Q I have a mixed-use building with both commercial and residential tenants. When I apply for a major capital improvement (MCI) rent increase based on elevator upgrades and related engineering costs, will some of the MCI costs be passed on to the professional and commercial tenants in the building?

A Yes. In a recent ruling, the DHCR ruled that commercial tenants benefit indirectly from elevator upgrades and, therefore, some of the upgrade costs should be apportioned to them. In the case, an owner applied for MCI rent hikes based on elevator upgrading and related engineering costs. The district rent administrator (DRA) ruled for the owner and increased tenants' rents. However, the owner appealed, claiming that the rent increases should be higher. The DRA had allocated some of the MCI costs to professional and commercial tenants in the building. This reduced the amount of MCI costs passed on to rent-stabilized tenants.

In response, the tenants said that some of the second-floor professional tenants used the elevators. The DHCR ruled against the owner, concluding that an elevator upgrade benefits all tenants directly or indirectly, including professional tenants on the lobby floor, some of whom had office entrances from the street. So the DRA correctly apportioned some of the MCI costs to the commercial units [35 East 35th St.: DHCR Adm. Rev. Docket No. VD410052RO (4/3/09)].