTRATOR
                                               DOCKET NO.: DF-230039-OM
           
                                   PETITIONER               
          -----------------------------------X

           ORDER AND OPINION REMANDING PETITION FOR ADMINISTRATIVE REVIEW

          On  April  1,  1991  the  above-named  petitioner-owner  filed  a
          Petition for Administrative Review against  an  order  issued  on
          February 25, 1991 by the Rent  Administrator,  92-31  Union  Hall
          Street, Jamaica, New York concerning housing accommodations known 
          as 251 Pacific Street, Brooklyn, New  York,  various  apartments,
          wherein the owner's application for a major  capital  improvement
          rent increase was denied.

          Thereafter the owner commenced a proceeding in the Supreme  Court
          pursuant to Article 78 of  the  Civil  Practice  Law  and  Rules,
          having deemed its petition denied  by  operation  of  law.   This
          resulted in an order of the court remanding the proceeding to the 
          Division for further consideration.

          The instant matter stems  from  an  application  filed  with  the
          Division on June 7, 1989 by the sponsor/holder of  unsold  shares
          of this cooperatively owned building (containing a  total  of  25
          residential  units)  predicated  on  the  installation,  by   the
          sponsor,  of  a  new  roof,  pointing/waterproofing,   electrical
          rewiring, intercom system, and doors (25  apartment  entrance,  1
          roof bulkhead, 1 side courtyard and 1 cellar entrance) at a total 
          claimed cost of $81,901.00.  Various  tenants  responded  to  the
          application, questioning the quality of the work performed.

          The order of the Administrator,  which  denied  the  application,
          contained the notation that (1)  the  sponsor  took  the  maximum
          allowable credit against the mandatory  initial  contribution  to
          the reserve fund for  the  adequate  rewiring;  (2)  the  sponsor
          stated in the offering plan its intention to  perform,  prior  to
          closing,  the  major  capital  improvements   claimed   in   this
          proceeding; (3) the sponsor  further  represented  that  "at  its
          sole cost and expense [it] shall cure or cause to  be  cured  all
          Notices of Violations of record . . . .,  prior  to  the  Closing
          Date" as detailed in the "DESCRIPTION OF  PROPERTY  AND  BUILDING
          CONDITION;" (4) a review of said section, including the  list  of
          violations, the architect's report and addendum thereto  revealed
          that the sponsor decided to commit itself to perform the  claimed
          capital  improvements,  prior  to  closing,  in  order  to   cure
          permanently  those   violations   and   upgrade   some   building
          installations; and (5) this expense is reflected in the sponsor's 
          anticipated profit.  Based on the above it  was  determined  that






          FD 230047-RO
          the claimed improvements were performed  at  the  sponsor's  sole
          cost and expense and that no rent increase should be passed on to 
          the tenants.

          In this petition  for  administrative  review  the  owner/sponsor
          herein contends, in substance, that the statements  made  in  the
          offering plan were misinterpreted by the Administrator and do not 
          preclude its entitlement  to  a  rent  increase;  that  informing
          tenants of the sponsor's plan to improve the building  should  be
          viewed in the context of offering them a  chance  to  join  in  a
          common ownership and investments  of  this  type  should  not  be
          discouraged when no  basis  exists  for  doing  so;  that  Policy
          Statement 89-9 concerns itself with statements "that  improvement
          or improvements" will be made at the  sponsor's  sole  costs  and
          expense;  that  this  policy  statement  should  not   be   given
          retroactive effect; that in any  event  under  the  most  liberal
          interpretation of this policy statement there  must  be  specific
          reference to the improvements involved;  that  the  Administrator
          erroneously sought to link the sponsor's  actual  statement  with
          respect to the curing of violations with other  statements  which
          do no  contain  the  necessary  restrictive  language;  that  the
          sponsor never stated it would perform major capital  improvements
          at its  sole  cost  and  expense;  that  in  fact  there  are  no
          violations, of record with respect to the roof or the capacity of 
          the electrical wiring; that as for  the  other  improvements  the
          Administrator should, at the most, exclude that  portion  of  the
          major capital improvement  costs  needed  to  actually  cure  the
          violations; and that  the  owner  should  not  be  penalized  for
          choosing a level of work above and beyond the  amount  needed  to
          cure the violations.

          After  a  careful  consideration  of  the  entire   record,   the
          Commissioner is of the opinion that  this  proceeding  should  be
          remanded to the Rent  Administrator  for  further  processing  in
          accordance with this order and opinion.

          Where  an  owner  makes  representations  during  the  conversion
          precess which obligate the owner/sponsor to perform work  at  its
          "sole expense" or "sole  cost  and  expense",  tenants  would  be
          justified in relying on this representation in  deciding  whether
          to purchase their individual apartments.  Thus the  owner  cannot
          thereafter turn toward the non-purchasing tenants in  an  attempt
          to have them subsidize the sponsor  for  the  cost  of  the  work
          which the sponsor assumed, in a  public  offering,  as  its  sole
          responsibility and obligation (Policy Statement 89-9).

