Though the Major Capital Improvement program may see serious amendments in the coming year, this week’s case examines the law as it currently exists. At its most basic level, the program allows landlords to raise rents on all units within a building when a landlord makes building-wide improvements. Without such a program, there would be less incentives for landlords to make improvements to their buildings, which would result in a decrease in the quality of the city's housing stock.
DHCR Fact Sheet #24 stipulates that an improvement must do the following to qualify as an MCI:
- be depreciable pursuant to 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 useful life schedule contained in the applicable Rent Regulations.
Because the improvement under discussion in this volume of the case of the week had not outlived its useful life schedule, the MCI was considered suspect by the tenant. Consequently, they petitioned the Office of Rent Administration for an order overturning the owner’s application for an MCI rent increase. They also alleged that the new piece of equipment, a boiler, did not function properly and that building services were not being maintained because of an unrelated issue with an elevator.
On September 28, 2012, the Rent Administrator dismissed the petition. The tenants appealed via a Petition for Administrative Review [PAR]. They once again claimed that the MCI increase was unjustified because the previous boiler had not outlived its useful life schedule, that the new boiler did not work correctly, and that building services were not being maintained. The owner responded by submitting all relevant paperwork—including the contract, contractor’s statement, proof of payment, and approvals from New York City Department of Buildings and all other relevant agencies.
The Commissioner dismissed all three arguments brought up in the PAR in an order issued on October 11, 2018. With regards to the elevators and the boiler system’s improper functioning, the Commissioner wrote that there was no evidence to support the tenants’ claims. The Commissioner was particularly unmoved because there were no building-wide service reduction orders against the property on record.
As to the tenants’ claims that the boiler system had been upgraded before its useful life expired, the Commissioner wrote the following:
“It is the position of the Division that the useful life provision of the Rent Stabilization Code protects tenants from repeated MCI rent increases. Therefore, when an MCI rent increase has not been previously granted for the type of MCI at issue, and thus the owner has not received, and the tenants have not had to pay additional rent for the pre-existing installation, the age of the pre-existing installation forms no basis for denying an MCI rent increase.”
Because there had never been an MCI increase due to the installation of a new boiler system, the age of the boilers was considered immaterial.
What to take away: Landlords can collect MCI increases on improvements, even if they improve building features that have yet to reach the end of their useful life, but only if they have never collected an MCI increase for such an improvement. However, this will more than likely soon be a moot point due to major changes to the MCI program that get enacted later this year.
To read more about this case, see what our friends at Landlord v. Tenant have to say.