By Alyssa D. Sandman
When an owner makes a Major Capital Improvement (MCI) to a building subject to the rent stabilization or rent control laws, it can apply to the Division of Housing and Community Renewal (DHCR) for approval to raise the rents of the regulated tenants based on the actual, verified cost of the improvement or installation.
The Rent Stabilization Code (RSC) explicitly provides that the conversion of a building to an individual electric metering system, such as submetering, falls within the definition of an MCI. However, in the past, DHCR has generally held that conversion to submetering will only qualify for an MCI rent increase where a full rewiring of the building’s electrical system has been performed.
In a recent proceeding before DHCR, BBWG successfully argued that a full rewiring of the building’s electrical system should not be required in order for a submetering conversion to qualify for an MCI rent increase. In that case, the building was already adequately wired for the installation of submeters in each apartment, making a full rewiring unnecessary. Still, the owner had spent nearly $80,000 for the purchase and installation of the submeters and the associated painting, plastering, and cleanup work.
BBWG argued on behalf of the owner that (1) the submeters alone are equipment that is depreciable under the Internal Revenue Code and satisfy all elements of the RSC’s definition of an MCI; and (2) refusing to grant an MCI increase absent a full rewiring of the entire building’s electrical system would have a chilling effect on DHCR’s and the Public Service Commission’s publicly pronounced objective of encouraging owners to convert from master metering to individual/submetering systems for energy conservation purposes.
DHCR’s District Rent Administrator accepted the owner’s arguments and granted an MCI rent increase even though a full rewiring of the building was not performed. Notably, DHCR’s District Rent Administrator properly included the cost of the painting, plastering, and cleanup work associated with the submetering installation in the total MCI cost because such work was directly related to, and done in conjunction with, the underlying qualifying MCI.