N.Y. Comp. Codes R. & Regs. Tit. 9 § 2502.4 - Adjustment of legal regulated rent

State Regulations
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(a)

(1) An owner may file an application to increase the legal regulated rents of the building or building complex, on forms prescribed by the division, on the following ground: Substantial rehabilitation.

(2) Upon application by the owner, the division may grant an appropriate adjustment of a legal regulated rent where it finds that:

(i) There has been since January 1, 1974 an increase in the rental value of the housing accommodations as a result of a substantial rehabilitation of the building or housing accommodations therein which materially adds to the value of the property or appreciably prolongs its life, excluding ordinary repairs, maintenance and replacements and that the legal regulated rent has not been adjusted prior to the application based in whole or part upon the grounds set forth in the application.

(b) Temporary major capital improvement rent adjustments.

(1) An owner of a building or building complex that contains more than thirty-five (35) percent rent-regulated units may file an application to temporarily increase the legal regulated rents of the building or building complex on forms prescribed by the DHCR which includes an itemized list of work performed and a description or explanation of the reason or purpose of such work, on one or more of the following grounds:

(i) There has been a major capital improvement, including an installation, which must meet all of the following criteria:

(a) it is deemed depreciable under the Internal Revenue Code, other than for ordinary repairs;

(b) it is essential for the preservation, energy efficiency, functionality or infrastructure of the entire building, including heating, windows, plumbing and roofing, but shall not be for operational costs or unnecessary cosmetic improvements;

(c) it is an improvement to the building or to the building complex which inures directly or indirectly to the benefit of all tenants, and which includes the same work performed in all similar components of the building or building complex, unless the owner can satisfactorily demonstrate to the DHCR that certain of such similar components did not require improvement; and

(d) the item being replaced meets the requirements set forth on the following useful life schedule, except with DHCR approval of a waiver, as set forth in clause (e) of this subparagraph.

Useful Life Schedule for Major Capital Improvements Replacement Item or Equipment Years -Estimated Life

1) Boilers and Burners

(a) Cast Iron Boiler.............................................. 35

(b) Package Boiler............................................... 25

(d) Burners...................................................... 20

2) Windows

(a) Aluminum..................................................... 20

(b) Wood......................................................... 25

(d) Storm........................................................ 20

(e) Vinyl........................................................ 15

3) Roofs

(a) 2-Ply (asphalt) .............................................10

(b) 3-4 Ply (asphalt) ............................................15

(d) Shingle .....................................................20

(e) Single-Ply Rubber ........................................... 20

(f) Single-Ply Modified Bitumen ................................. 10

(g) Quarry Tile .................................................. 20

4) Pointing..................................................... 15

5) Rewiring......................................................25

6) Intercom System..............................................15

7) Mailboxes.....................................................25

8) Plumbing/Repiping

(a) Galvanized Steel ............................................25

(b) TP Copper ...................................................30

(d) Fixtures ....................................................25

9) Elevators

(a) Major Upgrade...................................... 25

(b) Controllers and Selector ........................25

10) Doors ....................................................

(a) Apartment Entrance ..........................................25

(b) Lobby/Vestibule .............................................15

11) Water Tanks

(a) Metal .......................................................25

(b) Wood .........................................................20

12) Waste Compactors ............................................10

13) Air Conditioners

(a) Individual Units/Sleeves ....................................10

(b) Central System ..............................................15

14) Siding

(a) Aluminum Siding ..............................................25

(b) Vinyl Siding .................................................15

15) Catwalk .....................................................25

16) Chimney

(a) Steel .......................................................25

(b) Brick .......................................................25

17) Courtyards Walkways Driveways

(a) Cement .............................................15

(b) Asphalt .....................................................10

18) Fire Escapes ................................................25

19) Fuel Oil Tanks

(a) In Vaults ...................................................25

(b) Underground ................................................. 20

20) Water Heating Units

(a) Hot Water/Central Heating ...................................20

(b) Hot Water Heater (Domestic) ................................10

21) Parapets brick ........................................................25

22) Resurfacing Exterior Walls ..................................25

23) Solar Heating System ........................................25

24) Structural Steel .............................................25

25) Television Security .........................................10

For major capital improvements not listed above, the owner must submit evidence with the application that the useful life of the item or equipment being replaced has expired.

(e)

(1) An owner who wishes to request a waiver of the useful life requirement set forth in clause (d) of this subparagraph must apply to the DHCR for such waiver prior to the commencement of the work for which he or she will be seeking a temporary major capital improvement rental increase. Notwithstanding this requirement, where the waiver requested is for an item being replaced because of an emergency, which causes the building or any part thereof to be dangerous to human life and safety or detrimental to health, an owner may apply to the DHCR for such waiver at the time he or she submits the temporary major capital improvement rent increase application.

(2) If the waiver is denied, the owner will not be eligible for a temporary major capital improvement increase. However, if the waiver is granted, the useful life requirement will not be a factor in the determination of eligibility for the temporary major capital improvement rent increase. Approval of the waiver does not assure that the application will be granted, as all other requirements set for thin this paragraph must be met.

(3) An owner may apply for, and the DHCR may grant, a waiver of the useful life requirements set forth in the Useful Life Schedule, if the owner satisfactorily demonstrates the existence of one or more of the following circumstances:

(i) The item or equipment cannot be repaired and must be replaced during its useful life because of a fire, vandalism or other emergency, or "act of God" resulting in an emergency;

(ii) The item or equipment needs to be replaced because such item or equipment is beyond repair, or spare parts are no longer available, or required repairs would cost more than seventy-five (75) percent of the cost of the total replacement of the item or equipment. Certification by a duly licensed engineer or architect, where there is no common ownership or other financial interest with the owner, shall be considered substantial proof of such condition(s). The owner may also be required to submit proof that the item or equipment was properly maintained. Such proof may include receipts for repairs and parts or maintenance logs;

(iii)

(A) An appropriate New York State or local governmental agency has determined that the item or equipment needs to be replaced as part of a government housing program;

(B) If a governmental lender or insurer, for the purposes of qualifying for a New York State or local government long-term loan or insured loan, requires the remaining useful life of the building or building complex, as well as the component parts of such building or building complex, to be as great as or greater than the term of the loan agreement.

