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.: 6526
      IN THE MATTER OF THE ADMINISTRATIVE :  ADMINISTRATIVE REVIEW
      APPEAL OF                              DOCKET NO.: GE 410052-RO
                                          :  
                                             RENT ADMINISTRATOR'S
          VESEY REALTY,                      DOCKET NO.: FG 430041-RP
                            PETITIONER    :             (ED 430012-RP) 
      ------------------------------------X             (BG 430424-OM)  

        ORDER AND OPINION GRANTING PETITION FOR ADMINISTRATIVE REVIEW IN PART

      This order and opinion is issued pursuant to a decision of Justice Edith 
      Miller of the Supreme Court, New York County, remitting an Article 78 
      proceeding and directing the Division of Housing and Community Renewal 
      (DHCR) to issue a final determination of the owner's administrative appeal 
      herein.

      The owner of the subject premises, a 75 year old building, located at 167 
      East 77th, Street, New York, New York, various apartments commenced this 
      proceeding by filing an application with the Administrator requesting a 
      rent increase based on the claimed rehabilitation and renovation of twenty 
      apartments at a submitted cost of $239,657.00.

      On December 28, 1988 the Rent Administrator issued an order under Docket 
      No. BG 430424-OM, which denied the owner's application and terminated the 
      proceeding due to an outstanding order making findings of harassment 
      against the owner and general contractor with respect to the tenant of one 
      stabilized apartment (8).  An Order Terminating a Finding of Harassment was 
      issued on June 23, 1989. 

      On March 27, 1990 an order and opinion was issued by the Commissioner 
      remanding the proceeding to the Rent Administrator under Docket Number 
      DA 430255-RO.  The Commissioner found that by its limited terms said 
      harassment order did not constitute a lien on the property.

      Thereafter, on September 17, 1990, the Administrator issued an order 
      pursuant to remand under Docket No. ED 430012-RP wherein the owner's 
      request for a rent increase was granted in part, based on the installation 
      of several major capital improvements (MCI) at a total approved cost of 
      $112,905.00.  

      The owner subsequently appealed the Administrator's September 17, 1990 
      determination which resulted in an order and opinion of the Commissioner 
      issued under Docket No. EJ 430172-RO on July 19, 1991.  In said order the 
      Commissioner determined that the previously authorized MCI rent increases 
      were warranted as was an additional increase for the restoration of the 
      brick facade, including pointing and waterproofing.











          ADMIN. REVIEW DOCKET NO.: GE 410052-RO



      The Commissioner further noted that the owner was precluded from obtaining 
      an MCI rent increase for rewiring as the owner had previously specified (in 
      its application to eliminate electricity as a rent included service) that 
      it did not intend to seek an increase for this installation; and that vent 
      and waste lines did not constitute a major capital improvement.

      The proceeding was remanded to the Administrator to determine, among other 
      things, that portion of the owner's expense which represented the 
      reasonable profit which the general contractor was entitled to receive for 
      its services attributable to those installations found to qualify as major 
      capital improvements and to adjust the rent increases accordingly.

      On March 31, 1992 the Rent Administrator issued the order (FG 430041-RP) 
      pursuant to remand here under appeal, which modified the order issued 
      September 17, 1990 and determined that the owner was entitled to a rent 
      increase of $53.49 per room, per month for rent-stabilized apartments, 
      effective November 1, 1987, and an increase of $46.28 per room, per month 
      for rent controlled apartments (a "J-51" offset of $7.21 per room, per 
      month was taken from $53.49), effective as of April 1, 1992, based upon a 
      revised total net approved cost of $136,680.50 (including a 10% allowance 
      for "profit" which the general contractor was entitled to receive for its 
      services).  Said order recognized the installation of major capital 
      improvements consisting of apartment entrance doors and frames, exterior 
      doors and frames, lobby and vestibule entrance doors, restoration of brick 
      facade (including pointing and waterproofing), new intercom system, 
      adequate plumbing, new steam risers and convectors, new boiler and hot 
      water heater, new aluminum windows building-wide, new roof and skylight on 
      roof.  Costs attributed to rewiring the building and the installation of a 
      new waste and vent line system were disallowed as were those claimed costs 
      attributed by the owner to the general contractor's "requirements" and 
      fees.

      In its petition the owner asserts, in substance, that the effective and 
      collectible date of the MCI rent increase is incorrect for the rent 
      controlled tenants; that the installation of new waste, vent lines and 
      attendant system constitutes an MCI or a substantial rehabilitation for 
      which a rent increase is warranted; that the general contractor's 
      "requirements" or overhead costs, which the owner paid, should not have 
      been denied as was held by the Appellate Division in Guirdanella v. N.Y.S. 
      DHCR;  and that the owner should not be precluded from obtaining an MCI 
      increase for adequate rewiring costs.

