Ensure Contractor Invoices Prove Cost of Improvement Rent Hikes
When a rent-stabilized tenant complains to the Division of Housing and Community Renewal (DHCR) about a rent overcharge, owners often submit contractors’ invoices as proof of the cost of the equipment installed in or other improvements made to the tenant’s apartment. Invoices can help owners show that they’re entitled to collect a rent hike of either 1/40th or 1/60th of the cost of the improvement.
Prior DHCR approval is not required for rent increases based on individual apartment improvements, whether or not the installation of the improvements occurs while an apartment is vacant. However, such rent increases may be challenged by a tenant up to four years after the installation. When challenged in time, any claimed individual apartment improvement cost must be supported by adequate documentation. But the DHCR will consider contractors’ invoices as valid proof of the improvement’s cost only if they meet certain requirements.
In addition, it’s become increasingly important to be able to support the cost and scope of improvement work done on units. The Rent Code Amendments of 2014 call for greater transparency and accessibility to supporting documentation for individual apartment improvement (IAI) rent increases [DHCR Fact Sheet #12]. The DHCR Lease Rider/Addenda and Notice of Apartment Deregulation Pursuant to High Rent Vacancy (HRVD-N) require owners to provide detailed IAI cost explanations, and the Rider/Addenda gives tenants an option to request more detailed supporting documentation such as invoices from the owner at the time the lease is being offered or within 60 days after it is executed, by certified mail. The Rent Code also requires owners to provide such documentation within 30 days of that request by certified mail or in person with a signed acknowledgement of receipt.
With increased focus on cost transparency, it’s important to make sure that any invoices your contractor prepares for improvements meet the DHCR’s requirements. Here are four things you should do.
1. Get Invoice When Work Completed
The DHCR’s policy statement 90-10 says that an invoice used to prove the cost of an improvement must be “contemporaneous with the completion of the work.” This means the invoice should be prepared immediately after the improvements are made. Don’t wait months before getting the invoice from the contractor.
In one case involving a rent-controlled tenant, the DHCR limited the amount of a rent increase for painting the rent-controlled tenant’s apartment due to inadequate documentation. The painting job was done for all cash. And there was no other proof such as invoices, receipts, or a breakdown of labor, materials, or other costs [Proto: DHCR Adm. Rev. Docket No. BV420015RO, December 2013].
2. Make Sure Invoice Is Marked ‘Paid in Full’
Policy statement 90-10 also says that an invoice submitted to the DHCR as proof of an improvement’s cost must be marked “paid in full.” So if, for example, you buy a refrigerator and have the company that sold it to you install it, the invoice for the cost of the refrigerator and the installation must be marked “paid in full.” If the invoice isn’t marked “paid in full,” the DHCR won’t consider it adequate proof of the improvement costs.
What if you buy the refrigerator but your super installs it? You can submit an invoice from the company that sold you the refrigerator marked “paid in full,” even though the work isn’t technically complete until the refrigerator is installed. But you must establish a connection between the invoice and the refrigerator’s installation. Ask your super to note a description of the refrigerator on the work order or in a logbook (such as brand, color, and model and serial numbers). This description should match the description of the refrigerator on the invoice.
3. Get Cost Breakdown in Invoice if Work Done in More Than One Apartment
You may have a contractor make improvements simultaneously in more than one apartment. If you do, make sure the contractor’s invoice breaks down the improvements by apartment number. Otherwise, the DHCR won’t be able to tell which improvements were done in which apartments. As a result, the DHCR may disallow your rent increase.
4. Make Sure Invoice Breaks Down Costs of Different Improvements in Same Apartment
You also may make a variety of improvements in one apartment. If you do, make sure the contractor’s invoice gives a cost breakdown for each improvement. This will come in handy if the DHCR decides that some of the improvements don’t qualify for rent increases, or if it believes the tenant’s claim that some improvements weren’t made.
In one case, an owner used a superintendent at another building in the neighborhood as a contractor for improvements made. A tenant complained of a rent overcharge, but the owner had an invoice and proof of payment. It didn’t matter that the contractor was a super. And the contractor’s invoice specified what work was to be done in each of the apartment’s eight rooms [Moina: DHCR Adm. Rev. Docket No. CR410014RT, February 2015].
If the invoice specifies the cost of each improvement, the DHCR will be able to determine the cost of those that qualify for a rent increase and let you collect an increase based on that cost. If the DHCR can’t tell the cost of the qualifying improvements, it will disallow the entire increase.