What's happening
This bill changes rules for major capital improvement rent increases, extending recovery periods, adding tenant protections, and limiting increases funded by certain state programs.
Why it matters
Narrows eligibility for major capital improvement (MCI) rent increases. , disallowing increases for repairs or replacements that merely maintain existing services—only enhancements, upgrades, or additions qualify. This aims to curb routine maintenance being used as a pretext for raising rents, offering stronger protections for tenants against unjustified increases.
Adds significant tenant transparency and input requirements. Before starting an MCI, landlords must notify the state and provide details to tenants (including ownership and legal history), and tenant comments must be solicited before rent increases take effect. This increases tenant awareness and gives them a formal voice in the approval process for building-wide improvements.
Strengthens safeguards against abuse by landlords. MCI rent increases cannot be approved if there are outstanding hazardous violations, and owners with a recent history of tenant harassment or unlawful evictions are barred from applying. This helps ensure that only responsible landlords benefit from these programs and that building safety issues are addressed first.
Limits and eventually ends rent surcharges for MCIs. The bill caps annual MCI surcharges at 6% of monthly rent, with any excess carried over to subsequent years, and mandates that surcharges end once the landlord has recouped the improvement cost. Additionally, it bans MCI rent increases for improvements funded by the NY State Energy Research and Development Authority, curbing "double-dipping" into public funds and tenants' pockets.
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Allow Bigger Rent Hikes
Plain English, a few words. Used as the page title.
Sponsors
1 Co-sponsor
History
- Referred to housing, construction and community development
- Referred to housing, construction and community development
Companion bill
The same bill in the other chamber. A bill becomes law when one version passes both houses and the governor signs it, so either number can carry it.
Allow Bigger Rent Hikes
In Assembly Committee · Housing · Sponsor Daniel O'Donnell
Full text
11 pagesUnderlined is new[Struck] is removedOfficial text on nysenate.gov ↗
STATE OF NEW YORK
2579
2019-2020 Regular Sessions
IN SENATE
January 28, 2019
Introduced by Sens. BAILEY, SEPULVEDA -- read twice and ordered printed, and when printed to be committed to the Committee on Housing, Construction and Community Development
AN ACT to amend the administrative code of the city of New York, the emergency tenant protection act of nineteen seventy-four and the emergency housing rent control law, in relation to approving major capital improvement rent increases and extending the length of time over which major capital improvement expenses may be recovered
The People of the State of New York, represented in Senate and Assembly, do enact as follows:
Section 1. Subparagraph (g) of paragraph 1 of subdivision g of section 26-405 of the administrative code of the city of New York, as amended by section 31 of part A of chapter 20 of the laws of 2015, is amended to read as follows:
(g) (i) Collection of surcharges to the maximum rent authorized pursuant to item (ii) of this subparagraph shall cease when the owner has recovered the cost of the major capital improvement;
(ii) There has been since July first, nineteen hundred seventy, a major capital improvement [required for the operation, preservation or maintenance of the structure. An adjustment under this subparagraph (g) for any order of the commissioner issued after the effective date of the rent act of 2015 shall be in an amount sufficient to amortize the cost of the improvements pursuant to this subparagraph (g) over an eight-year period for buildings with thirty-five or fewer units or a nine year period for buildings with more than thiry-five units,]; provided that the commissioner first finds that such improvements are deemed depreciable under the internal revenue code and such improvements are required for the operation or preservation of the structure. However, no major capital improvement rent increase will be approved by the division of housing and community renewal unless the work performed is an enhancement or upgrade to a housing accommodation or service therein; or is an
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[ ] is old law to be omitted.
