preventing problems before they arise

N S T I T U T E
I
C L E
N Y C L A
P REVENTING P ROBLEMS
B EFORE T HEY A RISE :
P R OP E R L Y S T R U C T U R IN G A N
MCI P R OJE C T F R OM S T A R T T O
F IN IS H
Prepared in connection with a Continuing Legal Education course presented
at New York County Lawyers’ Association, 14 Vesey Street, New York, NY
scheduled for September 9, 2014
Program Co-sponsor: Community Housing Improvement Program, Inc.
Faculty: David Cabrera, Borah, Goldstein, Altschuler, Nahins & Goidel, PC; Jeff
Chanchall, Realty Program Consultants, LLC; Martin Heistein, Belkin Burden Wenig &
Goldman, LLP; Peter A. Schwartz, Graubard Miller
Moderator: Jordan Platt, Kaled Management
This course has been approved in accordance with the requirements of the New York State Continuing Legal Education
Board for a maximum of 3 Transitional and Non-Transitional credit hours; 1 Skills; 2 Professional Practice.
This program has been approved by the Board of Continuing Legal education of the Supreme Court of New Jersey for 3
hours of total CLE credits. Of these, 0 qualify as hours of credit for ethics/professionalism, and 0 qualify as hours of credit
toward certification in civil trial law, criminal law, workers compensation law and/or matrimonial law.
ACCREDITED PROVIDER STATUS: NYCLA’s CLE Institute is currently certified as an Accredited Provider of
continuing legal education in the States of New York and New Jersey.
Information Regarding CLE Credits and Certification
Preventing Problems Before They Arise: Properly Structuring an MCI Project from
Start to Finish
September 9, 2014; 9:00 AM to 12:00 PM
The New York State CLE Board Regulations require all accredited CLE
providers to provide documentation that CLE course attendees are, in fact,
present during the course. Please review the following NYCLA rules for
MCLE credit allocation and certificate distribution.
i.
You must sign-in and note the time of arrival to receive your
course materials and receive MCLE credit. The time will be
verified by the Program Assistant.
ii.
You will receive your MCLE certificate as you exit the room at
the end of the course. The certificates will bear your name and
will be arranged in alphabetical order on the tables directly outside
the auditorium.
iii.
If you arrive after the course has begun, you must sign-in and note
the time of your arrival. The time will be verified by the Program
Assistant. If it has been determined that you will still receive
educational value by attending a portion of the program, you will
receive a pro-rated CLE certificate.
iv.
Please note: We can only certify MCLE credit for the actual time
you are in attendance. If you leave before the end of the course,
you must sign-out and enter the time you are leaving. The time will
be verified by the Program Assistant. Again, if it has been
determined that you received educational value from attending a
portion of the program, your CLE credits will be pro-rated and the
certificate will be mailed to you within one week.
v.
If you leave early and do not sign out, we will assume that you left
at the midpoint of the course. If it has been determined that you
received educational value from the portion of the program you
attended, we will pro-rate the credits accordingly, unless you can
provide verification of course completion. Your certificate will
be mailed to you within one week.
Thank you for choosing NYCLA as your CLE provider!
New York County Lawyers’ Association
Continuing Legal Education Institute
14 Vesey Street, New York, N.Y. 10007 • (212) 267-6646
Preventing Problems Before They Arise: Properly Structuring an MCI
Project from Start to Finish
Tuesday, September 9, , 2014, 9:00 AM - 12:00 PM
Program Co-sponsor: Community Housing Improvement Program, Inc.
Moderator: Jordan Platt, Kaled Management
Faculty: David Cabrera, Borah Goldstein Altschuler Nahins and Goidel, PC;
Jeff Chanchall, Realty Program Consultants; Martin Heistein, Belkin Burden
Wenig and Goldman LLP; Peter Schwartz, Graubard Miller
AGENDA
9:00 AM – 9:10 AM
Introductory Remarks
Bari Chase, NYCLA
Patrick Siconolfi, CHIP
9:10 AM – 9:40 AM
What Type of Work and Costs are Eligible?
Peter Schwartz, Graubard Miller
9:40 AM – 9:55 AM
Importance of Contract Language and Methods of
Payment
Martin Heistein, BBWG
9:55 AM – 10:10 AM
Impact of Violations and Service Restoration Orders
Martin Heistein, BBWG
10:10 AM – 10:40 AM
Once Work is Completed: Application Process, Collecting
Approved Increases, 6% Cap and Offsets
Jeff Chanchall, Realty Program Consultants
10:40 AM – 10:50 AM
BREAK
10:50 AM – 11:15 AM
Addressing Post-application Issues
David Cabrera, Borah, Goldstein, Altschuler, Nahins & Goidel,
P.C.
11:15 AM – 11:30 AM
Anecdotes from the Experts
Panel
11:30 AM – 12:00PM
Questions and Answers
Panel
CHIP’s participation in this seminar was made possible by a grant from Capital One
PREDETERMINING THE ELIGIBILITY OF
WORK AND COSTS ON MCIS
By: Peter A. Schwartz
Graubard Miller
I.
II.
Purpose of MCIs: to encourage owners to improve buildings
A.
Rent regulation generally discourages investment in improvements of buildings
