DHCR Upholds Rent Hikes for Revoked Hardship Increase to Allow for MBR Increase
LVT Number: #32429
Landlord, the owner of various rent-controlled apartments in adjoining condominium buildings, filed a hardship rent increase application with the DHCR under rent control regulations Section 2202.8 based on its inability to make a return on capital value of at least 8 1/2 percent for the units. The DRA ruled for landlord in 2006, to increase tenants' rents to a level that would yield an 8 1/2 percent return. The DRA found that the buildings in question had a net operating loss of over $2.7 million in the 1993 test year. The DRA then ruled that each condo unit had a distinct tax lot and therefore a unique equalized assessed value.
Two tenants appealed and won in part. Tenants argued that the hardship calculation was incorrect and that the DRA should not have waived the cap on collectibility for the first-year rent increase for one unit. The DHCR agreed, noting that while the hardship application was pending before the DRA, the method of calculating hardships was modified by a 2002 appeals court decision finding that common charges paid to a co-op corporation in the form of maintenance fees should be considered part of the building's income in order to obtain a more realistic assessment of the actual income and economic health of the property.
Tenants also argued that the DRA incorrectly used RPTL article 12-A instead of RPTL article 12 to calculate the condo units' equalized assessed value. In a 2012 court ruling against the DHCR, RPTL article 12 was found to be a more accurate measure of equalized assessed value for multiple dwellings having four or more dwelling units. So, in this case, because the hardship order calculated the property's equalized assessed value using article 12-A--a method later deemed incorrectly applied in DHCR hardship proceedings since 1997--such calculation was now deemed to have been made in error. Recalculation using the correct calculation method showed that landlord received more than an 8 1/2 percent return on capital value from the two apartments in the test year. So a hardship increase for these units was unwarranted.
However, the DHCR further ruled that it was proper to maintain the annual rent increase levels established by the hardship increase order since landlord had been barred from collection of similar MBR increases for tenants' apartments after the hardship increase order was granted. Landlord need only refund any increase above 7 1/2 percent of the rent it began collecting in 2005.
Rosenberg/Savitsky: DHCR Adm. Rev. Docket No. UE420053RT (1/10/23)[7-page document]
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