Hardship Rent Increases for Rent-Controlled Tenants in Co-op Modified

Landlord, the owner of unsold shares of four rent-controlled apartments in a co-op building, filed a hardship rent increase application with the DHCR under rent control regulations Section 2202.8 in 1996 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 2007, to increase tenants' rents to a level that would yield an 8 1/2 percent return. One tenant, who received a hardship rent increase at 7 1/2 percent per year from 2006 to 2016 and a final annual increase of 5.2 percent, appealed and won in part.

Tenant claimed that the DRA failed to consider maintenance fees paid to the co-op during the test year as earned income. The DRA considered the entire nonrental "earned income" in the test year without taking into account any maintenance fees paid to the co-op. This was contrary to a 2012 appeals court ruling.

Tenant also argued that the DRA incorrectly used RPTL article 12-A instead of RPTL article 12 to calculate the building's equalized assessed value. In another 2012 court decision 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 is now deemed to have been made in error. The DRA's reliance on article 12-A during the proceeding below also likely resulted in an overvaluation of the building. This ran counter to the stated purpose of the rent laws and regulations. The DHCR revised the hardship rent increase order to reflect the appropriate equalized assessed value of the building under RPTL article 12.

The DHCR further ruled that, in consideration of the equities involved, it was proper to maintain the annual rent increase levels established by the hardship increase order. Landlord had been barred from collection of similar MBR increases for tenant's apartment after the hardship increase order was granted. 

Bramante: DHCR Adm. Rev. Docket No. VH420008RT (12/21/22)[5-pg. document]