Hon. George M Heymann, retired New York City Housing Court Judge || Credit: George M. Heymann

An Overview of Major Capital Improvements for Landlords and Tenants

By Hon. George M. Heymann

Every rent-controlled or rent-stabilized tenant in New York City knows that when his or her landlord seeks approval from the Division of Housing and Community Renewal (DHCR) for improvements to the building or the entire development they live in their rent will likely increase. Such increases are based on the actual cost to the landlord and must be pre-approved by DHCR. Any improvements must be new and not simply “repairs” to the building or buildings.

In order for the landlord to obtain such approval for the improvements and rent increases, it must demonstrate that the proposed work will inure to the benefit of all the tenants. However, it is not necessary that every tenant derives a benefit and landlords may still obtain an approval from DHCR.

The type of work that comes within the rubric of Major Capital Improvements (MCI) are new windows, boilers, roofing, plumbing, electrical wiring and the like. In order to remove the existing items and replace them with new ones, the landlord must prove that the older equipment has reached or exceeded its useful lifespan as determined by DHCR, that the new equipment meets the IRS standards for depreciation and that it is necessary for the operation, preservation and maintenance of the building or buildings.

Applications submitted by landlords must contain, among other things, the actual costs of the items, any permits or certifications required to perform the work, proof of payment of the work completed and a few other components.

After submission, DHCR will notify all the affected tenants who then have an opportunity to make written responses in opposition to the application.

If installations require permits or authorization from various city agencies that have already approved the prospective work, it is unlikely that DHCR will deny the application. For work that does not require prior government approval, tenants can provide independent architect and/or engineering reports indicating that the work is defective. The owner can then respond to refute the reports. Affidavits cannot be submitted by the owner of any company connected with the work in question. Tenants can also submit a written response by at least 51% of the tenants who initially complained that the work was defective.

Once DHCR has reviewed all the information from the landlord and tenants, the agency will issue an order granting the landlord’s request in full, in part or denying it in its entirety. DHCR then sends notification to all parties.

If the MCI application is granted in whole, or in part, DHCR will next determine the amount of additional rent each tenant will be required to pay. This becomes a permanent increase factored into each subsequent lease renewal for stabilized tenants. The amount is based on the number of rooms in each apartment, excluding bathrooms, hallways, closets and outdoor patios.

For rent stabilized tenants, the amount of the increase of collectible rent per year cannot exceed 6% of the tenant’s rent at the time the application was filed. It can be both temporarily retroactive (from the effective date and the issue date of the DHCR order granting the MCI) and permanently prospective when it becomes part of the legal regulated rent. There is no retroactive payment for rent-controlled tenants and landlords cannot charge more than 15% per year from the date the order was issued.

Tenants who are seniors eligible for Senior Citizen Rent Increase Exemptions (SCRIE) and disabled tenants eligible for Disabled Rent Increase Exemptions (DRIE) will be exempt from paying any MCI charges that will exceed one-third of their disposable income. They are, however, obligated to pay the full increase in subsequent security deposits.

There is currently a major effort by members of the Queens delegation in both the State Senate and Assembly to overhaul the MCI rules and regulations as they currently exist. If you want to have a say on this issue, write, email or call your local state representatives.  

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