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A05373 Summary:

A05373 Floor Votes:

A05373 Memo:

NEW YORK STATE ASSEMBLY
MEMORANDUM IN SUPPORT OF LEGISLATION
 submitted in accordance with Assembly Rule III, Sec 1(f)



 
BILL NUMBER: A5373
 
SPONSOR: O'Donnell (MS)

 
TITLE OF BILL:  An act to amend the administrative code of the city of
New York, the emergency tenant protection act of nineteen seventy-four
and the emergency housing rent control law, in relation to extending the
length of time over which major capital improvement expenses may be
recovered
 
 
PURPOSE OR GENERAL IDEA OF THE BILL: Expenses for major capital
improvements in rental housing are currently recovered over seven years
in calculating the permissible monthly rent increase. This bill codifies

the MCI as a surcharge to the legal regulated rent which is separately
designated and billed as such, and mandates that the authorized
surcharge for MCI's ceases after the cost of the improvement is
recouped,
 
 
SUMMARY OF SPECIFIC PROVISIONS: Establishes a methodology for deter-
mining MCI rent surcharges based on seven years. MCI's are calculated as
a rent surcharge and do not become part of the base legal regulated rent
by which rent increases are calculated, and are separately designated
and billed as such, The legislation also codifies current practices
regarding the annual 6% cap on MCI increases and the methodology for
determining MCI surcharges based on number of rooms. Furthermore, the
bill would require that rent surcharges authorized for major capital
improvements cease when the cost of the improvement has been recovered.
 
 
EFFECTS OF PRESENT LAW WHICH THIS BILL WOULD ALTER:
 

Deletes provisions making MCI's a part of the base legal regulated rent,
establishes MCI's as a rent surcharge, and requires that rent increases
authorized for major capital improvements shall cease when the cost of
the improvement has been fully recovered.
 
 
JUSTIFICATION:
 
In 1989, the Court of Appeals held that building owners could increase
rent levels in perpetuity based on major capital improvements to their
buildings. Ansonia Residents Assn v, DHCR, 75 N.Y.2d 206, 551 N.Y.S.2d
871 (1989). However, since the actual cost of the improvement is recov-
ered after seven years of increased rent collection, this ruling means
that tenants are forced to continue to pay for improvements long after
costs have been fully recovered, and even after they have outlived their
useful life. In addition, most MCI's, such as window replacement or
heating system improvements, create energy savings that further increase

the profitability of MCI's. This bill seeks to balance the conflicting
concerns of maintaining affordable housing and insuring adequate incen-
tives for investment in MCI's in order to preserve and improve our hous-
ing stock.
 
 
PRIOR LEGISLATIVE HISTORY:  A.2283-B (1994); A.5451 (1995-1996);
A,3997-A (1997-98) passed Assembly 1998; A.4508 (1999-00) passed Assem-
bly 1999 and 2000; A.2641-A (2001-02) passed Assembly 2001 and 2002;
A2718 (2003-04) passed Assembly 2003 and 2004; A9994 (2005-06); A.6510
(2007-2008) passed Assembly 2007 and 2008; A.1928 (2009-2010) passed
Assembly 2009 and 2010; A.2459-A (2011-12); passed Assembly 2012.
 
 
FISCAL IMPLICATIONS: None.
 
 
EFFECTIVE DATE: Immediately.

A05373 Text:

 
                STATE OF NEW YORK
        ________________________________________________________________________
 
                                          5373
 
                               2013-2014 Regular Sessions
 
                   IN ASSEMBLY
 
                                    February 25, 2013
                                       ___________
 
        Introduced  by  M.  of A. O'DONNELL, WRIGHT, SILVER, GLICK, ORTIZ, GOTT-
          FRIED, KAVANAGH, FARRELL,  PERRY,  TITUS,  CASTRO,  MAYER,  MOSLEY  --
          Multi-Sponsored  by -- M. of A. BARRON, BRENNAN, CLARK, COOK, CYMBROW-
          ITZ, DINOWITZ, HEASTIE,  HOOPER,  JACOBS,  KELLNER,  LENTOL,  MILLMAN,
          SCARBOROUGH -- read once and referred to the Committee on Housing
 

