Court Approves DHCR-Authorized Increase

Landlord of Mitchell-Lama limited profit housing development applied to the DHCR for rent increases. The DHCR ruled for landlord, and tenants appealed. Tenants claimed the increases violated the Private Housing Finance Law. In particular, tenants argued that it was wrong for the DHCR to allow a rent increase based on prior expenses and projections, which included a $400,000 charge for debt service arrears incurred by landlord for not keeping up its mortgage payments. The DHCR claimed that its ruling was carefully made, and was based on the budget needed to pay building expenses over the next two years. The court ruled against tenants. The law clearly provides that Mitchell-Lama rents should cover the operating expenses plus a predetermined rate of return. The debt service is an expense that must be covered by rents. Apparently, the DHCR had set tenants' initial rents at rates that were too low to cover the building's operating expenses. The DHCR's ruling also passed on the rent increase in installments to ease the burden on tenants.

Matter of McCarthy: NYLJ, p. 28, col. 3 (2/22/94) (Sup. Ct. NY; Davis, J)