Background on MCIs

What qualifies as a MCI?

What documentation is required?

How do I get a copy of the MCI Application?

How is a MCI Application processed and adjudicated?

How quickly can a MCI rent increase be collected?

Background: 

When owners make improvements or installations to a building subject to the rent stabilization laws, they can apply to the Division of Housing and Community Renewal (DHCR) for approval to raise the rents of the tenants based on the actual, verified cost of improvement or installation.

The MCI Law was passed to incentivize Owners to improve their properties.  However, from the Tenants' perspective this law is flawed because the cost of the improvement can be PERMANENTLY added to the base rent.  This means the Owner can continue to collect the cost even after it has been paid for in full by the tenants.   It has essentially been used as a back-door rent increase in perpetuity.  Since Rent Guidelines Board (RGB) increases are factored on your Base Rent, the RGB increases compound and raise the base rent even further.

A MCI begins with an application by the owner to the DHCR, a state administrative agency.  There are two review processes, one, the administrative agency's review, and two, potentially, judicial review.  Each process has various stages with deadlines and requirements for both the Owner and the Tenants.

Please see our "The Anatomy and Flow of a Major Capital Improvement Application" document which provides an outline of the MCI application and adjudication process.

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To qualify as an MCI, the improvement or installation must:  

• be depreciable pursuant to the Internal Revenue Code, other than for ordinary repairs;
• be for the operation, preservation and maintenance of the building;
• directly or indirectly benefit all tenants;
• and, meet the requirements set forth in the useful life schedule contained in the applicable Rent Regulations.
  

The completed application must contain:

• a list of the work performed;
• certifications provided by the owner and contractors regarding the cost of the work and dates the work started and ended;
• proof of payment;
• copies of all necessary approvals from applicable government agencies for the work done;
• an affirmation of maintenance of services and a list of tenants with their respective rent-regulated status.

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To review a copy of an Owner submitted MCI Application the Affected Tenant may:

• View the copy made available by the Owner or its representatives at the management offices.
• Write or have its representative write to DHCR at Gertz Plaza, 92-31 Union Hall Street, Jamaica, NY 11433 and request a copy of the application and supporting documents.

To ensure that a full copy of the record is provided it is recommended that the tenant or its representatives write to DHCR to obtain the entire application and supporting documents.

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How does DHCR process an MCI application?

(For a road map to the MCI Application process, please see our "The Anatomy and Flow of a Major Capital Improvement Application" document.)

When an owner submits an MCI application, DHCR notifies the tenants and gives them an opportunity to submit written responses to the application. They are instructed to comment on the subject installation(s) as specifically as possible. Tenants can request an extension of time to respond to the application.

The owner may keep a copy of the application with all supporting documentation on the premises so that tenants may examine it. However, a complete copy of the MCI application with all the supporting documentation will always be available at the DHCR for tenant review upon written request. DHCR will review the application, consider the tenant responses and may request additional documentation if deemed necessary.

When processing is complete, DHCR will issue an order either granting a rent increase for the total amount requested, a partial amount, or denying the request. The owner and the tenants will be notified by DHCR of the amount of the rent increase per room and related terms and conditions in a written order. The rent increase is a permanent addition to the rent.

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How quickly can a MCI rent increase be collected?

For rent stabilized apartments, the rent increase collectible in any one year may not exceed 6% of the tenant's rent for tenants in NYC at the time the application was filed.

For rent stabilized apartments there is a permanent prospective increase, and a temporary retroactive increase. The permanent prospective increase, which becomes part of the legal rent, is collectible first. Retroactive payments are those amounts owed between the effective date and the issue date of the DHCR order granting the MCI. They apply only to rent stabilized tenants and represent a temporary increase.

A senior citizen with a valid Senior Citizen Rent Increase Exemption (SCRIE), or a disabled person with a valid Disability Rent Increase Exemption (DRIE) is exempt from paying any portion of the MCI adjustment that would raise their total rent to over 1/3 of their total disposable income. However, an increase in the security deposit resulting from the MCI rent increase must be paid by both SCRIE and DRIE tenants.

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Sources:

• ST/PCV-TA
• New York State Department of Housing and Community Renewal Fact Sheet #24
• New York City Rent Stabilization Code, Section 2523.5 Tenant Protection Regulations, Section 2503.5
• New York City Rent and Eviction Regulations, Section 2202.25
• New York State Rent and Eviction Regulations, Section 2102.8

Updated by J. Marsh