preventing problems before they arise:

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PREVENTING PROBLEMS BEFORE THEY ARISE: PROPERLY STRUCTURING AN

MCI PROJECT FROM START TO

FINISH 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

260244.1 Predetermining the eligibility of work and costs on MCIs 1/3

PREDETERMINING THE ELIGIBILITY OF

WORK AND COSTS ON MCIS

By: Peter A. Schwartz

Graubard Miller

I. 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.

II. 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

(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.”


2. Which items qualify for MCIs in Rent Stabilization Code (See, RSC

§2522.4(a)(3))

3. Some particularized rules

(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.

4. 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

B. 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.

2. Piecemeal work

3. Immediately Hazardous Violations or service reduction orders

4. Other grounds

C. 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


4. 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

1) Boilers and Burners(a) Cast Iron Boiler...................................(b) Package Boiler....................................(c) Steel Boiler.........................................(d) Burners...............................................

2) Windows(a) Aluminum............................................(b) Wood...................................................(c) Steel.....................................................(d) Storm...................................................(e) Vinyl....................................................

3) Roofs(a) 2-Ply (asphalt).....................................(b) 3-4 Ply (asphalt)..................................(c) 5-Ply (asphalt).....................................(d) Shingle................................................(e) Single-ply Rubber...............................(f) Single-ply Modified Bitumen..............(g) Quarry Tile..........................................

4) Pointing.............................................................15

5) Rewiring............................................................25

6) Intercom System................................................15

7) Mailboxes..........................................................25

When an owner files an application to increase the legal regulated rents of a building or building complex on the groundsthat there has been a major capital improvement, the item being replaced must meet the requirements set forth on thefollowing Useful Life Schedule, except where the Division of Housing and Community Renewal (DHCR) has approveda waiver, as discussed below.

Years -Estimated Life

Replacement Itemor Equipment

Useful Life Schedule

8) Plumbing/Repiping(a) Galvanized Steel.............................................(b) TP Copper.......................................................(c) Brass cold water..............................................(d) Fixtures...........................................................

9) Elevators(a) Major Upgrade................................................25(b) Controllers and Selector..................................25

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

Web Site: www.nyshcr.orgE-mail address: [email protected]

Rent InfoLine (718) 739-6400

FACT SHEETA PUBLICATION OF NEW YORK STATE

DIVISION OF HOUSING AND COMMUNITY RENEWALOFFICE OF RENT ADMINISTRATION

#33 Useful Life Schedule for Major Capital Improvements



#33 pg. 1 of 2

35252520

2025252015

10152020201020

25301525

Revised (8/13)

Andrew M. Cuomo, Governor

Rent InfoLine (718) 739-6400Web Site: www.nyshcr.org

Email address: [email protected]

Revised (8/13)

Waiver

An owner who wishes to request a waiver of the usefullife requirement must apply to the DHCR for such waiverprior to the commencement of the work for which he orshe will be seeking a major capital improvement rent in-crease. Notwithstanding this requirement, where the waiverrequested is for an item being replaced because of anemergency, which causes the building or any part thereofto be dangerous to human life and safety or detrimental tohealth, an owner may apply to the DHCR for such waiverat the time he or she submits the major capital improve-ment rent increase application. One reason why the DHCRmay grant a waiver is if the item or equipment cannot berepaired and must be replaced during its useful life be-cause of a fire, vandalism or other emergency, or an “actof God” resulting in an emergency.

If the waiver request is denied, the owner will not be eli-gible for a Major Capital Improvement (MCI) rent in-crease. If it is granted, the useful life requirement will notbe a factor in the determination of eligibility for the MCIrent increase. However, approval of the waiver does notassure that the application will be granted, as all other re-quirements as set forth in Fact Sheet # 24, Major CapitalImprovements (MCI) Questions and Answers, must besatisfied. Furthermore, where a waiver is granted, undercertain circumstances the DHCR may grant an MCI rentincrease based on a cost that is lower than that claimed bythe owner.