by providing little or no return on investment. MCIs are meant to offset that
disincentive.
B.
MCI increases basically provide that upon installation of capital improvements,
an owner may apply to DHCR for rent increases. Rent increases are based upon
qualifying costs over a seven year amortization period. The rent increase is equal
to 1/84th of the qualifying costs. That amount is then divided by the number of
rooms in the building, resulting in a monthly rent increase for each regulated
apartment based upon the number of rooms.
Issues to consider from the outset of work
A.
What qualifies as an MCI?
1.
Work must be depreciable under the IRC, other than for ordinary repairs;
for the operation, preservation and maintenance of the building; improvement which directly or
indirectly benefits all tenants; and meets DHCR’s useful life schedule
260244.1
(a)
Must be an improvement - cannot be a repair
(b)
Work must be building-wide in nature [i.e., windows and
waterproofing]
(c)
Improvements must have outlived their useful lives.
(i)
Schedule may be found at RSC §2522.4(a)(2)(d). (See,
DHCR Fact Sheet #33)
(ii)
Waivers of useful life requirement
(A)
Must obtain approval from DHCR prior to
commencement of work except for emergencies
which cause building to be unsafe or detrimental to
health.
(B)
Examples include equipment which cannot be
repaired, or damaged due to fire or other “act of
God.”
Predetermining the eligibility of work and costs on MCIs
1/3
2.
Which items qualify for MCIs in Rent Stabilization Code (See, RSC
3.
Some particularized rules
§2522.4(a)(3))
4.
B.
(a)
Roofing generally must be complete replacement or addition of
two or more ply roof cap after thorough scraping and levelling.
See, DHCR Policy Statement 91-2
(b)
Mailboxes – must relocate from outer vestibule to area behind
locked doors
(c)
Waterproofing – need a diagram with a statement from contractor
or architect/engineer who examined all exposed sides of building
before work performed and confirmed where all necessary work
was needed.
Ancillary work:
(a)
Work performed in conjunction with and directly related to other
qualifying work. See, Admin. Rev. Dkt. No. XH430026RT
(b)
Examples – asbestos removal; parapet coping and flashings
5.
Government mandated work, i.e. Local Law 11; FHA requirements
6.
Can seek prior opinion from DHCR
7.
Include descriptions for qualifying improvements in contracts
DHCR may disallow improvements due to:
1.
Proof: if your application doesn’t have all necessary documents, including
cancelled checks, contracts, invoices, government signoffs and affidavits by the contractor. See,
DHCR Policy Statement 90-10.
C.
260244.1
2.
Piecemeal work
3.
Immediately Hazardous Violations or service reduction orders
4.
Other grounds
Certain costs not included within an MCI increase:
1.
Financing costs
2.
Items paid from insurance proceeds
3.
Offsets for commercial space which may benefit from the MCI
Predetermining the eligibility of work and costs on MCIs
2/3
4.
260244.1
Certain professional fees
(a)
legal fees
(b)
architectural, engineering and/or other fees – to qualify, fees must
be directly related to MCI and not otherwise duplicated. See,
Admin. Rev. Dkt. No. WI130017RO. Compare, Admin. Rev. Dkt.
No. AS710053RO, Admin. Rev. Dkt. No. WK430032RO
5.
Government permits and fees
6.
Items paid from government grants
7.
Items paid from cooperative/condominium reserve funds
Predetermining the eligibility of work and costs on MCIs
3/3
FACT SHEET
A PUBLICATION OF NEW YORK STATE
DIVISION OF HOUSING AND COMMUNITY RENEWAL
OFFICE OF RENT ADMINISTRATION
Andrew M. Cuomo, Governor
#33 Useful Life Schedule for Major Capital Improvements
When an owner files an application to increase the legal regulated rents of a building or building complex on the grounds
that there has been a major capital improvement, the item being replaced must meet the requirements set forth on the
following Useful Life Schedule, except where the Division of Housing and Community Renewal (DHCR) has approved
a waiver, as discussed below.
Useful Life Schedule
Replacement Item
or Equipment
Years Estimated Life
Replacement Item
or Equipment
Years Estimated Life
1) Boilers and Burners
(a) Cast Iron Boiler................................... 35
(b) Package Boiler.................................... 25
(c) Steel Boiler......................................... 25
(d) Burners............................................... 20
8) Plumbing/Repiping
(a) Galvanized Steel............................................. 25
(b) TP Copper....................................................... 30
(c) Brass cold water.............................................. 15
(d) Fixtures........................................................... 25
2) Windows
(a) Aluminum............................................ 20
(b) Wood................................................... 25
(c) Steel..................................................... 25
(d) Storm................................................... 20
(e) Vinyl.................................................... 15
9) Elevators
