Fact
Sheet #11 - Rent Increases for Major
Capital Improvements (MCI)
[Note:
This fact sheet is currently under revision by DHCR. The information
below is from a previously issued version of this fact sheet and may
not accurately state DHCR's current policy. To see whether DHCR has reissued
this fact sheet, go to their website.]
When
an owner makes an improvement or installation to a building subject to
the rent stabilization or rent control laws, the owner may be permitted
to adjust the rent based on the actual, verified cost of the improvement
or installation.
To qualify as an MCI, the improvement or installation must:
- be deemed depreciable under the Internal Revenue Code, other than for
ordinary repairs;
- be for the operation, preservation and maintenance of the building;
- directly or indirectly benefit all tenants; and,
- meet the requirements set forth in the Division of Housing and Community
Renewal's (DHCR's) Useful Life Schedule, Section 2522.4(a) (2) of the Rent
Stabilization Code (RSC) or Fact Sheet #33 (Useful Life Schedule for Major
Capital Improvements).
To
be eligible for a rent adjustment, the MCI must be a new installation and
not a repair to old equipment. For example, an owner may be entitled to
an MCI adjustment for a new boiler or a new roof but not for a repaired
or rebuilt one. Some procedures qualify as MCI's as well, such as pointing
and waterproofing. The New York City Rent Stabilization Code (RSC) provides
that applications for MCI rent adjustments must be filed within two years
of the installation.
When an Owner submits an MCI application, DHCR notifies the tenants and
gives them an opportunity to submit responses to the application. The owner
may keep a copy of the application with all supporting documentation on the
premises so that tenants can examine it. However, a complete copy of the
MCI application with all the supporting documentation will always be available
at the DHCR's Queens office for tenant
review upon written request. DHCR will review the application, consider the
comments by the tenants, and may request additional documentation if deemed
necessary. When tenants provide comments, they are instructed to comment
on the subject installation(s) as specifically as possible.
The DHCR will issue an order either granting the application in whole or
in part or denying the application. The DHCR computes the rent adjustment
for a rent stabilized or rent controlled apartment based upon a seven-year
period of amortization of the verified costs of the MCI. This rent adjustment
is a permanent addition to the legal regulated or maximum rent, and does
not expire after the seven-year period. The adjustment is based upon a per
room amount.
No adjustment may be charged or collected unless and until DHCR issues
an order approving the application.
In
addition, an owner cannot adjust the rent based on an MCI from a tenant
for whom DHCR has determined that "required services" are not being maintained
and who received a rent reduction order before the issuance of the order
authorizing an MCI rent adjustment. However, where the DHCR issues a rent
reduction order, an owner may continue to collect an MCI rent adjustment
that the owner began collecting before the rent reduction order was issued
regardless of the effective date of the rent reduction order.
No MCI rent adjustment application will be approved while a building-wide
service rent reduction order is in effect. Also, if there is an outstanding
finding of harassment, the DHCR will not permit the rent to be so adjusted
for the affected apartment(s) and/or building(s).
For rent stabilized apartments in NYC, the rent adjustment collectible in
any one year may not exceed 6% of the tenant's rent, as listed on the schedule
of monthly rental income filed with the owner's application. Adjustments
above the 6% cap can be spread forward to future years. How this annual 6%
cap affects the collectibility of the temporary retroactive portion of the
MCI rent adjustment is addressed in each order granting the application.
For all rent controlled apartments and for rent stabilized apartments outside
NYC, the adjustment collectible in any one year may not exceed 15% of the
tenant's rent as of the issue date of the order, and for rent controlled
apartments, there is no retroactive portion.
For rent stabilized apartments, the MCI rent adjustment is generally effective
as of the first rent payment date 30 days after the filing of the owner's
application.
For rent controlled apartments, the adjustment takes effect on the first
rent payment date after the issuance of the order approving the application.
If
a NYC apartment owner receives a "J-51" tax abatement for a major capital
improvement, the rent adjustment is to be offset by a portion of the value
of the tax abatement. For rent controlled apartments in buildings receiving
a "J-51" tax benefit, the MCI adjustment is offset by 2/3 for the length
of the tax benefit. For
rent stabilized apartments in "J-51" buildings, the adjustment is offset
by 1/2 for the length of the tax benefit.
A senior citizen with a valid Senior
Citizen Rent Increase Exemption (SCRIE) or a disabled person with a
valid Disability
Rent Increase Exemption (DRIE) is exempt from paying any
portion of an MCI adjustment that would raise his or her total rent to
over 1/3 of the tenant's total disposable income. However, if the owner
requests it, any addition to the security deposit resulting from the MCI
rent adjustment must be paid by a SCRIE or DRIE tenant.
