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. 7178
IN THE MATTER OF THE ADMINISTRATIVE ADMINISTRATIVE REVIEW
APPEALS OF DOCKET Nos.: GD430101RO,
GD410172RT, GD410173RT,
DAVID FRANKEL REALTY INC (OWNER) GD410178RT, GD410212RT,
AND VARIOUS TENANTS OF GD410274RT, GD410299RT,
230 EAST 48TH STREET, NY, NY GD410300RT, GE410189RT
RENT ADMINISTRATOR'S
DOCKET NO.: EK430062OM
PETITIONERS
-------------------------------------X
ORDER AND OPINION GRANTING IN PART OWNER'S PETITION AND DENYING
TENANTS' PETITIONS FOR ADMINISTRATIVE REVIEW
On various dates the above named petitioners timely filed petitions
for administrative review (PAR) against an order issued on March
12, 1992 by a Rent Administrator (Gertz Plaza) concerning the
housing accommodations known as 230 East 48th Street, New York, New
York, various apartments, wherein the Rent Administrator granted in
part the owner's application for a rent increase based on the
installation of Major Capital Improvements (MCIs).
Subsequent thereto the owner filed a petition in the Supreme Court
pursuant to Article 78 of the Civil Practice Law and Rules seeking
an order of mandamus. This resulted in a court ordered stipulation
remitting the proceeding for a determination of the owner's
administrative appeal herein.
The Commissioner deems it appropriate to consolidate these
petitions for disposition since they pertain to the same order and
involve common issues of law and fact.
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 these administrative appeals.
The owner commenced this proceeding on November 13, 1990 by
initially filing an application for a rent increase based on the
installation of the following items at a total cost of $519,971.00:
apartment windows building-wide, steel roof door, exterior
rehabilitation, and engineering/consultation fees.
On January 9, 1992 the Rent Administrator sent a Request for
Additional Information to the owner requesting, among other
matters, a breakdown of claimed costs for the exterior
rehabilitation.
ADMIN. REVIEW DOCKET NOS. GD430101RO ET AL
The owner submitted an affidavit from the president of the
contracting company (Cole Restoration) that included a list of
items, and the quantity and costs of the work that comprised the
exterior work. In pertinent part, the list included 14 items among
which were roof replacement, 2,530 square feet at a claimed cost of
$15,180.00 and replacement of the terrace deck, 3,000 square feet,
at a claimed cost $114,000.00.
Various tenants objected to the application stating, in substance,
that the claimed costs for he exterior work was questionable; that
windows had drafts and that the full application was not available
on the premises to review. Several tenants had complaints regarding
services in their individual apartments.
The owner responded to the tenants' objections by submitting work
orders showing that the windows and individual service complaints
were taken care of and stated that the full application was
available in the superintendent's apartment.
The 230 East 48th Street Tenants Group (Tenants' Group) objected to
the owner's MCI application alleging, in substance, that the roof
and terrace work are separate items; that the 5,530 square
footage of roof replacement cited in the owner's application
includes the terrace deck; that the terrace deck is not a MCI
eligible cost as it benefits only two apartments (penthouses) and
not all 62 apartments; that the cost of the terrace deck is much
higher than the cost of the roof ($38.00 per square foot for the
terrace deck compared to $6.00 per square foot for the roof); that
tenants should not pay for repairs; that the professional tenants'
share of the MCI costs is 12 percent to 15 percent; and that the
work did not undergo competitive bidding.
The owner responds to the Tenants' Group's contentions, stating in
substance, that the terrace decks and roof are one and the same;
that the terrace deck is an integral part of the building's roof
system and that it was absolutely necessary to replace the terrace
deck for the operation, maintenance and preservation of the
structure.
On March 12, 1992 the Rent Administrator issued the order here
under review finding that the exterior rehabilitation (less
$4,244.31 for repairs), apartment windows, and the steel roof door
qualified as MCIs, finding that the application compiled with the
relevant laws and regulations based upon the supporting
documentation submitted by the owner, and allowing appropriate
rent increases for rent controlled and rent stabilized tenants.
Disallowed by the Rent Administrator was $2,545.00 and $12,850.00
for the engineering consultation fees, for the windows and exterior
work, respectively, finding that the consultant fees did not
qualify as MCIs.
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ADMIN. REVIEW DOCKET NOS. GD430101RO ET AL
In its petition, the owner contends in substance that, that Rent
Administrator erred in disallowing the engineering consultant fees;
that the engineering reports were necessary; that the DHCR policy
of determining commercial tenants' share of the MCI costs is
inaccurate; that the DHCR should allocate the rent increase to
commercial tenants by adding the number of rooms used by commercial
tenants to the room count pursuant to Section 2522.4 (a) (12) of
the Rent Stabilization Code and Administrator's Interpretation No.8
(rev.) effective January 16, 1972.