        AN  ACT  to  amend  the administrative code of the city of New York, the
          emergency tenant protection act of nineteen seventy-four and the emer-
          gency housing rent control law, in relation to extending the length of
          time over which major capital improvement expenses may be recovered
 
          The People of the State of New York, represented in Senate and  Assem-
        bly, do enact as follows:
 
     1    Section 1. Subparagraph (g) of paragraph 1 of subdivision g of section
     2  26-405 of the administrative code of the city of New York, as amended by
     3  chapter 749 of the laws of 1990,  is amended to read as follows:
     4    (g) (i) Collection of surcharges to the maximum rent authorized pursu-
     5  ant  to  item  (ii)  of this subparagraph shall cease when the owner has
     6  recovered the cost of the major capital improvement;

     7    (ii) There has been since July  first,  nineteen  hundred  seventy,  a
     8  major  capital  improvement [required for the operation, preservation or
     9  maintenance of the structure. An adjustment under this subparagraph  (g)
    10  shall  be  in  an amount sufficient to amortize the cost of the improve-
    11  ments pursuant to this  subparagraph  (g)  over  a  seven-year  period];
    12  provided  that  the commissioner finds that such improvements are deemed
    13  depreciable under the internal revenue code and  such  improvements  are
    14  required  for  the  operation, preservation or maintenance of the struc-
    15  ture. The increase permitted  for  such  capital  improvement  shall  be
    16  collected  as a monthly surcharge to the maximum rent. It shall be sepa-

    17  rately designated and billed as such and shall not be compounded by  any
    18  other  adjustment  to  the maximum rent. The surcharge allocable to each
    19  apartment shall be an amount  equal  to  the  cost  of  the  improvement
    20  divided by  eighty-four, divided by the number of rooms in the building,
 
         EXPLANATION--Matter in italics (underscored) is new; matter in brackets
                              [ ] is old law to be omitted.
                                                                   LBD00868-01-3
        A. 5373                             2
 
     1  and  then  multiplied by the number of rooms in such apartment; provided
     2  that the surcharge allocable to any apartment in any one  year  may  not

     3  exceed  an  amount equal to six percent of the monthly rent collected by
     4  the  owner  for  such  apartment  as  set forth in the schedule of gross
     5  rents.  Any excess above said six percent shall be carried  forward  and
     6  collected  in future years as a further surcharge not to exceed an addi-
     7  tional six percent in any one year  period  until  the  total  surcharge
     8  equals  the  amount it would have been if the aforementioned six percent
     9  limitation did not apply; or
    10    § 2. Subparagraph (k) of paragraph  1  of  subdivision  g  of  section
    11  26-405 of the administrative code of the city of New York, as amended by
    12  chapter 749 of the laws of 1990,  is amended to read as follows:
    13    (k)  The  landlord has incurred, since January first, nineteen hundred

    14  seventy, in connection with and in addition to a concurrent major  capi-
    15  tal  improvement  pursuant  to subparagraph (g) of this paragraph, other
    16  expenditures to improve, restore or preserve the quality of  the  struc-
    17  ture.  An  adjustment  under  this subparagraph shall be granted only if
    18  such improvements represent an expenditure equal to  at  least  ten  per
    19  centum of the total operating and maintenance expenses for the preceding
    20  year.  An adjustment under this subparagraph shall be in addition to any
    21  adjustment granted for the  concurrent  major  capital  improvement  and
    22  shall  be  [in an amount sufficient to amortize the cost of the improve-
    23  ments pursuant to this subparagraph over a seven-year    period]  imple-
    24  mented in the same manner as such major capital improvement as a further
    25  surcharge to the maximum rent.

