DHCR Issues Individual Apartment Improvements Bulletin

The agency also updated its online Individual Apartment Notification portal.

In an effort to revitalize the rental market for rent-stabilized apartments, the New York State 2024–2025 budget raised the Individual Apartment Improvements (IAI) cap, which limits how much owners can increase rents to compensate them for renovations or improvements performed on rent-stabilized apartments. The IAI reforms went into effect on Oct. 17, 2024, and establish a two-tier system that increases the caps on IAIs, allowing owners to recoup renovation costs over an extended period.

The DHCR recently issued Operational Bulletin 2024-2 to reflect the changes in the rent laws regarding IAIs. The DHCR also updated its online Individual Apartment Notification portal in connection with these changes. The Housing Stability and Tenant Protection Act (HSTPA) of 2019 required owners to notify the DHCR of all IAIs and ordered the DHCR to establish a “centralized electronic retention system” for tracking IAIs. The updated IAI Notification application and forms are available exclusively on the DHCR’s website through its Owner Rent Regulation Applications (ORRA) system.

IAI Basics

One method owners use to raise rent-stabilized rents is charging for IAIs. When an owner installs a new appliance or makes an improvement to an individual rent-stabilized apartment, the owner may be entitled to an IAI rent increase. The tenant’s written consent for the improvement and rent increase is required only if the apartment is occupied by a tenant at the time of the improvement.

Written consent isn’t required for a vacant apartment, and owners have typically taken advantage of this during a vacancy. For IAI upgrades performed during a vacancy, a fraction of the costs can be passed onto the incoming tenant. DHCR Operational Bulletin 2024-2 (which replaces Operational Bulletin 2016-1) identifies items that may and do not qualify as IAIs.

Acceptable improvements. Generally, apartment improvements, new equipment, or new services are considered improvements eligible for an IAI rent increase. Here are some examples of qualifying IAIs:

• Complete bathroom modernization or renovation, including fixtures installed as part of the project, and all painting and plastering if part of the modernization or renovation;
• New air conditioner purchased and installed by the owner, including wiring and outlet for the air conditioner where none previously existed;
• New washing machine and/or dryer, including wiring and outlet where none previously existed;
• New parquet flooring where none previously existed;
• New subflooring;
• New flooring, including linoleum and vinyl tiles, when a new subflooring is installed;
• New carpeting;
• New built-in clothing closets;
• New furniture;
• New lighting fixtures where none previously existed;
• New storm door;
• New storm windows;
• New windows if not part of a building-wide installation;
• New full-length screens where none previously existed;
• Balcony enclosure;
• Security alarm;
• New dropped and/or soundproof ceilings;
• Painting and plastering if part of a major renovation; and
• Installation of Sheetrock if done throughout the apartment.

In addition, the DHCR says the costs associated with the removal or demolition of the items being replaced may be included in the amount eligible for the rent increase when the removal or demolition is necessary and is performed contemporaneously with the completion of the work.

Also, architectural or engineering services that are directly related to an IAI are considered part of the allowable costs eligible to be included in calculating a rent increase when the work requires approval by a Registered Architect (RA) or Professional Engineer (PE), for the issuance of a permit by the NYC Department of Buildings (DOB).

Nonqualifying improvements. Here are examples of improvements that are excluded when calculating an IAI rent increase:

• Any removal or demolition work performed by the owner or an employee of the owner during the course of assigned duties;
• Used equipment, furnishings, or items replaced through normal maintenance or repair;
• Installations or modifications made while a tenant is in occupancy without the tenant’s written consent; and
• Items that constitute ordinary repairs and maintenance (installing Sheetrock in less than the full apartment; plastering; painting; scraping, shellacking, or coating floors with polyurethane; replacing light fixtures, outlets, or switches; new ceilings) unless such work was done in connection with (and is a necessary component of) an allowable IAI.

With regard to nonqualifying apartment improvements, the DHCR points out that physical changes to the interior of an apartment that are reasonable accommodations and/or modifications for a disabled tenant in occupancy, such as installing grab bars in bathrooms, that in other instances might otherwise qualify for an IAI increase are not subject to a rent increase based on the provisions of the NYC Human Rights Law.

Overview of IAI Changes

One of the standout features of the new regulations brought on by New York State’s 2024 Budget Law is the introduction of two cap levels on IAI increases. Previously capped at $15,000 over 15 years, the new system raises the limits, offering more flexibility for landlords:

Tier 1: A $30,000 cap on IAI expenses over 15 years, with a permanent rent increase.