          In this connection the Commissioner notes that  Policy  Statement
          89-9, dated August 28, 1989, does not reflect a change in  policy
          but rather reflects a line of administrative rulings ( E  730001-
          RT; ART 13,197-8 L and BL 420122-4  RT)  rendered  prior  to  the
          issuance of this policy statement which precluded  major  capital
          improvement rent increases where the sponsor undertook to perform 
          the improvement at no expense to the tenants or at the  sponsor's
          sole cost and expense.  In a similar situation  the  sponsor  and
          holder of unsold shares  was  precluded  from  obtaining  a  rent
          increase  for  work  performed  by  the   cooperative   apartment
          corporation where the sponsor represented in  the  offering  plan
          that non-purchasing tenants would not be obligated to pay for any 
          "improvements made by the apartment corporation  or  increase  in






          FD 230047-RO
          services by the apartment corporation", as distinguished from any 
          improvements  made  by  the  sponsor  as  part  of  its  specific
          obligations under the offering plan (ART 6259-W; ART 7237-W).

          Turning to the case  at  hand,  the  record  discloses  that  the
          sponsor stated, in pertinent part, on page 122  of  the  offering
          plan, under  the  heading  of  SPONSOR'S  STATEMENT  OF  BUILDING
          CONDITION that:

               "However the Sponsor represents that  it  will  maintain
               and operate the Building  until  the  first  closing  to
               shares  allocated  to  the  individual   apartments   in
               substantially  the  manner  and  condition  as  on   the
               Presentation Date of the Plan, .  .  .  subject  to  the
               Sponsor's   obligation   described   below   to    cause
               violations of  record  to  be  cured.   The  Sponsor  is
               planning the following additional work on  the  premises
               which should be completed prior to  closing:  installing
               adequate wiring for the entire building with  a  60  amp
               capacity for each apartment; installing new gas  risers,
               new hot and cold water risers and  replacing  galvanized
               pipe in the  cellar;  steam  cleaning  and  pointing  of
               facade   brick,   pointing   and   thorough-sealing   of
               brickwork in side and rear courtyard;  rebuilding  front
               entry  doors;  installing  new   apartment   doors   and
               installing new roof. (Emphasis added).

               "The Sponsor represents that it, at its  sole  cost  and
               expense, shall cure or cause to be cured all notices  of
               violations of record, municipal  ordinances,  orders  or
               requirements issued by [governmental agencies] prior  to
               the Closing Date."

          Where, as in the instant case, the  sponsor  represents  that  it
          would perform various work on a building-wide scale in the nature 
          of capital improvements and also represents that it would cure or 
          cause to be cured violations of  record  at  its  sole  cost  and
          expense, the question presented is whether  such  representations
          preclude  the  granting  of  a  major  capital  improvement  rent
          increase, or, should only that portion of the cost needed  simply
          to cure violations be disallowed?

          The above question can best be answered by looking to the express 
          language of the offering plan in the context of comparing  it  to
          the nature and extent of  the  violations  of  record.   In  this
          connection the Commissioner notes that the sponsor stated that it 
          would perform various work of a capital nature,  in  addition  to
          the "curing of violations" at its "sole cost and  expense."   The
          record further discloses that there were no violations of  record
          predicated  upon  or  evidencing  a  defective  roof;  that   the
          violations pertaining to electrical wiring were  limited  to  the
          abatement of a nuisance consisting of  "exposed"  wires  in  five
          apartments  plus  certain  public  areas;  that  the   violations
          pertaining to the intercom were also limited to five  apartments;
          and that the violations pertaining  to  the  doors  required  the
          replacement of eleven apartment doors and the repair  of  related
          defects with respect thereto as well as  the  repair  of  various
          aspects  of  the  bulkhead,  cellar  and  courtyard  doors.    In
          addition,  there  were  three  violations  relating  to  exterior






          FD 230047-RO
          masonry defects at various areas of the building.

          The  Commissioner  is  of  the  opinion,  under  the  facts   and
          circumstances   of   this   case,   that   the    owner/sponsor's
          representation that it would  cure  or  cause  to  be  cured  all
          "notices of violations" at its sole cost  and  expense  does  not
          constitute a binding representation upon which  the  tenants  had
          reason to rely, that the sponsor would perform a level of work in 
          excess of that needed to cure the violations at no  cost  to  the
          tenants, particulary so where there were either no violations  or
          only a limited number of violations relating to some of the  work
          performed.  Accordingly, the Commissioner deems it appropriate to 
          remand  this   proceeding   to   the   Rent   Administrator   for
          consideration  of  the  instant  application   on   its   merits,
          consistent with the sponsor's commitment that the  cost of curing 
          the violations of record was to be borne solely by the sponsor.

          THEREFORE,  in  accordance  with  the  provisions  of  the   Rent
          Stabilization Law and Code, and the Rent and Eviction Regulations 
          for New York City, it is


          ORDERED, that this petition 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.

          ISSUED:

           
                                                       JOSEPH A. D'AGOSTA
                                                       Deputy Commissioner




    

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