(iv) The replacement of an item or equipment which has proven inadequate, through no fault of the owner, is necessary, provided that there has been no major capital improvement rent increase for that item or equipment being replaced.

(4) In the event that the DHCR determines that an installation qualifies for a waiver of the useful life requirements, the DHCR may, subject to all other requirements of this section and the limitations of the reasonable cost schedule provisions in paragraph (2) of this subdivision:

(i) Where no previous increase was granted within the useful life of the item or equipment being replaced, approve 100 percent of the actual, reasonable, and verifiable cost of the item or equipment, including installation;

(ii) Where it is determined that an item is eligible to be replaced during its useful life, grant a temporary increase based on the actual, reasonable, and verifiable cost of the item or equipment, including installation, less both (a) the amount reimbursed from other sources, such as insurance proceeds or any other form of commercial guarantee, and (b) the amount of any increase previously granted for the same item or equipment either as a major capital improvement, or pursuant to other governmental programs, if such item or equipment has not exhausted at least seventy-five (75) percent of its useful life at the time of the installation;

(iii) Where it is determined that an item is eligible to be replaced even though it has not exhausted seventy-five (75) percent of its useful life and that it was installed as part of a substantial rehabilitation or the new construction of a building for which the owner set initial building-wide rents, the DHCR may reduce the increase granted for a major capital improvement by a proportion of the remaining useful life of such item or equipment;

(iv) Where it is determined that an item is eligible to be replaced even though it has not exhausted one-hundred (100) percent of its useful life, but has exhausted more than seventy-five (75) percent of its useful life, the DHCR may reduce the increase granted for a major capital improvement by a proportion of the remaining useful life of such item or equipment.

(f) In no event shall a temporary major capital improvement increase be granted for work done in individual apartments that is otherwise not an improvement to an entire building.

(ii) There has been other necessary work performed in connection with, and directly related to a major capital improvement, which may be included in the computation of an increase in the legal regulated rent only if such other necessary work was completed within a reasonable time after the completion of the major capital improvement to which it relates. Such other necessary work must:

(a) improve, restore or preserve the quality of the structure and the grounds;

(b) have been completed subsequent to, or contemporaneously with, the completion of the work for the major capital improvement; and

(iii) With approval by the DHCR, there has been an increase in services or improvement, other than repairs, on a building-wide basis, which the owner can demonstrate are necessary in order to comply with a specific requirement of law.

(iv) With approval by the DHCR, there have been other improvements made or services provided to the building or building complex, other than those specified in subparagraphs (i)-(iii) of this paragraph, with the express consent of the tenants in occupancy of at least seventy-five (75) percent of the rent regulated housing accommodations.

(2) Major Capital Improvement Schedules

(i) The reasonable costs that may be recovered for qualified major capital improvements may not exceed the recoverable costs, as determined by DHCR. In making such determination, DHCR shall, unless for good cause shown or other wise specified, refer to such reasonable costs as specified in the Reasonable Cost Schedule found in the Reasonable Cost Schedule that is in effect at the time that the contract for work for the major capital improvement was executed.

(ii) The Reasonable Cost Schedule shall provide the recoverable cost of major capital improvements that fall within the following main three categories:

1. Major Systems;

i. The maximum recoverable costs shall be presented for the following classes of work:

(a) Plumbing;

(b) Gas Repipe;

(d) Windows;

(e) Boiler/Burner;

(f) Hot Water Heater;

(g) Elevator Replacement; and

(h) Elevator Modernization.

2. Facade, Parapet, Roof;

i. The maximum recoverable costs shall be presented for the following classes of work:

(a) Facade;

(b) Parapet; and

3. Other Systems.

i. The maximum recoverable costs shall be presented for the following classes of work:

(a) Chimney;

(b) Doors;

(d) Intercom; and may include such other systems as DHCR may determine.

(iii) Each class of major capital improvement may list more detailed types of capital improvement work. Each class of major capital improvement described in the Schedule may be inclusive of additional costs that can be associated with the type of improvements listed within such class.

(iv) The costs of each type of major capital improvement work will be listed as per unit, per unit of measurement or per piece of equipment, as is appropriate given the nature of the improvement.

(v) The maximum recoverable costs for each type of major capital improvement specified in the initial Reasonable Cost Schedule shall be based on a survey of such construction costs undertaken for such installation.

(a) The maximum recoverable costs listed in the Reasonable Cost Schedule shall be initially published and made available for public review and comment in conjunction with the promulgation process required for adoption of this regulation.

(vi) Periodic Review of Reasonable Cost Schedule: Every year after adoption of this regulation, DHCR shall assess and review the categories of major capital improvements, the classes of work within categories eligible for major capital improvements and the maximum recoverable costs listed for the types of major capital improvement costs identified in the Reasonable Cost Schedule.

(vii) Procedure:

(a) When applying for a temporary major capital improvement rent increase, owners are required to submit an itemized list of work performed with a description or explanation of the reason or purpose of such work.

(1) Costs may be granted for related expenses that are not specified in the actual schedule, if they are found to be:

(i) within or below the maximum costs for the class of work,

(ii) are necessary for the claimed improvement, and

(iii) eligible for reimbursement as a major capital improvement.

(2) Costs will not be granted for expenses which are ineligible for major capital improvement rent increases.

(3) Only the actual and verifiable amounts expended by owners for qualifying major capital improvement costs will be the basis for any temporary major capital improvement rent increase. Qualifying owners will, therefore, be awarded a temporary major capital improvement rent increase on the lesser of either:

(i) the actual amount expended, or

(ii) the maximum reasonable cost from the schedule, and such other additional items that are eligible as a major capital improvement but are not listed as part of the Reasonable Cost Schedule.

(b) The schedule provides a maximum of costs that can be granted for eligible major capital improvements. All costs granted for a temporary major capital improvement rent increase must be actual, reasonable, verifiable, and meet all other regulatory requirements.

