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Individual Apartment Improvements (IAI)

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Individual Apartment Improvements (IAI)

Postby TenantNet » Wed Jul 06, 2016 5:17 pm

Note: this article originally appeared in the New York Law Journal. The author is a partner with Rosenberg & Estis, a landlord law firm.

Individual Apartment Improvements: an Overview
Warren A. Estis and Jeffrey Turkel
New York Law Journal
July 6, 2016

One of the major features of the Rent Stabilization Law (RSL), and one much beloved by landlords, is the landlord's right to add new equipment and improvements to an apartment, usually during a vacancy. These improvements are known as Individual Apartment Improvements, or IAIs. Formerly, a landlord could increase the rent by 1/40 of the cost of the IAIs; since 2011, the increases are 1/40 or 1/60 of the cost, depending upon the size of the building.

Statutes and Regulations

The RSL of 1969 did not provide for IAI rent increases. Instead, the basis for such increases is found in the Code of the Rent Stabilization Association (the RSA Code), which was adopted pursuant to the powers granted to the RSA in the RSL. Section 20(C)(1) of the RSA Code stated that where there is:

…an increase in dwelling space or the installation of new equipment or improvements in a particular dwelling unit other than a Major Capital Improvement, the monthly stabilization rent for the dwelling unit shall be increased by 1/40 of the total cost of such added dwelling space, equipment or improvements, including the cost of installation thereof; provided, however, that such an increase shall not be collectible during the term of a lease then in effect or any renewal thereof except upon the written consent of the tenant.

Analogous language is found in Section 2522.4(a)(1) of the Rent Stabilization Code, which was first enacted in 1987.

IAI increases were first authorized by statute pursuant to the Rent Regulation Reform Act of 1993 (L. 1993, ch 253). Section 19 of the Act added Section 26-511(c)(13) to the RSL to allow for rent increases where:

…there has been…an increase in the services, or installation of new equipment or improvements…provided in or to a tenant's housing accommodation, on written tenant consent to the increase. In the case of a vacant housing accommodation, tenant consent shall not be required. The permanent increase in the legal regulated rent for the affected housing accommodation shall be one-fortieth of the total cost incurred by the landlord in providing such…equipment, including the cost of installation, but excluding finance charges. Provided further that an owner who is entitled to a rent increase pursuant to this paragraph shall not be entitled to a further rent increase based upon the installation of similar equipment…within the useful life of such equipment…

Pursuant to the Rent Act of 2011 (L. 2011, ch 97, pt. B), the Legislature amended RSL §26-511(c)(13) to provide that the permanent rent increase shall be 1/40 of the total cost in buildings with 34 or fewer housing accommodations, and shall be "one-sixtieth…in the case of a building with more than thirty five housing accommodations…where such permanent increase takes effect on or after September twenty-four, two thousand eleven …."

What Qualifies as an IAI?

Typical IAIs include kitchen appliances, kitchen cabinets, bathroom fixtures, and new flooring. Although the vast majority of IAI work is performed in vacant apartments—because tenant consent is not required where the apartment is vacant—much of the work that landlords routinely perform in vacant apartments is deemed normal maintenance and repairs, rather than the installation of new equipment or improvements. Thus, IAI increases will not be granted for such routine work as painting, skim-coating, scraping, plastering, and the polyurethaning of floors. See e.g.Mayfair York Co. v. New York State Div. of Hous. and Community Renewal, 240 AD2d 158 (1st Dept. 1997).

DHCR's Operational Bulletin 2016-1, issued in May of 2016, sets forth an expanded list of items that may qualify as an IAI, including new subflooring, new carpeting, new built-in clothing closets, new storm windows, new security alarm, painting and plastering "if part of a major renovation," and installation of sheetrock "if done throughout the apartment." Practitioners are advised to consult Operational Bulletin 2016-1 because it constitutes, for better or worse, DHCR's latest policies concerning IAIs.

Burden of Proof and Cost

Not surprisingly, the burden of proving the legitimacy of an IAI increase is on the landlord. See 985 Fifth Ave. Inc. v. New York State Div. of Hous. and Community Renewal, 171 AD2d 572 (1st Dept. 1991). Pursuant to Operational Bulletin 2016-1, proof of payment should include: (1) cancelled checks contemporaneous with the completion of the work; (2) invoices marked "paid;" (3) signed contracts; and (4) a contractor's affidavit stating that the installation was completed and paid in full. Because the four-year statute of limitations on rent overcharge claims has virtually ceased to exist, landlords are advised to maintain such proof in perpetuity.

