Replacement of Con Ed Steam Heat System Qualified as MCI

The DRA granted landlord's application for MCI rent hikes based on the installation of new boilers and burners. Tenants appealed and lost. Tenants argued that landlord replaced a Con Edison steam heating system with the new boilers/burners and that this shouldn't be considered an MCI because the DHCR had previously ruled in an unrelated 2002 case that such steam heating systems don't have a useful life and their replacement therefore didn't constitute an MCI. But the DHCR noted that, since 2002, it had decided that public utility-supplied steam heating system equipment didn't have an indefinite useful life and that the replacement of such a system may qualify as an MCI.

Tenants also claimed that landlord modified required services without prior DHCR permission. But landlord simply replaced a major capital improvement. Tenants didn't pay heating costs as a result of the new boiler/burner installations.

Tenants also claimed that the MCI was paid for from the equivalent of a reserve fund. But the building's condo board financed the MCI with a NYSERDA loan approved in May 2007. The plan was to collect a special assessment from unit owners. But the special assessment was suspended after the condo board received $2.5 million as prepayment of a commercial tenant's rent in March 2008. This was allocated to a replacement fund used to repay the NYSERDA loan. The DHCR found that the use of the prepaid commercial rent to pay for the MCI installation didn't violate the DHCR's prohibition against the use of reserve funds to finance an MCI billed to tenants. 

Kips Bay Tenants Association: DHCR Adm. Rev. Docket No. ZF410072RT (11/8/18)[3-pg. document]