FF 630068-RT
                                  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   SJR No. 6049 
          IN THE MATTER OF THE ADMINISTRATIVE:   ADMINISTRATIVE REVIEW
          APPEAL  OF                           :     DOCKET   NO.   FF   630068-RT
                                             :    
             HELANE S. WENDROW, ET AL.       :   DRO DOCKET NO.              
                                             :            EG 610030-RK
                                             :            (DC 610053-OM)
                                PETITIONER   : 
          -----------------------------------X                           

            
            ORDER AND OPINION DENYING PETITION FOR ADMINISTRATIVE REVIEW

          On  June  4,  1991  the  above-named  petitioner-tenants  filed  a
          Petition for Administrative Review (PAR) against an  order  issued
          on May 1, 1991 by the Rent Administrator, 92-31 Union Hall Street, 
          Jamaica, New York concerning housing accommodations known as  3260
          Netherland Avenue, Bronx, New York,  various  apartments,  wherein
          the Administrator authorized  a  major  capital  improvement  rent
          increase for the building-wide installation of new windows.

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

          The  instant  matter  initially  stems  from   a   major   capital
          improvement rent increase application filed in March 1989  by  the
          cooperative corporation which owns the subject premises on  behalf
          of the sponsors and holders of unsold shares,  Joseph  and  Robert
          Koppelman, predicated on the installation in 1988 of  new  windows
          at a cost of $57,360.00.

          On April 6, 1990 the Administrator issued an order (DC  610053-OM)
          denying the application on grounds that the installation  was  not
          financed by a special assessment upon all co-op  shareholders  but
          rather was  paid  for  with  the  proceeds  of  a  fire  insurance
          settlement and operating fund.

          An owner/sponsor and holder of unsold shares thereafter  requested
          reconsideration by  the  Administrator  on  grounds  that  he  had
          previously stated  that  the  insurance  settlement  derived  from
          damages to an elevator shaft and no part of the settlement covered 
          the installation of new windows nor did any payment for the window 
          installation emanate from the reserve fund.
          On May 1, 1991 the Rent Administrator issued  the  order  appealed
          herein which revoked the Administrator's earlier determination and 
          authorized a rent increase of $5.37 per room, per month (based  on
          a total count of 178 rooms) upon a finding that the  cost  of  the
          window installation was fully substantiated; and that the  use  of
          operating funds does not disqualify the  owner  from  obtaining  a







          FF 630068-RT

          major capital improvement rent increase.

          In this petition for administrative review the tenants contend, in 
          substance, that the window installation  was  not  paid  for  with
          operating funds of the apartment cooperation but solely  with  the
          use of "surplus" insurance monies which were not needed to  repair
          fire damage; that it was  error  for  the  Administrator  to  have
          granted a rent increase for an installation which  the  owner  (of
          the rent regulated apartments) did not pay for but which was  paid
          with monies which came to the apartment corporation  fortuitously;
          that there was no true "expense" to the owner;  and  that  in  any
          event, since shareholders also benefited from the new windows (but 
          were not assessed) the tenants should not be required to  pay  the
          full cost of all windows but only for the 134 windows installed in 
          the 39 rent-stabilized apartments.  Submitted with the petition is 
          a copy of a letter from Koppelman Management Co.,  dated  February
          25, 1988, addressed to all shareholders of 3260 Owner's Corp.,  to
          the effect that proceeds of the fire adjustment will be sufficient 
          to cover the cost of all necessary repairs, which includes a brand 
          new elevator; that "through economies in making repairs,  we  will
          have a surplus resulting from the proceeds of the fire"; and  that
          the Board of Directors has agreed to install new windows for which 
          no assessment will be required.

          In answer to the petition the owner states, in substance, that the 
          apartment cooperation had the option of  either  distributing  the
          excess insurance proceeds to all shareholders from  the  operating
          fund or using the money from  the  fund  to  pay  for  the  window
          installation; and that by choosing the latter option the cost  was
          borne by all shareholders.

          After  a  careful  consideration  of  the   entire   record,   the
          Commissioner is of  the  opinion  that  this  petition  should  be
          denied.