LBD03017-01-9
S. 2579 2
addition to such housing accommodation and otherwise eligible according to the prerequisites for major capital improvement rent increases. Any repair or replacement intended to maintain an existing service shall not be eligible for a major capital improvement rent increase. No application for a major capital improvement rent increase may be approved if there exist any outstanding hazardous violations at the time of the consideration of such application, as determined pursuant to regulations of the division of housing and community renewal or any agency administering and enforcing a building code in the jurisdiction in which the property is located, unless it is determined by the division of housing and community renewal that such work is essential to the alleviation of the violations and such approval is consistent with the provisions of this section. Except in the case of emergency or good cause, the owner of the property shall file, not less than thirty days before the commencement of the improvement, with the division of housing and community renewal a statement containing information outlining the scope of work, expected date of completion for such work and an affidavit setting forth the following information: (a) every owner of record and owner of a substantial interest in the property or entity owning the property or sponsoring the improvement; and (b) a statement that none of such persons had, within the five years prior to the improvement, been found to have harassed or unlawfully evicted tenants by judgment or determination of a court or agency under the penal law, any state or local law regulating rents or any state or local law relating to harassment of tenants or unlawful eviction. Upon receipt of the scope of work and affidavit provided for herein, the division of housing and community renewal shall provide the tenants in occupancy in such buildings with such information. The division of housing and community renewal shall, in addition, implement procedures including, but not limited to, eliciting tenant comments to determine whether major capital improvement rehabilitation work has been satisfactorily completed. No major capital improvement rent increase shall become effective until any defective or deficient rehabilitation work has been cured. The increase permitted for such capital improvement shall be collected as a monthly surcharge to the maximum rent. It shall be separately designated and billed as such and shall not be compounded by any other adjustment to the maximum rent. The surcharge allocable to each apartment shall be an amount equal to the cost of the improvement divided by eighty-four, divided by the number of rooms in the building, and then multiplied by the number of rooms in such apartment; provided that the surcharge allocable to any apartment in any one year may not exceed an amount equal to six percent of the monthly rent collected by the owner for such apartment as set forth in the schedule of gross rents. Any excess above said six percent shall be carried forward and collected in future years as a further surcharge not to exceed an additional six percent in any one year period until the total surcharge equals the amount it would have been if the aforementioned six percent limitation did not apply; or
§ 2. Subparagraph (k) of paragraph 1 of subdivision g of section 26-405 of the administrative code of the city of New York, as amended by chapter 749 of the laws of 1990, is amended to read as follows:
(k) The landlord has incurred, since January first, nineteen hundred seventy, in connection with and in addition to a concurrent major capital improvement pursuant to subparagraph (g) of this paragraph, other expenditures to improve, restore or preserve the quality of the structure. An adjustment under this subparagraph shall be granted only if such improvements represent an expenditure equal to at least ten per
S. 2579 3
centum of the total operating and maintenance expenses for the preceding year. An adjustment under this subparagraph shall be in addition to any adjustment granted for the concurrent major capital improvement and shall be [in an amount sufficient to amortize the cost of the improvements pursuant to this subparagraph over a seven-year period] implemented in the same manner as such major capital improvement as a further surcharge to the maximum rent.
§ 3. Paragraph 6 of subdivision c of section 26-511 of the administrative code of the city of New York, as amended by section 29 of part A of chapter 20 of the laws of 2015, is amended to read as follows:
(6) provides criteria whereby the commissioner may act upon applications by owners for increases in excess of the level of fair rent increase established under this law provided, however, that such criteria shall provide [(a) as] in regard to hardship applications, for a finding that the level of fair rent increase is not sufficient to enable the owner to maintain approximately the same average annual net income (which shall be computed without regard to debt service, financing costs or management fees) for the three year period ending on or within six months of the date of an application pursuant to such criteria as compared with annual net income, which prevailed on the average over the period nineteen hundred sixty-eight through nineteen hundred seventy, or for the first three years of operation if the building was completed since nineteen hundred sixty-eight or for the first three fiscal years after a transfer of title to a new owner provided the new owner can establish to the satisfaction of the commissioner that he or she acquired title to the building as a result of a bona fide sale of the entire building and that the new owner is unable to obtain requisite records for the fiscal years nineteen hundred sixty-eight through nineteen hundred seventy despite diligent efforts to obtain same from predecessors in title and further provided that the new owner can provide financial data covering a minimum of six years under his or her continuous and uninterrupted operation of the building to meet the three year to three year comparative test periods herein provided[; and (b) as to completed building-wide major capital improvements, for a finding that such improvements are deemed depreciable under the Internal Revenue Code