    26    § 3. Paragraph 6 of subdivision c of section 26-511 of the administra-
    27  tive code of the city of New York, as amended by chapter 116 of the laws
    28  of 1997,  is amended to read as follows:
    29    (6)  provides  criteria whereby the commissioner may act upon applica-
    30  tions by owners for increases in  excess  of  the  level  of  fair  rent
    31  increase  established under this law provided, however, that such crite-
    32  ria shall provide [(a)] as to hardship applications, for a finding  that
    33  the level of fair rent increase is not sufficient to enable the owner to
    34  maintain  approximately  the same average annual net income (which shall
    35  be computed without regard to debt service, financing costs  or  manage-
    36  ment  fees)  for the three year period ending on or within six months of
    37  the date of an application pursuant to such criteria  as  compared  with

    38  annual  net income, which prevailed on the average over the period nine-
    39  teen hundred sixty-eight through nineteen hundred seventy,  or  for  the
    40  first three years of operation if the building was completed since nine-
    41  teen  hundred  sixty-eight  or  for the first three fiscal years after a
    42  transfer of title to a new owner provided the new owner can establish to
    43  the satisfaction of the commissioner that he or she  acquired  title  to
    44  the  building as a result of a bona fide sale of the entire building and
    45  that the new owner is unable to obtain requisite records for the  fiscal
    46  years  nineteen  hundred  sixty-eight  through  nineteen hundred seventy
    47  despite diligent efforts to obtain same from predecessors in  title  and
    48  further  provided that the new owner can provide financial data covering
    49  a minimum of six years under his or  her  continuous  and  uninterrupted

    50  operation  of  the building to meet the three year to three year compar-
    51  ative test periods herein provided[; and (b) as to  completed  building-
    52  wide  major  capital  improvements, for a finding that such improvements
    53  are deemed depreciable under the Internal Revenue Code and that the cost
    54  is to be amortized over a seven-year period, based  upon  cash  purchase
    55  price  exclusive  of  interest  or  service  charges].   Notwithstanding
    56  anything to the contrary contained herein, no hardship increase  granted
        A. 5373                             3
 
     1  pursuant  to this paragraph shall, when added to the annual gross rents,
     2  as determined by the commissioner, exceed the sum  of,  (i)  the  annual
     3  operating  expenses, (ii) an allowance for management services as deter-

     4  mined  by  the  commissioner,  (iii) actual annual mortgage debt service
     5  (interest and amortization) on its indebtedness to  a  lending  institu-
     6  tion,  an  insurance company, a retirement fund or welfare fund which is
     7  operated under the supervision of the banking or insurance laws  of  the
     8  state  of  New  York  or  the United States, and (iv) eight and one-half
     9  percent of that portion of the fair market value of the  property  which
    10  exceeds  the  unpaid  principal  amount  of  the  mortgage  indebtedness
    11  referred to in subparagraph (iii) of this paragraph. Fair  market  value
    12  for  the  purposes of this paragraph shall be six times the annual gross
    13  rent. The collection of any increase in  the  stabilized  rent  for  any
    14  apartment pursuant to this paragraph shall not exceed six percent in any
    15  year from the effective date of the order granting the increase over the

    16  rent  set  forth  in the schedule of gross rents, with collectability of
    17  any dollar excess above said sum to be spread forward in similar  incre-
    18  ments  and  added to the stabilized rent as established or set in future
    19  years;
    20    § 4. Subdivision c of section 26-511 of the administrative code of the
    21  city of New York is amended by adding two new paragraphs 6-b and 6-c  to
    22  read as follows:
    23    (6-b) provides criteria whereby the commissioner may act upon applica-
    24  tion  by  owners  for  increases  in  excess  of  the level of fair rent
    25  increase established under this law provided, however, that such  crite-
    26  ria  shall  provide as to completed building-wide major capital improve-
    27  ments, for a finding that such improvements are deemed depreciable under

    28  the internal revenue code and such improvements  are  required  for  the
    29  operation,  preservation  or  maintenance of the structure. The increase
    30  permitted for such capital improvement shall be collected as  a  monthly
    31  surcharge to the legal regulated rent. It shall be separately designated
    32  and  billed as such and shall not be compounded by any annual adjustment
    33  of the level of fair rent provided for under subdivision  b  of  section
    34  26-510  of this law.  The surcharge allocable to each apartment shall be
    35  an amount equal to the cost of the improvement divided  by  eighty-four,
    36  divided  by  the number of rooms in the building, and then multiplied by
    37  the number of rooms in such apartment; provided that the surcharge allo-