20) Fire Escapes...................................................25

21) Fuel Oil Tanks(a) In Vaults.............................................25(b) Underground......................................20

22) Water Heating Units(a) Hot Water/Central Heating................20(b) Hot Water Heater (Domestic)............10

23) ParapetsBrick........................................................25

24) Resurfacing Exterior Walls............................25

25) Solar Heating System.....................................25

26) Structural Steel...............................................25

27) Television Security.........................................10

14) Waste Compactors..........................................10

15) Air Conditioners(a) Individual Units/Sleeves....................10(b) Central System...................................15(c) Branch Circuitry Fixtures...................15

16) Aluminum Siding..........................................25 Vinyl Siding.................................................15

17) Catwalk...........................................................25

18) Chimney(a) Steel....................................................25(b) Brick...................................................25

19) Courtyards / Walkways / DrivewaysCement.....................................................15Asphalt.....................................................10

For major capital improvements not listed above, the ownermust submit evidence with the application that the usefullife of the item or equipment being replaced has expired.





Useful Life Schedule (cont’d.)

#33 pg. 2 of 2

Queens Lower Manhattan92-31 Union Hall Street 25 Beaver Street6th Floor 5th FloorJamaica, NY 11433 New York, NY 10004(718) 739-6400

Brooklyn Bronx55 Hanson Place 2400 Halsey Street7th Floor Bronx, NY 10461Brooklyn, NY 11217

Upper Manhattan Westchester County163 W. 125th Street 75 South Broadway5th Floor 2nd FloorNew York, NY 10027 White Plains, NY 10601

For more information or assistance, call the DHCR RentInfoLine, or visit your Borough or County Rent Office

9/3/2014 Print Selected Text: 9 NYCRR 2522.4. Adjustment of legal regulated rent.

1/1

New York Codes, Rules and Regulations

New York Codes, Rules and Regulations

TITLE 9. EXECUTIVE DEPARTMENT.

SUBTITLE S. DIVISION OF HOUSING AND COMMUNITY RENEWAL.

CHAPTER VIII. RENT STABILIZATION REGULATIONS.

SUBCHAPTER B. RENT STABILIZATION CODE.

PART 2522. RENT ADJUSTMENTS.

9 Nycrr 2522.4. Adjustment of legal regulated rent.

SCHEDULE OF MAJOR CAPITAL IMPROVEMENTS 1. Air conditioner — new central system; or individual units set in sleeves inthe exterior wall of every housing accommodation; or, air conditioning circuits and outlets in each living room and/orbedroom (see Rewiring). 2. Aluminum siding — installed in a uniform manner on all exposed sides of the building (seeResurfacing). 3. Bathroom modernization — complete renovation including new sinks, toilets, bathtubs and/or showers andall required trims in every housing accommodation; or any individual component or fixture if done building wide. 4. Boilerand/or burner — new unit(s) including electrical work and additional components needed for the installation. 5. Boilerroom — 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 additionalcomponents needed for the installation. 8. Courtyard, driveways and walkways — resurfacing of entire original area withinthe property lines of the premises. 9. Doors — new lobby front entrance and/or vestibule doors; or entrance to everyhousing accommodation, or fireproof doors for public hallways, basement, boiler room and roof bulkhead. 10. Elevatorupgrading — including new controllers and selectors; or new electronic dispatch overlay system; or new elevator wherenone existed before, including additional components needed for the installation. 11. Fire escapes — complete newreplacement including new landings. 12. Gas heating units — new individual units with connecting pipes to every housingaccommodation. 13. Hot water heater — new unit for central heating system. 14. Incinerator upgrading — including a newscrubber. 15. Intercom system — new replacement; or one where one existed before, with automatic door locks andpush-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 housingaccommodation; or any individual component or fixture if done building-wide. 17. Mailboxes — new replacements andrelocated from outer vestibule to an area behind locked doors to increase security. 18. Parapet — completereplacement. 19. Pointing and waterproofing — as necessary on exposed sides of the building. 20. Repiping — new hotand/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 exteriorwalls — consisting of brick or masonry facing on entire area of all exposed sides of the building. 22. Rewiring — newcopper risers and feeders extending from property box in basement to every housing accommodation; must be ofsufficient 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 toparagraph (d)(3) of this section. 23. Roof — complete replacement or roof cap on existing roof installed after thoroughscraping and leveling as necessary. 24. Solar heating system — new central system, including additional componentsneeded 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. Wastecompactor — new installation(s) serving entire building. 28. Waste compactor room — new room where none existedbefore. 29. Water sprinkler system (for fire control purposes) — new installation(s). 30. Water tank — new installation(s).31. Windows — new framed windows.