Landlords who fail to prove IAIs may be liable for treble damages, especially where DHCR finds that the landlord had inflated costs, misrepresented the scope of work, or has not testified credibly. See Riverside Equities, LLC v. New York State Div. of Hous. and Community Renewal, 58 AD3d 534 (1st Dept. 2009).

It is not always the case that the landlord's documentation breaks down the scope of work between actual improvements and ordinary repairs. In Jemrock Realty Co., LLC v. Krugman, 13 NY3d 924, 926 (2010), the Court of Appeals held that in such instances:

…the resolution of that issue is not governed by any inflexible rule either that a landlord is always required, or that it is never required, to submit an item-by-item breakdown, showing an allocation between improvements and repairs, where the landlord has engaged in extensive renovation work. The question is one to be resolved by the factfinder in the same manner as other issues, based on the persuasive force of the evidence submitted by the parties.

Source of Funds

Sometimes a landlord improves a vacant apartment following a fire or other casualty. In Nagobich v. New York State Div. of Hous. and Community Renewal, 200 AD2d 388 (1st Dept. 1994), the First Department affirmed DHCR's interpretation of RSA Code Section 20(C)(1) as not allowing a landlord to collect IAI increases where the work is paid from insurance proceeds:

The cost of insurance is already factored into the calculation of the regulated rent, and thus the insurance recovery does not represent an outlay of new capital that may be recouped by permanently adding 1/40 of the cost of the expenses to the rent. The statutory scheme permits a rent increase only for an 'improvement', and rationally does not include repairs paid for by insurance policies already financed by the rents collected.

Documenting Labor Costs

Not surprisingly, a landlord will frequently ask the building superintendent to perform certain IAI work, such as the installation of new cabinets or flooring. The question then arises as to how to value the superintendent's labor when calculating the lawful cost of the IAI. Pursuant to longstanding DHCR practice, the issue comes down to how the superintendent is compensated. In Matter of 299 Adelphi Associates, DHCR Adm. Rev. Dckt. No. CG-210286-RO, issued Oct.17, 1995, DHCR ruled that where work is performed by a superintendent, "an owner must show that the work was done and paid for separate and apart from the superintendent's ordinary duties at the subject premises." Thus, if making improvements is part of the superintendent's job and is reflected in the superintendent's compensation, no IAI increases will be allowed for such labor. If the superintendent is paid for this extra work above and beyond his or her usual paycheck, an increase will be permitted, but proof of such payment will be required.

In many instances, the landlord will use its own contracting company to perform the work, which raises the specter of inflated labor costs and other charges. In Operational Bulletin 2016-1, in the section captioned "Identity of Interest," DHCR states that it will require additional proof where it appears that the owner and/or managing agent have a financial interest, or family ties, with an entity receiving payment for an IAI. Additional proof will also be required where there is evidence of "side deals, agreements or contracts." DHCR does not specify the "additional proof" that it will require, but it can be assumed that such proof will vary depending on the peculiar facts of each case.

Jurisdiction

IAI disputes usually occur in the context of overcharge cases before DHCR. It is well settled, however, that courts have jurisdiction to decide allegations of overcharge involving IAI increases. In Rockaway One Co. v. Wiggins, 35 AD2d 36, 42-43 (2d Dept. 2006), the Second Department confirmed that DHCR does not have exclusive jurisdiction over such matters:

The issues presented with respect to an overcharge based on an allegedly improper IAI increase are not foreign to the courts. Essentially, in evaluating the legitimacy of an IAI increase, the court is required to determine (1) whether the owner made the improvements to the apartment during the relevant time period, (2) whether those improvements constitute legitimate individual apartment improvements within the meaning of the regulations, (3) the total cost of the improvements, (4) one-fortieth of that cost, and (5) the sum of one-fortieth of the costs plus the monthly rent level after any other increases to which the owner may be entitled. While it is true…that the regulations provide for the exercise of some discretion in determining the availability and extent of an IAI increase, the limited scope of that discretion does not require administrative review as a predicate for judicial consideration (internal citations omitted).

Warren A. Estis is a founding member of Rosenberg & Estis. Jeffrey Turkel is a member at the firm.
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Re: Individual Apartment Improvements (IAI)

Postby TenantNet » Wed Jul 26, 2017 7:23 am

Note: In this and some other cases brought by the non-profit Housing Rights Initiative, the attorneys being used include Lucas Ferrara, a partner with Newman Ferrara LLP, one of the city's most notorious landlord law firms. It's not unusual for a landlord law firm to take on one tenant client every so often, perhaps one or two per year, only so that critics can't complain they are an eviction mill. But they are, and they do. Perhaps the only benefit is that the firm will know the same tricks they and others employ when representing landlords - most of their clients - when seeking to evict or commit fraud on tenants.

