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Tenant Association Defeats Landlord’s Major Capital Improvement Request with 99% Reduction in Amount Claimed; New Record Achieved


When owners make improvements or installations to a building subject to the rent stabilization or rent control laws, they can apply to the Division of Housing and Community Renewal (DHCR) for approval to raise the rents of the rent regulated tenants based on the actual, verified cost of the major capital improvement (MCI). For rent stabilized apartments there is a permanent prospective increase, and a temporary retroactive increase in the rent. For rent controlled apartments, there is only a prospective increase. The rent increase is calculated and applied based on the total amount of rooms in each apartment.

When the rent regulated tenants of one upper east side building received their owner’s MCI application, which sought over $2,000,000.00 in claimed costs, they immediately came to Adam Leitman Bailey, P.C., for guidance.

The tenants feared that the owner sought credits to which it may not have been entitled and purposely exaggerated its costs in an effort to drive the rent regulated tenants out of the building. Many of the tenants had lived in the building for decades and knew it as their only home. Many were elderly or living on a limited income. Some were in their 90s. The tenants knew that they had no chance of challenging the owner on their own. Many would not be able to afford the rent increase. The tenants were terrified of losing their homes.

The team at Adam Leitman Bailey, P.C., immediately went to work.

After a several year battle in opposition to the owner’s MCI application, Adam Leitman Bailey P.C., achieved a monumental victory for the tenants when DHCR recently issued an order reducing the owner’s MCI credit request by over 99% (from over $2,000,000.00 claimed to under $19,000.00 approved).

In its application, the owner requested credits for lobby renovation, hallway carpeting, entrance canopy, architect and consulting fees.

First, the team created comprehensive questionnaires to get the history of the building, of the owner’s work and construction at the building, detailed information about the items that the owner claimed were replaced and whether the owner had maintained required building-wide and individual-apartment services.

The team conducted a detailed inquiry regarding the apartment layouts to ascertain the total room count in the respective apartments, for calculating the potential rent increase for each apartment.

ALBPC’s investigation uncovered that a fire occurred in the building affecting some of the items that the owner claimed in its MCI application, that the owner received insurance proceeds as a result of the fire and that many tenants complained of reductions in building-wide services as well as inadequate repairs to conditions inside the respective apartments. The team also visited the building and performed an on-site observation and investigation.

In spite of the owner’s providing limited access to its documentation, ALBPC obtained all of the records from DHCR and conducted a detailed review of all the documentation, including of all applications, plans and approvals, contractor agreements, sign-offs, invoices, work orders, cancelled checks, and the like. The ALBPC team then performed a comprehensive analysis of whether the claimed items were on a list of approved items, the age of the items claimed to be replaced, whether the items exceeded their useful life, and whether the owner sought a waiver of the useful life schedule for those items that had previously been replaced. Leaving no stone unturned, the team also parsed the application to ascertain which items were for the “operation, preservation and maintenance of the building,” and which items were merely cosmetic or decorative and may not have been MCI eligible.

The investigation uncovered items where the Owner claimed replacements for essentially new building features and where insurance proceeds were used for replacements. The team uncovered a “C” class violation, another defense to an MCI application, and which resulted in a later start date for the retroactive rent increase.

ALBPC also challenged the administrative fees, including architect and consulting fees, as incidental and ineligible. Finally, the team uncovered that the owner misstated the room counts for several apartments for which contrary evidence was provided.

Over the course of a several year battle, the team presented all of these findings and arguments in several back and forth submissions to the DHCR Rent Administrator.

DHCR’s order vindicated the tenant’s position as DHCR reduced the owner’s claims cost by over 99%. In the end, the DHCR awarded the owner only 33¢ per room where the landlord had sought hundreds of dollars per apartment.

Adam Leitman Bailey, Vladimir Mironenko & Dov Treiman of Adam Leitman Bailey, P.C., represented the tenant association at DHCR in opposition to the landlord’s MCI application.

 

Adam Leitman Bailey, P.C.

NEW YORK REAL ESTATE ATTORNEYS