Landlord & Tenant

AppDiv, Second Dept.

(memorandum opinion)

In landlord's article 78 proceeding challenging DHCR's partial denial of a major capital improvement (MCI) rent increase, landlord appealed from Supreme Court's denial of the petition and dismissal of the proceeding. The Appellate Division reversed and remitted to DHCR for a new determination, holding that landowner was entitled to an opportunity to establish that certain costs were related to the capital improvements.

In 2009, landowner sought an MCI after the upgrade of three elevators at a cost of more than $832,000. The rent administrator sought additional information, including a breakdown of costs. Landlord, who had paid a contractor a lump-sum for the work, requested that the contractor submit a breakdown. The contractor's breakdown included an item of $15,000 for “DOB filings and inspection” and $112,012 for “miscellaneous work including survey, parts management, scheduling and supervision.” The rent administrator then disallowed these items, and reduced the amount of the MCI accordingly. DHCR confirmed the determination, and landlord brought this article 78 proceeding. Supreme Court dismissed, and landlord appealed.

In reversing, the Appellate Division first held that DHCR had a rational basis for seeking a breakdown of costs, given the lack of information about how the total cost was derived. But the court then held that it was arbitrary for DHCR to exclude the disputed costs without giving landlord an opportunity to establish that those costs were related to the MCI ' especially because DHCR acknowledged that some of the items included in those categories would have been included in the MCI calculation if landlord had provided further clarification. The court therefore remanded to DHCR for consideration of additional submissions by landlord.

COMMENT

Where DHCR denies an MCI rent increase application for lack of sufficient documentation, a reviewing court will generally uphold the denial where the agency provided the building owner an opportunity to respond to its evidentiary concerns. In Acevedo v. DHCR, 67 A.D.3d 785, although owner initially submitted “an abundance” of receipts, invoices and checks, her application was ultimately denied when she failed to respond to DHCR's request for specific documentation that would have allowed it to differentiate between improvements and repairs, and to verify that claimed expenses were in fact incurred. The Appellate Division upheld DHCR's denial as supported by the record, given owner's failure to respond to the agency's request. Sometimes, however, courts insist that DHCR give the owner more than one opportunity to clarify its position. Thus, in Maxwell-Kates, Inc. v. DHCR, 196 A.D.2d 456, , the Appellate Division reversed DHCR's partial denial and remanded for further inquiry into subcontracts DHCR had previously requested but which owner had withheld, asserting that they were immaterial to the total costs claimed. The court held that DHCR's request was not unreasonable but provided the owner one more opportunity to submit the subcontracts and enable the agency to make a fully informed determination.

Where DHCR denies an MCI rent increases because an owner has failed to demonstrate that work falls into a category qualifying as an MCI, courts show deference to DHCR's expertise. For instance, in Dermot Dunwoody LLC v. New York State Div. of Housing and Community Renewal, 2010 WL 422332, Supreme Court upheld DHCR's denial of an MCI for a CCTV security system, holding that the agency had sufficiently justified its decision by explaining that such systems must be monitored around the clock to qualify for MCI treatment. Landlord's system would not have been monitored on a 24-hour basis.

When the issue is whether the owner has properly completed the work that would qualify for an MCI increase, two 2010 cases raise questions about how much deference is due a DHCR determination both as to the substance of the work and the remedy to be applied when the work has not been properly completed. In Langham Mansions, LLC v. DHCR, 76 A.D.3d 885, the Appellate Division reversed and remanded DHCR's revocation of a rent increase for a building-wide window replacement project upon discovery that six of 50 new windows showed minor defects. Noting that the record showed that the defects were easily repairable and that standard agency practice had been to freeze the rent increases for affected tenants pending repair, the court found agency's drastic action arbitrary and capricious. Months later, in Matter of Terrace Court v. DHCR, 79 A.D.2d 630, the same court upheld DHCR's order granting tenants a permanent exemption from an MCI increase because of alleged defects in exterior work, causing leaks in tenant's apartment. The court concluded that DHCR's determination on remedy issues was entitled to deference, suggesting that Langham Mansions applied only in the case of “minor” defects.