      On September 30, 1992, the attorneys for the respective litigants in the 
      Article 78 proceeding commenced by the owner entered into a Stipulation of 
      Settlement whereby the Commissioner agreed to render a final determination 
      within 90 days of the Stipulation contingent upon the petitioner's 
      subsequent submission of additional documentation.

      In response to a Notice dated October 5, 1992 the owner submitted two 
      affidavits, both dated October 12, 1992, together with copies of various 
      exhibits.  In the first affidavit, the principal of the electrical 



          ADMIN. REVIEW DOCKET NO.: GE 410052-RO



      subcontractor, Rehab Electric Co. Inc., states, in substance, that his 
      company was engaged to perform various jobs at the subject premises, 
      including the complete rewiring of the entire building; that in addition to 
      ordinary adequate rewiring, his company installed new wiring and electric 
      outlets in each apartment; and that the cost attributable to the 
      installation of each electric meter and all costs attendant thereto (which 
      includes new Con Ed service and main switch) was $500.00 per apartment or 
      $10,000.00 for 20 apartments.

      In the second affidavit the principal of the prime contractor, Buildcraft 
      Construction Corp., states, among other things and in substance, that he 
      calculated the following "general requirements" or overhead costs which 
      were billed to and paid for by the owner:

           a.  Architectural fees             -    $ 7,168.00
           b.  Laborers                       -    $37,773.00
           c.  Permits and fees               -    $ 1,111.00
           d.  Petty cash, including          -    
               site telephone                 -    $ 1,879.00
           e.  Rubbish containers             -    $ 2,932.00
           f.  Superintendent, Robert Spear   -    $22,500.00
           g.  Assistant Superintendent, 
               L. Spear                  -    $ 2,881.00
           h.  Insurance                 -    $11,956.00 
                                     Total    $88,200.00

      The affiant further states that $88,200.00 constituted expenses of the 
      general contractor and have not been included in the subcontractor's cost; 
      that these costs were reimbursed by the owner together with 10% profit; 
      that the enclosed checks substantiate architectural fees, an expense for 
      laborers, New York City permits and fees and rubbish containers; that some  
      checks, as in the case of those payable to West Indies Enterprises, total 
      more than what is claimed for laborers since this is the result of 
      "payments made to subcontractors for work allocated to other categories, 
      i.e. demolition, plastering and sheet rock"; that the prime contractor 
      maintained its own liability and auto insurance, disability and workmen's 
      compensation for the period of time (over one year) during which the 
      subject premises was under construction, none of which expense was charged 
      to subcontractors; that he is a licensed professional engineer and 
      superintendent fees represent an hourly rate of $45.00 for 500 hours; that 
      assistant superintendent fees represent a weekly rate of $300.00 for nine 
      weeks; that this expense is for the accrued time on the job supervising, 
      hiring and coordinating the subcontractors and laborers in accordance with 
      plans and specifications; that there are no cancelled checks for these 
      amounts as they represent an allocation of salary paid by the general 
      contractor to these individuals; and that with regard to petty cash costs 
      not covered by checks to New York City Telephone, the listed amount 
      represents cash payments made for minor miscellaneous expenses during the 
      construction period.

      The general contractor further states that he totalled all overhead and 
      supervisory expenses etc. ($82,200.00) and classified them as "general 
      requirements"; that he then calculated what percentage of the total







          ADMIN. REVIEW DOCKET NO.: GE 410052-RO



      renovation cost ($543,381.00) which this represented and added thereto a 
      10% profit resulting in a figure of 17.85%, which percentage was used by 
      him in allocating the general requirements cost to each major capital 
      improvement by multiplying the cost thereof by 17.85%.  Submitted by the 
      owner were copies of cancelled checks from the prime contractor payable to 
      an architectural firm ($7,167.75), West Indies Enterprises and J.R. 
      Batista, Ltd for Laborers ($84,117.00) a contracting firm for the provision 
      of rubbish containers ($2,974.00), New York Telephone ($861.01), New York 
      City Department of Buildings ($1,111.00) and to an insurance agency 
      ($27,896.35).  