          It is the well established position of the Division, as  reflected
          in Operational Bulletin 84-4 and Policy Statement 89-6,  that  the
          building-wide installation of all  apartment  and/or  public  area
          windows, to replace windows which are 25 or more years old (as  is
          the case herein), meets the definitional requirements of  a  major
          capital improvement for which a rent increase may be warranted.

          The  Commissioner  notes  that  rent  increases   based   on   the
          installation of major capital improvements are made  available  to
          owners as an incentive for them to invest in their property.   







          FF 630068-RT

          This is achieved by compensating owners  for  out-of-pocket  costs
          incurred in connection with the major capital improvement  and  by
          providing the additional incentive that the rent increase forms  a
          permanent part of the rent structure.

          However, as one of the purposes of the Rent Stabilization  Law  is
          to prevent the exaction of unjust, and unreasonable rents  and  to
          forstall "profiteering  and  speculation"  the  Division  has  the
          authority to determine whether  such  a  rent  increase  serves  a
          compensatory purpose or whether it is solely  profiteering,  since
          it involves the use of someone else's money.

          It is thus the well established and judicially recognized position 
          of the Division that improvements paid for out  of  a  cooperative
          corporation's  or  condominiums  negotiated  cash  reserve   fund,
          contributed by the sponsor to entice purchases or under compulsion 
          of law, may not form the basis for a rent increase since the money 
          set aside does not serve  the  purpose  of  encouraging  voluntary
          investment for which rent increases would otherwise be  warranted.
          It is not who wrote the check but rather the source of the  funds.
          Thus, an improvement paid for with a governmental grant would  not
          be eligible for a rent increase.

          In a similar vein it is Division policy that to the extent a major 
          capital improvement is paid  for  with  the  proceeds  of  a  fire
          insurance settlement or, for that matter, the recovery of  damages
          based on a third party act which necessitated the improvement,  it
          can not be the source of a major capital improvement rent increase 
          since it did not entail the voluntary investment  of  the  owner's
          own funds.  (Accord: CL 410010-RT et al., CK 530022-RO, EA 630222 
          RO and EK 410159-RT et al.)  Thus, the installation or replacement 
          of the elevator in the subject premises would not  qualify  for  a
          major  capital  improvement  rent   increase   for   the   reasons
          hereinabove indicated.

          Turning to the case at hand, it is conceded by  the  tenants  that
          the windows which are the subject of this proceeding were paid for 
          by the apartment corporation with  "surplus"  insurance  proceeds,
          i.e. monies left over after all repairs resulting from the fire in 
          the elevator shaft were completed.  Such excess monies became part 
          of the general operating funds of the apartment  corporation  and,
          by extension, the property of all shareholders.  The  Commissioner
          is of the opinion and finds, under the facts and circumstances  of
          the instant case, that the use of monies which became part of  the
          general operating funds  of  the  apartment  corporation  and  the
          investment of same to improve the property did  not  constitute  a
          bar  to  a  rent  increase  despite  the  absence  of  a   special
          assessment.  The Board of Directors could have  used  such  excess
          monies to declare a dividend  or  temporarily  reduce  maintenance
          charges and then authorize a special assessment of all 







          FF 630068-RT

          shareholders if it had later decided to install  windows.   Rather
          than go through such gymnastics, the  apartment  corporation  used
          such excess insurance monies to pay for the windows directly.  


          In addition, the Commissioner notes that  the  full  cost  of  the
          windows installed throughout the  subject  premises  was  properly
          allocated to all units in  the  building  on  a  per  room  basis,
          including those apartments occupied by  proprietary  lessees,  and
          that the rent increase authorized by the  Rent  Administrator  was
          based on the costs attributable to those windows installed in  the
          rent regulated apartments.

          Based upon the entire record,  the  Commissioner  finds  that  the
          order of the Rent Administrator is correct and should be affirmed.

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

          ORDERED, that this petition be, and the same hereby is denied; and 
          that the order of the Rent Administrator be, and the  same  hereby
          is, affirmed.

          ISSUED:




                                                                        
                                          JOSEPH A. D'AGOSTA
                                          Acting Deputy Commissioner


    

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