DHCR Used Wrong Formula for Calculating MBR Increase

(Decision submitted by Jeffrey R. Metz of the Manhattan law firm of Borah, Goldstein, Altschuler & Schwartz, P.C., attorneys for the landlords.) Facts: Landlords challenged the DHCR's method of calculating MBRs under rent control. The DHCR recalculates the MBR (maximum base rent) every two years by using a mathematical formula set forth in the rent control law. The formula includes many factors, including the capital value of the property, and was designed to allow landlords an 8.5 percent return on capital investment, based on the assessed value of the building for real estate tax purposes, after equalization. Since 1986, the DHCR had used the formula of RPTL article 12, rather than RPTL article 12-A, to compute capital value. This narrowed the field of appraised property to multi-unit residential properties, which account for over 90 percent of rent-controlled property. Landlords claimed that this was illegal because the rent control law specifically required use of the 12-A formula, which measured the value of all real property within New York City for the single purpose of establishing the constitutional debt limit. The court ruled against landlords, finding that the equalization rates under articles 12 and 12-A were nearly identical when first enacted but that rates under 12-A could now result in rates of return greater than 8.5 percent. Landlords appealed. Court: Landlords win. The rent control law provision that MBRs are to be calculated using the capital value set forth in RPTL article 12-A is mandatory. The wording of the law was plain, and the DHCR didn't have the choice of using an alternative formula. As a result, the MBR for 1996-97 was 32.5 percent rather than 3 percent. But, as the court noted, there was still an annual 7.5 percent cap on MCRs (maximum collectible rents) from rent-controlled tenants.

Community Housing Improvement Program, Inc. v. DHCR: NYLJ, p. 25, col. 3 (5/7/97) (App. Div. 3 Dept.; Cardona, PJ, Casey, Peters, Spain, Carpinello, JJ)