Landlord v. Tenant: March 2023

MAJOR CAPITAL IMPROVEMENTS

DHCR Must Reconsider Whether MCI Based on Pointing/Waterproofing Was Depreciable

Landlord applied to the DHCR for MCI rent hikes based on pointing and waterproofing performed pursuant to NYC Local Law 11's facade inspection and safety program. The DHCR ruled for landlord. Tenants then filed an Article 78 court appeal, claiming that the DHCR's decision was arbitrary and unreasonable. Tenants argued that RSL Section 26-511(c) and RSC Section 2522.4(2)(1)(a) provided that, to qualify as an MCI, work performed at a building must be depreciable under the Internal Revenue Code, and that the DHCR didn't address this issue in its decision.

The court ruled for tenants and found that applying the "as necessary" standard for a pointing/waterproofing MCI without determining whether the work performed was a depreciable improvement under the IRC was contrary to the RSL and RSC. The court compared the DHCR's decision to a federal Tax Court ruling that found that waterproofing in that case was depreciable for specific reasons--that is, that the work was performed for the first time, improved the building by creating something entirely new, and was of a significant scale. Here, the DHCR hadn't considered such factors and, if it did, such factors weighed against finding that the work was a depreciable MCI. The pointing and waterproofing here instead was part of regular periodic work required every five years under Local Law 11. The work also covered less than a single percent of the building complex facade, and the building owner wasn't left with something new or "something that it had not had before." The court sent the case back to the DHCR to address whether the work was depreciable.

However, the court found that, of the seven MCI orders involved in this matter, two involved MCI applications filed more than two years after work was completed. The MCI orders covering those portions of the building complex were vacated by the court.

• Stuyvesant Town-Peter Cooper Village Tenants Assn v. DHCR: Index No. 154097/2021, 2023 NY Slip Op 30034(U)(Sup. Ct. NY; 1/5/23)

PROCEDURE—COURT

Landlord Didn't Disclose It Had Received LRAP Funds to Pay Tenant's Rent

Landlord sued to evict tenant after tenant's lease expired. Attorneys for both sides signed a settlement stipulation in court. In that agreement, tenant agreed to move out at the end of September 2022. Tenant also agreed to apply to ERAP for rental assistance, and landlord agreed to pay tenant $3,000 in consideration of her timely vacatur. Tenant later asked the court to vacate the stipulation and dismiss the case. Shortly after the parties signed the stipulation, tenant's attorney learned that the ERAP application was already approved and monies had been tendered by OTDA to the landlord. The ERAP program paid landlord a total of $27,000 for a 15-month period. ERAP paid landlord $1,800 for each month. But tenant said her rent was only $650 or $700 per month. Tenant claimed fraud.

The court ruled for tenant. When ERAP or LRAP funds are accepted by a landlord, the landlord agrees not to evict a tenant for 12 months after the ERAP rental assistance is received. Here, the ERAP monies were delivered to landlord on Feb. 16, 2022, and cashed by landlord shortly thereafter. Landlord knew this, but tenant didn't, at the time the settlement stipulation was signed in court on Aug. 12, 2022. The court vacated the settlement stipulation and dismissed the case without prejudice.

• Palacio v. Moursy: Index No. L&T 50122-21, 2022 NY Slip Op 34124(U)(Civ. Ct. Kings; 12/2/22)