Building Was Substantially Rehabbed in Accordance with Rules in Effect in February 2023

Landlord applied to the DHCR for a ruling that its building was exempt from rent regulation based on substantial rehabilitation. Landlord bought the building in 2022 and did the sub rehab work between April 2022 and February 2023. Five out of the six apartments were vacant when landlord bought the building, and it reached a buyout agreement with the sixth tenant before the work commenced. The building was vacant when the work started, and landlord argued that its documentation showed that the building satisfied the presumption of substandard condition. Landlord replaced 13 out of 15 existing building systems, and submitted proof of payment.

The DRA ruled against landlord, finding that landlord didn't establish that the building was in substandard or seriously deteriorated in accordance with amended Rent Stabilization Code Section 2520.11(e) and DHCR Operational Bulletin 2023-3, that the building was occupied just before commencement of the renovation, that landlord failed to explain how the building became vacant, failed to prove that 75 percent of the systems were replaced, and that landlord hadn't submitted other requested proof. 

Landlord appealed and won, claiming that the DRA incorrectly applied amendments to the RSC issued on Nov. 8, 2023, and the provisions of Operational Bulletin 2023-3 instead of Operational Bulletin 95-2 to its application. The DHCR agreed that, since the sub rehab work took place between April 2022 and February 2023, the application was governed by the pre-amended version of RSC Section 2520.11(e) and Operational Bulletin 95-2, which were in effect when the work was done. The applicable presumption of substandard or seriously deteriorated condition provided when a building was 80 percent vacant of tenants therefore applied to this case. Landlord proved that the building was 83.3 percent vacant when purchased and 100 percent vacant when the sub rehab began. The fact that the last vacancy was secured through a buyout agreement didn't preclude the sub rehab because landlord already had achieved the 80 percent vacancy rate before the buyout. Landlord also submitted photographs and a pre-work expert affidavit concerning the building condition. Landlord produced sufficient documentation to support its claim of substantial rehabilitation, including documents specifically described in Operational Bulletin 95-2. 

ZG Court LLC: DHCR Adm. Rev. Docket No. MQ210009RO (10/8/24)[5-pg. document]