(a) Major Upgrade................................................25
(b) Controllers and Selector..................................25
3) Roofs
(a) 2-Ply (asphalt)..................................... 10
(b) 3-4 Ply (asphalt).................................. 15
(c) 5-Ply (asphalt)..................................... 20
(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
Revised (8/13)
10) Doors
(a) Apartment Entrance........................................25
(b) Lobby/Vestibule..............................................15
11) Bathroom Upgrading
(a) Toilets and Valves...........................................20
(b) Bathroom and Sinks.......................................20
(c) Vanity..............................................................20
12) Kitchen Upgrading
(a) Metal/Wood Cabinets.....................................20
(b) Ranges............................................................20
(c) Refrigerators ..................................................15
(d) Sinks ..............................................................20
13) Water Tanks
(a) Metal ........................................................25
(b) Wood ........................................................20
Rent InfoLine (718) 739-6400
Web Site: www.nyshcr.org
E-mail address: [email protected]
#33 pg. 1 of 2
Useful Life Schedule (cont’d.)
Replacement Item
or Equipment
Years Estimated Life
Replacement Item
or Equipment
Years Estimated Life
14) Waste Compactors..........................................10
20) Fire Escapes...................................................25
15) Air Conditioners
(a) Individual Units/Sleeves....................10
(b) Central System...................................15
(c) Branch Circuitry Fixtures...................15
21) Fuel Oil Tanks
(a) In Vaults.............................................25
(b) Underground......................................20
16) Aluminum Siding..........................................25
Vinyl Siding.................................................15
17) Catwalk...........................................................25
22) Water Heating Units
(a) Hot Water/Central Heating................20
(b) Hot Water Heater (Domestic)............10
23) Parapets
Brick........................................................25
18) Chimney
(a) Steel....................................................25
(b) Brick...................................................25
24) Resurfacing Exterior Walls............................25
19) Courtyards / Walkways / Driveways
Cement.....................................................15
Asphalt.....................................................10
26) Structural Steel...............................................25
25) Solar Heating System.....................................25
27) Television Security.........................................10
For major capital improvements not listed above, the owner
For more information or assistance, call the DHCR Rent
must submit evidence with the application that the useful
InfoLine, or visit your Borough or County Rent Office
life of the item or equipment being replaced has expired.
Waiver
Queens
Lower Manhattan
92-31 Union Hall Street 25 Beaver Street
An owner who wishes to request a waiver of the useful
5th Floor
life requirement must apply to the DHCR for such waiver 6th Floor
Jamaica,
NY
11433
New York, NY 10004
prior to the commencement of the work for which he or
she will be seeking a major capital improvement rent in- (718) 739-6400
crease. Notwithstanding this requirement, where the waiver
Bronx
requested is for an item being replaced because of an Brooklyn
emergency, which causes the building or any part thereof 55 Hanson Place
2400 Halsey Street
to be dangerous to human life and safety or detrimental to 7th Floor
Bronx, NY 10461
health, an owner may apply to the DHCR for such waiver Brooklyn, NY 11217
at the time he or she submits the major capital improvement rent increase application. One reason why the DHCR
Upper Manhattan
Westchester County
may grant a waiver is if the item or equipment cannot be
163
W.
125th
Street
75
South Broadway
repaired and must be replaced during its useful life be5th
Floor
2nd
Floor
cause of a fire, vandalism or other emergency, or an “act
New York, NY 10027
White Plains, NY 10601
of God” resulting in an emergency.
If the waiver request is denied, the owner will not be eligible for a Major Capital Improvement (MCI) rent increase. If it is granted, the useful life requirement will not
be a factor in the determination of eligibility for the MCI
rent increase. However, approval of the waiver does not
assure that the application will be granted, as all other requirements as set forth in Fact Sheet # 24, Major Capital
Improvements (MCI) Questions and Answers, must be
satisfied. Furthermore, where a waiver is granted, under
certain circumstances the DHCR may grant an MCI rent
increase based on a cost that is lower than that claimed by
the owner.
Rent InfoLine (718) 739-6400
Revised (8/13)
Web Site: www.nyshcr.org
Email address: [email protected]
#33 pg. 2 of 2
9/3/2014