In response to the owner's petition, various tenants stated that
the new windows are unsatisfactory; that the hot water is
inadequate; that ceilings leak; that the increase is a financial
hardship on seniors; and that the room count is incorrect.
In response to the owner's petition, the Tenants' Group states that
the claimed room count in the owner's application, 213, is
different than that claimed in the owner's petition, 226; that the
owner's contention to calculate the commercial tenants' share of
MCI costs by adding commercial tenants' rooms to the total room
count is in contravention of DHCR guidelines; and if DHCR accepts
the owner's contention, then commercial tenants should be charged
the MCI increase per room.
Various tenants filed petitions alleging, in substance, that the
room count for their apartment is incorrect in that their kitchens
should not be included in the room count; that their kitchens do
not meet any of the definitions set forth in DHCR Policy Statement
90-3 which is used for the purposes of calculating MCI rent
increases, in particular, paragraph (b) which states, a room is an
enclosed area with a window containing at least 60 square feet;
that their windowed kitchens are less than 60 square feet; and that
expenses incurred by the owner for the exterior work were not
competitive.
In response to the tenants' petitions, the owner states that the
room counts are correct; that the room counts were taken from the
rent roll; and that the tenants did not raise this issue below.
Various tenants responded to the owner's answer re-asserting their
claim that their kitchen is not a room.
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ADMIN. REVIEW DOCKET NOS. GD430101RO ET AL
The Tenants' Group filed a petition, alleging in substance that the
penthouse terrace deck is not part of the roof system; that the
owner's MCI application incorrectly combined the terrace deck and
roof work as the replacement of 5,530 square feet of roof while in
fact 3000 square feet of the terrace deck and 2530 square feet of
roof were replaced; that the Engineer's Report, Progress Reports,
and Payment Requisition Forms consider the terrace deck and roof
two separate items; that the terrace decks and roof are at two
separate levels physically; that replacement of the terrace deck is
not a MCI; that only two apartments (penthouses) benefit from the
replacement of the terrace deck instead of the total 62 apartments;
that the costs of the terrace deck and roof replacement are
dramatically different, $114,000 and $15,180.00, respectively; at
the very least the tenants should not pay the differential expense
of the terrace deck over the cost of the roof; that the DHCR failed
to show how the professional tenants' rents were determined; and
that the professional tenants' share of the MCI cost should be 12
percent to 15 percent.
In response to the Tenants' Group's petition, the owner states, in
substance, that the terrace decks are eligible MCI costs; that
replacement of the terrace decks was an integral part of the
exterior rehabilitation work; that such work was necessary for the
operation, maintenance and preservation of the structure; that the
Engineer's Report recommended the replacement of 100% of the
terrace decks; that the replacement of the terrace decks benefits
all tenants in that it was part of the work that prevented water
intrusion and helped protect the structural integrity of the
building; that the owner presented documentation to the Rent
Administrator substantiating the cost of the exterior
rehabilitation work; that commercial/professional tenants' rents
are correct; and that the Tenants' Group does not present a basis
for its claim that the commercial/professional tenants' share of
the MCI is 12 percent to 15 percent.
After a careful consideration of the entire evidence of record, the
Commissioner is of the opinion that the owner's petition should be
granted in part, and that the tenants' petitions should be denied.
Rent increases for major capital improvements are authorized by
Section 2202.4 of the Rent and Eviction Regulations for rent
controlled apartments and Section 2522.4 of the Rent Stabilization
Code for rent stabilized apartments. Under rent control, an
increase is warranted where there has been since July 1, 1970, a
major capital improvement required for the operation, preservation,
or maintenance of the structure. Under rent stabilization, the
improvement must generally be building-wide; depreciable under the
Internal Revenue Code, other than for ordinary repairs; required
for the operation, preservation, and maintenance of the structure;
and replace an item whose useful life has expired.
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ADMIN. REVIEW DOCKET NOS. GD430101RO ET AL
As for the owner-petitioner's contention that the Rent
Administrator erred in disallowing the engineering consultant fees,
it is the DHCR position that certain engineering or architectural
expenses which are directly related to the MCI installation cost
and which are not otherwise duplicated, qualify for a rent
increase. Thus, preparatory inspections needed for as well as the
cost of drawing plans and specifications for the particular
installation or expenses for any other professional services which
are established as being both necessary and customary to the
accomplishment of the improvement qualify for an MCI rent increase.
Applying this principal to the case at hand, the record discloses
that as for the exterior rehabilitation work, of the $12,850.00
claimed for engineering specifications and supervision, only the
engineering specifications work is eligible. The record indicates
through invoices and cancelled checks that the costs for the
preparation of the specifications is $2,175.00, therefore, the
remaining $10,305.00 of the claimed costs comprising construction
and window inspections are disallowed. With regard to the
supervision work, the Commissioner is of the opinion that the
tenants should not be required to bear supervisory and
administrative expenses where, as in the case herein, the owner has
employed licensed professional contracting companies which warrants
or guarantees all work and materials to be free from any and all
defects under the terms of the contracts.