(viii) Waiver of Application of Reasonable Cost Schedule

(a) Owners may apply for a waiver of application of the Reasonable Cost Schedule. The waiver request will be denied, unless the owner satisfies the waiver requirements provided herein, and the Division finds the waiver of the application of the schedule to be reasonable and warranted under the circumstances set forth in such application.

(b) If an owner's application for a waiver of the reasonable cost schedule is denied, the owner's maximum recoupment shall be limited to that required by the applicable Reasonable Cost Schedule.

(c) Notwithstanding any waiver of the reasonable cost schedule, not all costs claimed for a temporary major capital improvement rent increase may be awarded, as the costs of items claimed may be disallowed, in whole or in part, pursuant to all other requirements set forth in this section that must be met and fully supported.

(d) Pursuant to the requirements specified below, such application must be fully supported and demonstrate that the claimed costs underlying the temporary MCI rent increase are:

(1) not identified in the Reasonable Cost Schedule, or

(2) necessarily and appropriately priced higher than those costs listed in the Reasonable Cost Schedule due to the unique nature of the installation and the circumstances surrounding such installation, and such costs are accurate, reasonable, necessary, verifiable, and eligible for a rent increase under these circumstances, or

(3) that use of the Reasonable Cost Schedule will cause an undue hardship and the use of alternative procedures are appropriate to the interests of the owner, the tenants, and the public, and the costs of such improvement are accurate, reasonable, necessary, verifiable, and eligible for a rent increase under the circumstances.

(e) Owners must request a waiver of the use of the Reasonable Cost Schedule in writing and accompany the application with the information and documentation as specified in subparagraph (x) of this paragraph.

(ix) Requirements for Waiver under Specific Circumstances

(a) At the time of the initial application for a temporary major capital improvement rent increase, an owner must apply for a waiver of application of the Reasonable Cost Schedule. Such application shall include all necessary requirements set forth in subparagraph (viii) of this paragraph and must also meet the following requirements:

(1) Non-Landmarked Buildings (Buildings not designated by the Landmark Commission):

(i) A licensed engineer or architect must certify that:

(A) the major capital improvement costs for which an owner seeks a temporary major capital improvement rent increase are accurate and reasonable under the circumstances; and

(B) there is no common ownership or other financial interest between the contractor installing the replacement or upgrade and the ownership entity of the owner; and

(2) Landmarked Buildings (Buildings designated by the Landmark Commission): The costs beyond those permitted by the Reasonable Cost Schedule that were the result of any law, regulation, rule, or requirement under which the premises have been designated a landmark building.

(3) Capital Improvement Work Performed While Also Under Another Governmental Agency's Supervision: DHCR may also accept the cost of contract where:

(i) the building is subject to both (a) this Title and (b) another housing program, and

(ii) the contract is approved by or awarded under the supervision of a state, city or local housing entity in conjunction with that affordable housing program, and

(iii) such supervision includes a process by which such supervising agency reviews the costs to assure they are reasonable.

(4) Emergency Capital Improvements: DHCR may also accept the cost of contract where capital improvements were performed to remedy an emergency condition and for which the owner paid more than the reasonable costs due to such emergency. The costs must be actual, reasonable, necessary, verifiable, and eligible for a rent increase under the circumstances.

(5) Interim Rules:

(i) An owner may apply for a waiver of application of the Reasonable Cost Schedule if, prior to the effective date of this subparagraph (ix), it has either:

(A) entered a contract for the performance of major capital improvement work within two years immediately preceding January 27, 2021, the final adoption date of Emergency Regulation HCR-26-20-00012, or

(B) submitted to DHCR an application for a temporary major capital improvement rent increase.

(ii) The recoverable costs will be determined according to the applicable Reasonable Cost Schedule and these provisions, but the owner need not submit evidence of compliance with the bidding requirements set forth in clause (b) of subparagraph (x) of this paragraph; owner may instead submit for review alternative means of establishing the reasonableness of the major capital improvement costs sought to be recovered.

(iii) For pending major capital improvement applications, an owner was required to make this waiver application within 60 days of June 16, 2020, unless in the context of processing the major capital improvement application the owner was directed by DHCR to submit an application for waiver.

(x) Waiver Procedure:

As part of the written Waiver application for non-emergency capital improvements, owners must submit the following:

(a) A certification by a licensed architect or engineer stating that:

(1) The purchases and contracts, whose costs owner seeks to recover have been awarded on the basis of analysis and bidding to the fullest extent possible, but with no less than three bidders having been solicited to perform the work unless the owner can demonstrate that the work is so highly specialized that such bids cannot be extended;

(2) List of items for which owner solicited bids were necessary;

(3) The costs claimed by owner for the major capital improvement work are accurate and reasonable, provided that the architect or engineer's basis for such conclusion is fully and credibly supported;

(4) All changes to the original agreed upon scope of work were necessary to the underlying major capital improvement and reasonably priced;

(5) The owner selected the lowest responsible bidder or the bidder best suited to perform the major capital improvement work, provided that the architect or engineer's basis for such conclusion is credibly supported; and

(6) Such other and additional proof as DHCR may require to as certain the need for the waiver and the certification of such reasonable, necessary, verifiable, and eligible costs.

(b) Certification by owner that it has complied with bid process requirements including submission of:

(1) Tabulation of all bids received; and

(2) Copies of all bids received; and

(3) A certification by each bidder disclosing whether the owner or any board member, general partner, officer or employee of owner, and/or principal or employee of any managing agent retained by owner, has a direct or indirect interest in the bidder or in the compensation to be received by the bidder pursuant to the proposed contract. Failure to accurately and fully complete this certification may result in the rejection of the bid for purposes of determining owner's application for waiver of the use of the Reasonable Cost Schedule, as well as rejection and a dismissal of the major capital improvement application; and

(4) Detailed description of the items for which owner initially solicited bids.

(c) A certification by the owner's architect or engineer certifying the necessity, appropriateness, and reasonableness of the costs of all changes to the original agreed upon scope of work that were performed in connection with the major capital improvement, along with a description of the changes in the scope, price, or time of completion of the work related to each change order.