If an apartment(s) is vacant or becomes vacant while the MCI application
is pending, the owner must notify any incoming tenant that the tenant's rent
will be adjusted if the MCI application is approved. Failure to indicate
this anticipated rent adjustment in the vacancy lease will result in no MCI
adjustment being approved for this apartment until the lease is renewed.
If an owner charges the adjusted rent without this proper notification, the
owner risks overcharge penalties.
A
vacancy lease clause that satisfactorily notifies an incoming tenant of
a pending MCI application is one which provides as follows: "Application
for a major capital improvement rent increase has been filed with DHCR based
upon the following work:_______________, Docket # ______. Should DHCR issue
an order granting the rent increase, the rent quoted in this lease will be
increased."
If
the DHCR approves an application for a rent adjustment based on an MCI,
the owner may adjust the rent during the term of an existing lease only
if the lease contains a clause specifically authorizing the owner to do
so. A satisfactory lease clause would provide as follows: "The rent established
in this lease may be increased or decreased by an order of the DHCR or the
Rent Guidelines Board."
Installation Of New Windows
The
installation of new framed windows (not just the addition of storm windows),
building-wide, constitutes a major capital improvement warranting a rent
adjustment. When an owner replaces all of the windows in a building except
the hallway or lot line windows, such omission will not render the window
installation ineligible for an MCI rent adjustment because the requirements
for these types of windows under State and Local Building Codes are more
stringent than they are for apartment windows. These Codes require hallway
and lot line windows to contain "protectives" (e.g., wired glass). Therefore,
they vary significantly from other windows. If an owner replaces all of the
hallway or lot line windows in a building, the owner would also be eligible
for an MCI rent adjustment based upon the cost thereof.
Cosmetic Improvements
The DHCR may allow the reasonable substantiated cost of other necessary
work performed in connection with, and directly related to a major capital
improvement, to be included in the computation of a rent adjustment based
upon a major capital improvement, only if such cosmetic improvement:
- Improves, restores or preserves the quality of the structure and the
grounds; and
- was completed contemporaneously with, or within a reasonable time after,
the completion of the work for the major capital improvement.
Confirmation of Costs and Payments
Any claimed MCI cost must be supported by adequate documentation which should
include at least one of the following:
- Cancelled check(s) contemporaneous with the completion of the work;
- Invoice receipt marked paid in full contemporaneous with the completion
of the work;
- Signed contract agreement;
- Contractor's affidavit indicating that the installation was completed
and paid in full.
Whenever it is found that a claimed cost warrants further inquiry, the DHCR
may request that the owner provide additional documentation.
If it is found that there is an equity interest or an identity of interest
between the contractor and the building owner, then additional proof of cost
and payment, specifically related to the installation, may be requested.
Where proof is not adequately substantiated, the difference between the claimed
cost and the substantiated cost will be disallowed.
Third Party Certification
Where during the processing of an MCI application, tenants interpose answers
complaining of defective operation of the MCI, the complaint may be resolved
in the following manner:
- Where municipal "sign-offs" (other
than building permits) are required for the approval of the installation,
and the tenants' complaints
relate to the subject matter of the sign-off, the complaints may be
resolved on
the basis of the sign-off, and the tenants referred to the approving
governmental agency for whatever action such agency may deem appropriate;
- Where municipal sign-offs are not required, or where the alleged defective
operation of the MCI does not relate to the subject matter of the sign-off,
the complaint may be resolved by the affidavit of an independent licensed
architect or engineer that the condition complained of was investigated
and found not to have existed, or if found to have existed, was corrected.
Such affidavit, which shall be served by the DHCR on the tenants, will
raise a rebuttable presumption that the MCI is properly operative. Tenants
may rebut this presumption only on the basis of persuasive evidence, for
example, a counter affidavit by an independent licensed architect or engineer,
or an affirmation by 51 percent of the complaining tenants. Except for
good cause shown, failure to rebut the presumption within 30 days will
result in the issuance of an order without any further physical inspection
of the premises by the DHCR.
There
must be no common ownership, or other financial interest, between such
architect or engineer and the owner or tenants. The affidavit shall
state that there is no such relationship or other financial interest. The
affidavit must also contain a statement that the architect or engineer did
not engage in the performance of any work, other than the investigation,
relating to the conditions that are the subject of the affidavit. The affidavit
submitted must contain the original signature and professional stamp of the
architect or engineer, not a copy. The DHCR may conduct follow-up inspections
randomly to ensure that the affidavits accurately indicate the condition
of the premises. Any person or party who submits a false statement shall
be subject to all penalties provided by law.
For
more information or assistance, call the DHCR Rent InfoLine (718-739-6400)
or visit your Borough or County Rent Office.
DHCR Version
3/22/06
RGB page updated 7/30/08