and that the cost is to be amortized over an eight-year period for a building with thirty-five or fewer housing accommodations, or a nineyear period for a building with more than thirty-five housing accommodations, for any determination issued by the division of housing and community renewal after the effective date of the rent act of 2015, based upon cash purchase price exclusive of interest or service charges]. Notwithstanding anything to the contrary contained herein, no hardship increase granted pursuant to this paragraph shall, when added to the annual gross rents, as determined by the commissioner, exceed the sum of, (i) the annual operating expenses, (ii) an allowance for management services as determined by the commissioner, (iii) actual annual mortgage debt service (interest and amortization) on its indebtedness to a lending institution, an insurance company, a retirement fund or welfare fund which is operated under the supervision of the banking or insurance laws of the state of New York or the United States, and (iv) eight and one-half percent of that portion of the fair market value of the property which exceeds the unpaid principal amount of the mortgage indebtedness referred to in subparagraph (iii) of this paragraph. Fair market value for the purposes of this paragraph shall be six times the annual gross rent. The collection of any increase in the stabilized rent for any apartment pursuant to this paragraph shall not exceed six
S. 2579 4
percent in any year from the effective date of the order granting the increase over the rent set forth in the schedule of gross rents, with collectability of any dollar excess above said sum to be spread forward in similar increments and added to the stabilized rent as established or set in future years;
§ 4. Subdivision c of section 26-511 of the administrative code of the city of New York is amended by adding three new paragraphs 6-b, 6-c and 6-d to read as follows:
(6-b) provides criteria whereby the commissioner may act upon application by owners for increases in excess of the level of fair rent increase established under this law provided, however, that such criteria shall provide that:
(i) as to completed building-wide major capital improvements, first, that a finding that such improvements are deemed depreciable under the internal revenue code and such improvements are required for the operation or preservation of the structure;
(ii) however, no major capital improvement rent increase will be approved by the division of housing and community renewal unless the work performed is an enhancement or upgrade to a housing accommodation or service therein; or is an addition to such housing accommodation and otherwise eligible according to the prerequisites for major capital improvement rent increases. Any repair or replacement intended to maintain an existing service shall not be eligible for a major capital improvement rent increase;
(iii) no application for a major capital improvement rent increase may be approved if there exist any outstanding hazardous violations at the time of the consideration of such application, as determined pursuant to regulations of the division of housing and community renewal or any agency administering and enforcing a building code in the jurisdiction in which the property is located, unless it is determined by the division of housing and community renewal that such work is essential to the alleviation of the violations and such approval is consistent with the provisions of this section. Except in the case of emergency or good cause, the owner of the property shall file, not less than thirty days before the commencement of the improvement, with the division of housing and community renewal a statement containing information outlining the scope of work, expected date of completion for such work and an affidavit setting forth the following information:
(A) every owner of record and owner of a substantial interest in the property or entity owning the property or sponsoring the improvement; and
(B) a statement that none of such persons had, within the five years prior to the improvement, been found to have harassed or unlawfully evicted tenants by judgment or determination of a court or agency under the penal law, any state or local law regulating rents or any state or local law relating to harassment of tenants or unlawful eviction.
Upon receipt of the scope of work and affidavit provided for herein, the division of housing and community renewal shall provide the tenants in occupancy in such buildings with such information. The division of housing and community renewal shall, in addition, implement procedures including, but not limited to, eliciting tenant comments to determine whether major capital improvement rehabilitation work has been satisfactorily completed. No major capital improvement rent increase shall become effective until any defective or deficient rehabilitation work has been cured.
S. 2579 5
Reflowed for reading: line numbers and page breaks removed. Cite the official text.
Sponsor's memo
Title of bill
An act to amend the administrative code of the city of New York, the emergency tenant protection act of nineteen seventy-four and the emer- gency housing rent control law, in relation to approving major capital improvement rent increases and extending the length of time over which major capital improvement expenses may be recovered
Purpose or general idea of bill
This bill establishes a regulatory framework for the approval of rent increases to rent regulated property as a result of major capital improvements (MCIs). Currently, the expenses for MCIs are recovered over seven years. This bill codifies the MCI as a surcharge to the legal regulated rent which is separately designated and billed as such, and mandates that the surcharge for authorized MCIs ceases after the cost of the improvement is recouped and that MCIs shall only be applied for improvements not required by law. This bill protects affordable housing by prohibiting MCIs for any building in which more than fifty percent of the habitable units are not subject to rent stabilization or rent control. Finally, this bill prevents landlords from receiving a finan- cial windfall by charging MCIs to tenants, if an MCI is funded by the New York State Energy and Development Authority (NYSERDA).
