This Loophole Allows Landlords to Enact Massive Rent Increases

Marco Angel thought his apartment was fine the way it was. Angel, a 43-year-old lawyer with combed-back black hair and glasses, has lived in a rent-stabilized sixth-floor apartment at 1475 Sheridan Avenue in the Bronx since he was a teenager, and took over the lease after his mother died, in 2014. In 2013, their landlord began renovating the bathrooms and kitchens in all the apartments, seeking a “major capital improvement” rent increase for it.

Commonly called MCIs, these let owners add the cost of building-wide renovations to individual apartments’ rent.

Sitting in the offices of the Community Action for Safe Apartments (CASA) near the Grand Concourse, Angel says the bathroom and kitchen “were in good working condition,” and the renovation work done was “shoddy. The wall started to crack after a couple months.” The hot water goes out regularly, he adds.

“The biggest surprise came when we got the bill,” Angel says. The state Department of Homes and Community Renewal notified them they were facing a rent increase of $80 per room, after it divided the cost among the building’s 101 apartments and prorated it over seven years. That will raise the rent on Angel’s six-room apartment from just below $1,300 to almost $1,800 — and the increase is a permanent part of his rent, not just a temporary surcharge to cover costs. Future rent increases will compound it, though MCI increases are limited to 6 percent a year, so the tenants won’t have to pay the full amount for a few years.

Angel’s building is one of four owned by Finkelstein Timberger East Real Estate in which CASA is organizing tenants to challenge $5.5 million in MCI increases. The group says this is a business model for Finkelstein, which owns about 100 buildings in the Bronx: It’s a way to give current tenants rent increases much larger than those allowed annually under rent stabilization, and to price out long-term residents without having to harass them explicitly. Tenants and organizers say Finkelstein routinely does the renovations regardless of whether they’re needed.

Steven Finkelstein, the firm’s owner, responds that the renovations are “essential in order to have decent living conditions going forward.” Most of its buildings’ bathrooms and kitchens were built between 1918 and 1940, he says. The firm’s website advertises that “nearly all of our 3500+ apartments have undergone recent renovations including new plumbing, bathrooms and kitchens.”

“We do it in the form of doing the whole building,” Finkelstein explains. The MCI rent increases aren’t as much as they could get by doing apartments individually, but “the real-estate tax advantages are big.” The city’s J-51 program, which gives owners tax abatements for renovating rent-stabilized apartments, gives about $400 a year per apartment for twelve years.

“People, when they find out their rent is increasing, they’re always unhappy,” Finkelstein admits.

When Finkelstein Timberger bought 901 Walton Avenue in February 2014, “they immediately sent us a letter that they were going to start rehabbing the bathrooms and kitchens, elevator, and roof,” says George Sotiroff, 67. “None of us asked for it, and none of us expected it. We were fine with what we had.”

A retired worker for the city housing department, he has lived in the building since 1981. He too says the work done was shoddy, with uneven floors, no insulation around pipes, and mold growing around his bathtub. The tenants’ legal challenge got DHCR to reduce the MCI increase by 20 percent, but Sotiroff is still facing a $250 increase on his $754 rent.

According to Edmund Witter, a lawyer representing the tenants, the landlord had tried to charge them for costs such as architects’ fees. Two apartments were exempted from the increase because “it became clear that the owner didn’t do any work,” says Witter.

At 1005 Jerome Avenue, a building near Yankee Stadium that’s so massive it has five sections with their own elevators, Nicole White Everett, a discount-store manager with sparkly purple fingernails, is facing a $150 increase on the $1,284 one-bedroom apartment she moved into three years ago. The plumbing was renovated, she says, but the roof still leaks and her elevator often doesn’t work.

“I either walk up eight flights or take my chances going across the roof,” she says. On nights when the Yankees are at home, she says, the lights are bright enough for her to see clearly.

“I don’t buy that,” responds the landlord, Finkelstein. “We’re giving quality affordable housing. If we have roof leaks, we fix the roof. We don’t patch it.”

Tenants-rights groups have been trying to get the state law changed to make MCIs a temporary surcharge for more than twenty years, but with little success. When the state renewed the rent-stabilization laws in 2015, it reduced MCI increases slightly: The increases are now prorated over nine years in buildings of more than 35 apartments, and over eight years in smaller buildings.

“You want landlords to have an incentive to make buildings nicer,” says Bronx Legal Services lawyer John Montotute. But when they get increases in perpetuity, “it seems landlord-skewed.”

