Did Co-op Reserve Fund Usage Bar MCI Rent Hike?

LVT Number: #31731

Landlord, a co-op corporation, filed an MCI rent increase application based on installation of a new burner. The DRA ruled against landlord because landlord indicated that the full cost of the burner was paid for with the co-op's reserve fund.

Landlord, a co-op corporation, filed an MCI rent increase application based on installation of a new burner. The DRA ruled against landlord because landlord indicated that the full cost of the burner was paid for with the co-op's reserve fund.

Landlord appealed, and the case was reopened. Landlord pointed out that the co-op's initial reserve fund was fully depleted 24 years earlier, and wasn't used to pay for the MCI. Under DHCR policy and Rent Stabilization Code Section 2522.4(a)(9), MCIs paid for out of a co-op's negotiated cash reserve fund contributed by the sponsor to entice purchasers or under compulsion of law may not form the basis for an MCI rent increase. And, if an MCI is installed after transfer of title to a co-op corporation, the co-op won't be eligible for a rent increase to the extent the cost of the improvement is paid for out of the cash reserve fund.

But, if the installation is paid for using a special assessment, out of the proceeds of a refinance, or if the initial reserve fund has been replenished, the increase may be based on the total amount of the installation. And, in response to the DRA's inquiry, landlord had pointed out that the reserve funds used for the MCI weren't from the initial cash reserve fund established in 1982, and the DRA had failed to request additional information. So the case was sent back the DRA for further fact-finding.

Orsid Realty Corp.: DHCR Adm. Rev. Docket No. EO430018RO (11/19/21)[2-pg. document]

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