Summary of provisions
This legislation establishes criteria for the approval of rent increases to rent regulated property resulting from major capital improvements (MCIs), and guards against potential abuses.
Read the full memo (2,789 words)
Section 1 of the bill amends subparagraph (g) of paragraph 1 of subdivi- sion g of section 26-405 of the administrative code of the city of New York, to permit for the individual adjustment of maximum rents in the case of an MCI where the State Homes and Community Renewal Commissioner first finds that an improvement is depreciable under the Internal Reven- ue Code and is required for the operation or preservation of the struc- ture. However, no MCI rent increases will be approved by the division of housing and community renewal (DHCR) unless the work performed is an enhancement or upgrade, or is an addition to such housing accommodation. Any repair or replacement intended to maintain an existing service is ineligible. If any outstanding hazardous violations exist, no MCI rent increase application will be approved unless DHCR determines that such MCI rent increases will be approved by the Division of Housing and Community Renewal (DHCR) unless the work performed is an enhancement or upgrade, or is an addition to such housing accommodation. Any repair or replacement intended to maintain an existing service is ineligible. If any outstanding hazardous violations exist, no MCI rent increase appli- cation will be approved unless DHCR determines that such work is essen- tial to the alleviation of the violations and such approval is consist- ent with these provisions. Except in cases of emergency or good cause, the property owner will file an application and affidavit with DHCR containing specific information about the scope of the work to be done and information about the owners of the property, including a statement confirming that no owners have been found to have harassed or unlawfully evicted tenants in the five years prior to applying for the MCI. DHCR will then provide the occupying tenants with such information and will elicit tenant comments to determine whether the work has been satisfac- torily completed. No major capital improvement rent increase shall become effective until any defective or deficient rehabilitation work has been cured.
Paragraph 6-c provides that the increase permitted for MCIs shall be collected as a separately designated monthly surcharge to the maximum rent that shall not be compounded by any annual adjustment of the level of fair rent provided for under subdivision b of section 26-510 of this law. The surcharge allocable to each apartment shall be an amount equal to the cost of the improvement divided by eighty-four, divided by the number of rooms in the building, and then multiplied by the number of rooms in such apartment. However, the surcharge to any apartment in any year may not exceed six percent of the monthly rent collected by the owner for such apartment. Any excess shall be carried forward and collected in future years.
Paragraph 6-d ensures that the collection of surcharges for MCIs, as provided for in paragraphs 6-b and 6-c of this subdivision, shall cease when the owner has recouped the costs attributable to the MCI.
Section 6 of the bill amends paragraph 3 of subdivision d of section 6 of section 4 of chapter 576 of the laws of 1974 (known as the Emergency Tenant Protection Act of 1974), to permit an MCI where the State Homes and Community Renewal Commissioner first finds that an improvement is depreciable under the Internal Revenue Code and is required for the operation or preservation of the structure. However, no MCI rent increases will be approved by DHCR unless the work performed is an enhancement or upgrade, or is an addition to such housing accommodation. Any repair or replacement intended to maintain an existing service is ineligible. If any outstanding hazardous violations exist, no MCI rent increase application will be approved unless DHCR determines that such work is essential to the alleviation of the violations and such approval is consistent with this section. Except in cases of emergency or good cause, the property owner will file an application and affidavit with DHCR containing specific information about the scope of the work to be done and information about the owners of the property, including a statement confirming that no owners have been found to have harassed or unlawfully evicted tenants in the five years prior to the MCI. DHCR will then provide the occupying tenants with such information and will elicit tenant comments to determine whether the work has been satisfactorily completed. No MCI increase shall become effective until any defective or deficient rehabilitation work has been cured.