(xi) For Emergency Capital Improvement MCI Applications:

The owner must submit a statement from an independent engineer or architect describing the emergency, why the costs were greater than those in the schedule, that the costs were reasonable for the situation, and why the owner could not obtain three bids in a timely manner due to the exigent circumstances.

(xii) Notice:

As part of the MCI application process, any request by an owner for a waiver of application of the Reasonable Cost Schedule shall be made available to the tenants of the subject building(s) with an opportunity to comment on and contest the waiver.

(xiii) Operational Bulletin The initial Operational Bulletin 2020-1 including all amendments, shall be issued pursuant to this paragraph and Section 2507.11 of this Title. The Operational Bulletin 2020-1 and all amended versions shall be available in hardcopy form at 92-31 Union Hall Street, Jamaica, Queens, New York, and will be available on DHCR's website at www.hcr.ny.gov.

(3) Improvements or installations for which the DHCR may grant applications for temporary rent increases based upon major capital improvements pursuant to paragraph (1) of this subdivision are described on the following Schedule. Other improvements or installations that are not included may also qualify, where all requirements of Section 2502.4 (b) of this Title have been met.

SCHEDULE OF MAJOR CAPITAL IMPROVEMENTS

1. AIR CONDITIONER - new central system; or individual units set in sleeves in the exterior wall of every housing accommodation; or, air conditioning circuits and outlets in each living room and/or bedroom (SEE REWIRING).

2. ALUMINUM SIDING - installed in a uniform manner on all exposed sides of the building (SEE RESURFACING).

3. BOILER AND/OR BURNER - new unit(s) including electrical work and additional components needed for the installation.

4. BOILER ROOM - new room where none existed before; or enlargement of existing one to accommodate new boiler.

5. CATWALK - complete replacement.

6. CHIMNEY - complete replacement, or new one where none existed before, including additional components needed for the installation.

7. COURTYARD, DRIVEWAYS AND WALKWAYS - resurfacing of entire original area within the property lines of the premises.

8. DOORS - new lobby front entrance and/or vestibule doors; or entrance to every housing accommodation, or fireproof doors for public hallways, basement, boiler room and roof bulkhead.

9. ELEVATOR UPGRADING - including new controllers and selectors; or new electronic dispatch overlay system; or new elevator where none existed before, including additional components needed for the installation.

10. FIRE ESCAPES - complete new replacement including new landings.

11. GAS HEATING UNITS - new individual units with connecting pipes to every housing accommodation.

12. HOT WATER HEATER - new unit for central heating system.

13. INTERCOM SYSTEM - new replacement; or one where none existed before, with automatic door locks and push button speaker boxes and/or telephone communication, including security locks on all entrances to the building.

14. MAILBOXES - new replacements and relocation from outer vestibule to an area behind locked doors to increase security.

15. PARAPET - complete replacement.

16. POINTING AND WATERPROOFING - as necessary on exposed sides of the building.

17. REPIPING - new hot and/or cold water risers, returns, and branches to fixtures in every housing accommodation, including shower bodies, and/or new hot and/or new cold water overhead mains, with all necessary valves in basement.

18. RESURFACING OF EXTERIOR WALLS - consisting of brick or masonry facing on entire area of all exposed sides of the building.

19. REWIRING: - new copper risers and feeders extending from property box in basement to every housing accommodation; must be of sufficient capacity (220 volts) to accommodate the installation of air conditioner circuits in living room and/or bedroom; but otherwise excluding work done to effectuate conversion from master to individual metering of electricity approved by DHCR pursuant to paragraph (3) of subdivision (e) of this section.

20. ROOF - complete replacement or roof cap on existing roof installed after thorough scraping and leveling as necessary.

21. SOLAR HEATING SYSTEM - new central system, including additional components required for the system.

22. STRUCTURAL STEEL - complete new replacement of all beams including footing and foundation.

23. TELEVISION SYSTEM - new security monitoring system including additional components required for the system.

24. WASTE COMPACTOR - new installation(s) serving entire building.

25. WASTE COMPACTOR ROOM - new room where none existed before.

26. WATER SPRINKLER SYSTEM (FOR FIRE CONTROL PURPOSES) - new installation(s).

27. WATER TANK - new installation(s).

28. WINDOWS - new framed windows.

(4) Any temporary increase pursuant to paragraph (1) of this subdivision shall be 1/144 of the total cost for a building with thirty-five or fewer housing accommodations, or 1/150 of the total cost for a building with more than thirty-five housing accommodations, for any determination issued by DHCR after June 14, 2019, and such temporary increase shall be removed from the legal regulated rent thirty (30) years from the date the increase became effective inclusive of any increases granted by the applicable rent guidelines board. For increases pursuant to subparagraphs (1) (iii) and (iv) of this subdivision, in the discretion of the DHCR, an appropriate charge may be imposed in lieu of an amortization charge when an amortization charge is insignificant or inappropriate.

(5)

(i) A temporary major capital improvement increase is fixed to the unit and such increase shall be collectible prospectively on the first day of the first month beginning sixty (60) days from the date of mailing notice of approval to the tenant. Such notice shall disclose the total monthly increase in rent and the first month in which the tenant would be required to pay the temporary increase. An approval for a temporary major capital improvement increase shall not include retroactive payments.

(ii) The temporary major capital improvement increase is added to the legal regulated rent as a temporary increase and will be removed from the legal regulated rent thirty (30) years from the date the increase became effective inclusive of any increases granted by the local rent guidelines board. The DHCR shall issue a notice to the owner and all the tenants sixty (60) days prior to the end of the temporary major capital improvement increase and shall include the initial approved increase and the total amount to be removed from the legal regulated rent inclusive of any increases granted by the applicable rent guidelines board.

(iii) Such temporary increases shall not be collectible during the term of a lease then in effect, unless a specific provision in the tenant's lease authorizes an increase during its term pursuant to an order issued by the DHCR.

(iv) The collection of such temporary increases shall not exceed two percent in any year from the effective date of the order granting the increase over the rent set forth in the schedule of gross rents, with collectability of any dollar excess above said sum to be spread forward in similar increments and added to the rent as established or set in future years. In no event shall more than one two-percent increase in the legal regulated rent pursuant to paragraph (1) of this subdivision be collected in the same year, provided, however, that upon a vacancy, the owner may temporarily increase the rent to the full temporary major capital improvement increase amount.