Print Selected Text: 9 NYCRR 2522.4. Adjustment of legal regulated rent.
New York Codes, Rules and Regulations
New York Codes, Rules and Regulations
TITLE 9. EXECUTIVE DEPARTM ENT.
SUBTITLE S. DIVISION OF HOUSING AND COM M UNITY RENEWAL.
CHAPTER VIII. RENT STABILIZATION REGULATIONS.
SUBCHAPTER B. RENT STABILIZATION CODE.
PART 2522. RENT ADJUSTM ENTS.
9 Nycrr 2522.4. Adjustment of legal regulated rent.
SCHEDULE OF M AJOR CAPITAL IM PROVEM ENTS 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. Bathroom modernization — complete renovation including new sinks, toilets, bathtubs and/or showers and
all required trims in every housing accommodation; or any individual component or fixture if done building wide. 4. Boiler
and/or burner — new unit(s) including electrical work and additional components needed for the installation. 5. Boiler
room — new room where none existed before; or enlargement of existing one to accommodate new boiler. 6. Catwalk —
complete replacement. 7. Chimney — complete replacement, or new one where none existed before, including additional
components needed for the installation. 8. Courtyard, driveways and walkways — resurfacing of entire original area within
the property lines of the premises. 9. 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. 10. 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. 11. Fire escapes — complete new
replacement including new landings. 12. Gas heating units — new individual units with connecting pipes to every housing
accommodation. 13. Hot water heater — new unit for central heating system. 14. Incinerator upgrading — including a new
scrubber. 15. Intercom system — new replacement; or one where one existed before, with automatic door locks and
push-button speakerboxes and/or telephone communication, including security locks on all entrances to the building. 16.
Kitchen modernization — complete renovation, including new sinks, counter tops and cabinets in every housing
accommodation; or any individual component or fixture if done building-wide. 17. M ailboxes — new replacements and
relocated from outer vestibule to an area behind locked doors to increase security. 18. Parapet — complete
replacement. 19. Pointing and waterproofing — as necessary on exposed sides of the building. 20. 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. 21. Resurfacing of exterior
walls — consisting of brick or masonry facing on entire area of all exposed sides of the building. 22. 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;
and work done to effectuate conversion from master to individual metering of electricity approved by DHCR pursuant to
paragraph (d)(3) of this section. 23. Roof — complete replacement or roof cap on existing roof installed after thorough
scraping and leveling as necessary. 24. Solar heating system — new central system, including additional components
needed for the system. 25. Structural steel — complete new replacement of all beams including footing and foundation.
26. Television system — new security monitoring system including additional components needed for the system. 27. Waste
compactor — new installation(s) serving entire building. 28. Waste compactor room — new room where none existed
before. 29. Water sprinkler system (for fire control purposes) — new installation(s). 30. Water tank — new installation(s).
31. Windows — new framed windows.
Copyr ight © 2014 CCH Incor por ated or its affiliates
1/1
Policy Statement 91-2
New York State
Division of Housing and Community Renewal
Office of Rent Administration
Policy Statement 91-2 (February 20, 1991)
(Revised 90-6)
MCI Eligibility / Roofing
This Policy Statement is being issued to define the eligibility of roofing installations for consideration as
Major Capital Improvements (MCIs) in buildings regulated by the Rent Stabilization Law, the Emergency Tenant
Protection Act and Rent Control.
The useful life and cost of a roofing installation is related to the number of plies (each ply being a
waterproof layer of roofing material and a bonding agent). The least expensive roofing choice available is the
single ply (often referred to as a 2-course application) “Roof Cap.” It is generally applied over an existing roof
and consists of one layer of traditional asphalt based materials with a protective surface coating of crushed
minerals. Commercially available products (such as 55# and 90# mineral paper top sheets) which already include
the surface coating are generally used for their cost effectiveness in this application. Since the benefit from this
type of single-ply “roof cap” is short-lived and is generally applied over an existing roof, it is considered a repair
and does not constitute a Major Capital Improvement.
Therefore, roofing installations consisting of only a single ply of traditional asphalt based materials (a top
sheet) will not be eligible for a Major Capital Improvement increase.
The only exception to this prohibition on MCI eligibility for single ply installations will be for new
technology materials that are proven to have acceptable useful lives as recognized in this agency’s Operational