The increase permitted for MCIs shall be collected as a separately designated monthly surcharge to the maximum rent that shall not be compounded by any annual rent adjustment authorized by the Rent Guide- lines Board (RGE). The surcharge allocable to each apartment shall be amount equal to the cost of the improvement divided by eighty-four, divided by the number of rooms in the building, and then multiplied by the number of rooms in such apartment. However, the surcharge to any apartment in any year may not exceed six percent of the monthly rent collected by the owner for such apartment. Any excess shall be carried forward and collected in future years. The collection of surcharges for MCIs shall cease when the owner has recouped the costs attributable to the MCI.
Section 7 of the bill amends the second undesignated paragraph of para- graph (a) of subdivision 4 of Section 4 of chapter 274 of the laws of 1946 (known as the Emergency Housing Rent Control Law), to permit an MCI where the State Homes and Community Renewal Commissioner first finds that an improvement is depreciable under the Internal Revenue Code and is required for the operation or preservation of the structure. However, no MCI rent increases will be approved by DHCR unless the work performed is an enhancement or upgrade, or is an addition to such housing accommo- dation. Any repair or replacement intended to maintain an existing service is ineligible. If any outstanding hazardous violations exist, no MCI rent increase application will be approved unless DHCR determines that such work is essential to the alleviation of the violations and such approval is consistent with this section. Except in cases of emer- gency or good cause, the property owner will file an application and affidavit with DHCR containing specific information about the scope of the work to be done and information about the owners of the property, including a statement confirming that no owners have been found to have harassed or unlawfully evicted tenants in the five years prior to the MCI. DHCR will then provide the occupying tenants with such information and will elicit tenant comments to determine whether the work has been satisfactorily completed.
The increase permitted for MCIs shall be collected as a separately designated monthly surcharge to the maximum rent that shall not be compounded by any other adjustment to the maximum rent. The surcharge allocable to each apartment shall be an amount equal to the cost of the improvement divided by eighty-four, divided by the number of rooms in the building, and then multiplied by the number of rooms in such apart- ment. However, the surcharge to any apartment in any year may not exceed six percent of the monthly rent collected by the owner for such apart- ment. Any excess shall be carried forward and collected in future years. The collection of surcharges for MCIs shall cease when the owner has recouped the costs attributable to the MCI.
Section 8 of the bill amends paragraph 5 of subdivision d of section 6 of section 4 of chapter 576 of the laws of 1974, constituting the emer- gency tenant protection act of nineteen seventy-four to stipulate that eligibility for alternatives to the hardship application are to extend only to buildings in which more than half of the habitable units are subject to rent stabilization or rent control, while a new paragraph 6 is added.
Section 9 of the bill amends paragraph 1 of subdivision g of section 26-405 of the administrative code of the city of New York by adding a new subparagraph (p), to prohibit adjustments for any MCIs or for any other expenditures to improve, restore or preserve the quality of a structure if such MCI is a project funded by the New York State Energy Research and Development Authority (NYSERDA).
Section 10 of the bill sets forth the effective date.
Justification
In 1989, the Court of Appeals held that building owners could increase rent levels in perpetuity based on Major Capital Improvements (MCIs) to their buildings, with the result that tenants are forced to pay for these improvements long after costs have been fully recovered, and even after they have outlived their useful life. Ansonia Residents Assn v. DHCR, 75 N.Y.2d 206, 551 N.Y.S.2d 871 (1989). This is because the MCI "amortization period", which ordinarily refers to the spreading out and paying off of capital expenses in regular installments over a specific period of time, can instead serve as a tactic for boosting rent levels forever.
Unfortunately, many landlords utilize MCI charges as an unscrupulous means to raise the rent of their units above the legal maximum rent, unfairly burdening their tenants, circumventing the rent regulations, and edging their apartments out of rent regulation. To guard against this, this legislation requires applicants to submit a statement confirming that no owners have been found to have harassed or unlawfully evicted tenants in the prior five years.
Although some MCI charges are legitimate, many landlords are granted MCI charges for work that is simply routine maintenance, and not an actual improvement. This is not the intent of the MCI program, which grew out of 1970s-era concerns that landlords needed to be incentivized to invest in their buildings. Under the current MCI program, landlords may be incentivized to do the opposite. Though this may lead to larger costs down the road, landlords may prefer this course of action because regu- lar maintenance cannot be covered by an MCI, but a major overhaul' necessitated by deferred repairs can be covered. This legislation clari- fies that MCIs will only be approved if the work performed is an enhancement, upgrade, or addition, while repairs or replacements intended to maintain existing services are ineligible. Also, MCI appli- cations will not be approved where outstanding hazardous violations exist, unless DHCR finds that such work is essential to the alleviation of the violations.
