Con Ed Steam Heat System Had 50-Year Useful Life

The DHCR's Rent Administrator granted landlord's application for MCI rent hikes based on the installation of new boilers and burners. Tenants appealed, claiming that the installation of new boilers/burners, which replaced a Con Edison steam heating system, shouldn't be considered an MCI. Tenants pointed out that, in a prior case, the DHCR stated that such steam heating systems don't have a useful life and therefore their replacement didn't constitute an MCI. Tenants also argued that landlord had modified an essential service without first seeking DHCR approval. They also claimed that landlord paid for the work with the functional equivalent of a reserve fund.

The DHCR ruled against tenants, who then filed an Article 78 court appeal of the agency's decision. The court sent the case back to the DHCR for clarification of its policy on the useful life of a public utility-supplied steam heating system. 

The DHCR again ruled against tenants. The DHCR found that landlord adequately demonstrated that the installation met the MCI requirements for a new boiler/burner replacing a public utility-supplied steam heating system. In connection with the 2002 DHCR decision cited by tenants, the DHCR has since held in its 2004 "Wembly" decision that public utility-supplied steam heating system equipment doesn't have an indefinite useful life, and the replacement of such a system may qualify as an MCI. Since the Wembly decision was issued, the DHCR has continuously held that the useful life of public utility-supplied steam heating system equipment is considered to be 50 years. In 2021, a New York court also upheld the DHCR's rationale. And, although the steam heat system in landlord's building had been in place for slightly less than 50 years when landlord began replacing it, there was no prior MCI rent increase granted to the building. So that also was grounds for granting the MCI increase in this case. The DHCR also found that this case didn't involve tenants paying for heating costs as the result of a building service modification. So no essential service was modified here without DHCR permission.

As to how the MCI was financed, the building's condo board obtained a 10-year NYSERDA loan in 2007, and the board planned to collect a special assessment for repaying the loan debt. But the special assessment was suspended after the board received a large prepayment of rent by a commercial tenant in 2008. But this wasn't the equivalent of a reserve fund. 

Kips Bay Tenants Association: DHCR Adm. Rev. Docket No. IV410003RP (3/30/22)[5-pg. document]