Bulletin #90-2, “Useful Life Schedule for Major Capital Improvements”. A one-ply rubber (membrane) roof using
EPDM materials is acceptable, as is an application using Modified Bitumen materials. These types of roofing,
developed with new technologies, have a life expectancy beyond conventional asphalt-based materials and will
qualify for an MCI rent increase.
Complete roof removals and replacements with multi-ply roof caps consisting of the aforementioned single
ply of asphalt material plus additional underlying plies of roofing material are and will continue to be eligible.
Note that each additional ply adds to the overall strength and longevity of the installation.
The bills, work orders and plans used as documentation of the eligible MCI costs for roofing must provide a
description which specifies the materials (asphalt, EPDM) and application type (one-ply, three-ply, torch applied,
etc.) used in order to be acceptable.
The policy on roofing shall become effective 30 days after the issue date of this statement.
This document is being reissued for informational purposes only.
The original document which contains signatures of authorization is
on file at DHCR’s Office of Rent Administration.
Elliot G. Sander
Deputy Commissioner
for Rent Administration
Policy Statement 90-10
New York State
Division of Housing and Community Renewal
Office of Rent Administration
Policy Statement 90-10 (June 26,1990)
Major Capital Improvements / Individual Apartment Improvements
Confirmation of Costs / Payments
This policy statement delineates DHCR’s processing methods for confirming costs on MCI or individual
apartment improvement applications.
Any claimed MCI or individual apartment improvement cost must be supported by adequate documentation
which should include at least one of the following:
1)
Cancelled check(s) contemporaneous with the completion of the work;
2)
Invoice receipt marked paid in full contemporaneous with the completion of the work;
3)
Signed contract agreement;
4)
Contractor’s affidavit indicating that the installation was completed and paid in full.
Whenever it is found that a claimed cost warrants further inquiry, the processor may request that the owner
provide additional documentation.
If it is found that there is an equity interest or an identity of interest between the contractor and the
building owner, then additional proof of cost and payment, specifically related to the installation, may be
requested. Where proof is not adequately substantiated, the difference between the claimed cost and the
substantiated cost will be disallowed.
Elliot G. Sander
Deputy Commissioner
for Rent Administration
This document is being reissued for informational purposes only.
The original document which contains signatures of authorization is
on file at DHCR’s Office of Rent Administration.
Graubard Miller
The Chrysler Building
405 Lexington Avenue
NEW YORK, N.Y. 10174
(212) 818-8800
Peter A. Schwartz
Peter A. Schwartz heads the real estate department of Graubard Miller, a
law firm established more than 50 years ago. Mr. Schwartz has thirty years of experience
in real estate and litigation, with a particular concentration in rent regulation. He has
litigated matters involving residential and commercial summary proceedings, Article 78
proceedings, injunctions, declaratory judgment, specific performance, and disputes with
condominium unit owners and cooperative shareholders, among others. He has practiced
extensively before the New York State Division of Housing and Community Renewal
(“DHCR”) in matters involving luxury deregulation, rent overcharge, substantial
rehabilitation, major capital improvement and demolition, among others. Mr. Schwartz
also represents clients in the acquisition and conveyance of commercial and residential
properties, joint venture agreements and mortgage transactions. He has represented
sponsors and boards of cooperatives and condominiums and negotiated and prepared
commercial leases for professional and retail space.
Mr. Schwartz has received the highest attorney rating (AV Preeminent)
from the Martindale Hubbell Peer Review. He was listed among the top real estate
attorneys in New York by Avenue Magazine in 2013 and has been selected to Super
Lawyers every year since 2011. A member of the advisory board of Apartment Law
Insider, Mr. Schwartz has also published articles on real estate law and rent regulation.
260209.1
9/2/2014
Realty Program Consultants, LLC
86-33 Palermo Street,
Hollis, NY 11423
Tel: (718)465-0202
Fax: (718)465-0303
Email address:
[email protected]
Presenter: Jeff Chanchall
Managing Member
MAJOR CAPITAL IMPROVEMENTS
OVERVIEW
 Timing
of Filing an MCI Application
 In general
 Projects with different stages
 Communication with Tenants/Tenants
Association
 Calculation of rent increase based on 6%
limitation at time of filing application and
DHCR’s determination of effective and
collectible dates
1
9/2/2014
OVERVIEW
All applications for MCI rent adjustments must
be filed within two years of the completion of
the installation.
 The processing of an MCI can take up to two
years from the date it was filed.

