IAIs Made Prior to HSTPA Enactment Not Limited to $15,000 Cap
In early February, the DHCR released its online service that enables building owners to report information concerning individual apartment improvements (IAIs) for apartments subject to rent stabilization or rent control as required by the Housing Stability and Tenant Protection Act (HSTPA) of 2019. This reporting requirement is mandated by HSTPA to keep track of the temporary nature and limits of rent increases from IAIs.
With the passage of HSTPA, rent increases for IAIs became temporary. The temporary individual apartment increases can be collected for 30 years and are then to be removed. And the IAI costs that can be recouped are capped at an “aggregate” of $15,000 over a 15-year period, during which no more than three IAI increases may be collected. In addition, IAI rent increases are limited to 1/168th of the cost if the building has fewer than 35 units, and 1/180th of the cost if the building has 35 or more units. In other words, for IAIs costing $15,000, instead of collecting $375 (1/40) or $250 (1/60) per month, an owner may now collect only $89.29 (1/168) or $83.33 (1/180) per month.
HSTPA Enactment Date Considerations
Along with its online filing service, the DHCR issued a revised Operational Bulletin 2016-1, which addresses IAIs. The bulletin emphasizes that if an IAI was completed before June 14, 2019, but the rent increase for that IAI didn’t become effective until after June 14, 2019, the IAI rent increase is based on the new HSTPA amortization formulas, but the IAI doesn’t count toward the $15,000 limitation and/or the three installations in a 15-year period limitation.
Consequently, the bulletin states that for leases offered or entered into prior to June 14, 2019, but commencing effective on or after June 14, 2019, that used the old amortization formula, owners must within 150 days of the operational bulletin or by July 3, 2020, provide their tenant with a revised lease as well as any refund required based on any needed recalculation of the amortization formula and the legal rent.
If the IAI was completed before June 14, 2019, and the rent increase for that IAI became effective prior to June 14, 2019, the IAI is governed by the law in place prior to the enactment of HSTPA. For IAIs where the work was completed after June 14, 2019, and the rent increase for that IAI was effective after June 14, 2019, the rent increase is based on the new HSTPA amortization formulas and related limitations.
Owners must file electronically with the DHCR in order to collect any IAI increases effective on or after June 14, 2019. The filing is made in the DHCR’s Owners Rent Regulation Application (ORRA) system.
For IAIs made in vacant and occupied apartments, owners must electronically file the Form RN–19N INDIVIDUAL APARTMENT IMPROVEMENT: NOTIFICATION. The notification form must be accompanied by before and after photographs. And pursuant to HSTPA, the notification for each IAI must include an itemized list of work performed and a description or explanation of the reason or purpose of such work. The DHCR retains the right to request any relevant information even if provided previously, where it affects the adjustment of legal regulated rents.
While HSTPA requires the filing of documentation pertaining to IAIs, it also specifically states that such filings don’t relieve an owner of her duty to retain proper documentation of all improvements performed or any rent increases resulting from IAIs.
For IAIs made to occupied apartments, in addition to the notification form, owners must electronically file Form RN–19C INDIVIDUAL APARTMENT IMPROVEMENT: TENANT’S INFORMED CONSENT. If there was a tenant in occupancy of the apartment when the improvements were installed, then no rent increase is permitted without the tenant’s written informed consent to the rent increase. For IAIs installed in occupied apartments before the Feb. 3, 2020, release of DHCR Form RN-19C, owners can substitute the tenant-signed consent agreement that they executed at that time, which had been previously required by law. When the IAI is installed during a vacancy, the tenant’s informed consent form isn’t required.
For rent-stabilized apartments, any increase based on an IAI that was previously reported to the DHCR in the notification form and/or tenant’s informed consent form must also be reported in the next occurring annual registration filing for the apartment. In addition, if the IAI items are installed during a vacancy, the total costs must be included in the rent calculations provided by an owner in the NYC Lease Rider or ETPA Standard Lease Addenda. Supporting documentation, such as invoices and bills, which doesn’t have to be electronically provided to the DHCR, may be requested by the tenant from the owner.
For rent-controlled apartments, any increase based on an IAI that was previously reported to the DHCR in the forms above must also be reported in the appropriate Maximum Base Rent reporting forms.