This bill also delineates a better process of consultation between DHCR, the landlord-applicant, and the existing tenants. According to media reports, until the creation of the Tenant Protection Unit (TPU) in 2012, the oversight process was "exclusively complaint-driven, meaning the onus fell on tenants to prove an owner's application was incorrect, misleading, or even fraudulent. This legislation requires that appli- cants submit specific information about the scope of the work to be done and information about the owners of the property. DHCR will then provide occupying tenants with this information and will elicit tenant feedback to determine whether the work has been completed. No MCIs will be made effective until deficient work has been cured.
In addition, MCIs such as window replacements or heating-system improve- ments create energy savings that further increase the profitability of MCIs. Apart from MCI surcharges approved by DHCR, the NYSERDA Multifami- ly Performance Program offers landlords incentives to invest in energy- efficient building upgrades, including implementing environmentally friendly measures to address specific energy and operational needs of buildings. In many.cases, landlords have filed applications with both DHCR and NYSERDA for the imposition of MCI charges for capital work that fall within NYSERDA's jurisdiction for receiving funds. This practice of double-dipping, wherein a landlord takes advantage of two different incentive programs for the same work, violates the intent of these provisions and, if permitted, results in a windfall to landlords. This bill clarifies that such double-dipping is not permitted.
Further, to protect rent regulated tenants from rent increases, this bill would put restrictions on a building's eligibility to apply for MCIs and ensure that building repairs required by law shall not be charged as MCIs. Currently, if a building is approved for an MCI, the only people legally subject to rent increases from MCIs are rent stabi- lized and rent controlled tenants. The rent increases that result from MCIs are permanent even after the cost of the improvement is met, and often place a high burden on tenants living in rent regulated units. What can often occur is a situation in which the rent becomes too high for rent regulated tenants to afford, which can force them to seek more affordable housing elsewhere. Once the tenants have vacated the rent regulated unit, landlords can deregulate the unit and list it at market rate. This bill would tighten the parameters for buildings to apply for MCIs to protect rent stabilized and rent controlled tenants from these permanent rent increases. To provide this protection, this bill would prohibit any building which has less than fifty percent of habitable units subject to rent stabilization or rent control from receiving MCIs.
For the foregoing reasons, the lack of statutory criteria to guide the division of Housing and Community Renewal (DHCR) in its MCI application determinations is a major source of the problem. In response, this bill seeks to balance the conflicting concerns of maintaining affordable housing while ensuring that adequate incentives exist for investment in MCIs, in order to preserve and improve our affordable housing stock. To do so, this legislation provides such criteria and includes safeguards to prevent abuse.
Prior legislative history
2017-18: S.80089/A.8886A(O'Donnell) - Amended print number S8089 A
Fiscal implications for state and local governments
To be determined.
Impact on regulation of businesses and individuals
Amends the way landlords may charge tenants for MCIs in order to enhance oversight of the process and make the charges fairer for tenants.
Effective date
This act shall take effect immediately; provided that the amendments to section 26-405 of the city rent and rehabilitation law made by sections one, two and nine of this act shall remain in full force and effect only so long as the public emergency requiring the regulation and control of residential rents and evictions continues, as provided in subdivision 3 of section 1 of the local emergency housing rent control act; provided that the amendments to section 26-511 of the rent stabilization law of nineteen hundred sixty-nine made by sections three, four and five of this act shall expire on the same date as such law expires and shall not affect the expiration of such law as provided under section 26-520 of such law, as from time to time amended; provided that the amendments to section 6 of the emergency tenant protection act of nineteen seventy- four made by sections six and eight of this act shall expire on the same date as such act expires and shall not affect the expiration of such act as provided in section 17 of chapter 576 of the laws of 1974, as from time to time amended; and provided that the amendments to section 4 of the emergency housing rent control law made by section seven of this act shall expire on the same date as s such law expires and shall not affect the expiration of such law as provided in subdivision 2 of section 1 of chapter 274 of the laws of 1946.
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