(v) In addition, for any rent increases due to any major capital improvements approved on or after June 16, 2012 and before June 16, 2019, an owner may not collect more than two percent in any year from any tenant in occupancy on the date the major capital improvement was approved, provided the tenant has entered into a renewal lease commencing on or after June 14, 2019, or is or was entitled to receive a renewal lease on or after such date. In such event, the adjusted limit on collectability shall take effect on the first anniversary date on which the increase became collectible to occur after such lease renewal.

(vi) No increase pursuant to paragraph (1) of this subdivision shall be collectible from a tenant to whom there has been issued a currently valid senior citizen or disability rent increase exemption pursuant to local law or ordinance to the extent that such increase may cause the legal regulated rent of the housing accommodation to exceed a specified portion, if any, pursuant to such local law or ordinance, of the aggregate disposable income of all members of the household residing in the housing accommodation.

(6) The determination of the appropriate adjustment of a legal regulated rent shall take into consideration all factors bearing on the equities involved, subject to the general limitation that the adjustment can be put into effect without dislocation and hardship inconsistent with the purposes of the ETPA, and including as a factor a return of the actual, reasonable, and verifiable cost to the owner, limited to the reasonable cost schedule in paragraph (2) of this subdivision and exclusive of interest or other carrying charges, and the increase in the rental value of the housing accommodations.

(7) DHCR may issue, upon an owner application, an advisory prior opinion pursuant to section 2507.11 of this Title, as to whether the proposed work qualifies for an increase in the legal regulated rent.

(8) No increase pursuant to paragraph (1) of this subdivision shall be granted by the DHCR, unless an application is filed no later than two years after the completion of the installation or improvement unless the applicant can demonstrate that the application could not be made within two years due to delay, beyond the applicant's control, in obtaining required governmental approvals for which the applicant has applied within such two-year period.

(9) An increase for an improvement made pursuant to paragraph (1) of this subdivision shall not be granted by the DHCR to the extent that, after a plan for the conversion of a building to cooperative or condominium ownership is declared effective, such improvement is paid for out of the cash reserve fund of the cooperative corporation or condominium association. However, where prior to the issuance of an order granting the increase, the funds taken from the reserve fund are returned to it by the sponsor or holder of unsold shares or units or through a special assessment of all shareholders or unit owners, the increase may be based upon the actual, reasonable and verifiable cost of the improvement. Nothing in this paragraph shall prevent an owner from applying for, and the DHCR from granting, an increase for such improvement to the extent that the cost thereof is otherwise paid for by an owner.

(10) Any temporary major capital improvement increase granted pursuant to paragraph (1) of this subdivision shall be reduced by an amount equal to (i) any governmental grant received by the landlord, where such grant compensates the landlord for any improvements required by a city, state or federal government, an agency or any granting governmental entity to be expended for improvements and (ii) any insurance payment received by the landlord where such insurance payment compensates the landlord for any part of the costs of the improvements. Low interest loans or repayable subsidies shall not be considered grants for the purposes of this paragraph.

(11) Rent adjustments pursuant to paragraph (1) of this subdivision and subdivisions (e) and (f) of this section shall be allocated as follows: The DHCR shall determine the dollar amount of the monthly rent adjustment. Such dollar amount shall be divided by the total number of rooms in the building. The amount so derived shall then be added to the rent chargeable to each housing accommodation in accordance with the number of rooms contained in such housing accommodation.

(12) When determining the adjustment of legal regulated rents pursuant to paragraph (1) of this subdivision, where the subject building contains commercial rental space in addition to residential rental space, and the DHCR determines that such commercial space benefits from the improvement, DHCR shall allocate the approved costs between the commercial rental space and the residential rental space based upon the relative square feet of each rental area.

(13) The DHCR shall not grant an owner's application for a rental adjustment pursuant to paragraph (1) of this subdivision, in whole or in part, if after review by DHCR, it is determined that the owner is not maintaining all required building wide services, or that there are outstanding hazardous, immediately hazardous, or other similar violations of any municipal, county, State or Federal law. Certain tenant caused violations may be excepted. A tenant's repeated failure to provide access to remediate a violation may result in the violation being considered to be tenant caused.

(i) An owner application, pursuant to paragraph (1) of this subdivision, may be rejected if it is determined that there are one or more unresolved applicable violations. A rejected application may be refiled within sixty (60) days which shall stay the two-year filing requirement provided in paragraph (8) of this subdivision and preserve the original filing date. In the absence of good cause shown, a rejected application that is refiled outside of the sixty (60) day period will not retain the original filing date.

(ii) A timely refiled application pursuant to subparagraph 13(i) of this subdivision, that has not addressed the outstanding violations placed against the building or has had new violations placed against the building in the interim period since rejection, will again be denied without leave to refile within sixty (60) days.

(iii) Prior to the issuance of a determination, the DHCR shall review and determine if one or more violations have been issued and not corrected to the subject building during the processing of an owner application pursuant to paragraph (1) of this subdivision. The owner will be allowed sixty (60) days to correct such violation(s).

In the absence of good cause shown, failure to correct the violation(s) within the allotted time shall result in a denial of the application.

(iv) DHCR shall retain the ability and right where appropriate to review all penalties and violations at any other time during the pendency of such application.

(14) Where an application for a temporary major capital improvement rent increase has been filed, a tenant shall have sixty (60) days from the date of mailing of a notice of a proceeding in which to answer or reply. The DHCR shall provide any responding tenant with the reasons for the DHCR's approval or denial of such application.

(15) Where during the processing of a rent increase application filed pursuant to paragraph (1) of this subdivision, tenants interpose answers complaining of defective operation of the major capital improvement, the complaint may be resolved in the following manner:

(i) 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.

(ii) Where municipal sign-offs are not required, or where the alleged defective operation of the major capital improvement 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 major capital improvement is properly operative. Tenants may only rebut this presumption based on persuasive evidence, for example, a counter affidavit by an independent licensed architect or engineer, or an affirmation by 51 percent of the complaining tenants.