Tier 2: A $50,000 cap, applicable under specific conditions, such as when a tenant has continuously occupied an apartment for at least 25 years or the unit has been registered as vacant during 2022, 2023, and 2024. This increase is now permanent too.

For Tier 1, the permitted increases in legal rent are calculated the same way as they were under HSTPA. The permitted rent increase is 1/168th for buildings with fewer than 35 units and 1/180th of the total cost incurred by the owner for larger buildings. Under Tier 2, the rates are 1/144th and 1/156th, respectively.

For both tiers, owners must file online in ORRA at https://hcr.ny.gov/online-services-owners-and-managers and select the Individual Apartment Improvement Notification. Owners must then select either the first or the second tier.

Required Notification Forms

Owners of apartments subject to rent stabilization or rent control must file electronically DHCR Form RN–19N INDIVIDUAL APARTMENT IMPROVEMENT: NOTIFICATION, for IAIs made in vacant and occupied apartments. In addition to the notification form, where the tenant’s consent is required, owners must file electronically DHCR Form RN–19C INDIVIDUAL APARTMENT IMPROVEMENT: TENANT’S INFORMED CONSENT for IAIs made to occupied apartments.

If there was a tenant in occupancy of the apartment when the improvements were installed, then no otherwise permissible rent increase due to such improvements will be recoverable without the tenant’s written informed consent to the rent increase.

Owners may access these forms by logging into the ORRA System online at https://hcr.ny.gov/online-services-owners-and-managers and select the Individual Apartment Improvement Notification application.

The Notification and accompanying documents will be made part of the rent registration record for a rent-stabilized apartment and part of the Maximum Base Rent building profile record for a rent-controlled apartment. Such 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. At any time, the DHCR may request any relevant information even if provided previously, where it affects the adjustment of legal regulated rents. The DHCR advises owners to retain proper documentation of all improvements performed or any rent increases resulting from IAIs.

Tier 2 Requirements

A key requirement for Tier 2 eligibility is prior certification from the DHCR, confirming that the apartment qualifies for the higher cap level. Remember that tier 2 applies to vacant rent-stabilized apartments that were timely registered as vacant for 2022, 2023 and 2024 or had been continuously occupied for at least 25 years immediately prior to the start of the IAIs.

To recover costs for IAIs under the second tier, owners must complete the following steps:

Step 1. First request certification from the DHCR to establish eligibility to recover costs on proposed IAIs. An owner may recover costs based on the option of being registered as vacant for 2022, 2023, 2024, no more than once.

The DHCR will issue an order certifying eligibility or denying eligibility to recover costs. The DHCR’s order certifying eligibility is only made to determine if the owner is eligible to file for an IAI with the DHCR and not an order approving a rent increase.

Step 2. Immediately prior to undertaking the IAI installation, owners that are certified eligible by the DHCR must notify the DHCR on Form RN–19N INDIVIDUAL APARTMENT IMPROVEMENT: NOTIFICATION of their intent to perform the IAI work and evidence demonstrating that the improvement will be necessary due to a substandard condition, or due to the items being replaced having exceeded its useful life.

Photos of what will be improved, and any necessary permits required to undertake the improvement, must be submitted. In addition, the owner must submit an affirmation that it’s free and clear of any DHCR and any court findings of harassment or willful rent overcharge within the previous five years in all residential buildings it owns, including but not limited to partial or beneficial ownership.

Step 3. Immediately after the IAI installation, owners must complete DHCR form RN–19N INDIVIDUAL APARTMENT IMPROVEMENT: NOTIFICATION and submit evidence that the work was completed, which must include post-work photos, all applicable itemized invoice receipts for all parts, materials, appliances, and labor costs, and proof of payment. Owners must also pay to the DHCR a 1 percent fee based on the claimed costs not to exceed $50,000, as provided in the application instructions. For example, a $45,000 IAI will carry a fee of $450. Failure to make these filings will result in an IAI increase being non-recoverable.

Increases Under New and Old Rules

If an IAI rent increase was in effect prior to June 14, 2019, the IAI is governed by the law in effect at that time, including the applicable amortization rate. These IAIs don’t count toward the $30,000 or $50,000 cap on IAIs in a 15-year period.

However, IAIs installed post-HSTPA and before the effective date of the updated IAI rules (Oct. 17, 2024) count towards the $30,000 cap under Tier 1 and towards the $50,000 cap under Tier 2. Also, the temporary increases for these IAIs are now permanent rent increases and won’t be removed after 30 years.