DHCR Will Approve MCI Rent Hikes for Backflow Prevention Devices

New York City’s water purity is protected by many layers of laws and regulations. Protecting the water supply is important because clean water is essential for good health and contaminated water can spread diseases and death over large populations. In the past few years, we’ve seen a greater policy emphasis on preserving the quality of the New York water supply.

One way policy makers are protecting New York City’s water supply is with backflow prevention devices. Backflow is the unwanted flow of contaminated water or chemicals going into a building’s drinking-water supply due to a sudden or unexpected change in water pressure. Backflow-prevention devices keep the dirty water out in such cases.

The state Health Code has provisions that date back to the 1990s that require the installation of these devices in buildings that contained establishments such as laundries, dry cleaners, and doctors’ offices. However, in December 2009, Mayor Bloomberg signed Local Law 76 of 2009, which expanded the instances where backflow prevention devices are now required. Now, the owner of any building with a “cross connection,” which is broadly defined as a “physical connection or arrangement between two separate piping systems where one system contains potable water and the other contains steam, gas, a chemical, or water of questionable safety, where there may be a flow from one system to the other” is required to install, inspect, and maintain a backflow prevention device.

The definition covers mostly commercial properties, but various types of apartment buildings must also comply, including those that reuse or recycle water and those that have: large water boilers or boilers that use rust-inhibitors or other water treatment chemicals, multiple water service lines, roof tanks and elevated storage lines, groundwater wells, or in-ground irrigation sprinklers.

Failure to comply can lead to fines of up to $2,000. If you ignore the fines, the city can shut off the water supply to your building.

Installation Costs

According to New York City estimates, depending on the size of a building, the cost of installation and complying with the law can range from a low of approximately $3,000 to a high of over $30,000. The installation of these devices requires the hiring of an architect or engineer to evaluate the water supply system in the building and prepare plans for approval. In addition, a licensed plumber must install the device, and a separate test of the device must be conducted upon installation.

Eligibility as an MCI

When an owner makes a major capital improvement (MCI) to a building that’s subject to rent regulation, it can apply to the DHCR for approval to raise the rents of the regulated tenants based upon the actual, verified cost of the improvement or installation. 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.

To be eligible for a rent increase, the MCI must be a new installation and not a repair to old equipment. And all applications for MCI rent adjustments must be filed within two years of the installation.

Historically, the DHCR has denied MCI applications for the installation of backflow prevention devices even though the installation of the device may be required by law. Fortunately, according to a Processing Directive issued by Paul Fuller, Bureau Chief of the Division of Homes and Community Renewal’s Property Management Bureau, on June 1, 2012, the DHCR has reversed its position and will now be processing MCI applications for the installation of backflow prevention devices required by the Department of Environmental Protection. In other words, rent increases are authorized for the installation of backflow devices “when required by law, whether in connection with re-piping of a premise or simply in an effort to comply with the law.”

An owner must file an “Owner’s Application for Rent Increase Based on Major Capital Improvements (MCI)” (Form RA-79) available from DHCR Borough Rent Offices or from the main office at Gertz Plaza, 92-31 Union Hall Street, Jamaica, NY 11433, or from the DHCR Web site. And 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; and
• An affirmation of maintenance of services and a list of tenants with their respective rent-regulated status.

The following items will be included in the cost of the installation of this mandated device:

• Cost of architect/engineer for prep plans.
• Installation of device.
• Cost of certified testing by certified tester (annual testing isn’t eligible for rent increases).

When the DHCR issues you an order granting an MCI increase, the monthly rent hike for each rent-regulated tenant in your building is calculated by taking the total cost of the MCI as allowed by the DHCR and dividing it by 84, the number of months in seven years, and then dividing this sum by the number of rooms in the building. This yields the cost of the MCI the owner can collect per room per month.

Pending and Previously Denied MCI Requests

According to the directive, if any MCI cases for backflow prevention devices have been recently denied, they will be remanded for processing or reopened if a request for reconsideration is filed in a timely manner. If the owner has a pending Petition for Administrative Review (PAR), the case will be reviewed again by the Rent Administrator. And if the owner failed to file a PAR against a denial order, then the owner has 95 days from the date of the order being denied to request reconsideration.

Even if a denial order was issued, an owner may re-apply for MCI increases at any time within two years of the work’s completion.