Copyright © 2014 CCH Incorporated or its affiliates

New York StateDivision of Housing and Community RenewalOffice of Rent Administration

This document is being reissued for informational purposes only.

The original document which contains signatures of authorization ison file at DHCR’s 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 asMajor Capital Improvements (MCIs) in buildings regulated by the Rent Stabilization Law, the Emergency TenantProtection Act and Rent Control.

The useful life and cost of a roofing installation is related to the number of plies (each ply being awaterproof layer of roofing material and a bonding agent). The least expensive roofing choice available is thesingle ply (often referred to as a 2-course application) “Roof Cap.” It is generally applied over an existing roofand consists of one layer of traditional asphalt based materials with a protective surface coating of crushedminerals. Commercially available products (such as 55# and 90# mineral paper top sheets) which already includethe surface coating are generally used for their cost effectiveness in this application. Since the benefit from thistype of single-ply “roof cap” is short-lived and is generally applied over an existing roof, it is considered a repairand does not constitute a Major Capital Improvement.

Therefore, roofing installations consisting of only a single ply of traditional asphalt based materials (a topsheet) 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 newtechnology materials that are proven to have acceptable useful lives as recognized in this agency’s OperationalBulletin #90-2, “Useful Life Schedule for Major Capital Improvements”. A one-ply rubber (membrane) roof usingEPDM 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 willqualify for an MCI rent increase.

Complete roof removals and replacements with multi-ply roof caps consisting of the aforementioned singleply 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 adescription 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.

Elliot G. SanderDeputy Commissionerfor Rent Administration

Policy Statement 91-2

New York StateDivision of Housing and Community RenewalOffice of Rent Administration

This document is being reissued for informational purposes only.

The original document which contains signatures of authorization ison file at DHCR’s Office of Rent Administration.

This policy statement delineates DHCR’s processing methods for confirming costs on MCI or individualapartment improvement applications.

Any claimed MCI or individual apartment improvement cost must be supported by adequate documentationwhich 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 ownerprovide additional documentation.

If it is found that there is an equity interest or an identity of interest between the contractor and thebuilding owner, then additional proof of cost and payment, specifically related to the installation, may berequested. Where proof is not adequately substantiated, the difference between the claimed cost and thesubstantiated cost will be disallowed.

Elliot G. SanderDeputy Commissionerfor Rent Administration

Policy Statement 90-10 (June 26,1990)

Major Capital Improvements / Individual Apartment ImprovementsConfirmation of Costs / Payments

Policy Statement 90-10

Graubard Miller The Chrysler Build ing 405 Lex ington Avenue NEW YORK , N.Y . 10174

(212) 818-8800

260209.1

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.

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MAJOR CAPITAL IMPROVEMENTS

Realty Program Consultants, LLC86-33 Palermo Street,Hollis, NY 11423Tel: (718)465-0202 Fax: (718)465-0303Email address: [email protected]

Presenter: Jeff ChanchallManaging Member

OVERVIEW

Timing of Filing an MCI ApplicationIn generalProjects 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

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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 IncreasesCase 1…Prospective MCI onlyCase 2…Prospective & retro MCICase 3…Preferential rent calculationCase 4…Combined MCI/J51 benefitsConclusionQuestions

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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

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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

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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)

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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.

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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

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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.

9/2/2014

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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 $ 3,000Net MCI + J51 total $13,500…16%

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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.

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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 $ 6,125Net 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?

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QUESTIONS

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

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Addressing Post‐applicationIssues In MCI Proceedings

David B. Cabrera, Esq.

377 BroadwayNew York, New York 10013

T: (212) 965‐2544F: (212) 965‐2744

[email protected]

www.borahgoldstein.com

CHIP MCI SeminarSeptember 9th, 2014NYCLANew 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

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AddressingTenantResponsestoanMCIApplication

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

AddressingTenantResponsestoanMCIApplication(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

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AddressingAdministrativeAppeals

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

DiscretionalAuthorityofDHCRApprovalProcess

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

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DiscretionalAuthorityofDHCRApprovalProcess– 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)


(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)

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(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

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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.

David [email protected](212) 965‐2544

preventing problems before they arise:

Documents