One of the ways an owner may increase the rent of a regulated unit is by making substantial improvements, repairs, and/or providing additional services. With rent-stabilized units, for example, the Rent Stabilization Code provides, at section 2524.4(a)(1), as follows:
An owner is entitled to a rent increase where there has been a substantial increase...of dwelling space or an increase in the services, or installation of new equipment or improvements, or new furniture or furnishings, provided in or to the new tenants housing accommodation, on written tenant consent to the rent increase. In the case of vacant housing accommodations, tenant consent shall not be required.The amount of the increase attributable to these "individual apartment improvements" (or IAIs) is limited to 1/40th of the total cost of these improvements and services, including installation but excluding finance charges.
Currently, a landlord is not required to secure the consent of either the New York State Division of Housing and Community Renewal (DHCR) or the incoming tenant (of a vacant unit) prior to implementing the desired modifications or improvements. Nor will any rent increase triggered by those changes be subject to the agency's or incoming tenant's approval. The calculations are submitted to the agency at face value and accepted as true. This latitude does not mean that a landlord may act with wild abandon. If the calculations are challenged within a four year window, the owner will be required to produce the underlying documentary support and could be subject to rent overcharge and treble-damage liability (three times the amount of the overcharge, if found to have acted intentionally or with reckless disregard of the governing methodology).
Not all modifications justify a rent hike. By way of example, ordinary repair and maintenance--like wallpaper removal, plastering, painting, redecorating, and the scraping and coating floors with polyurethane--will not qualify. However, a gut renovation or rehabilitation of a unit likely would. And, even when the improvement is not that extensive or extreme, such as when the increase is attributable to the installation of new appliances, fixtures, and/or flooring, increases based on such upgrades have met with agency approval.
When challenged or requested, an owner must be prepared to produce one or more of the following items: cancelled checks and/or receipts marked paid-in-full, contemporaneously dated or timed with the work's completion; signed contracts (detailing the work performed); and/or an affidavit from the contractor indicating the work performed, attesting to its completion and payment-in-full.
As was demonstrated by the outcome of a recent case, should the DHCR, or a court of competent jurisdiction, find that a landlord is unwilling or unable to substantiate its alleged costs, dire consequences will likely follow. In Graham Court Owners Corp. v Green, the Appellate Term, First Department, affirmed a housing court judge's finding of overcharge and treble-damage liability, noting as follows:
The trial court properly found that landlord failed to submit adequate documentation in support of its claimed improvements in accordance with DHCR Policy Statement 90-10. Nor did landlord produce any witness affiliated with the contractor or otherwise demonstrate the nature and scope of the work performed ... Furthermore, a number of items reflect normal maintenance and repair for which an increase is not authorized ... Finally, treble damages were properly imposed, since landlord failed to establish that its overcharge was not willful.
For a copy of the Appellate Term's decision in Graham Court Owners Corp. v. Green, please click on the following link:
http://www.nycourts.gov/reporter/3dseries/2006/2006_50333.htm
For a copy of the DHCR's "Fact Sheet #12" - "Rent Adjustments for New Services, New Equipment or Improvements to an Apartment," please click on the following link:
http://www.dhcr.state.ny.us/ora/pubs/html/orafac12.htm
For a copy of the DHCR's "Policy Statement 90-10" - "Major Capital Improvements/Individual Apartment Improvements Confirmation of Costs/Payments," please click on the following link:
http://www.dhcr.state.ny.us/ora/pubs/html/orap9010.htm