DHCR Nightmares
How Pataki’s DHCR Rips Off Overcharged Tenants
By William Rowen

Under the Pataki administration, the state Division of Housing and Community Renewal, which is responsible for handling tenants’ overcharge complaints, has routinely miscalculated how much interest overcharged tenants are owed. Because of this, overcharged tenants are cheated out of hundreds, and often thousands, of dollars.

One of the reasons the state took over administration of rent regulations in 1983 was that overcharging rent-stabilized tenants had become common. The 1983 law adopted two new requirements intended to stop overcharging: universal initial and annual rent registration, and the award of treble damages and/or interest on overcharges to victimized tenants. Landlords have to pay three times the amount of the overcharge as a penalty for “willful” overcharges, and interest on non-willful overcharges. The rate of interest was set at 9%.

Calculating the amount of interest owed was complicated. For example, if a $100 a month overcharge lasted for four years, the landlord would owe four years of interest on the first month’s $100, and one month of interest on the last month’s. In a review of dozens of overcharge determinations, it became evident that the DHCR was calculating the interest rate in a way that resulted in overcharged tenants being substantially underpaid.

First, DHCR was using the wrong factor to determine the interest on a one-month overcharge, resulting in tenants only being awarded the dollar amount of the overcharge, not that amount plus one month’s interest. Each successive monthly factor thereafter was off similarly, based upon the initial error.

Second, DHCR rent administrators restarted the interest table from month one each time they calculated a new lease or overcharge period in an overcharge order. For example, in DHCR’s method, the factor for 24 months in a 48-month overcharge involving two consecutive two-year leases, where the overcharge is $150 for the first lease and $156 for the second, is applied twice, once for each period. The correct way would be to use the 48-month factor for the entire $150 portion of the overcharge, and then adding the result of $6 times the 24-month factor to pick up the interest on the increase in the overcharge. DHCR’s method in this example deprived the tenant of over $750 between two lease periods. If these calculations are used for a six-year overcharge, the tenant’s loss jumps to almost $2,500.

Met Council asked DHCR to correct this practice immediately and recalculate all pending orders. The letter further demanded that DHCR respond positively to tenants’ requests for reconsideration of existing final orders, on the grounds that the method used to calculate the interest in their orders was both illegal and irregular.

DHCR Wields a New Rubber Stamp

Turning rent stabilization on its head, DHCR recently issued an overcharge determination that disregarded overwhelming evidence that the landlord was not entitled to any rent increase.

The DHCR order concerned a West Side apartment that a new tenant moved into last year at $1,750 a month. The previous tenant’s rent had been $860. DHCR said they let the landlord double the rent because he had proved he spent over $30,000 in improvements in the apartment’s kitchen.

The new tenant complained of an overcharge and showed that the landlord was not entitled to any increase for improvements because the kitchen had been entirely renovated for the prior tenant in 1991. He submitted pictures taken before he moved in, affidavits from the previous tenant and a neighbor, an evaluation of the landlord’s claims by an outside contractor, and extensive argument that the landlord’s claims and evidence were inconsistent, contradictory, and inadequate.

The tenant argued that the law and the code both prohibit landlords from increasing the rent based on further improvements made during the “useful life” of the prior improvements. DHCR has adopted a “useful life” schedule that assigns specific years to dozens of improvements and replacements. The schedule is intended to be applied to both major capital improvements and individual apartment improvements, but is largely ignored.

The purpose of the “useful life” schedule is to prevent landlords from replacing recently installed equipment just to hike the rent. Many landlords routinely install new appliances like refrigerators every time an apartment becomes vacant, and store the barely-used ones in the basement to give to long-term tenants when their appliances break down. That practice guarantees that the landlord can get multiple rent increases on the items he buys without regard to any “useful life” standard. (And the city Rent Guidelines Board often uses the increased costs of appliances to justify increasing the rent guidelines.)

In denying the tenant’s complaint, DHCR found that the “useful life” of prior improvements could not be considered “due to the four-year limitation.” The 1997 rent law bars DHCR from looking at rent history from more than four years before the filing of a complaint.

This decision represents an addition to the DHCR’s longstanding practice of rubber-stamping any claims landlords submit of improvements justifying rent increases, without regard to how flimsy the evidence. It simply abrogated the “useful life” standard. Like Alice in Wonderland, it said that a “useful life” schedule no longer exists because they can’t look back more than four years. It applied the four-year rule even though there was no need to look at the rent history prior to four years.

The tenant has filed an extensively detailed appeal.

Met Council is preparing a fact sheet on overcharges with a corrected table of factors that tenants can use to calculate interest themselves. Call (212) 693-0550 after Nov. 1 for a copy.