Disabled Tenant Not Entitled to Secondary Access

Little v. Landsman Development Corp.

NYLJ 9/12/12/, p. 21, col. 3

U.S. dist. Ct., WDNY

(Telesca, J.)

In an action by disabled tenants alleging violation of the Fair Housing Act and the state building code, tenants sought a preliminary injunction. The court denied the injunction, holding that tenants had failed to establish a likelihood of success on their claim that landlord was not entitled to remove ramps that provided secondary access out of their apartments.

Two separate tenants rent apartments in landlord's 500-unit apartment complex. Each tenant's apartment is located on the first floor, and each has a sliding glass door that leads to a raised patio. Until the challenged renovation, a ramp led from the patio down to a grassy area behind the building. In 2011, landlord announced a complex-wide renovation that would enclose all of the patios and eliminate the ramps. Tenants brought this action, contending that the renovation project violated both the Fair Housing Act and the state building code.

In denying a preliminary injunction, the court first addressed the Fair Housing Act claim. The court noted that the renovation did not deprive tenants of access to the grassy area behind their units, but merely required that they use their front doors and a sidewalk to reach that area, in the same way other tenants enjoy access to the same area. Because they could not establish that their access was different than access provided to other tenants, and because they failed to establish that access to the grassy area was fundamental to their use of their apartments, the court concluded that tenants had failed to establish a likelihood of success on their Fair Housing Act claim. The court then turned to their claim that landlord had violated section 605.1.12 of the state building code by reducing accessibility of a building. The court, however, noted that the statute only prohibits access to a “primary function” of the facility, which is defined as a “major activity for which the facility is intended.” The court concluded that the grassy area did not constitute a primary function, so that tenants were not likely to succeed on the merits of the building code claim. Finally, the court concluded that tenants had not shown that denial of a preliminary injunction would cause either tenant irreparable injury if injunctive relief were not granted.

Landlord Entitled to Establish That Costs Were Related to Capital Improvements

Matter of London Leasing Limited Partnership v. Division of Housing and Community Renewal

NYLJ 8/24/12, p. 24, col. 1

AppDiv, Second Dept.

(memorandum opinion)

In landlord's article 78 proceeding challenging DHCR's partial denial of a major capital improvement (MCI) rent increase, landlord appealed from Supreme Court's denial of the petition and dismissal of the proceeding. The Appellate Division reversed and remitted to DHCR for a new determination, holding that landowner was entitled to an opportunity to establish that certain costs were related to the capital improvements.

In 2009, landowner sought an MCI after the upgrade of three elevators at a cost of more than $832,000. The rent administrator sought additional information, including a breakdown of costs. Landlord, who had paid a contractor a lump-sum for the work, requested that the contractor submit a breakdown. The contractor's breakdown included an item of $15,000 for “DOB filings and inspection” and $112,012 for “miscellaneous work including survey, parts management, scheduling and supervision.” The rent administrator then disallowed these items, and reduced the amount of the MCI accordingly. DHCR confirmed the determination, and landlord brought this article 78 proceeding. Supreme Court dismissed, and landlord appealed.

In reversing, the Appellate Division first held that DHCR had a rational basis for seeking a breakdown of costs, given the lack of information about how the total cost was derived. But the court then held that it was arbitrary for DHCR to exclude the disputed costs without giving landlord an opportunity to establish that those costs were related to the MCI ' especially because DHCR acknowledged that some of the items included in those categories would have been included in the MCI calculation if landlord had provided further clarification. The court therefore remanded to DHCR for consideration of additional submissions by landlord.

