By Phillip Billet
Belkin, Burden, Wenig & Goldman LLP
BBWG was recently successful in preventing the New York State Division of Housing and Community Renewal from altering one of its longstanding policies relating to the processing of major capital improvement rent increase applications; a change which would have made it more difficult for many building owners to obtain MCI rent increases.
DHCR has always maintained a policy that allowed building-wide MCI rent increases even if defects relating to the improvement were found in a small number of the building’s apartments. DHCR would grant the MCI increase, but exempt from the increase – either permanently or temporarily – those apartments in which the defects were found. This policy had been upheld by the courts, including the NYS Court of Appeals, which recently upheld a DHCR order which permanently exempted from an MCI increase, only those apartments where defects were found.
DHCR was, however, attempting to implement a new policy to provide that when a building owner files an MCI Application, and defects relating to the improvement are found in a small number of the building’s apartments, DHCR will deny the MCI Application for all apartments at the building.
In the case successfully handled by BBWG, the NYS Supreme Court rejected this change in policy. The case had a protracted history. It involved a building owner who had filed an MCI Application in order to increase the rent of each rent-regulated apartment at its building based upon a comprehensive exterior restoration project that cost over $500,000.00. During the processing of the MCI Application, DHCR inspected various apartments and found water damage within ten of the building’s 108 apartments.
Following its longstanding policy, DHCR granted the MCI Application, but ruled that the ten apartments in which leak damage was found would be temporarily exempt from the rent increase until such time as the damage was corrected. Tenants of the non-exempt units filed an administrative appeal, but lost when DHCR’s Deputy Commissioner upheld its policy.
The tenants then commenced an Article 78 proceeding, in which they argued that the entire MCI increase should have been revoked based upon the existence of the leak damage in ten apartments. Upon review of the tenants’ petition, DHCR asked the court to remit the proceeding so it could re-evaluate whether the MCI Application should have been granted when defects relating to the MCI were found in certain apartments.
The court granted DHCR’s motion and during the remit, a DHCR inspector re-inspected the ten apartments and reported leak damage in eight of the apartments. Based upon this finding, DHCR issued a revised order in which it revoked the MCI increase for all apartments of the building.
BBWG then commenced an Article 78 proceeding on behalf of the owner, in which we requested judicial review of DHCR’s revocation order. We argued that the revocation of the MCI increase for all apartments, based upon a finding of leak damage in only a few apartments, was contrary to law and should be annulled.
In an order dated December 21, 2011, the Supreme Court agreed with BBWG’s arguments, noting that DHCR’s longstanding policy of only exempting the particular apartments with a defect from the MCI increase had been affirmed by the courts, and DHCR’s attempt to alter this policy during the pendency of an MCI Application without setting forth its reasons for doing so was contrary to law. The Court annulled DHCR’s revocation order as being arbitrary and capricious.(Both DHCR and the building’s tenants’ association have filed Notices of Appeal, indicating their intent to appeal the court’s decision to the Appellate Division, but the appeal has not yet been filed.)
Decisions rendered by government agencies can often be improper or unfair. A building owner who feels aggrieved by such decision should consult its attorney to determine whether such decision can be successfully challenged, whether on a substantive or a procedural basis.
Phillip Billet (firstname.lastname@example.org) is an associate in BBWG’s Administrative Law department.