Cost of Contractor's Profit Included

(DHCR opinion letter submitted by Jack Kuttner of the Manhattan law firm of Kucker Kraus & Bruh, LLP, attorneys for the landlord.) Landlord asked the DHCR whether it would be entitled to a 1/40th rent increase for the portion of the apartment improvement cost attributable to the contractor's profit where there was some overlapping of individuals in the building's landlord entity and contracting company. In an opinion letter, the DHCR stated that this was possible. The Rent Stabilization Law and Code say nothing about whether a 1/40th increase can include that portion of the labor cost attributable to a contractor's profit. At least one DHCR decision granted 10 percent of the contractor's profit margin as part of an MCI increase. Also, if the contractor or supplier has an equity interest in the building's landlord, the DHCR will carefully review the expenditures. Still, a rent increase based on the actual cost, including a reasonable profit margin by a contractor, might be permitted.

DHCR Opin. Ltr. by Charles Goldstein (12/16/96) [2-page document]