(a) General requirements. 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 signature and professional stamp of the architect or engineer. 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.

(iii) At the discretion of the DHCR, the DHCR may inspect the major capital improvement to determine whether the installation was conducted in a workman like manner or the work was sufficiently comprehensive so as to benefit all tenants.

(16) The DHCR shall annually inspect and audit no less than twenty-five percent of applications for a temporary major capital improvement increase that have been submitted and approved. Such process shall include individual inspections and document review to ensure that owners complied with all obligations and responsibilities under the law for temporary major capital improvement increases. Inspections shall include in-person confirmation that such improvements have been completed in such way as described in the application.

(1) Increase in space and services, new equipment, new furniture or furnishings; and other adjustments.

(2) An owner is entitled to a rent increase where there has been a reasonable and verifiable modification, other than an increase for which an adjustment may be claimed pursuant to subdivision (b) of this section, of dwelling space, or installation of new equipment or improvements, or new furniture or furnishings, provided in or to the tenant's housing accommodation, where the tenant has agreed to such modification or increase and the owner has obtained written informed consent to such rent increase. In the case of vacant housing accommodations, tenant consent shall not be required.

(i) For all work that commenced on or after June 14, 2019, notification of all modifications must be submitted to the division for verification. As part of such verification, an owner shall:

(a) Provide a copy of the written informed tenant consent on an approved division form, when tenant consent is required.

(b) Provide the division with an itemized list of work performed, including a description and/or explanation of the reason or purpose for such work.

(c) Provide the division with photographs of the subject apartment where the work is to be completed, taken prior to such modification or increase as well as photographs taken after, and showing that the work has been completed. Such photographs must be kept as part of the owner's permanent records such that the owner must at any future time produce such photographs upon request by an agency with appropriate jurisdiction.

(d) Use a licensed contractor to complete such work, where using a licensed contractor is required by an appropriate New York State or local government agency or rule. The costs for an individual apartment improvement paid to a person or organization conducted to do the improvement or installation work sharing a common ownership with the owner or managing agent of the subject building or apartment will be disallowed.

(e) Resolve, within the dwelling space, all outstanding hazardous and immediately hazardous violations. In no event shall an owner be permitted to begin collection of any rent increase pursuant to this subdivision while there are any hazardous or immediately hazardous violations of the Uniform Fire Prevention and Building Code (Uniform Code), local Fire Code, or local Building and Housing Maintenance Codes, pending against the affected housing accommodation.

(ii) For work commenced on or after June 14, 2019, the recoverable costs incurred by the owner pursuant to this subdivision shall be limited to a total aggregate cost of fifteen thousand dollars ($15,000) that may be expended on no more than three (3) separate individual apartment improvements in any fifteen (15) year period.

(iii) An owner who is entitled to a rent increase pursuant to this subdivision shall not been titled to a further rent increase based upon the installation of similar equipment, or new furniture or furnishings within the useful life of such new equipment, or new furniture or furnishings.

(iv) Any increases to the legal regulated rent pursuant to this subdivision shall be temporary and shall be removed from the legal regulated rent thirty (30) years from the date the increase became effective inclusive of any increases granted by the applicable Rent Guidelines Board that had been calculated based upon such rent increase.

(v) For individual apartment improvements pursuant to this subdivision, the division shall maintain an itemized list of work performed and a description or explanation of the reason or purpose of such work, inclusive of photographic evidence documenting the condition prior to and after the completion of the performed work. Such documentation and any other supporting documentation shall be submitted to the division by the owner within 90 days of the completion of the work, retained in a centralized electronic retention system and made available in cases pertaining to the adjustment of legal regulated rents.

(vi) Where an owner seeks a temporary individual apartment improvement rent increase pursuant to this subdivision while the unit is occupied, the division shall provide a form for use by the owner, to obtain written informed consent from the tenant that shall include the estimated total cost of the improvement and the estimated monthly rent increase. Such form shall be completed and submitted to the division by the owner within 90 days of the completion of the work and preserved in a centralized electronic retention system. Nothing herein shall relieve an owner, lessor, or agent thereof of his or her duty to retain proper documentation of all improvements performed or any rent increases resulting from said improvements.

(vii) For rent increases pursuant to this subdivision that took effect prior to June 14, 2019, the increase in the monthly legal regulated rent for the affected housing accommodations when authorized pursuant to this paragraph shall for buildings and complexes containing 35 or fewer housing accommodations be ¹/ 40th of the total cost, including installation but excluding finance charges; and for buildings and complexes containing more than 35 housing accommodations be ¹/ 60th of the total cost, including installation but excluding finance charges.

(viii) For temporary rent increases pursuant to this subdivision effective as of or after June 14, 2019, the temporary increase in the monthly legal regulated rent for the affected housing accommodations when authorized pursuant to this paragraph shall for buildings and complexes containing 35 or fewer housing accommodations be ¹/168th of the total cost, including the cost of installation but excluding finance charges; and for buildings and complexes containing more than 35 housing accommodations be ¹/180th of the total cost, including the cost of installation but excluding finance charges.

(d) An owner may file an application to decrease essential services for a reduction of the legal regulated rent, or to modify or substitute essential services at no change in the legal regulated rent, on forms prescribed by the division on the grounds that:

(1) the owner and tenant by mutual voluntary written agreement, consent to a decrease indwelling space, or a decrease in the services, furniture, furnishings or equipment, or to a modification or substitution of the essential services provided in the housing accommodation; or

(2) such decrease, modification or substitution is required for the operation of the building in accordance with specific requirements of law; or

(3) such decrease, modification or substitution results from an approved conversion from master metering of electricity, with the cost of electricity included in the rent, to individual metering of electricity, with the tenant paying separately for electricity, and is in amounts set forth in a Schedule of Rent Reductions for different-sized rent stabilized housing accommodations included in Operational Bulletin 2014-1 governing electrical conversions issued pursuant to this paragraph and section 2507.11 of this Title by DHCR, 92-31 Union Hall Street, Jamaica, Queens, New York, and available at DHCR's website at www.hcr.ny.gov and determined as follows:

(i) Direct Metering. Where the conversion is to direct metering of electricity, with the tenant purchasing electricity directly from a utility, such Schedule of Rent Reductions is based on the median monthly cost of electricity to tenants derived from data from the United States Census Bureau's "New York City Housing and Vacancy Survey," as tabulated by the New York City Rent Guidelines Board, 1 Centre Street, Suite 2210., New York, New York, and available on its website at rentguidelinesboard.cityofnewyork.us,and as further adjusted where appropriate to reflect differences in electric rates outside New York City. The charge for electricity is not part of the legal regulated rent and is not subject to this Subchapter. The resolution of any dispute arising from the billing or collection of such charge is not within the jurisdiction of the Division. A conversion to direct metering is required to include rewiring the building unless the owner can establish that rewiring is unnecessary.

