STATE OF NEW YORK
DIVISION OF HOUSING AND COMMUNITY RENEWAL
OFFICE OF RENT ADMINISTRATION
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)
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
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
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.
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
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
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
JOSEPH A. D'AGOSTA
Acting Deputy Commissioner