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Court denies Stuy Town MCI.

The long running dispute over the Major Capital Improvement (MCI) for the window replacement program at Stuyvesant Town and Peter Cooper Village was thrown into more turmoil last week when a State Supreme Court judge remanded the MCI application back to the Division of Housing and Community Renewal (DHCR) for a rehearing, and enjoined the property owner, Metropolitan Life Insurance Company, from collecting further rent increases based on the MCI application.

Windows had begun breaking soon after installation and Met Life had to create and effectuate a fix for every pane, The dispute in two actions, filed under the Matter of Doyle v. Holland and the Matter of Sanders v. Holland, centers over the granting of the MCI increase before the fix was completed, as well as depriving the tenants of an opportunity to review the costs.

The order that officially directs the action has yet to be drafted and signed, but was being labored over last week by tenant's counsel, Jack L. Lester, so that it could be effectuated before Nov. 1 rental payments come due.

The rent stabilized tenants in the 110 buildings had been paying retroactive increases of about $9 per room - and by law, not more than a 6 percent increase to their rent - since February, based on a Dec. 1, 1993 date of retroactivity in Stuyvesant Town, June 1, 1994 in Peter Cooper and a 30-days after the window was repaired for those with breakage.

"The retroactive date is important because they awarded it 14 months before the project was complete," said Lester. He says the judge's decision on that aspect will save the tenants $350 to $400 each, and may amount to close to $4 million overall, if Met Life is forced to refund the monies already paid and the completion date is reset.

Attorney Paul Korngold, a partner with Tuchman Katz Schwartz Gellis & Korngold who handles these matters for other clients, said "Clearly it appears the tenants are forcing Met Life to submit a new application to avoid paying retroactive charges."

Dan Margulies, executive director of the Community Housing Improvement Program (CHIP), that represents middle market owners, said "The judge was obviously looking for an excuse not to approve a rent increase for thousands of tenants."

The real story, said Margulies, is that this is a job involving the replacement of 147,000 windows that began in 1991, sat around DHCR for three years, and is back to square one without the owner getting a penny on its investment.

"Which raises the question of why be a good landlord and provide new windows if this is what you get for it?," asked Margulies. "Met Life has gone way beyond the call of duty in improving some of the most desirable apartments in the city with the lowest rents."

There are 8,756 apartments in 89 buildings in Stuyvesant Town, housing 15,233 tenants, while Peter Cooper Village consists of 2,495 apartments in 21 buildings housing 4,195 tenants. The complexes lie between First Avenue and the East River and run from 23rd Street to 14th Street.

The ruling will cause trouble for the current administration of DHCR, led by Commissioner Joseph Holland, that was a respondent in the two joined lawsuits along with Met Life. Sources indicated that DHCR will appeal the ruling, as will Met Life.

The window replacement began in 1991. In Sept. 1993 and Feb. 1994, Met Life submitted the applications to DHCR. But window panes had already been imploding and a fix for all windows was still underway.

In January, 1994, the tenants asked DHCR to reject the application as incomplete and preserve their opportunity to comment on the costs and work after DHCR accepted it as complete.

In June, 1994 a report submitted by Met Life to DHCR indicated that 2,199 apartments, or 16 percent, had sustained damage affecting 2,199 panes or 1.5 percent of the total.

The tenants argued successfully to former Governor Mario Cuomo's appointee, Commissioner Donald M. Halperin, that because the windows had not all been fixed, the work was effectively not completed - a requirement for MCI applications. DHCR rejected the application in October of 1994 and gave Met Life the ability to file the application within two years of completion.

A source familiar with the case said that if Halperin had approved the application, and subsequently it was determined in court that the work was not done in a workmanlike matter, Met Life would have lost "everything" and would never have obtained any money from the tenants.

"Donny gave them a fair way out," said the source, who requested anonymity, "because a repair was needed to every window and it was not a mere adjustment as Met Life was claiming. They could have sued the manufacturer, but if they were going to get all the money back from the tenants, they couldn't show damages. So someone in Met Life was pushing and wouldn't let go."

Assemblyman Steven Sanders, who is a tenant in Peter Cooper and a plaintiff in one action, says "If the events had been different in the election, they wouldn't have filed the PAR. And with a different commissioner, they would have had a different outcome."

After the election of Governor George Pataki and the appointment of Holland to lead the agency - succeeding Halperin - the attorneys for Met Life filed the petition for administrative review (PAR) seeking to overturn the adverse ruling on the original application and included new information pertaining to costs and repair work.

The MCI was approved, with DHCR essentially deciding that since the project was so big, and only a few windows had broken, the problem was not sufficient enough to deny the MCI application so long as the owner had "in good faith conscientiously and expeditiously" completed the fixative work at no cost to the tenants.