(ii) Submetering: Where the conversion is to submetering of electricity, with the tenant purchasing electricity from the owner or a contractor retained by the owner, who purchases electricity from a utility at the bulk rate, such Schedule of Rent Reductions is based on the median monthly cost of electricity to tenants derived from data from the United States Census Bureau's "New York City Housing and Vacancy Survey," as tabulated by the New York City Rent Guidelines Board, 1 Centre Street, Suite 2210, Suite 202, New York, New York, and available on its website at rentguidelinesboard.cityofNew York.us, adjusted to reflect the bulk rate for electricity plus a reasonable service fee for the cost of meter reading and billing, based on the maximum estimated fee included in the "Residential Electric Submetering Manual" revised October 2001, published by the New York State Energy Research and Development Authority, 17 Columbia Circle, Albany, New York, and available on its website at www.nyserda.org, and further adjusted where appropriate to reflect differences in electric rates outside New York City, and reflected in Operational Bulletin 2014-1. The owner or contractor retained by the owner is not permitted to charge the tenant more than the bulk rate for electricity plus a reasonable service charge for the cost of meter reading and billing. The charge for electricity as well as any related service surcharge is not part of the legal regulated rent and is not subject to this Subchapter. The resolution of any dispute arising from the billing or collection of such charge or surcharge is not within the jurisdiction of the Division. A conversion to submetering does not require rewiring the building provided the owner submits an affidavit sworn to by a licensed electrician that the existing wiring is safe and of sufficient capacity for the building.

(iii) Recipients of Senior Citizen Rent Increase Exemptions (SCRIE) or Disability Rent Increase Exemptions (DRIE): For a tenant who on the date of the conversion is receiving a SCRIE or DRIE authorized by local law, the rent is not reduced and the cost of electricity remains included in the rent, although the owner is permitted to install any equipment in such tenant's housing accommodation as is required for effectuation of electrical conversion pursuant to this paragraph.

(a) After the conversion, upon the vacancy of the tenant, the owner, without making application to the division, is required to reduce the legal regulated rent for the housing accommodation in accordance with the Schedule of Rent Reductions set forth in Operational Bulletin 2014-1, and thereafter any subsequent tenant is responsible for the cost of their consumption of electricity, and for the legal rent as reduced, including any applicable major capital improvement rent increase based upon the cost of work done to effectuate the electrical conversion.

(b) After the conversion, if a tenant ceases to receive a SCRIE or DRIE, the owner, without making application to the division, may reduce the rent in accordance with the Schedule of Rent Reductions set forth in Operational Bulletin 2014-1, and thereafter the tenant is responsible for the cost of their electricity, and for the legal rent as reduced, including any applicable major capital improvement rent increase based upon the cost of work done to effectuate the electrical conversion, for as long as the tenant is not receiving a SCRIE or DRIE. Thereafter, in the event that the tenant resumes receiving a SCRIE or DRIE, the owner, without making application to the division, is required to eliminate the rent reduction and resume responsibility for the tenant's electric bills.

(iv) Every three years, upon the publication of a new New York City Housing and Vacancy Survey, and tabulation of the survey data by the New York City Rent Guidelines Board, DHCR shall issue a new Operational Bulletin governing electrical conversions setting forth rent reductions based on the new survey data, and shall move to amend the regulations to incorporate by reference the new Operational Bulletin, the new New York City Housing and Vacancy Survey, and Rent Guidelines Board tabulation. At such time as NYSERDA issues a new Residential Electric Submetering Manual setting forth a new maximum estimated submetering service fee, DHCR shall move to amend the regulations to incorporate that document by reference.

(4) such decrease, modification or substitution is not inconsistent with the act or this Subchapter. No such reduction in rent or decrease in services, or modification or substitution of essential services shall take place prior to the approval of the owner's application by the division, except that a service decrease, modification, or substitution pursuant to paragraphs (1) and (2) of this subdivision may take place prior to such approval.

(e) Comparative hardship. The division may grant an appropriate adjustment of the legal regulated rent where the landlord, by application for increases in rents in excess of the rent adjustment authorized by the Rent Guidelines Board under the act and as provided for in section 2502.5 of this Part, establishes a hardship, and the division finds that the rate of such rent adjustment is not sufficient to enable the owner to maintain approximately the same ratio between operating expenses (including taxes and labor costs, but excluding debt service, financing costs and management fees) and gross rents which prevailed on the average over the immediate preceding five-year period, or for the entire life of the building if less than five years. No application may be made under this subdivision for an increase if a six-percent rent increase is still in effect based on an application pursuant to this subdivision or pursuant to subdivision (f) of this section.

(f) Alternative hardship. As an alternative to the hardship application provided under subdivision (e) this section, owners of buildings acquired by the same owner or a related entity owned by the same principals three years prior to the date of application may apply to the division, on forms prescribed by the division, for increases in excess of the level of applicable guideline increases established under the act, based on a finding by the division that such guideline increases are not sufficient to enable the owner to maintain an annual gross rent income collectible for such building which exceeds the annual operating expenses of such building by a sum equal to at least five percent of such annual gross rent income collectible, subject to the definitions and restrictions provided for herein.

