Substantial Rehab Exemption Not Available for Buildings Subject to PHFL Section 608

Landlord filed applications with the DHCR in 2019 seeking determinations that three buildings were exempt from rent stabilization based on substantial rehabilitation. Landlord claimed that: (1) a prior owner conducted gut renovations in the early 1980s under an HPD-supervised city redevelopment program; (2) the buildings were at least 80 percent vacant prior to the renovations; (3) the buildings were in a serious deteriorated condition; (4) more than 75 percent of the building systems were replaced except for those that were structurally sound; and (5) the buildings were then subject to HPD regulation under the Private Housing Finance Law (PHFL), and were also subject to HUD under regulatory agreements that expired in 2007.

The DRA dismissed landlord's applications without prejudice because landlord failed to submit requested letters of clarification from HPD so that the DRA could verify HPD's jurisdiction over the buildings. Landlord appealed, claiming that the DRA's request was improper because HPD no longer had supervisory control over the buildings. The DHCR ruled against landlord, pointing out that Article VI of a Land Disposition Agreement stated that the buildings were subject to regulation under HPD and that this agreement didn't set forth a time span for when regulation ended. Landlord then filed an Article 78 court appeal. The DHCR agreed to take the case back for further consideration.

Upon reconsideration, the DRA again ruled against landlord and now determined that deregulation of the buildings was precluded by PHFL Section 608. Landlord appealed and lost. The DHCR noted that, in a prior unrelated court appeal of a similar DHCR case, the DHCR had found that an owner waived any right to apply for a substantial rehabilitation exemption when it acquired a building through a mortgage loan calling for a housing assistance payments contract. Landlord argued that the DHCR was improperly applying PHFL Section 608 retroactively. But the work related to the claimed substantial rehabilitation wasn't completed until 1983, while PHFL Section 608 was enacted in March 1981. So there was no retroactive application of this law. The DHCR also found that it would be contrary to public policy and legislative intent to permit deregulation of these buildings. The city had transferred the buildings to a prior landlord for a discounted $75,500 each with the agreement that landlord would revitalize these abandoned properties. The purpose of these conveyances was to build affordable housing. 

968/984/990 Bronx Park South LLC: DHCR Adm. Rev. Docket Nos. KS610016RO - KS610018RO (11/10/22)[6-pg. document]