Tenants are rarely going to be happy about having to pay rent increases due to a Major Capital Improvement. This should not come as surprise. The program allows landlords to increase rents even if they do not have the tenants' approval to make building-wide upgrades. However, landlords still need to follow some extremely basic rules when it comes to MCIs, particularly if they are making changes within tenants' apartments.
First, landlords need to hire competent workers who can do the requested job. If the job was done in a manner deemed “unworkmanlike,” a judge may revoke the MCI increase. Second, if there are issues with the work following completion, landlords need to act promptly to address them and have them fixed. Third, landlords need to keep accurate records of the work performed. This is true with all work. Finally, landlords cannot reduce the size of an apartment or take away any services and still expect the entire MCI increase. However, landlords are under no obligation to respect tenants' aesthetic opinions. Put bluntly, no Rent Administrator will revoke an MCI increase because you installed something that tenants find ugly (though an RA will do so if the ugly thing takes up more room than the less ugly thing that it replaced).
The petitioners/tenants in this week's installment of the Case of the Week attempted to get an MCI revoked with arguments based on the above points. The scope of the work for the MCI included bathroom renovations, kitchen renovations, and some repiping. After a Rent Administrator denied their first request on December 11, 2017, they filed a Petition for Administrative Review [PAT]. Within that appeal, they argued that:
- The work that allowed for the MCI increases was defective and completed in an “unworkmanlike” manner;
- The RA improperly relied on work orders from the landlord;
- The MCIs were not accurately documented;
- The tenants never consented to the MCI.
The Rent Commissioner found the first line of argument unpersuasive. First, some of complaints were based on the design of the fixtures—not their functionality. As noted above, a disagreement over matters of taste do not warrant the revocation of an MCI. Second, many of the tenants' complaints were based on problems with the building that were unrelated to the MCIs. Consequently, they were beyond the scope of consideration. Third, some of the complaints pertained to the repiping, but no complaints had been made prior to the PAR. Again, this meant such complaints were beyond the scope of Rent Commissioner's consideration.
Not all of the complaints were so easy to dismiss. Accusations of poor work quality were accompanied by accusations that some of the work had reduced the size of the kitchens in some apartments. In December 2016, an inspection by an agent of the DHCR found that the work in five of the apartments was defective. However, the inspector did not find that the size of the kitchens had been reduced. By March 2017, the owner had submitted photographs and work orders signed by the tenants showing that the defects had been corrected. The tenants only remaining complaint following the decision by the RA was that the work in one bathroom was not satisfactory to the tenant living in the unit. However, this complaint had not been raised at the time of the inspection. Consequently, it was considered.
The second point, that the Rent Administrator's reliance on the work orders as a form of evidence was misguided, was also unpersuasive. The petitioners made this argument for the first time in the PAR. As Section 2529.6 of the Rent Stabilization Code says, this is not allowed. A party cannot raise an issue on appeal that was not first raised during the initial proceeding.
The two final points, that the MCI was not documented correctly and that the tenants did not approve of the work, were entirely without merit. The former was easily refuted by the procedural history of the case. The latter is not grounds for revocation of an MCI. As the Rent Commissioner wrote in the decision, “Pursuant to Section 2522.4 of the Rent Stabilization Code and well-established law, there is no requirement for an owner to obtain the prior consent of tenants in order for an MCI-eligible installation to qualify for a rent increase.” Perhaps the petitioners confused MCIs with IAIs.
As the petitioners raised no further or compelling reasons within to PAR to justify overturning the decision by the RA, the PAR was denied by order issued December 27, 2018.
What to take away: If you keep track of your paperwork and hire competent laborers, there is an extremely small chance that the Office of Rent Administration will revoke a Major Capital Improvement increase.