MCI Increase Revoked Based on Landlord's Concealment of Relationship with Contractor

Landlord applied to the DHCR for MCI rent hikes based on kitchen and bathroom remodeling, repiping, and pointing and waterproofing. The DRA ruled for landlord.

Tenants appealed and won. Tenants argued that landlord wasn't entitled to MCI rent increases because the work was completed by the building super, that landlord willfully misrepresented its relationship with its general contractor, and that landlord failed to establish an arms-length transaction and overcome the appearance of collusion with the contractor and the super.

The DHCR noted that, under DHCR policy and relevant case law, the DHCR wasn't required to automatically deny MCI rent increases based solely on family or business relationships between a landlord and a contractor. But extra scrutiny could apply and was applied here. There was a  pervasive interconnectedness between landlord, contractor, subcontractor, and the super. The landlord also had shown a pattern of concealing relevant information concerning the MCI application and made false and misleading statements to the DRA. The record before the DRA also was devoid of any proof showing how the contract amount was allocated between costs or materials and labor and how the subcontractor and super were compensated.

This all casted doubt on whether any checks submitted could be relied on to substantiate the costs of the work, and landlord's pattern of concealment could only be construed as attempts to mislead the DRA concerning the MCI costs. The DHCR disallowed the entire approved cost of $1,265,400 associated with the kitchen, bathroom, and repiping MCIs. The DHCR also revoked the MCI increase for pointing and waterproofing based on indications of fraud by the landlord.

Various Tenants of 2770 to 2780 Kingsbridge Terrace: DHCR Adm. Rev. Docket No. GP610034RT (1/10/25)[9-pg. document]