STATE OF NEW YORK
                            OFFICE OF RENT ADMINISTRATION
                                     GERTZ PLAZA
                               92-31 UNION HALL STREET
                              JAMAICA, NEW YORK  11433

     APPEAL OF                                  ADMINISTRATIVE REVIEW  
                                            :   DOCKET NOS. FH810312RT
             VARIOUS TENANTS,                               FH830376RT
                             PETITIONERS    :               FH810456RT
                                                DRO DOCKET NO. DG810053OM

     The petitioner-tenants filed three timely Petitions for Administrative Review 
     against an order issued on August 1, 1991, by the Rent Administrator,   55 
     Church Street, White Plains, New York, wherein the Rent Administrator 
     determined that the owner should be granted a rent increase for Major Capital 
     Improvements (MCI's) consisting of replacement windows, terrace doors, and a 
     burner, but denied rent increases based on certain improvements to the 
     driveway and parking area on the ground that such work did not constitute an 
     MCI within the meaning of the Regulations.  An MCI increase for a new roof 
     was also denied, based on "poor quality and workmanship."  The owner did not 
     appeal the Administrator's order.

     The issue in these appeals is whether the MCI increases granted by the 
     Administrator should be revoked.

     The applicable section of the Tenant Protection Regulations is Section 

     The Commissioner has reviewed all of the evidence in the record and has 
     carefully considered that portion  of the record relevant to the issues 
     raised by the administrative appeals.

     The owner commenced this proceeding in June 1989 by filing an application for 
     an MCI increase based on the five improvements stated above.  (The 
     application form itself did not mention the doors or give a reason why they 
     needed replacement.  However, the contract for windows included the doors and 
     the total cost for the windows stated on the application form was for the 
     total contract price, i.e., for windows and doors.)  The reasons given for 
     why the windows and burner required replacement were:  "replaced windows were 
     at least 40 years old and beyond repair" and "replaced burner was at least 25 
     years old and beyond repair."

     Tenants of twenty-two of the thirty-two residential apartments filed 
     individual responses in opposition to the owner's application.  Almost all 
     the tenants stated that the reasons given for the replacement of the windows 
     and burner were obviously false because the building was only twenty years 
     old.  Some tenants contended that the application should be rejected based on 
     the false statements regarding  the age of the windows and burner.  

          DOCKET NOS.:  FH810312RT

     Furthermore, some tenants alleged the old windows functioned well, the 
     blacktop was unnecessary and the roof continued to leak.  There were also 
     allegations that the new windows and/or doors did not function properly.

     In a letter dated April 2, 1990, the owner alleged that "almost all of the 
     repairs elicited by the Tenants Association have been taken care of except 
     for cases where the super has not been able to gain access."  Regarding the 
     age of the building the owner stated, in full:

          "The contractor erred in estimating the age of the old windows.  
          They were approximately 20 years old.  They only appeared to be 40 
          years old.  They were in need of replacement; why else would the 
          owner replace them?  Ditto the burner."

     On July 2 and 6, 1990 a DHCR inspection found evidence that the roof leaked.  
     In the two apartments for which access was gained to inspect the terrace 
     doors, the doors were found to be defective (one was difficult to open or 
     close causing the caulking to fall, the other was warped and allowed air 

     In a letter dated June 19, 1991, the owner asserted that the old windows 
     "were deteriorated, drafty, and beyond repair.  Their replacement was 
     necessary for the proper preservation, operation, and maintenance of the 
     building."  Attached to the letter was a purported copy of a letter from the 
     owner's mortgagee which the owner alleges "confirm[ed] that replacement 
     windows were necessary."

     The attached letter, dated July 2, 1987 was from a bank to the owner, 
     offering a loan "secured by a first mortgage."  Only the first page was 
     submitted, plus a page #6 entitled "Riders," the third of four titles of 
     riders being "Repairs."  This page bears a purported signature of a bank 
     official, but no signature in the space for acceptance.  Another typed page, 
     unnumbered and unsigned, on a plain sheet of paper, is entitled "Repairs 
     Rider" and purports to require the following repairs by January 3, 1988 or 
     the borrower would be in default:  replacement of windows, replace burner, 
     replace roof, patch walkway and repave parking area, paint certain specified 
     areas.  (There was no requirement that the terrace doors be replaced.)  (The 
     Commissioner notes that the window replacement commenced in August of 1988, 
     i.e., in violation of the Rider.)

     In these petitions, the tenants contend that the Rent Administrator's Order 
     is incorrect and should be modified because the MCI increase was granted 
     based on false information regarding the age of the windows and burner.  One 
     tenant alleges the owner had actually built the building and therefore asks 
     how the owner could allege the windows were 40 years old.  The tenants also 
     allege that the old windows and/or doors functioned better than the new ones.


