Labor Costs Includable as Part of IAI Costs

The DHCR’s Tenant Protection Unit (TPU) started an Individual Apartment Improvement (IAI) audit and asked landlord to justify IAI increases charged to tenant in 2011. Landlord submitted requested documents but didn't respond to follow-up requests. The TPU ordered landlord to reduce tenant’s rent, amend apartment registrations, and refund overcharges within 30 days. Landlord didn’t respond, and TPU sent the case to the DRA in 2014, which opened a rent overcharge proceeding. Landlord challenged the legality of 2014 Rent Stabilization Code amendments that led to the creation of the TPU. Landlord claimed that the creation of the TPU and TPU’s actions in this case violated the Separation of Powers and due process rights of landlord. Landlord also disputed the reduction of the IAIs from $17,000 to $694. The DRA ruled for tenant and ordered landlord to refund $20,616, including interest and triple damages.

Landlord appealed and lost. The DHCR found that TPU’s authority to investigate and prosecute violations of the rent laws didn’t violate Separation of Powers, because the TPU’s powers were expressly authorized under the Rent Stabilization Law and Code. The DHCR otherwise affirmed the DRA’s overcharge finding. Landlord then filed an Article 78 appeal. Attorneys for landlord and the DHCR agreed to take the case back for reconsideration.

The DHCR then upheld TPU’s authority, and found no violation of landlord’s due process rights. The DHCR upheld some disallowance of IAI costs but found that the DRA had improperly excluded landlord’s labor costs in the amount of $13,500. The total rent overcharge was reduced to $63.

Besi Properties LLC: DHCR Adm. Rev. Docket No. DX110005RP (5/17/16) [10-pg. doc.]