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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