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. 6719
IN THE MATTER OF THE ADMINISTRATIVE ADMINISTRATIVE REVIEW
APPEAL OF DOCKET Nos.: HF230007RP,
GERRITSEN AVENUE ASSOCIATES (FI230115RO)
RENT ADMINISTRATOR'S
DOCKET NO.: DI230239OM
PETITIONER
-------------------------------------X
ORDER AND OPINION DENYING PETITION FOR ADMINISTRATIVE REVIEW AFTER
RECONSIDERATION PURSUANT TO COURT ORDER
On October 9, 1992 the Commissioner issued an order and opinion
denying the owner's petition for administrative review (PAR).
Among other things, said order denied a major capital improvement
(MCI) rent increase for pointing and waterproofing at the premises
predicated upon the owner's failure to submit requisite evidence
previously requested by the Rent Administrator.
Thereafter the owner commenced a proceeding in the Supreme Court
pursuant to Article 78 of the Civil Practice Law and Rules,
requesting that the Commissioner's order be annulled. This
resulted in a "so ordered" stipulation remitting this proceeding to
the Division for reconsideration only as to that part of the
owner's PAR seeking a major capital improvement (MCI) rent increase
for the pointing and waterproofing work at the premises based on
the owner's assertion that it had not received an adequate notice
requesting the submission of requisite evidence despite indications
in the record to the contrary.
The owner of the subject premises (located at 2265 Gerritsen
Avenue, Brooklyn, New York, various apartments) initiated the
proceeding below by filing on September 29, 1989, an application
for an MCI rent increase for the stabilized apartments in the
premises based on pointing and waterproofing at the premises, as
well as for other installations which are not the subject of this
proceeding. The documentation which the owner submitted in support
of the pointing and waterproofing work, included copies of the
proposal, Contractor/Vendor Information Form (RA-79-Supplement I),
cancelled checks and a paper with the drawing of an irregular
outline of the building purporting to indicate sides of the
building where claimed work was performed. Said diagram and
accompanying statement is signed by the agent for the owner.
ADMIN. REVIEW DOCKET NOS. HF-230007-RP (FI-230115-RO)
The owner was subsequently directed to submit, among other things,
the requisite contractor's statement as specified in form RA-79
Supplement I (Supra) and a copy of an executed contract for the
pointing and waterproofing work. The owner did not submit the
requested documentation although afforded the opportunity to do so.
The Administrator's order, issued on August 20, 1991, approved an
MCI rent increase for various installations, but disallowed
expenditures made for the pointing and waterproofing based on the
owner's failure to submit a copy of the executed contract therefor.
In its petition, the owner contends, in substance, that there was
no rational basis for denying a rent increase for the pointing and
waterproofing. The owner also submitted with its petition a copy
of the executed contract for said work.
One tenant submitted a response to the owner's petition raising
complaints regarding installations which are not relevant to this
proceeding.
As directed by the above mentioned "so ordered" stipulation, the
owner was provided an opportunity to respond to a notice to submit
additional information and evidence. Said notice, dated July 14,
1993, requested that the owner submit, among other things, the
requisite affidavit from the contractor regarding the examination
of the premises and the resulting work performed and a detailed
diagram of said work. On August 13, 1993, the owner submitted a
response to the notice which included the documentation discussed
hereafter.
After careful reconsideration of the evidence in the record, the
Commissioner is of the opinion that this petition should again be
denied.
Rent increases for major capital improvements are authorized by
Section 2522.4 of the Rent Stabilization Code for rent stabilized
apartments. 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.
It is the established position of the Division that comprehensive
pointing and waterproofing as necessary on exposed sides of the
building constitutes a major capital improvement for which a rent
increase adjustment may be warranted. (SJR No. 4597,
Administrative Review Docket No. DB430282RT.)
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ADMIN. REVIEW DOCKET NOS. HF-230007-RP (FI-230115-RO)
As interpreted by the Internal Revenue Service, the relevant
sections of the Internal Revenue Code and accompanying regulations,
as applied to the matter at issue, provide as follows:
Payments for the purpose of keeping the property in
ordinary efficient operating condition, such as
replacement of short lived parts, and that do not add to
its value or appreciably prolong its life are in the
nature of incidental repairs. Subject to specific facts
and circumstances, examples of such repairs and
maintenance could include repainting, mending leaks,
patching a roof, re-plastering, etc. Tuck pointing of
limited, specific areas of a brick wall showing
weathering damage would generally not prolong the life of
the property, nor materially add to its value, and would
be currently deductible.