      The tenants of apartments 8 and 10, in answer to the owner's petition and 
      in response to the owners submission of October 15, 1992, object to the 
      cumulative MCI rent increases and assert, in substance and pertinent part, 
      that the owner has been harassing them since before the work in question 
      began; that despite a formal agency finding of harassment, no restitution 
      for damages has ever been made by the owner; that although walls and 
      plumbing were "broken", only one new outlet was installed in partment 8; 
      and that the owner cannot substantiate his costs as he lacks documentation 
      since, if he did, this information would already form a part of the record.  

      After a careful reconsideration of the entire record, as amplified upon 
      appeal, the Commissioner is of the opinion that this petition should be 
      granted in part.

      At the outset the Commissioner notes that the effective date of an order 
      increasing (or for that matter decreasing) the rent of a rent controlled 
      apartment is, with certain exceptions not here relevant, the first rent 
      payment date following issuance of the Rent Administrator's order.  Where, 
      as in the instant case, the Administrator's September 17, 1990 order was 
      subsequently modified so as to provide for an additional rent increase to 
      which the owner should have been entitled in the first instance, the proper 
      effective date, (absent any failure on the part of the owner) is the date 
      specified in the Administrator's original order.  Thus the effective date 
      of the additional rent increase granted for rent controlled apartments 
      under Docket No. FG 430041-RP should be October 1, 1990, rather than the 
      later date specified therein.  The Commissioner further notes that the 
      proper effective date of the additional rent increase with respect to 
      apartment 8 (a rent stabilized unit) should be July 1, 1989 (rather than 
      November 1, 1987) the first rental payment date after which the finding of 
      harassment was lifted and in accordance with the Commissioner's 
      determination under Administrative Review Docket No. DA 430255-RO.

      With respect to the requested rent increase for the installation of a new 
      vent and waste line system, the Commissioner is of the opinion and finds, 
      under the circumstances herein, that this new system fits the definitional 
      requirements of a MCI since this installation was, among other things, a 
      necessary part of the newly installed adequate plumbing in the subject 
      building.  Accordingly, the Commissioner is of the opinion and finds that 
      the owner should be granted an additional rent increase for the 
      installation of new waste, vent lines and attendant systems at an 




          ADMIN. REVIEW DOCKET NO.: GE 410052-RO




      cost of $21,050.70 ($19,137.00 plus a 10% allowance for profit the
      general contractor was entitled to receive for its services.)  (Said amount 
      represents an MCI cost which also benefits commercial tenants).  The 
      Commissioner notes that the contract with the plumbing contractor provides 
      that all demolition work and rubbish removal is to be performed by others.

      With respect to claimed adequate rewiring costs, the Commissioner notes 
      that the owner in its second round application (BE 410042-OD) to finalize 
      a rent reduction based on the elimination of electric current as a rent 
      included service, stated "no" to the question whether it intended to apply 
      for an MCI rent increase based on the rewiring of the subject premises.  
      The Commissioner is of the opinion, upon reconsideration, that the owner's 
      statement of intent does not, under the circumstances herein, constitute 
      sufficient grounds to bar an MCI rent increase based on the rewiring of the 
      subject premises, if such increase is otherwise so warranted.  In this 
      connection the Commissioner notes that the Administrator's earlier order 
      under Docket No. LS 000088-OD clearly specified that the owner intended to 
      apply for an MCI rent increase based on such rewiring, less any costs 
      incurred for the installation of new meters and all costs attendant 
      thereto; and that the tenants were notified and afforded the opportunity to 
      participate in the proceedings.

      Based on the various supporting documentation submitted by the owner, the 
      Commissioner is of the further opinion and finds that the owner herein is 
      entitled to an additional rent increase for the installation of adequate 
      rewiring of 20 apartments, including air-conditioner outlets in each unit, 
      based on a reduced total cost of $18,161.00 ($20,000.00 specified in 
      owner's exhibit "B" less $10,000.00, the cost attributed to the conversion 
      from rent inclusion to individual metering, plus $6,510.00 for demolition 
      and restoration work, plus a 10% allowance for profit the prime contractor 
      was entitled to receive for its services).

      With regard to the owner's claimed entitlement to a rent increase for 
      general contractor's requirements and fees, the Commissioner is of the 
      opinion that where an owner in an arm's-length transaction engages the 
      services of a general contractor to perform a series of major capital 
      improvements or the renovation of a building, as in the case herein, that 
      overhead costs incurred by the general contractor, such as architectural 
      and filing fees, supervision which the owner can not be expected to provide 
      on its own, insurance and other related expenses, to the extent such 
      expenses are substantiated and directly related to the MCI installation, 
      are both necessary and customary to the accomplishment of the improvement 
      and are not otherwise duplicated, qualify for a rent increase.