    38  cable to any apartment, in any one year may not exceed an  amount  equal
    39  to  six  percent  of  the  monthly  rent collected by the owner for such
    40  apartment as set forth in the schedule of gross rents.  Any excess above
    41  said six percent shall be carried forward and collected in future  years
    42  as  a  further  surcharge not to exceed an additional six percent in any
    43  one year period until the total surcharge equals  the  amount  it  would
    44  have been if the aforementioned six percent limitation did not apply.
    45    (6-c)  collection  of  surcharges  in excess of the level of fair rent
    46  authorized pursuant to paragraph six-b of this subdivision  shall  cease
    47  when the owner has recovered the cost of the major capital improvement.

    48    § 5. Paragraph 3 of subdivision d of section 6 of section 4 of chapter
    49  576  of  the  laws of 1974, constituting the emergency tenant protection
    50  act of nineteen seventy-four, as amended by chapter 749 of the  laws  of
    51  1990, is amended to read as follows:
    52    (3)  (i)  collection  of surcharges in addition to the legal regulated
    53  rent authorized pursuant to subparagraph (ii) of  this  paragraph  shall
    54  cease  when  the  owner  has  recovered  the  cost  of the major capital
    55  improvement;
        A. 5373                             4
 
     1    (ii) there has been since January first, nineteen hundred seventy-four
     2  a major capital improvement [required for the operation, preservation or
     3  maintenance of the structure.  An adjustment under this paragraph  shall

     4  be  in  an  amount  sufficient  to amortize the cost of the improvements
     5  pursuant  to this paragraph over a seven-year period]; provided that the
     6  commissioner finds that such improvements are deemed  depreciable  under
     7  the  internal  revenue  code  and such improvements are required for the
     8  operation, preservation or maintenance of the structure.   The  increase
     9  permitted  for  such capital improvement shall be collected as a monthly
    10  surcharge to the legal regulated rent. It shall be separately designated
    11  and billed as such and shall  not  be  compounded  by  any  annual  rent
    12  adjustment  authorized  by the rent guidelines board under this act. The
    13  surcharge allocable to each apartment shall be an amount  equal  to  the

    14  cost of the improvement divided by eighty-four, divided by the number of
    15  rooms  in  the  building,  and then multiplied by the number of rooms in
    16  such apartment; provided that the surcharge allocable to  any  apartment
    17  in  any  one  year  may not exceed an amount equal to six percent of the
    18  monthly rent collected by the owner for such apartment as set  forth  in
    19  the schedule of gross rents.  Any excess above said six percent shall be
    20  carried forward and collected in future years as a further surcharge not
    21  to  exceed  an  additional  six percent in any one year period until the
    22  total surcharge equals the amount it would have been  if  the  aforemen-
    23  tioned six percent limitation did not apply, or

    24    § 6. The second undesignated paragraph of paragraph (a) of subdivision
    25  4  of  section  4  of  chapter 274 of the laws of 1946, constituting the
    26  emergency housing rent control law, as amended by section 25 of  part  B
    27  of chapter 97 of the laws of 2011, is amended to read as follows:
    28    No application for adjustment of maximum rent based upon a sales price
    29  valuation  shall  be filed by the landlord under this subparagraph prior
    30  to six months from the date of such sale of the property.  In  addition,
    31  no  adjustment  ordered  by  the  commission based upon such sales price
    32  valuation shall be effective prior to one year from  the  date  of  such
    33  sale.  Where,  however,  the assessed valuation of the land exceeds four
    34  times the assessed valuation of the buildings  thereon,  the  commission
    35  may determine a valuation of the property equal to five times the equal-