 The
MCI can be delayed by DHCR due to tenant
complaints, open violations, missing
documentation related to the MCI, or due to rent
reduction orders in effect.
OVERVIEW
 Collectability
of MCI Rent Increases
 Case 1…Prospective MCI only
 Case 2…Prospective & retro MCI
 Case 3…Preferential rent calculation
 Case 4…Combined MCI/J51 benefits
 Conclusion
 Questions
2
9/2/2014
PROJECTS WITH DIFFERENT STAGES

Copies of all necessary approvals from
applicable government agencies for the work
done (Department Of Buildings)
 Installation
of boilers, elevator, plumbing (backflow)
and rewiring require DOB approvals
 Installation of windows, roofs and lobby doors do
not require approvals.
PROJECTS WITH DIFFERENT STAGES

Boilers/burners
Initial Work Permit or PW-2 (DOB)
 Certificate of Electrical Inspection
 Certificate of Approval for Oil Burning Installation.
 For boilers with a capacity of 350,000 BTU’s or more
an approved Application for Certificate of Operation
 DEP Certificate of Operation


Elevators
Approved Elevator application/Permit (ELV-1, DOB)
 Certificate of Electrical Inspection
 ELV-12 Elevator Application signoff

3
9/2/2014
COMMUNICATION WITH TENANTS/TENANTS
ASSOCIATION





Owner may keep copy of application for tenants to view. However, a complete
copy of the MCI application with all the supporting documentation will always be
available at the DHCR for tenant review upon written request.
DHCR will review the application, consider the tenant responses and may
request additional documentation if deemed necessary. This documentation
may include filing of rent restoration applications, removal of violations (DOB &
HPD), or proof of correction of tenant complaints related to the MCI item.
When processing is complete, DHCR will issue an order granting a rent increase
for the total amount requested, a partial amount, or denying the request.
The owner and the tenants will be notified by DHCR of the amount of the rent
increase per room and related terms and conditions in a written order. The rent
increase is a permanent addition to the rent. MCI must be billed within 90 days.
Both the tenant and owner have 35 days from the MCI order date to file a
Petition of Administrative Review. The filing of a PAR by the tenants
automatically results in a suspension of collection of any arrears until such time
that the PAR is decided by DHCR.
COLLECTABILITY OF MCI RENT INCREASES

Conditions for RC and RS tenants



RS apartments: rent increase collectible in any one year
may not exceed 6% of the tenant's rent at the time the
application was filed
RC apartments: the rent increase collectible in any one year
may not exceed 15% of the tenant's rent as of the issue
date of the order.
RS apartments have the following two components
A permanent prospective increase- becomes part of the legal rent
and is collectible first
 A temporary retroactive increase- those amounts owed between the
effective date and the issue date of the DHCR order granting the MCI
which applies for only RS


RC has no retroactive portion
4
9/2/2014
COLLECTABILITY OF MCI RENT INCREASES

Conditions for Senior Citizens or Disabled Persons
A senior citizen with a valid Senior Citizen Rent Increase
Exemption (SCRIE), or a disabled person with a valid
Disability Rent Increase Exemption (DRIE) is exempt
from paying any portion of the MCI adjustment that
would raise their total rent to over 1/3 of their total
disposable income.
 However, an increase in the security deposit resulting
from the MCI rent increase must be paid by both SCRIE
and DRIE tenants.