(1) Definitions. For this subdivision, the following terms shall mean:

(i) Annual gross rent income collectible shall be the actual income receivable per annum arising out of the operation and ownership of the property, including but not limited to rental from housing accommodations, stores, professional or business use, garages, parking spaces, and income from easements or air rights, washing machines, vending machines and signs, plus the rent calculated under subparagraph (2)(iii) of this subdivision. In ascertaining income receivable, the division shall determine what efforts, if any, the owner has followed in collecting unpaid rent.

(ii) Operating expenses shall consist of the actual, reasonable costs of fuel, labor, utilities, taxes (other than income or corporate franchise taxes), fees (including attorney's fees for services rendered during the test year not related to refinancing of mortgage), permits, necessary contracted services and repairs for which an owner is not eligible for an increase pursuant to this section, insurance, parts and supplies, reasonable management fees, mortgage interest, and other reasonable and necessary administrative costs applicable to the operation and maintenance of the property.

(iii) Mortgage interest shall be deemed to mean interest on that portion of the principal of an institutional or_a bona fide mortgage, including an allocable portion of the charges related thereto. Criteria to be considered in determining a bona fide mortgage other than an institutional mortgage shall include, but not be limited to, the following: the condition of the property, the location of the property, the existing mortgage market at the time the mortgage is placed, the principal amount of the mortgage, the term of the mortgage, the amortization rate, security and other terms and conditions of the mortgage.

(iv) Institutional mortgage shall include a mortgage given to any insurance company, licensed by the State of New York or authorized to do business in the State of New York, or any commercial bank, trust company, bank and trust company, savings bank or savings and loan association (which must be licensed under the laws of any jurisdiction within the United States and authorized to do business in the State of New York), pension funds, credit unions, insurance companies and governmental entities. The division may determine that any other mortgage is an institutional mortgage in its discretion.

(v) Owner's equity shall mean the sum of:

(a) the purchase price of the property, less the principal of any mortgage or loan used to finance the purchase of the property;

(b) the cost of any capital improvement for which the owner has not collected an increase in rent, less the principal of any mortgage or loan used to finance said improvement;

(c) any repayment of the principal of any mortgage or loan used to finance the purchase of the property, or any capital improvement for which the owner has not collected an increase in rent; and

(d) any increase in the equalized assessed value of the property which occurred subsequent to the first valuation of the property after purchase by the owner.

(vi) Threshold income shall mean that income for such building which exceeds the annual operating expense for such building by a sum equal to five percent of such threshold income.

(vii) Test year shall mean any one of the following:

(a) the most recent calendar year (January 1st to December 31st);

(b) the most recent fiscal year (one year ending on the last day of a month other than December 31st), provided that books of account are maintained and closed accordingly; or

(c) any 12 consecutive months ending within 90 days prior to the date of filing of the hardship application. Such period must end on the last day of a month. Nothing herein shall prevent the division from comparing and adjusting expenses and income during the test year with expenses and income occurring during the three years prior to the date of application, in order to determine the reasonableness of such expenses and income.

(2) Restrictions.

(i) No owner may file an application, nor may the division grant such owner an increase in excess of the level of applicable guideline increases, unless:

(a) the annual gross rent income collectible for the test year does not exceed the annual operating expenses of such building by a sum equal to at least five percent of such annual gross rental income collectible; and

(b) the owner or an entity related to the owner acquired the building at least 36 months prior to the date of application; and

(1) the arm's length purchase price of the property; and

(2) the cost of any capital improvements for which the owner has not collected an increase in rent pursuant to subdivision (a), (b) & (c) of this section; and

(3) any repayment of principal of any mortgage or loan used to finance the purchase of the property or any capital improvements for which the owner has not collected an increase in rent pursuant to subdivision (a), (b) & (c) of this section; and

(4) any increase in the equalized assessed value of the property which occurred subsequent to the first valuation of the property after purchase by the owner; and

(d) the building was last granted a hardship increase more than 36 months prior to the date of application, provided that no application may be made for any hardship if a six-percent increase is still in effect based on a prior application; and

(e) the owner has resolved all legal objections to any real estate taxes and water and sewer charges for the test year.

(ii) The division may, in its discretion, deny an owner an increase as provided, in whole or in part, if the owner is not maintaining all essential services as required bylaw, or there are violations of record of any municipal, county, State or Federal law to his knowledge which relates to the maintenance of such services. Any increase granted herein may be conditioned or revoked upon the owner's failure to continue to maintain such services during the period for which the increase is granted, provided that where the division determines that insufficient income is the cause of such failure to maintain essential services, hardship increases may be granted conditionally, provided that such services will be restored within a reasonable time as determined by the division.

(iii) The maximum amount of hardship increase to which an owner shall be entitled shall be the difference between the threshold income and the annual gross rent income collectible for the test year. In buildings that also contain apartments subject to the Emergency Housing Rent Control Law, appropriate adjustments for both income and expenses will be made by the division in order to calculate the pro rata rate share for those apartments subject to this application. However, notwithstanding the above, the collection of any increase in the rent for any housing accommodation pursuant to this section shall not exceed six percent of the legal regulated rent in effect at the time immediately prior to the issuance of the order. The collectability of any amount above said sum shall be spread forward in similar increments and added to the rent as established or set in future years. No application may be made for any hardship if a six-percent increase is still in effect based on a prior application.

(iv) The division shall set a rental value for any unit occupied by the owner or managing agent, or a person related to the owner or managing agent, or an employee of the owner or managing agent, or unoccupied at the owner's choice for more than one month at the last regulated rent plus the minimum number of guideline increases; or, if no such regulated rent existed or is known, the division shall impute a rent equal to the average of rents for similar or comparable apartments subject to these regulations in the building during the test year.

(v) Each owner who files an application for a hardship rent increase shall be required to maintain all records as submitted with the subject application, and further be required to retain same for a period of three years after the effective date of the order.

(vi) Each application under this section shall be certified by the owner or his duly authorized agent as to its accuracy and compliance with this section, under the penalty of perjury.

Notes

N.Y. Comp. Codes R. & Regs. Tit. 9 § 2502.4

Amended New York State Register November 8, 2023/Volume XLV, Issue 45, eff. 11/8/2023

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