    36  ized  assessed  valuation  of  the  buildings,  for the purposes of this
    37  subparagraph. The commission may make a determination that the valuation
    38  of the property is an amount  different  from  such  equalized  assessed
    39  valuation  where  there  is  a  request for a reduction in such assessed
    40  valuation currently pending; or where there has been a reduction in  the
    41  assessed valuation for the year next preceding the effective date of the
    42  current  assessed  valuation  in effect at the time of the filing of the
    43  application. Net annual return shall be the amount by which  the  earned
    44  income  exceeds  the operating expenses of the property, excluding mort-
    45  gage interest and amortization, and excluding  allowances  for  obsoles-
    46  cence  and  reserves, but including an allowance for depreciation of two
    47  per centum of the value of the buildings exclusive of the land,  or  the

    48  amount  shown  for  depreciation of the buildings in the latest required
    49  federal income tax return, whichever is lower; provided,  however,  that
    50  (1)  no  allowance  for  depreciation of the buildings shall be included
    51  where the buildings have been fully depreciated for federal  income  tax
    52  purposes  or  on the books of the owner; or (2) the landlord who owns no
    53  more than four rental units within the state has not been fully  compen-
    54  sated  by  increases  in  rental income sufficient to offset unavoidable
    55  increases in property taxes, fuel, utilities, insurance and repairs  and
    56  maintenance, excluding mortgage interest and amortization, and excluding
        A. 5373                             5
 
     1  allowances  for  depreciation,  obsolescence  and  reserves,  which have
     2  occurred since the federal date determining the maximum rent or the date

     3  the property was acquired by the present owner, whichever is  later;  or
     4  (3) the landlord operates a hotel or rooming house or owns a cooperative
     5  apartment  and  has  not  been  fully compensated by increases in rental
     6  income from the controlled housing accommodations sufficient  to  offset
     7  unavoidable increases in property taxes and other costs as are allocable
     8  to  such controlled housing accommodations, including costs of operation
     9  of such hotel or rooming house,  but  excluding  mortgage  interest  and
    10  amortization,  and  excluding  allowances for depreciation, obsolescence
    11  and reserves, which have occurred since the federal date determining the
    12  maximum rent or the date the landlord commenced  the  operation  of  the
    13  property, whichever is later; or (4) the landlord and tenant voluntarily
    14  enter into a valid written lease in good faith with respect to any hous-

    15  ing  accommodation,  which lease provides for an increase in the maximum
    16  rent not in excess of fifteen per centum and for a term of not less than
    17  two years, except that where such lease  provides  for  an  increase  in
    18  excess  of  fifteen  per  centum,  the  increase  shall be automatically
    19  reduced to fifteen per centum; or (5) the landlord and tenant by  mutual
    20  voluntary  written agreement agree to a substantial increase or decrease
    21  in dwelling space or a change in the services, furniture, furnishings or
    22  equipment provided in the housing accommodations; provided that an owner
    23  shall be entitled to a rent increase where there has been a  substantial
    24  modification  or  increase  of  dwelling  space  or  an  increase in the
    25  services, or installation of new equipment or improvements or new furni-
    26  ture or furnishings provided in or to a tenant's housing  accommodation.

    27  The  permanent  increase  in  the  maximum rent for the affected housing
    28  accommodation shall be one-fortieth, in the  case  of  a  building  with
    29  thirty-five  or  fewer  housing  accommodations, or one-sixtieth, in the
    30  case of a building with more  than  thirty-five  housing  accommodations
    31  where  such  permanent increase takes effect on or after September twen-
    32  ty-fourth, two thousand eleven, of the total cost incurred by the  land-
    33  lord  in  providing  such  modification  or  increase in dwelling space,
    34  services, furniture, furnishings or equipment,  including  the  cost  of
    35  installation,  but  excluding  finance  charges provided further that an
    36  owner who is entitled to a rent increase pursuant to this  clause  shall
    37  not  be  entitled to a further rent increase based upon the installation
    38  of similar equipment, or new furniture or furnishings within the  useful

    39  life  of  such new equipment, or new furniture or furnishings. The owner
    40  shall give written notice to  the  commission  of  any  such  adjustment
    41  pursuant to this clause; or (6) there has been, since March first, nine-
    42  teen  hundred  fifty,  an  increase  in  the rental value of the housing
    43  accommodations as a result of a substantial rehabilitation of the build-
    44  ing or housing accommodation therein which materially adds to the  value
    45  of  the  property  or  appreciably prolongs its life, excluding ordinary
    46  repairs,  maintenance  and  replacements;  or  (7)  (i)  collection   of
    47  surcharges  to the maximum rent authorized pursuant to item (ii) of this
    48  clause shall cease when the owner has recovered the cost  of  the  major
    49  capital  improvement;  (ii)  there  has been since March first, nineteen