CASE #1

Application filed 4/13 and approved 7/13
without any retroactive charges (RS apartment)
5
9/2/2014
CASE #2
Application filed 5/11 and approved 7/12 with 9
months of retroactive benefits
CASE #2
Permanent MCI Portion(6% of legal rent) + Legal Rent…
8/1/2012 to 7/31/2013…
$ 46.18 + $ 770.00 = $ 816.18
 Additional MCI Retro accumulated during 8/1/2012
thru 7/31/2013… 12 months x
$ 13.82 (or $60.00-$46.18)= 165.84
 August 2013 thru July 2014…Balance of Permanent
MCI ($13.82) + Retro Collection ($ 32.36) = $ 46.18
(the 6% cap is the same)
 *Permanent Rent must be collected before Temporary
arrears.

6
9/2/2014
CASE #2
CASE #2
Additional MCI Retro accumulated during
8/1/2012 thru 7/31/2013 (Year 1) … 12
months x $ 13.82 = 165.84
 Accumulated retro for year 3… $ 165.84 +
$ 540.00 = $ 705.84

7
9/2/2014
CASE #3
Tenant with preferential rent data
 Application filed 5/12 and approved 7/13 with
11 months of retroactive benefits

CASE #4A

MCI being reduced by DHCR as a result of an
Owner opting for both MCI & J51 benefits.

Take for example, an expenditure of $ 84,000
for a boiler / burner in a building with 36
apartments and 90 rooms.
8
9/2/2014
CASE #4A

MCI benefits
$
84,000 / 7 yrs = 12,000 / 12 months = $ 1,000
/ 90 rooms = $11.11 per room.

Effect of J51
 Total
J51 allowance is $ 36,000 or ( $ 36,000 / 12
yrs) = $ 3,000 per year. Benefits will last for 11
years
 The annual MCI benefits of $ 12,000 will be
reduced by 50% of the annual J51 benefit of
$ 3,000 or by $1,500.00 to $ 10,500.00
CASE #4A

Amended MCI benefits
$
10,500 / 12 months = $ 875 / 90 rooms =
$9.72 from $ 11.11 for a net reduction of $ 1.39
per room
 Summary:
 Annual
MCI $ 12,000 …14%
 Annual J51 Allowance $ 3000 …3.5%
 Amended Annual MCI $10,500 plus J51 of $ 3,000
 Net MCI + J51 total $13,500…16%
9
9/2/2014
CASE #4B

MCI being reduced by DHCR as a result of an
Owner opting for both MCI & J51 benefits

Second case- Windows

Take for example, an expenditure of $ 73,500
for new windows (200) in a building with 36
apartments and 90 rooms.
CASE #4B

MCI benefits


$ 73,500 / 7 yrs = 10,500 / 12 months = $ 875.00 /
90 rooms = $ 9.72 per room.
Effect of J51
Total J51 allowance is $ 73,500 or annual
( $ 73,000 / 12 yrs) = $ 6,125 per year. Benefits will
last for 11 years
 The annual MCI benefits of $ 10,500 will be reduced by
50% of the annual J51 benefit of $ 6,125.00 or by
$ 3,062.5 to $ 7,437.50.

10
9/2/2014
CASE #4B

Amended MCI benefits
$
7,437.50 / 12 months = $ 619.80 / 90 rooms =
$ 6.87 from $ 9.72 for a net reduction of $ 2.85
per room
 Summary:
 Annual
MCI $ 10,500 …14%
 Annual J51 Allowance $ 6125 …8.3%
 Amended Annual MCI $7,437.50 plus J51 of $ 6,125
 Net MCI + J51 total $13,562.50…18.3%
CONCLUSION
MCI increases must be billed within 90 days or
Owner runs risk of loosing benefits. This
includes multiple MCIs.
 New RS leases must include MCI clause
 Counties outside of NYC …the limit is 15% plus
arrears
 Commercial allocation is now based on size
rather than income.
 How DHCR determine retroactive amounts?