If Newman Ferrara wants to be seen as a firm that works for both sides, they will have to work many years to do that. To be seen as a tenant law firm, well that's near impossible.

https://therealdeal.com/2017/07/25/no-golden-toilets-at-bronstein-apartments-67-tenants-allege-in-lawsuit/
No golden toilets at Bronstein apartments, 67 tenants allege in lawsuit
Renters say landlord made up the cost of individual apartment improvements, overcharged them in rent
By Will Parker | July 25, 2017 03:27PM

Over 60 tenants in buildings owned by Bronstein Properties allege the purported costs of renovations made to their rent stabilized apartments are completely disconnected from reality. They say it translates to them being grossly overcharged on rent.

In a lawsuit filed Tuesday in Manhattan State Supreme Court, attorneys for the tenants cited dozens of apartments across 24 buildings where the landlord would have had to have performed tens of thousands of dollars in improvements to justify the rent increases, but for which they claim there is no evidence that such work was done.

The lawsuit was first reported by the New York Times.

Individual apartment improvements, or IAIs, are one of the most common ways that landlords boost rents on affordable, rent stabilized apartments. For a landlord, the deal is simple: he or she spends money renovating units and then charges a percentage of those costs in rent –in perpetuity. Those increases are often enough to pull the apartment out of the rent stabilization program all together, freeing up apartments for even more improvements and rent increases.

But Bronstein’s tenants point to the lack of Department of Buildings permits at many of the units in question, including one apartment that would have required $82,200 in improvements to justify the rent. The tenants further claim that there were not enough other additions were made to apartments to justify the increases.

For example, at 30 Seaman Avenue, a rental building in Inwood, there are eight units with improvement costs that, based on the amount Bronstein increased the rent, would have ranged between $20,000 and $40,000, depending on the apartment. Construction permits have never been filed for those units, the plaintiffs allege, nor could they find any other changes that would justify the correlating costs.

In another example, at 43-32 47th Street in Sunnyside, one apartment’s rent spiked 141 percent between 2014 and 2015, an increase that would have required over $60,000 in IAIs. The suit alleges there’s no evidence improvements meriting such costs occurred either.

“It appears that Defendants’ scheme pervades the entire Bronstein Portfolio,” the complaint reads, “and that the most basic discovery will reveal Defendants’ widespread reliance on fraudulent, exaggerated and/or undocumented IAls.”

Barry Rudofksy, the principal of Bronstein, did not immediately return a request seeking comment. A 2016 analysis of property records by The Real Deal found that Bronstein was the city’s 14th largest for-profit rental landlord .

Although IAI costs must be reported to and approved by the state’s Homes and Community Renewal, the agency does not make sure every dollar in an improvement report is accounted for. HCR’s Tenant Protection Unit, however, can and has performed audits of previously approved rent increases derived from IAIs .

Apart from IAI issues, the plaintiffs allege that the landlord also failed to register some apartments as rent stabilized with HCR, including buildings that receive the J-51 tax abatement, which does not allow for unit deregulation.

The lawsuit came together as the result of a research effort by the tenant advocacy group Housing Right Initiative, which is behind a slew of rent-stabilization suits against prominent landlords like Stellar Management and A&E Real Estate .

Aaron Carr, the nonprofit group’s founder, quipped in a statement that Bronstein’s apartments all seem to be missing the luxury accessories that the steep rent increases would suggest. “Where is the butler? Where is the golden toilet seat? Where is the marble statue of an ancient Greek goddess? And, most importantly, where is our government?” Carr asked.
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Re: Individual Apartment Improvements (IAI)

Postby TenantNet » Wed Jul 26, 2017 7:25 am

Note: In this and some other cases brought by the non-profit Housing Rights Initiative, the attorneys being used include Lucas Ferrara, a partner with Newman Ferrara LLP, one of the city's most notorious landlord law firms. It's not unusual for a landlord law firm to take on one tenant client every so often, perhaps one or two per year, only so that critics can't complain they are an eviction mill. But they are, and they do. Perhaps the only benefit is that the firm will know the same tricks they and others employ when representing landlords - most of their clients - when seeking to evict or commit fraud on tenants.

https://www.nytimes.com/2017/07/25/nyregion/landlord-raised-rents-for-renovations-never-done-lawsuit-says.html
Landlord Raised Rents for Renovations Never Done, Lawsuit Says
by Kim Barker
July 25, 2017

Randy Garcia thought she might be paying too much for her rent-regulated apartment in Washington Heights in Manhattan: about $1,800 a month. It was more than she could afford with her job handling medical records.

