Co-op Reserve Fund Didn't Pay for Elevator Upgrade

Landlord co-op corporation applied for MCI rent hikes based on an elevator upgrade. Tenants objected, claiming that the work was paid for from the co-op's reserve fund. The DRA ruled for landlord and granted the rent increases. Tenants appealed and lost. Under Rent Stabilization Code Section 2522.4 and DHCR Operational Bulletin 84-4, tenants don't have to pay MCI rent hikes if the improvement was paid for out of the cash reserve fund contributed by the sponsor by requirement of law or to entice purchasers. However, if the work is paid for by either special assessment of all shareholders or out of general operating funds, MCI rent hikes are permitted. Landlord's accountant submitted a statement that the building was converted to a co-op in 1988, that the sponsor put $122,000 in the reserve fund at closing, and that these funds were depleted long before the elevator upgrade. The accountant also stated that the elevator was funded by capital assessments and building operations. Tenants didn't submit any proof, such as a statement in the Cooperative Offering Plan or Amendments, or financial statements showing that the funds were taken from the reserve fund.

319 W. 18th Street: DHCR Adm. Rev. Docket No. UE430071RT (6/5/08) [5-pg. doc.]