          DOCKET NOS.:  FH810312RT

     In answer to these petitions, the owner contends the Administrator's order 
     was correct and should be upheld.  The owner states that the age of the 
     building was raised before the Administrator and that its letter of April  
     1990 corrected the age, i.e., conceded that the building was about 20    
     years old at the time of the application.

     The owner notes that under Operational Bulletin 84-4 a Rent Administrator may 
     grant an MCI for the replacement of windows between 15 and 25 years old if 
     the Administrator determines the replacement was necessary.  Since the 
     Administrator herein determined that the replacement windows were necessary, 
     the owner contends that the Administrator's order should not be reversed on 

     To "further substantiate the necessity of replacing the original wooden 
     windows" the owner reiterates that when the "building was refinanced in 1988, 
     the property inspector and appraiser for the [bank] insisted that [the owner] 
     replace the wooden windows and terrace doors building-wide as a condition to 
     our obtaining financing."

     Regarding the oil burner, the owner notes that its corrected age was also 
     admitted to the Administrator in the April 1990 letter.  The owner continues:

          "In any event, the oil burner was 19 plus years old when we decided 
          to replace it in conjunction with the replacement windows.  As with 
          the windows, the bank's appraiser insisted that we replace the oil 
          burner as a condition of refinancing the property.  Equally as 
          important, is the fact that the oil burner needed to be replaced 
          not only for energy conservation, but also for reliable delivery of 
          heat and hot water to the building."

     The Commissioner is of the opinion that these petitions should be granted and 
     the MCI increase revoked.

     The owner admittedly submitted false information with its original 
     application, stating that the windows were over 40 years old and that the 
     burner was over 25 years old.  Furthermore, the owner has not denied the 
     allegation that it built the building.  However, even if the owner, or its 
     principals, were not the original owner or owners of the subject building, 
     the Commissioner finds that at the time of the submission of the application 
     herein the owner knew or should have known the age of the building and 
     therefore the falsity of the statements in the application.

     Accordingly, the owner's statement on April 2, 1990 that the contractor erred 
     in estimating the age of the windows is not credible.  The Commissioner notes 
     that the age of the windows is stated only in portion of the application 
     which is signed by the owner, not the portion signed by the contractor.

     The owner's three word explanation for the false statement regarding the age 
     of the burner ("Ditto the burner") seems to be an accurate reflection of the 
     owner's cavalier attitude towards the application process.
     As to the owner's rhetorical question in that April 2, 1990 letter:  "They 
     were in need of replacement; why else would the owner replaces them?"  -- 

          DOCKET NOS.:  FH810312RT

     there are two obvious answers:  (1) to get the loan and (2) to get a 
     permanent rent increase which would pay for the windows more than five times 
     over during the next 25 years.

     The owner argues that the false application was corrected before the 
     Administrator and that Operational Bulletin 84-4 allows a full MCI increase 
     where an Administrator determines that windows between 15 and 25 years old 
     required replacement.

     In effect the owner is arguing that even if the original application was 
     fraudulent, the fraud was both "corrected" (by admitting the age of the 
     building) and unnecessary (since the replacement of windows between 15 and 25 
     year can receive full MCI increases if the replacement was necessary.)

     As to the correction of the application, the Commissioner notes this was done 
     only in response to the tenants' objections to the application on the basis 
     of falsity.  Having been caught in an indefensible lie the owner admitted the 
     age of the building and attempted to place the blame on the contractors.  The 
     Commissioner finds that such a "correction" did not remove the taint of the 
     fraudulent application and the Administrator could and should have rejected 
     the application completely at that point.  As the Appellate Division stated 
     in Lucot v. Gabel, 244 N.Y.S.2d 582:

          "If, when the application is filed, the Administrator finds that it 
          was not submitted honestly and in good faith, or that the 
          statements supporting such application are fraudulent, she may deny 
          the relief sought and such denial would be sustained.  Likewise, if 
          the fraud is discovered after the increases are granted they may 
          and should be revoked.

          "The Administrator having found that substantial portions of these 
          applications were premised on fraudulent documents took the proper 
          action in revoking the increases granted in reliance on such 
          documents.  The Administrator need not examine the applications in 
          a piecemeal fashion to determine which portions of the sought-for 
          increases have bona fide support and which rest upon fraud.  If the 
          Administrator finds an application to be tainted with fraud she 
          need not be burdened with the task of segregating the true from the 

     In Lucot v. Gabel the owner had submitted inflated costs for kitchen 
     cabinets.  There was no dispute as to whether the cabinets were necessary.  
     Furthermore, the actual cost of the cabinets was before the Administrator.  
     Nevertheless, the court upheld the revocation of the entire MCI increase, 
     both for the cabinets (even though their cost was known and they were 
     necessary) and for the other improvements, for which no false statements had 
     been proved.  Here, where the falsification involved the issue of whether the 
     windows were needed at all, it is clear that the Administrator could and 
     should have denied the MCI application in toto, and the entire MCI increase 
     is hereby revoked.