The tenants, who were expecting to make comments on the costs and workmanship and perhaps lessen the amount of money to be recouped, were never afforded that chance, a premise that Justice Herman Cahn agreed with in his ruling last week.

"We never made the argument that Met Life should not be reimbursed some amount," insisted Sanders. "Our argument contested the completion of the project, and the judge agreed it couldn't be considered complete as long as windows were breaking and work was occurring, and once it was complete we wanted a chance to comment."

The tenants association filed two separate Article 78 proceedings seeking to overturn the PAR decisions and the orders that had been granted over the ensuing months approving the MCI increases.

The ruling, issued by Justice Cahn on those Article 78 proceedings, is also a financial blow for Met Life - which has spent about $30 million on the 147,000 window panes.

Real estate industry prognosticators believe the MCI will ultimately be approved. But as an inducement for owners to make investments and fund the improvements, MCI increases go on forever, so any interruption in the payments will most likely never be recouped and will represent several million dollars in lost funds, particularly if the case is not adjudicated for several years.

Under current law and case law, MCI increases cannot exceed 1/84 of the cost of the improvement nor be added in at more than 6 percent of a tenant's rent per year. Sen. Roy Goodman was instrumental in having the legislature pass a law lowering the amount of money paid out each month from the former five year basis to seven years.

Additionally, in this matter, the judge opened the door for the tenants to seek damages and legal fees by granting them class action status and permitted the tenants association to be an aggrieved party for the action.

In remanding the MCI application to DHCR for further consideration, Justice Hahn agreed with the tenants that DHCR had acted improperly in approving the application from the PAR hearing where new evidence was presented as to costs and repairs, without allowing tenants the ability to comment on those issues.

"The PAR should thus have been limited to the issue of whether the DRA [Division of Rent Administration] properly rejected the application as incomplete... the Deputy Commissioner should have remanded the case to the DRA for consideration of the application on a de novo basis [as if seen for the first time]," writes Justice Hahn in his decision. "The MCI could not reasonably be deemed complete until the remedial work was completed."

The judge also ordered a referee to hear evidence regarding MCI orders issued prior to March 29, 1996 with respect to a statue of limitations issue affecting the tenants appeal.

Met Life's attorney, Martin J. Heistein, a partner with Belkin Burden Wenig & Goldman, declined to comment at this time, referring callers to Met Life.

Its spokesperson, Catherine Peters said, "We are disappointed by this decision, which we believe is both procedurally and substantively in error. Met Life's attorneys are currently reviewing the decision and we anticipate filing an appeal."

Rent Stabilization Association President Joseph Strasburg said from a tactical perspective, if the case is appealed and they lose, they will still have to go back to DHCR to process the application.

"And the faster they do that, the faster they have a resolution," he said, and the faster the retroactivity can begin again. "I do understand the feelings by Met Life that they did whatever they had to do to comply and will therefore appeal. For DHCR, there are greater reasons to appeal, and if they believe the rules were met, they want to make sure that future actions on those procedures are established rules and won't be overturned in court actions."

Strasburg also explained that if current tenants move out, the new tenant will not be responsible for any retroactivity associated with the MCI increase. "[Met Life] will never be able to recoup," he said.

Sen. Roy Goodman, who actively worked with the tenants association as well, said "Met Life on the whole has been an excellent landlord, but in this case, were arbitrary and capricious in pushing for the completing of the MCI before the job was completed. No one is trying to swindle Met Life. We're trying to make sure they don't take advantage of the tenants on an incomplete job."

Sen. Goodman also questioned the repair of the windows, that required a capillary tube to be installed to keep the insulating argon gas from "bunching" and imploding. He also wonders whether the two thermopanes may have lost their insulating qualities from the insertion of the tube. Additionally, he said, the two panes are of different thicknesses and some engineers believe that contributed to the numerous problems.

The windows were specially created for Met Life by Cardinal Windows in two midwestern plants and the differences in altitude and barometric pressure have also been blamed by engineers for the windows' problems.

No information is available as to whether or not Met Life has started legal proceedings against the manufacturer, but sources say they may now be able to show damages because of the court ordered loss of the payments by the tenants.

Tenants also want to make sure they are not paying for the repair work, which involved some 40,000 man hours, they say.

Met Life's attorneys may also ask a judge for a temporary restraining order to allow their client to continue collecting the additional MCI rent payments while the case is on appeal.
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Title Annotation:Major Capital Improvement; Stuyvesant Town
Author:Weiss, Lois
Publication:Real Estate Weekly
Date:Oct 9, 1996
Previous Article:Running our government like a business not a profitable idea.
Next Article:Sculpture needs a new home.

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