DHCR Must Reconsider Whether MCI Based on Pointing/Waterproofing Was Depreciable

(Decision submitted by Michele McGuinness, Esq. of the Manhattan Law Firm of Collins, Dobkin & Miller, attorneys for the tenants.)

Landlord applied to the DHCR for MCI rent hikes based on pointing and waterproofing performed pursuant to NYC Local Law 11's facade inspection and safety program. The DHCR ruled for landlord. Tenants then filed an Article 78 court appeal, claiming that the DHCR's decision was arbitrary and unreasonable. Tenants argued that RSL Section 26-511(c) and RSC Section 2522.4(2)(1)(a) provided that, to qualify as an MCI, work performed at a building must be depreciable under the Internal Revenue Code, and that the DHCR didn't address this issue in its decision.

The court ruled for tenants and found that applying the "as necessary" standard for a pointing/waterproofing MCI without determining whether the work performed was a depreciable improvement under the IRC was contrary to the RSL and RSC. The court compared the DHCR's decision to a federal Tax Court ruling that found that waterproofing in that case was depreciable for specific reasons--that is, that the work was performed for the first time, improved the building by creating something entirely new, and was of a significant scale. Here, the DHCR hadn't considered such factors and, if it did, such factors weighed against finding that the work was a depreciable MCI. The pointing and waterproofing here instead was part of regular periodic work required every five years under Local Law 11. The work also covered less than a single percent of the building complex facade, and the building owner wasn't left with something new or "something that it had not had before." The court sent the case back to the DHCR to address whether the work was depreciable.

However, the court found that, of the seven MCI orders involved in this matter, two involved MCI applications filed more than two years after work was completed. The MCI orders covering those portions of the building complex were vacated by the court. [Download a PDF of the decision here.]

Stuyvesant Town-Peter Cooper Village Tenants Assn v. DHCR: Index No. 154097/2021, 2023 NY Slip Op 30034(U)(Sup. Ct. NY; 1/5/23; Nervo, J) [18-pg. doc.]