However, if replacement, repair or renovation acts to
retard deterioration and prolong the life of a property,
then such expense should be capitalized and depreciated.
This is because there is a resulting increase in value,
extension of useful life or improvement in useability of
the property, factors that tend to indicate a capital
expenditure. Examples of such expenditures would include
a new or resurfaced roof, complete waterproofing of brick
walls or roof (rather than repair of specific leaks),
added structural support, etc.
The complete pointing and waterproofing of a multiple
unit dwelling is in the nature of a permanent improvement
or betterment, and thus would appear to be capital in
nature and depreciable subject to specific facts and
circumstances. Repair of specific leaks and limited tuck
pointing of specific trouble spots, if not part of some
larger, overall plan of renovation, rehabilitation or
improvement of the property, would likely constitute
incidental repairs and be a currently deductible expense.
The above-stated interpretation by the Internal Revenue Service
fully supports the Division's policy to consider comprehensive
pointing and waterproofing on exposed sides of a building as
qualifying for treatment as major capital improvements. The work
performed, for example, must be greater than mere spot patching to
repair current leaks or trouble spots so as to be in the nature of
an improvement or betterment of the structure.
Regarding the owner's contention, in substance, that the
Administrator's denial of a rent increase for the
pointing/waterproofing was not warranted, the Commissioner notes
that the owner was required to submit a diagram of the subject
building indicating the areas where the pointing/waterproofing was
performed and a statement from the contractor to the effect that
the building had been examined prior to the work, and that based
upon such examination, the work performed was all the work required
[so as to render the building free from exterior water seepage for
a reasonable period of time], as clearly required in the MCI
application.
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ADMIN. REVIEW DOCKET NOS. HF-230007-RP (FI-230115-RO)
A review of the record reveals that the owner did not submit the
requisite contractor's statement in the proceeding before the
Administator or in response to the July 14, 1993 notice, but rather
submitted a statement from the contractor advising "that all
pointing and waterproofing work was performed on all sections of
each exterior wall as specified and required in our contract."
This statement does not indicate that the building was inspected
prior to the work, and that the work was done as necessary based on
said inspection.
The owner also submitted a statement from an architect, described
by the owner as "the supervising engineer responsible for the
various building improvements including the waterproofing", and
apparently part of the engineering consulting firm retained by the
owner "to advise what work was necessary and to insure that the
contractors properly completed the improvements", which statement
indicated "Pointing and waterproofing were done in different areas.
Based on inspection of the building, in my judgement all necessary
pointing and waterproofing on all sections of exterior walls where
such work was required has been done." It is noted that this
statement, without letterhead or other identification, was
previously submitted during the proceeding before the Rent
Administrator in response to the directive to submit the required
contractor's statement. The Commissioner finds that this
submission is not sufficient to satisfy the requirement for the
contractor's statement, in the view of the fact that the work was
actually performed by a separate contractor.
As to the request for the owner to submit a detailed diagram
indicating the location and extent of the work performed, the
record reveals that the owner submitted two box outlines of the
building, neither of which is detailed enough to indicate the
extent to which the exposed sides of the subject premises were
pointed and/or waterproofed. The owner has failed to establish
that the pointing and waterproofing work performed at the subject
premises was comprehensive enough to qualify for treatment as a
major capital improvement.
Based on the foregoing, the Commissioner finds that the owner is
not entitled to any MCI rent increase for the claimed pointing and
waterproofing work at the subject premises.
THEREFORE, in accordance with the provisions of the Rent
Stabilization Law and Code, it is
ORDERED, that this administrative appeal be, and the same hereby
is, denied after reconsideration pursuant to Court order, and that
the order of the Rent Administrator be, and the same hereby is,
affirmed.
ISSUED:
____________________
Joseph A. D'Agosta
Deputy Commissioner
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