COMMENT

Where DHCR denies an MCI rent increase application for lack of sufficient documentation, a reviewing court will generally uphold the denial where the agency provided the building owner an opportunity to respond to its evidentiary concerns. In Acevedo v. DHCR, 67 A.D.3d 785, although owner initially submitted “an abundance” of receipts, invoices and checks, her application was ultimately denied when she failed to respond to DHCR's request for specific documentation that would have allowed it to differentiate between improvements and repairs, and to verify that claimed expenses were in fact incurred. The Appellate Division upheld DHCR's denial as supported by the record, given owner's failure to respond to the agency's request. Sometimes, however, courts insist that DHCR give the owner more than one opportunity to clarify its position. Thus, in Maxwell-Kates, Inc. v. DHCR, 196 A.D.2d 456, , the Appellate Division reversed DHCR's partial denial and remanded for further inquiry into subcontracts DHCR had previously requested but which owner had withheld, asserting that they were immaterial to the total costs claimed. The court held that DHCR's request was not unreasonable but provided the owner one more opportunity to submit the subcontracts and enable the agency to make a fully informed determination.

Where DHCR denies an MCI rent increases because an owner has failed to demonstrate that work falls into a category qualifying as an MCI, courts show deference to DHCR's expertise. For instance, in Dermot Dunwoody LLC v. New York State Div. of Housing and Community Renewal, 2010 WL 422332, Supreme Court upheld DHCR's denial of an MCI for a CCTV security system, holding that the agency had sufficiently justified its decision by explaining that such systems must be monitored around the clock to qualify for MCI treatment. Landlord's system would not have been monitored on a 24-hour basis.

When the issue is whether the owner has properly completed the work that would qualify for an MCI increase, two 2010 cases raise questions about how much deference is due a DHCR determination both as to the substance of the work and the remedy to be applied when the work has not been properly completed. In Langham Mansions, LLC v. DHCR, 76 A.D.3d 885, the Appellate Division reversed and remanded DHCR's revocation of a rent increase for a building-wide window replacement project upon discovery that six of 50 new windows showed minor defects. Noting that the record showed that the defects were easily repairable and that standard agency practice had been to freeze the rent increases for affected tenants pending repair, the court found agency's drastic action arbitrary and capricious. Months later, in Matter of Terrace Court v. DHCR, 7 9 A.D.2d 630, the same court upheld DHCR's order granting tenants a permanent exemption from an MCI increase because of alleged defects in exterior work, causing leaks in tenant's apartment. The court concluded that DHCR's determination on remedy issues was entitled to deference, suggesting that Langham Mansions applied only in the case of “minor” defects.

Disabled Tenant Not Entitled to Secondary Access

Little v. Landsman Development Corp.

NYLJ 9/12/12/, p. 21, col. 3

U.S. dist. Ct., WDNY

(Telesca, J.)

In an action by disabled tenants alleging violation of the Fair Housing Act and the state building code, tenants sought a preliminary injunction. The court denied the injunction, holding that tenants had failed to establish a likelihood of success on their claim that landlord was not entitled to remove ramps that provided secondary access out of their apartments.

Two separate tenants rent apartments in landlord's 500-unit apartment complex. Each tenant's apartment is located on the first floor, and each has a sliding glass door that leads to a raised patio. Until the challenged renovation, a ramp led from the patio down to a grassy area behind the building. In 2011, landlord announced a complex-wide renovation that would enclose all of the patios and eliminate the ramps. Tenants brought this action, contending that the renovation project violated both the Fair Housing Act and the state building code.

In denying a preliminary injunction, the court first addressed the Fair Housing Act claim. The court noted that the renovation did not deprive tenants of access to the grassy area behind their units, but merely required that they use their front doors and a sidewalk to reach that area, in the same way other tenants enjoy access to the same area. Because they could not establish that their access was different than access provided to other tenants, and because they failed to establish that access to the grassy area was fundamental to their use of their apartments, the court concluded that tenants had failed to establish a likelihood of success on their Fair Housing Act claim. The court then turned to their claim that landlord had violated section 605.1.12 of the state building code by reducing accessibility of a building. The court, however, noted that the statute only prohibits access to a “primary function” of the facility, which is defined as a “major activity for which the facility is intended.” The court concluded that the grassy area did not constitute a primary function, so that tenants were not likely to succeed on the merits of the building code claim. Finally, the court concluded that tenants had not shown that denial of a preliminary injunction would cause either tenant irreparable injury if injunctive relief were not granted.