      Applying the above standards to the case at hand, the Commissioner notes 
      that the record contains the prime contractor's affidavit dated October 16, 
      1990, itemizing the costs attributed to general requirements or overhead, 
      including contractor/engineer supervision and architectural fees, Building 








          ADMIN. REVIEW DOCKET NO.: GE 410052-RO



      Department filing fees, insurance expense, rubbish container rental, and 
      other related expenses which were ultimately billed to and paid by the 
      owner.  The owner's submission of October 15, 1992 contains further 
      clarificatory documentation, including duplicates of some of the checks 
      contained in the record below.  Based on the foregoing the Commissioner 
      deems it appropriate under the circumstances of this case to recognize 
      adequately substantiated and reasonable overhead or general requirement 
      costs for project-wide expenses of the general contractor in excess of 
      $500,000.00 which overhead expenses were chargeable to the owner in the 
      amount of $82,200.00 and to grant an additional rent increase based thereon 
      computed as follows.

      The ratio of total renovation costs, $543,381.00, to approved MCI costs, 
      excluding profit, $159,902.00, (including $112,905.00 from the 
      Administrator's September 17, 1990 order, brick work recognized in the 
      Administrator's order appealed herein and adequate rewiring and waste and 
      vent line system approved herein) equals 29.43%.  Applying the same ratio 
      to a recognized and substantiated overhead or "general requirements" cost 
      of $82,200.00 equals $24,191.46, plus 10% profit to which the general 
      contractor is entitled results in an approved cost of $26,610.60.  (This is 
      cost which benefits commercial tenants).

      Based on the total allowed costs for adequate rewiring ($18,161.00), vent 
      and waste line system ($21,050.70) and general requirements ($26,610.60), 
      the Commissioner finds that the Administrator's order should be modified to 
      add $65,822.30 to the total approved MCI costs from which must be deducted 
      commercial tenants' share ($3,355.35) resulting in an increased net 
      approved MCI cost of $190,834.34 ($128,367.39 from the Administrator's 
      March 31, 1992 order plus $62,466.95).  Thus the increase per room, per 
      month for rent stabilized apartments is modified to be $79.51, effective 
      November 1, 1987 (July 1, 1989 for apartment 8) and the increase per room, 
      per month for rent controlled apartments after tax abatement is modified to 
      be $69.23, effective as of October 1, 1990.  Said revised increases are 
      computed in accordance with the formula set forth on the "Reverse" side of 
      the Administrator's order based on a total net approved cost of 
      $190,834.34.

      Any arrears in rent due to the owner as a result of this order, to cover 
      the period between the respective effective dates of the Administrator's 
      order as set forth herein and the date of issuance of this order of the 
      Commissioner, may be paid by the tenants in 24 equal monthly installments 
      subject to the statutory annual limitation on collectibility for rent 
      stabilized apartments of 6% (of the July 1, 1987 rent roll) for the 
      permanent increase plus 6% for temporary arrears and 15% (of the October 1, 
      1990 rent roll) for controlled apartments, with any overage collectible in 
      succeeding years, subject to the same limitation on collectibility.




          ADMIN. REVIEW DOCKET NO.: GE 410052-RO



      The Commissioner deems it appropriate to note that a review of Division 
      records discloses that there are no pending service complaints or 
      harassment proceedings with respect to the subject premises; and that there 
      are no orders outstanding against the subject premises based upon a finding 
      that the owner is not maintaining services of a building-wide nature.

      The determination herein is without prejudice to the right of the tenants 
      filing an appropriate complaint with the Division if the owner is not now 
      maintaining all required or essential services or if there has been a 
      diminution in living space (as alleged in a previously submitted answer), 
      if the facts so warrant.

      A tenant with a valid Senior Citizen Rent Increase Exception order is 
      exempt from paying so much of the MCI rent increase which would cause the 
      rent to exceed one-third of the tenant's monthly disposable income and, if 
      applicable, the tenants may pursue the matter of this possible benefit with 
      the New York City Department of the Aging.

      THEREFORE , in accordance with the provisions of the Rent Stabilization 
      Code and the Rent and Eviction Regulations for New York City, it is

      ORDERED, that this petition be, and the same hereby is, granted in part; 
      that the Administrator's March 31, 1992 order be, and the same hereby is, 
      modified in the manner and to the extent set forth herein; and that as so 
      modified said order be, and the same hereby is, affirmed.

      ISSUED:








                                                                    
                                           JOSEPH A. D'AGOSTA
                                       Acting Deputy Commissioner




                                                    





    

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