In a decision that could force rent-controlled tenants to pay much higher rents over the next few years, the Appellate Division, 3rd Dept. on March 24 unanimously reversed a lower-court ruling that the 1996-97 Maximum Base Rent (MBR) adjustment of 3 percent was lawful.

The decision overturned a September 1996 ruling by Albany Supreme Court Justice George L. Cobb of Catskill, who rejected a lawsuit brought by the Rent Stabilization Association and the Community Housing Improvement Program, the two largest landlord organizations in New York, against the state Division of Housing and Community Renewal, which administers rent controls.

At the DHCR’s 1995 MBR hearing, Met Council had organized a large turnout of rent-controlled tenants, all of whom urged the agency to do more to protect them from skyrocketing rents. The pressure convinced DHCR to adopt the 3 percent figure—the lowest MBR adjustment in history.

The RSA and CHIP filed the suit in Albany County, apparently to avoid the intense media attention and tenant pressure that it would have gathered in New York City. They claimed that DHCR, in setting the 3 percent adjustment, used an "equalization factor" from the wrong part of the Real Property Tax Law. (The equalization factor is used in the MBR formula to calculate the "return on capital value" component of the formula, also known as the equalized assessed valuation component.) The landlords argued that the use of the proper factor would result in a MBR increase over double what DHCR granted.

In its response to the landlords’ appeal, DHCR argued that the 3% adjustment would become 32.5% if the court imposed the landlords’ position.

The appeals decision is not yet in effect because the landlords have not filed a notice of entry, according to attorneys familiar with the case. Once it is filed, DHCR has the choice of either appealing it to the state’s highest court, the Court of Appeals, or scheduling a new hearing, utilizing the Tax Law data, that would lead to a much higher adjustment. DHCR has not yet decided which way it will go.