Terra Cotta Rainscreen Recladding System Qualified as MCI

Landlord applied for MCI rent hikes based on resurfacing exterior walls, along with related fees for a structural engineer, design architect, technical architect, and environmental fees. The DRA ruled for landlord.

Tenants appealed and lost. Among other things, tenants claimed that landlord's application was filed more than two years after the work was completed, that the costs were "grossly excessive," and that the DRA ignored DOB permits filed by landlord indicating that the total MCI cost was $36 million less than that claimed before the DHCR. Tenants also claimed that the terra cotta cladding installation wasn't an eligible MCI and was cosmetic in nature, that landlord submitted false filings to DOB where it failed to disclose that there were rent-stabilized tenants in the building, that HSTPA provisions should apply to this proceeding, and that the DHCR should weigh the equities since the granted MCI increase was onerous and would lead to tenant displacement. 

The DHCR found that the DRA properly applied agency procedure to rely on an Oct. 24, 2013, DOB Letter of Completion to determine the disputed date of completion of the MCI work. And tenants didn't submit any documents showing proof of an earlier physical completion date. In addition, landlord substantiated all its claimed costs and there was no indication of fraud or other impropriety. The cost estimates found in DOB permit applications aren't final figures and aren't considered binding by the DHCR. It also was outside the DHCR's authority to make any ruling based on tenant's claim that landlord failed to notify DOB that there were rent-stabilized tenants living in the building. As to tenants' claim that the MCI cost was excessive, there was no "reasonable cost" limitation on MCIs at the time landlord filed its application.

The improvement involved the resurfacing of the building's exterior envelope with a process known as the "terra cotta rainscreen recladding system," which has a useful life of 50 years. Tenants claimed that this work didn't qualify as an MCI because it didn't involve pointing and waterproofing, and that there was either no or minimal brick work performed. But resurfacing of exterior walls consists of brick or masonry facing on an entire area of all exposed sides of the building. So neither pointing and waterproofing nor brick work was required. Landlord's architect had stated that the terra cotta masonry wasn't the traditional terra cotta used for decorative purposes, and that the newly installed terra cotta system was more than sufficient to reinforce the interior cinderblock masonry and would better waterproof the building's facade. 

Finally, except for collectible rent increase provisions, the HSTPA didn't state that amendments to the MCI rules under the Rent Stabilization Law should be applied to pending MCI appeals. 

Various Tenants of 215 E. 68th Street: DHCR Adm. Rev. Docket No. HO410002RT (3/31/22)[4-pg. document]