     The owner argues, in substance, that the falsification is irrelevant because 
     under Operational Bulletin 84-4 the replacement of windows between 15 and 25 

          DOCKET NOS.:  FH810312RT

     years could support a full MCI increase if the replacement was necessary.

     This argument fails for at least two reasons.  In the first place, even if 
     the windows needed replacement, by claiming the windows were over 40 years 
     old (more than twice their age) the owner was eliminating its burden of 
     proving actual necessity, e.g., by statements from contractors or engineers.  
     Thus, the falsehood was material even under Operation Bulletin 84-4.

     Secondly, the Commissioner will find below that the owner has failed to prove 
     the necessity for replacing the windows or the burner.  Therefore, the 
     falsification of their ages was clearly not irrelevant.

     Finally, the Commissioner finds that even assuming arguendo that the false 
     statements regarding the ages of the windows and burner were unintentional, 
     the owner has failed to meet its burden of proving that the windows, terrace 
     doors and burner were necessary.

     The only two items of evidence offered to prove that these improvements were 
     necessary are the owner's self-serving statements to that effect and the 
     purported portions of a loan agreement to be secured by a first mortgage on 
     the subject property.  As stated above, the agreement submitted was 
     incomplete, unsigned by the owner, and the installation of the windows after 
     January 1, 1988 constituted a default on the mortgage agreement.  
     Nevertheless, assuming the validity of the agreement as submitted by the 
     owner, the Commissioner notes that the terrace doors are not mentioned at all 
     in the rider which required that the windows and burner be replaced as a 
     condition of the loan.  [As stated above, it is also true that neither the 
     owner nor the window contractor explicitly mentioned the terrace doors (or 
     stated that they were necessary) anywhere on the application forms provided 
     for such purpose.]  Furthermore, the DHCR inspection corroborated the 
     tenants' allegations that the doors had been installed in an unworkmanlike 
     manner.  Thus, the MCI increase for the doors, like that for the roof, could 
     be rejected on this ground as well.

     In substance, the owner argues that the fact that the bank required their 
     replacement proves that the windows and burner needed replacement within the 
     meaning of the Regulations and Operational Bulletin    84-4.  But it is clear 
     that, in general,a lending institution may require such replacement solely to 
     enhance or preserve the value of its collateral, even through the existing 
     windows or burner are functioning properly or at least are not beyond repair.  
     The standards for a bank to require replacement are clearly not relevant to 
     the standards required by the Regulations and Operational Bulletin 84-4.  The 
     repairs rider itself tends to support this view, stating in full:

          "The failure of the borrower to make the following repairs on or 
          before the 3rd day of January 1988, shall be a default under the 
          mortgage secured loan.

          1.   Replacement of windows

          2.   Replace burner

          3.   Replace roof - pitted badly

          DOCKET NOS.:  FH810312RT

          4.   Patchwork concrete walkway and repave parking area 
               including driveway to garage door.

          5.   Paint all exterior metalwork, concrete terraces and 
               incinerator closets."

     The first three items require replacement of existing systems, but only 
     regarding the roof did the bank state the poor condition of the item being 
     replaced, the implication being that the first two items (the windows and 
     burner) were not beyond their useful life.  Furthermore, this rider did not 
     require the replacement of the doors, although the owner alleged that the 
     bank did impose such a requirement.

     Based on the foregoing, the Commissioner hereby finds that the owner failed 
     to prove the necessity for the subject MCI's.  Accordingly, the MCI increases 
     granted by the Administrator are hereby revoked.

     THEREFORE, in accordance with the Emergency Tenant Protection Act and 
     Regulations, it is 

     ORDERED, that these petitions be, and the same hereby are granted; that the 
     order of the Rent Administrator and the rent increases provided for therein 
     be, and the same hereby are revoked; and it is further

     ORDERED, that the owner refund to all ETPA tenants any excess rent collected 
     as a result of this order, within 30 days from the date of issuance hereof.

     NOTE:  This order has the effect of reducing the regulated rents to the 
     amounts in effect immediately prior to the issuance of the instant major 
     capital improvement rent increase adjustment revoked herein, to which may 
     then be added any authorized rent increase unrelated to the major capital 
     improvement.  The resulting reduction in rent continues in effect 
     notwithstanding that an Article 78 proceeding for judicial review or any 
     other legal action may have been taken in connection with this order of the 
     Commissioner unless and until an order is issued to the contrary.


                                                    JOSEPH A. D'AGOSTA
                                                    Deputy Commissioner 

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