In Brooklyn, tenants at 596 East 22nd Street in Flatbush are now engaged in a last-ditch legal effort to stop MCI increases that will raise their rents by $70 a room. They began demanding that their landlord, Yossel Lichtman and East 22nd Street Towers LLC, fix problems such as massive sewage leaks and rodent infestation almost ten years ago. The owners finally began the repairs in 2011, and filed for the MCIs in early 2012.

In 2014, DHCR approved increases about seven-eighths of what the landlord had asked. It denied the tenants’ appeal (technically, a “petition for administrative review”) last year.

Tenants accuse the owners of inflating the MCIs by padding the bills with work that was actually done on the building next door, 592 East 22nd Street. “They billed everything to this one,” says Loraine Dellamore, sitting in the first-floor apartment where she lives with her husband, a roofer. The $240 MCI increase brought their rent up to over $1,000, she says.

“Wintertime, we don’t get heat,” she adds.

Working with the Flatbush Tenants Coalition and Brooklyn Legal Services, they have filed an Article 78 proceeding, a lawsuit challenging the validity of government actions. It argues that DHCR was wrong to grant rent increases for putting in new windows, because the old ones were less than halfway through their “useful life” of 25 to 30 years. The state agency had dismissed that argument on the grounds that the landlord had never received an MCI for the old windows.

“That doesn’t exist in the law,” says Brooklyn Legal Services lawyer Andrew Ortiz. “It’s unclear why DHCR just made up that rule.”

A spokesperson for the state housing agency said they could not comment because the issue was in litigation.

“We’re seeing more and more predatory-equity corporations using MCIs as a tool for displacing people,” says Aga Trojniak of the Flatbush Tenants Coalition, which has been working with the 596 East 22nd Street tenants. The “cumulative burden” of rent increases, organizer Karl Valere adds, can force longtime tenants out, enabling landlords to charge much more for the vacant apartments.

“We’re the older tenants. The less desirable tenants,” says Tammy Brake, a day-care worker who’s lived in the building for thirty years. Her rent is $700, while newer tenants are paying $1,400 to $1,500, some as much as $1,900, she says. She and Dellamore say the landlord tried to evict both of them last year, accusing them of owing rent they’d already paid.

Gentrification is not yet as intense in the West Bronx. None of Finkelstein Timberger’s apartments have been deregulated, Steven Finkelstein says. But many there fear that Mayor Bill de Blasio’s plans to rezone the area for luxury high-rises will amplify owners’ incentives to raise rents.

“They’re not doing it for us,” says Marco Angel. “They know gentrification’s coming — the money. They want to get us out. Especially the ones that have been here twenty to thirty years.”

It is difficult for tenants to challenge MCIs on the grounds that the landlord padded expenses, Ortiz adds. As long as the bills are not high enough to be obvious fraud, it’s unlikely that the DHCR will go through receipts and dispute costs.

Owners must submit invoices that detail the work done — such as “replacement of risers” — and document their payments, but they don’t have to provide receipts for specific expenses unless DHCR decides to do further review.

The agency also does not consider whether tenants can afford the increases, the problems they have to live with during the work — such as having to move out temporarily — or whether there are other issues in the building. Roof leaks and inadequate heat and hot water are unrelated “service maintenance issues,” it said in August when it denied an appeal of an MCI increase for new plumbing in a Finkelstein Timberger building at 1791 Grand Concourse.

A DHCR fact sheet on MCIs states that when applying, owners must present “an affirmation of maintenance of services.” The agency relies on its own database of rent-reduction orders and violations listed by the city Department of Housing Preservation and Development to determine whether services have not been maintained. Tenant complaints alone are not enough.

“The reality is that MCIs are very hard to beat,” says Edmund Witter. A loophole affecting both sets of buildings is that while MCIs are supposed to be for building-wide renovations, not individual apartment improvements, DHCR counts improvements done on all apartments as building-wide.

“We’ve argued to DHCR,” he says, that under the rent stabilization law, tenants must give written consent to a rent increase for apartment improvements. “But as it stands now, DHCR believes this clause doesn’t apply to individual apartment improvements done for the entire building under the guise of an MCI.”

At 1475 Sheridan Avenue, Witter says, showing before-and-after photographs of the kitchen in one apartment, “it doesn’t seem like there’s any difference.” Giving rent increases for repairs that don’t extend the life of the apartment “defeats the purpose of MCIs,” he adds. “It’s a bizarre policy that doesn’t make any sense.”