As for the $2,545.00 claimed for bid specifications for the
windows, the Commissioner finds that the work does not qualify as
an MCI, because window specifications are not customary
professional services in what otherwise appears to be an ordinary
installation.
As for the owner's claim that the Rent Administrator incorrectly
calculated the commercial tenants' share of the MCI costs by not
allocating a portion of the cost of the improvements to the
commercial space based upon the number of rooms contained in the
commercial space, the Commissioner finds that this contention is
without merit. The pertinent section of the Rent Stabilization
Code, Section 2522.4(a)(12) (May 1, 1987), leaves to the Division
the method of computing an allowable MCI rent increase and provides
that the total increase is to be allocated to the "residential"
units on a per room basis, rather than as a percentage of the
stabilized income as had been the prior method under the old Code.
The Division has devised a uniform MCI increase application,
utilized by the owner herein, and has established a uniform and
judicially recognized procedure for the computation of the
allowable rent increase adjustments for both rent stabilized and
rent controlled tenants. (Accord: CB430083RO; CE430107RO).
As for the petitioners-tenants' claim that their apartments contain
fewer rooms than stated by the owner by virtue of their kitchens
disqualifying as a room for MCI purposes, the Commissioner notes
that the Division has ruled and Policy Statement 93-2 provides that
a kitchen of any size with a window, enclosed on three sides,
constitutes a room for MCI purposes.
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ADMIN. REVIEW DOCKET NOS. GD430101RO ET AL
However, the Commissioner notes that the owner may not charge the
tenants based on a greater number of legal rooms for MCI purposes.
This order is issued without prejudice to the tenants filing a
complaint with this Division based on a rent overcharge, if the
facts so warrant.
The tenants have not established the costs of the exterior work was
not competitive. The record discloses that the owner substantiated
its application in the proceeding below by submitting to the
Administrator documentation in support of the application,
including the contractor's certifications, copies of contracts,
invoices, estimates, and cancelled checks.
As for the Tenants' Group's claims that the penthouses' terrace
deck replacement is not part of the roof system, only benefits the
penthouse tenants, and does not qualify as an MCI, the Commissioner
notes that for an installation to qualify for an MCI rent increase,
it must be "an improvement to the building ... which inures
directly or indirectly to the benefit of all tenants, and which
includes the same work performed in all similar components of the
building ..." , Section 2522.4 (a) (2) (i) (c). The Commissioner
is of the opinion that the penthouse terrace decks are part of the
roof system in that they comprise part of the roof surfaces for the
accommodations below. The Commissioner finds that the replacement
of the terrace decks, although of significant cost, was an integral
component of the roof system and necessary to prevent water
intrusion to protect and preserve the building structure and is
therefore a benefit to all tenants. (Accord: GC430317RO).
As for the Tenants' Group's claim that the professional/commercial
rent is 12 percent to 15 percent of the building's rental income,
instead of approximately 9 percent, the Commissioner finds that the
tenants' unsupported contention is insufficient to refute the
documentation (rent roll) submitted by the owner and available for
tenant review in the proceeding before the Administrator.
Therefore, the Commissioner is of the opinion and finds that the
owner is entitled to a rent increase of $35.42 (rather than $35.27)
per room, per month calculated as per the following:
1. Total approved MCI cost $504,506.69
(windows, roof door, exterior work,
consultant fees)
2. Commercial/Professional tenants share $ 49,643.46
3. Net approved MCI cost $454,863.23
4. Amortization by 60 months $ 7,581.05
(Line 3 ö 60)
5. Total number of rooms 214
6. Rent increase per room per month $ 35.42
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ADMIN. REVIEW DOCKET NOS. GD430101RO ET AL
Furthermore, the rent increase is subject to a J-51 tax abatement,
which adjusts the increase to $32.85 with respect to rent
stabilized apartments ($35.42 - $2.57 offset) and $31.99 with
respect to rent controlled tenants ($35.42 - $3.43 offset).
THEREFORE, in accordance with the Rent Stabilization Law and Code,
and the New York City Rent and Eviction Regulations, it is
ORDERED, that the owner's petition be and the same hereby is,
granted in part; that the tenants' petitions be, and the same
hereby are, denied; and that the Administrator's order be, and the
same hereby is, modified to grant a rent increase of $32.85 per
room, per month with respect to stabilized apartments and $31.99
per room, per month with respect to rent controlled apartments for
the reasons hereinabove provided. The order and determination of
the Rent Administrator is hereby affirmed in all other respects.
ISSUED:
____________________
Joseph A. D'Agosta
Deputy Commissioner
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