Eventually she asked the state for a history of rent increases on the apartment.

She learned that the landlord, Bronstein Properties, had almost doubled the rent four years earlier, to $1,425 from $761.70. To justify such an increase under the law, Bronstein would have needed to perform more than $30,000 in renovations when the apartment was vacant.

But Bronstein, one of the city’s largest landlords, had not filed a building permit for any work, which would be necessary for most renovations. And Ms. Garcia was dubious that anything had been done.

“For the amount of money I’m paying, I should be living in a palace,” said Ms. Garcia, 49, who lives with her daughter.

On Tuesday afternoon, more than 60 tenants, including Ms. Garcia, filed a class-action lawsuit against Bronstein Properties claiming that the company has inflated rents in regulated apartments higher than legally allowed by falsely claiming to have performed renovations in vacant apartments. Bronstein, which is based in Queens, owns more than 100 buildings with rent-regulated apartments, mainly in neighborhoods that have not gentrified.
Continue reading the main story

A representative of Bronstein Properties said that the company had no comment because it had not yet seen the lawsuit.

The rent for regulated apartments can only be increased a certain amount every year. They are the city’s largest affordable-housing program — making them one of the only ways that many people can afford to live in New York City these days. Roughly 1 million apartments, or almost half the city’s rental stock, are supposed to be regulated.

Landlords are allowed to pass on the cost of renovations, such as redoing a bathroom or buying a new stove, to new tenants through rent increases. They are not allowed to increase the rent for normal maintenance, like painting an apartment, or for repairs.

A tenant must know to ask for his or her rental history to see what a landlord claims; otherwise, rent histories are not public record. But the state’s Division of Housing and Community Renewal , which oversees rent-regulated apartments, only asks for proof of improvements if tenants complain . Otherwise, the state just takes a landlord’s word for what was done.

“Not surprisingly, some landlords — such as Bronstein — have taken advantage of the lack of transparency and oversight,” the lawsuit says.

Lucas Ferrara, one of the tenants’ lawyers, said that the case shows that the system governing rent-regulated apartments is broken.

“The honor system has not worked nor has it served New York City tenants well,” he said.

The lawsuit was spurred by the work of a new nonprofit, the Housing Rights Initiative , which aims to systematically determine whether landlords charge too much money for rent-regulated apartments. Volunteers and workers knock on tenants’ doors and ask them to request their rental histories. They then help build cases against landlords believed to have increased rents without justification.

In the group’s first 17 months, Housing Rights Initiative has helped put together class-action lawsuits against major landlords like Stellar Management , A&E Real Estate Holdings and the Parkoff Organization .

This lawsuit said Bronstein has claimed to have performed apartment improvements to justify rent increases of as much as 141 percent. Meanwhile, inspections indicate that the work necessary for such increases was never performed.

In fact, the company did not obtain building permits for any of the tenants’ apartments, the lawsuit said. Building permits are not always necessary, but they are for major work, such as redoing a bathroom or a kitchen.

At Ms. Garcia’s apartment, at 45 Thayer Street, near the northern tip of Manhattan, the wood parquet floor was old. The bathroom’s tiles looked old, and the bathtub had not been sealed. For the first few months, rats were almost daily visitors, coming in through unseen holes or through a hole in the bathroom that Ms. Garcia plugged with a steel-wool scouring pad and mints, which rats hate. Mice popped out from a crack on the top of the stove, she said. A window in her daughter’s bedroom didn’t open; cracks were starting to show in the walls.

At an apartment at 43-32 47th Street in the Sunnyside neighborhood of Queens, the rent was increased in 2015 to $2,250 from $933.14. To justify that increase, Bronstein would have needed to spend almost $68,000 on improvements. Yet the apartment’s two-bedroom layout remained the same as before the renovations, former tenants said.

At a studio apartment in 309 W. 57th St. in Manhattan, the rent more than doubled, to more than $2,500 from $932.65. At the time, in 2014, $2,500 was the threshold between regulation and the free market. To justify such an increase — and, therefore, deregulating the apartment and raising the rent much higher — Bronstein would have needed to spend almost $83,000 on renovations.

“There were no gold faucets,” Aaron Carr, the founder and executive director of Housing Rights Initiative, said. “When you’re claiming $80,000 in improvements in a 400-square-foot studio, it better look like the Trump hotel.”
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