    50  hundred fifty, a major capital improvement [required for the  operation,
    51  preservation or maintenance of the structure]; provided that the commis-
    52  sioner  finds  that  such  improvements are deemed depreciable under the
    53  internal revenue code and such improvements are required for the  opera-
    54  tion, preservation or maintenance of the structure. The increase permit-
    55  ted  for  such  capital  improvement  shall  be  collected  as a monthly
    56  surcharge to the maximum rent. It shall  be  separately  designated  and
        A. 5373                             6
 
     1  billed  as  such  and shall not be compounded by any other adjustment to
     2  the maximum rent. The surcharge allocable to each apartment shall be  an

     3  amount  equal  to  the  cost of the improvement divided by  eighty-four,
     4  divided  by  the number of rooms in the building, and then multiplied by
     5  the number of rooms in such apartment; provided that the surcharge allo-
     6  cable to any apartment in any one year may not exceed an amount equal to
     7  six percent of the monthly rent collected by the owner for  such  apart-
     8  ment as set forth in the schedule of gross rents.  Any excess above said
     9  six  percent shall be carried forward and collected in future years as a
    10  further surcharge not to exceed an additional six  percent  in  any  one
    11  year  period  until  the total surcharge equals the amount it would have
    12  been if the aforementioned six percent limitation did not apply; or  (8)

    13  there  has been since March first, nineteen hundred fifty, in structures
    14  containing more than four  housing  accommodations,  other  improvements
    15  made  with  the  express consent of the tenants in occupancy of at least
    16  seventy-five per centum of the housing accommodations, provided,  howev-
    17  er, that no adjustment granted hereunder shall exceed fifteen per centum
    18  unless  the  tenants  have agreed to a higher percentage of increase, as
    19  herein provided; or (9) there has  been,  since  March  first,  nineteen
    20  hundred fifty, a subletting without written consent from the landlord or
    21  an  increase in the number of adult occupants who are not members of the
    22  immediate family of the tenant, and the landlord has  not  been  compen-
    23  sated  therefor  by  adjustment of the maximum rent by lease or order of
    24  the commission or pursuant to the federal act; or (10) the  presence  of

    25  unique  or  peculiar circumstances materially affecting the maximum rent
    26  has resulted in a maximum rent which is  substantially  lower  than  the
    27  rents  generally  prevailing  in the same area for substantially similar
    28  housing accommodations.
    29    § 7. This act shall take effect immediately; provided that the  amend-
    30  ments  to section 26-405 of the city rent and rehabilitation law made by
    31  sections one and two of this act shall remain in full force  and  effect
    32  only  so  long  as  the  public  emergency  requiring the regulation and
    33  control of residential rents and evictions  continues,  as  provided  in
    34  subdivision  3  of section 1 of the local emergency housing rent control
    35  act; and provided further that the amendments to section 26-511  of  the
    36  rent  stabilization  law of nineteen hundred sixty-nine made by sections

    37  three and four of this act shall expire on the same  date  as  such  law
    38  expires  and  shall  not  affect  the expiration of such law as provided
    39  under section 26-520 of such law, as from  time  to  time  amended;  and
    40  provided further that the amendment to section 6 of the emergency tenant
    41  protection act of nineteen seventy-four made by section five of this act
    42  shall  expire  on the same date as such act expires and shall not affect
    43  the expiration of such act as provided in section 17 of chapter  576  of
    44  the  laws  of  1974,  as from time to time amended; and further provided
    45  that the amendment to section 4 of the emergency  housing  rent  control
    46  law  made  by  section  six of this act shall expire on the same date as
    47  such law expires and shall not affect the  expiration  of  such  law  as
    48  provided  in  subdivision  2  of section 1 of chapter 274 of the laws of
    49  1946.