DHCR Issues New Operational Bulletin on Defective Work and MCI Rent Hikes

The DHCR recently posted Operation Bulletin 2018-1 entitled, “The Effect of Defective Work on the Disposition of an Owner’s Application for a Major Capital Improvements (MCI) Rent Increase.” It provides guidance on the granting of MCI rent increases when there are defective installations relating to an MCI.

MCI Application Processing

When an owner submits an MCI application, the DHCR notifies the tenants and gives them an opportunity to submit written responses to the application. They’re instructed to comment on the subject installation(s) as specifically as possible. Tenants can request an extension of time to respond to the application.

In their written responses, the tenants may object to the workmanlike quality of the work done. The owner is then notified of any tenant objections and is given a reasonable time to address any defects.

An inspection may be performed if the tenants dispute the owner’s claim that the improvement was properly made or properly repaired during the response time or, alternatively, the DHCR may determine on its own that an inspection is warranted [DHCR Fact Sheet #24].

Whenever an inspection shows defective installations of an MCI, the DHCR has the discretion to deny the application in its entirety.  Alternatively, the DHCR can grant the application and exempt those apartments affected by the defects. In order to determine which remedy is more reasonable, the DHCR looks to the circumstances of each case.

An MCI must be comprehensive and benefit all tenants. Where the defects in the work are pervasive, the DHCR can deny the MCI based on lack of workmanlike quality or find that the work done wasn’t sufficiently comprehensive so as to benefit all tenants. In MCI installations where the work is central or integral to the entire building, but problems may only manifest themselves in individual apartments (leaks, for example), the owner will have the burden of proof of establishing that the flaw is limited to a single apartment.

20 Percent Benchmark

According to the bulletin, in determining whether MCI installations done within an individual apartment (such as windows) are done in a workmanlike manner, the DHCR looks at the percentage of apartments affected by the defects. Generally, if 20 percent or more of the rent-regulated apartments in the building contain defects, then that MCI installation may be denied in its entirety. 

For defects in less than 20 percent of the rent-regulated apartments in the building, the application may be granted with exemptions for those apartments with the defective work. The bulletin notes that the DHCR is not strictly bound by this percentage and it can consider other factors such as the nature of the defects and the owner’s response to notice given to it of the defects, including the length of time to cure.

An owner will be given notice and a reasonable opportunity to cure any defects prior to the issuance of the Rent Administrator’s (RA) order. If an owner cures all defects before the RA’s order is issued, then an owner’s application may be granted in its entirety. If an owner takes an extensive period to cure, this may result in a delayed effective date. When an MCI application is completely denied, no rent increase can be collected. Where there is a grant with permanent exemptions, an owner can collect a rent increase only from those apartments for which the increase was granted.