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For the one million New York City tenants living in rent-stabilized apartments, it’s a familiar dance: Your landlord offers to fix your splintering floor or crumbling kitchen cabinets, if you’ll agree to a rent hike.
Landlords can use a panoply of legal methods to rehab their buildings then stick tenants with the bill, making it easier for them to deregulate protected apartments.
But if allowing landlords to let their buildings fall into disrepair in order to exploit a loophole in rent laws seems like housing policy, Albany has refused to act on it even as the practice continues to grow each year, according to tenant advocates and housing experts.
While no one knows the full costs over time — officials say they don’t keep records — one program, Major Capital Improvements, will allow city landlords to reap an windfall estimated to be more than $270 million this year, according to state figures.
MCIs are a relic of the 1950s and ’60s, when reports of dismal conditions in rent-regulated housing — some building still lacked hot water — led elected officials to seek ways to force owners to fix up their properties. The formula is simple: Take the total cost of the work, divide by 84 (the number of months in seven years), and you have the monthly allowable rent increase.
“That was forty years ago, and that’s not the problem we have anymore,” says Community Service Society housing policy analyst Tom Waters. “But we’re still using a system that dramatically overcompensates landlords.”
Tenant groups and housing experts alike say that lax oversight from the state’s Department of Housing and Community Renewal (DHCR), which is charged with monitoring these programs, has made it a never-ending battle to track overcharges. Despite efforts in Albany to close loopholes, the state legislature’s current session expired last Friday with no action on several reform bills.
“It’s the wild, wild west of housing law and policy in the state of New York,” says Manhattan state senator Liz Krueger, a housing committee member and bill sponsor.
Krueger says landlords learn to “just fill out anything as dishonestly or honestly as you choose, because no one’s ever going to look at it to cross-check you unless there’s a tenant complaint.”
One common tactic is to actively neglect a building, then appeal to the state for mercy on the grounds that only a rent hike can pay for needed repairs.
Aaron Carr, a former state legislative aide who recently launched the Housing Rights Initiative to help tenants research dodgy landlord actions, calls MCIs and Individual Apartment Improvements — a similar, largely unmonitored program governing rehabs that aren’t building-wide — “the Trojan horses of real estate,” allowing landlords to improve their own properties under the guise of preserving affordable housing.
That’s what happened at 596 East 22nd Street in Flatbush, according to the building’s tenants. Resident Tammy Brake recalled that in one unit, “the walls were just black with mold”; eventually the bathroom ceiling collapsed, forcing its elderly tenant to visit her neighbors when she wanted to use the toilet or take a shower.
After tenants filed suit, their landlord agreed to conduct renovations in 2011. But a year later, the building’s new owner hit residents with an MCI rent increase request of $80 per room. The contractor providing the renovation receipts was the landlord’s brother, raising questions about whether all of the charges were legit.
“Why is it that I’m hit for something that he should have been maintaining all along?” Brake says.
Tenants have filed a legal challenge of the rent hike. Landlord Joseph Lichtman denies any wrongdoing with the renovation receipts, saying he was only approved for verified costs.
Yet the MCI rules give landlords an incentive to rack up renovation costs, knowing that the full price of any charges can be passed along.
Earlier this year, rent-stabilized tenants at Manhattan’s 215 East 68th Street received notice that their landlord, Rudin Management, had requested a whopping $60 million MCI, amounting to a rent increase of $220 a room. The only item that Rudin had renovated was the building’s facade, which had its white brick replaced by terra-cotta tile.
“This is a glitch in the law that needs to be fixed,” says attorney David Hershey Webb, who is representing the 215 E. 68th Street tenants in their planned MCI appeal. “DHCR does not require into the reasonableness of costs. If it’s ten times the industry standard, they don’t care. If [landlords] are doing a rebricking and they decide they want gold bricks, so far they seem to be getting away with that.”
Another increasingly exploited loophole, says Hershey-Webb, is to repair items not in need of work: “It doesn’t have to be in bad shape — as long as they didn’t get an MCI for it previously.”
Though DHCR provides a “useful life schedule” dictating how old each item needs to be before upgrades can be charged to tenants (25 years for doors, 20 years for sinks, etc.), it exempts “emergency” repairs, allowing landowners to spend and bill for more money if they can point to a loose brick or broken pipe.
All this has helped boost already-soaring city rents. According to the DHCR website, MCI claims totaled $45.8 million over the months of April and May, which projects out to $274.8 million per year.
MCI rent hikes are capped at 6 percent a year, but continue rising until the full amount is recouped. And since MCIs are not a rent surcharge, but rather a rent hike that never expires even after the rehab work is paid off, many of New York’s one million rent-stabilized tenants are still paying for renovations that were completed decades ago.
DHCR, which also tracks legal rent levels, does little to proactively investigate landlord-upgrade claims — or even cross-reference MCI shenanigans on one apartment with open applications elsewhere.
That creates a huge financial motive for landlords to game the system, says Carr.
“If I’m making $1.5 million on rent overcharges a year, and one tenant sues me and wins a huge sum of money — $100,000, $200,000 — I’m still incentivized to continue that model, because it’s just another check I’ve got to write.”
DHCR is also notoriously slow to respond to tenant complaints; The East 22nd Street tenants will soon hit the two-year mark on their challenge to Lichtman’s MCI application. A December 2014 audit by the state comptroller’s office found that DHCR takes an average of 14.8 months even to assign rent overcharge complaints to an examiner, with some sitting unassigned as long as three years. DHCR responded that speeding things up would be “unmanageable for staff or supervisors given our existing technology.”
DHCR’s threadbare budget, according to several in the know, has left the agency using computers running MS-DOS.
Frustration with DHCR’s glacial pace and lackadaisical oversight led to Gov. Cuomo’s creation, in 2011, of the Tenant Protection Unit, a separate division that has scored some impressive victories: uncovering 50,000 apartments that landlords improperly removed from rent regulation despite getting tax breaks that required sticking with the program, as well as helping the attorney general’s office indict infamous landlord Steven Croman for forcing tenants out so he could boost rents.
Yet the TPU’s impact is limited by its tiny size (about 25 staffers) and a budget dependent on year-to-year appropriations from the governor’s office. Senate Republicans annually oppose giving the unit its own budget line, says Krueger, who calls it “one of their ‘we’ll hold our breaths until we turn blue’ ” ultimatums.
Moreover, adds Association for Neighborhood and Housing Development organizer Jonathan Furlong, when the state created the TPU, “they didn’t hire anybody new — they just moved these people from HCR to the Tenant Protection Unit. So you have this special force of folks, but you’re doing it at the expense of an already understaffed agency.”
DHCR declined several interview requests regarding both the TPU and oversight of rent complaints.
Several bills in Albany this session would have reformed state oversight of renovation-related rent hikes. State senator Adriano Espaillat proposed requiring itemized accounting of all improvements, plus capping IAI rent increases at 20 percent and eliminating the 20 percent “vacancy bonus” that incentivizes landlords to push out tenants in order to get a quick rent hike.
Krueger introduced a bill to put a time limit on MCIs, reducing rents once a landlord’s expenses were paid off, while closing loopholes on using MCIs for repairs rather than upgrades.
Neither of these bills so much as made it out of committee, as Suffolk County Republican senate leader John Flanagan never allowed a floor vote.
Ultimately, many housing advocates would like to see MCIs entirely wiped from the books.
“The MCI provisions are not needed anymore,” insists Hershey-Webb, especially in buildings with some market-rate units that can help underwrite genuine improvements. “They’re primarily giving the owners a way to jack up rent-stabilized rents.”