DOCKET NOS.: FH810312RT
STATE OF NEW YORK
DIVISION OF HOUSING AND COMMUNITY RENEWAL
OFFICE OF RENT ADMINISTRATION
92-31 UNION HALL STREET
JAMAICA, NEW YORK 11433
IN THE MATTER OF THE ADMINISTRATIVE :
APPEAL OF ADMINISTRATIVE REVIEW
: DOCKET NOS. FH810312RT
VARIOUS TENANTS, FH830376RT
PETITIONERS : FH810456RT
DRO DOCKET NO. DG810053OM
ORDER AND OPINION GRANTING THREE PETITIONS FOR ADMINISTRATIVE REVIEW
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.
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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.
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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?" --
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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
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
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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
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4. Patchwork concrete walkway and repave parking area
including driveway to garage door.
5. Paint all exterior metalwork, concrete terraces and
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