11
9/2/2014
QUESTIONS
12
Bio:
Jeff Chanchall, the Managing Member of Realty Program Consultants LLC (RPC),
began his career at the New York City Department of Housing Preservation and
Development’s Office. From July 1987 to July 1989 he served in the Tax Incentives
Program, where he became an expert in the J51 process and achieved a leadership
role. In the absence of an actual J51 Director, during the period from January 1989
through May 1989, Mr. Chanchall was effectively functioning as the Director of the J51
program. In May 1989, Mr. Chanchall left HPD to join RPC. Since that time, Mr.
Chanchall has become an expert in the filing of MCI applications as well as those for
J51. In addition, our office has become experts in expediting the dismissal of DOB, FD
& DOH ECB violations. This includes court representation of the violations as well. Our
office also negotiates reduction of open ECB penalties with the DOF known as
Resolutions. Mr. Chanchall supervises the processing of all applications and can be
easily reached by telephone or email.
/bio
9/4/2014
Addressing Post‐application
Issues In MCI Proceedings
David B. Cabrera, Esq.
377 Broadway
New York, New York 10013
T: (212) 965‐2544
F: (212) 965‐2744
[email protected]
www.borahgoldstein.com
CHIP MCI Seminar
September 9th, 2014
NYCLA
New York, NY 10007
TopicstobeDiscussed
• Responding to tenant objections and DHCR request for additional information
• Addressing administrative appeals challenging an MCI increase
• DHCR’s discretional approval process
• Prior notice to tenants
1
9/4/2014
AddressingTenantResponsestoan
MCIApplication
Responding to tenant objections
1) Complaints related to MCI installation
• Minor Defects
• Defects limited to certain areas or apartments
• Work is deficient
2) Unrelated complaints
• Affordability • Violations
• Other defective conditions
AddressingTenantResponsestoan
MCIApplication(cont’d)
3) What should the response say?
• Work was completed in a workmanlike and professional manner
• Submit evidence that minor conditions were addressed
Responding to a DHCR request for additional information
• Room count
• Commercial allocation
• Proof of payment
2
9/4/2014
AddressingAdministrative
Appeals
Scope of Review Doctrine
• No new issues on appeal
Caveat
• Some conditions, even if new, warrant a reply. Do not ignore issues raised on appeal for the first time
Recommendations
• File Freedom of Information Law (FOIL) ‐ obtain inspection reports/pictures
DiscretionalAuthorityof
DHCRApprovalProcess
What Actions can DHCR take on an MCI Application?
• Grant
• Carol Management Corp. v. DHCR
• Deny
• Duell LLC v. DHCR
• Simkovitz v. DHCR
• Weinreb Management v. DHCR
• Grant with exemptions – DHCR has the ability to deny or delay all or part of an increase
3
9/4/2014
DiscretionalAuthorityof
DHCRApprovalProcess– Exemptions
(Cont’d)
• DHCR’s Exemption Policy
Grant MCI increase for all apartments other than the
apartments in which improvements were found to have
been defective and suspend the MCI increase for other
apartments, either permanently or temporarily.
(Cont’d)
DiscretionalAuthorityof
DHCRApprovalProcess– Exemptions
(Cont’d)
What is a Partial Exemption?
• Defects limited to specific apartments
• Correct defect and collect increase prospectively
• 20 Fifth Avenue LLC v. DHCR
What is Permanent Exemption?
• Work as a whole is deficient
• Complete denial of increase for specific apartments with defects
• Langham Mansions, LLC v. DHCR
• Terrace Court LLC v. DHCR
(Cont’d)
4
9/4/2014
DiscretionalAuthorityof
DHCRApprovalProcess– Exemptions
(Cont’d)
Two prong test
1. Conditions existed when the work was completed prior to the filing of the application; and
2. Apartments continue to exhibit conditions at the time of DHCR inspection.
Shift in Policy
• 20 Fifth Avenue, LLC v. DHCR ‐ 10 of 108 apartments with leak damage were temporarily exempt.
• Jackson Heights 35 LLC v. DHCR ‐ 3 of 32 apartments had defects and entire MCI denied.
PriorNoticetoTenants
Advising tenant associations
• Pro’s and Con’s
5
9/4/2014
David Cabrera
[email protected]
(212) 965‐2544
David B. Cabrera is a partner at Borah, Goldstein, Altschuler, Nahins & Goidel, P.C., in the Administrative Division. He has experience in all types of proceedings before the State Division of Housing & Community Renewal (DHCR), as well as matters before the Department of Housing, Preservation & Development (HPD), the Environmental Control Board (ECB), the Department of Buildings (DOB), and the Loft Board. Mr. Cabrera has over twenty years of real estate law experience, including eleven years with DHCR in various senior positions. At DHCR, he was Deputy Commissioner for Housing Operations where he oversaw the State’s Section 8, Mitchell‐Lama and Public Housing programs. He also served DHCR as General Counsel in the Office of Legal Affairs and Deputy Counsel and Assistant Commissioner in the Office of Rent Administration and specialized in rent stabilization and rent control matters. Prior to joining the DHCR, Mr. Cabrera was in private practice specializing in real estate litigation and transactions.
6

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