How to Get DHCR Approval to Demolish a Rent-Regulated Building

The DHCR recently updated its fact sheet related to demolitions. Demolitions have garnered more attention in recent years due to the sweeping changes made to rent regulations as a result of the Housing Stability and Tenant Protection Act (HSTPA). Passed in June 2019, HSTPA severely limited rent increases and the ability for owners to deregulate apartments after their rents had passed a certain threshold. A demolition remains as one of the few grounds upon which an owner may end a rent-regulated tenancy.

A standard demolition involves taking down the entire building and constructing a new development from the ground up. But in other instances, an owner may intend to just gut the building and reconfigure the apartments. In one case, the state’s highest court held that it wasn’t important that there’s no precise or expansive definition of “demolition” in the Rent Stabilization Law and Code [Pekham v. Calogero, May 2009; LVT #21232].

Over the years, the DHCR hasn’t required an owner who has submitted a demolition application to show that it intends to “raze the structure to the ground” to be successful. An intent to gut the interior of the building, while leaving the walls intact, has been held as sufficient.

To be able to deny a lease renewal to a rent-stabilized tenant on the basis of demolition, an owner must submit an application to the DHCR showing:

• The new and approved building plans for the building;
• The financing to complete the demolition and construction; and
• An agreement to pay tenants’ relocation expenses and stipends.

We’ll discuss these requirements, the application process, and timing requirements for notices and tenant responses.

BASIC REQUIREMENTS

To be able to evict or deny a lease renewal on the grounds of demolition, you must comply with the following requirements.

Permission from DHCR

A demolition eviction requires an owner to first get permission from the DHCR to do so. This is a process that can take months or years. You must file Form RA-54, “Owner’s Application for Order Granting Approval to Refuse Renewal of Lease and/or to Proceed for Eviction” with the DHCR.

The DHCR recently issued Advisory Opinion 2020-9 for owners of buildings with rent-controlled tenants. In New York City, if your building contains rent-controlled tenants, then before filing Form RA-54, you must also file with the DHCR and serve the rent-controlled tenants with Form RC-50, “Report and Certification To Alter or Demolish Rent Controlled Occupied Housing Accommodations.” The RC-50 form isn’t required where there are no rent-controlled tenants in the building. However, when it is required, the RC-50 form must be filed before submitting plans to the NYC Department of Buildings (DOB).

Proof of Adequate Financing

You must show the DHCR that you have the financial ability to complete the intended project. Evidence of financial ability may include a Letter of Intent or a Commitment Letter from a financial institution, or other evidence that the DHCR may deem appropriate under the circumstances. This evidence is included in the RA-54 application package.

Approved Building Plans

The plans for the project must have been already approved by the appropriate city agency such as the DOB, Landmarks, Department of Environmental Protection—whatever is required. As part of DOB’s PW1: Plan/Work Application, it’s important to note that Section 26 includes questions about whether apartment units will remain occupied during construction, whether the units are subject to rent control and rent stabilization, and whether the DHCR has been notified about the proposed work. The DOB plans show the scope of the work and how a project will meet the demolition standard.

In one case, an owner applied to the DHCR for permission to refuse to renew tenants’ rent-stabilized leases and/or proceed with evictions for the purpose of fully demolishing its building. The district rent administrator ruled against the owner because the plans it filed with DOB showed that the building would remain occupied. This was contrary to the DHCR’s definition of “demolition,” which required, at minimum, the complete gutting of all interior spaces of a building. The owner claimed that its architectural plans met the definition of demolition. But the owner filed a gut renovation application with the DOB, which called for, in part, a gut reno of the existing building with no change to use or occupancy. As a result, the DHCR concluded on appeal that the rent administrator reasonably found that this application didn’t meet the standard for demolition [2 Adelphi Street LLC: DHCR Adm. Rev. Docket No. FU210028RO, February 2018; LVT #28339].

Tenant Payments

An owner must pay the tenant’s reasonable moving expenses. In addition, if the tenant leaves by the vacate date in the DHCR’s order, the tenant is entitled to a stipend. If the tenant doesn’t vacate the apartment on or before the date in the DHCR order, the stipend is reduced by one-sixth of the total stipend for each month the tenant remains in occupancy after the vacate date in the final order. There are three stipend options available to the owner. At the owner’s option, the owner may:

• Relocate the tenant to a suitable housing accommodation at the same or lower legal regulated rent in a closely proximate area, or in a new residential building if constructed on the site, in which case suitable interim housing must be provided at no additional cost to the tenant; plus, in addition to reasonable moving expenses, a payment of a $5,000 stipend; or
• Where an owner relocates the tenant to a suitable housing accommodation at a rent in excess of that for the subject housing accommodation, in addition to the tenant’s reasonable moving expenses, the owner may be required to pay the tenant a stipend equal to the difference in rent, at the commencement of the tenant’s occupancy of the new housing accommodation, between the subject housing accommodation and the new housing accommodation, multiplied by 72 months; or
• Pay the tenant a stipend that’s the difference between the tenant’s current rent and an amount calculated using the demolition stipend chart from Operation Bulletin 2009-1. This difference is multiplied by 72 months. The stipend chart assumes the owner pays the tenant for a minimum of three rooms and the final amount is adjusted by the Rent Guidelines Board increases issued since the Operational Bulletin. This is the only option in which the owner isn’t obligated to find suitable housing accommodations.

Tenants who would lose income-dependent government benefits because of the stipend may elect to waive the stipend and have the owner relocate them to a suitable housing accommodation at the same or lower legal regulated rent in a nearby area.

For the relocation options, “suitable housing accommodations” means housing that’s similar in size and features to the respective housing now occupied by the tenants. The new accommodations must be freshly painted before the tenants move in and must include the same required services and equipment the tenants received in their prior accommodations. The new accommodations don’t have to be rent stabilized provided the owner submits a contractual agreement that places the tenant in a substantially similar housing accommodation at no additional rent for a period of six years, unless the tenant requests a shorter lease period in writing.

If you offer the tenant a comparable housing accommodation, the tenant may file an objection with the DHCR challenging its suitability within 10 days after you’ve made it available for the tenant to inspect. Within 30 days thereafter, the DHCR will inspect the accommodation, on notice to both parties, in order to determine whether it’s suitable.

If the DHCR determines that the housing accommodation isn’t suitable, you must offer the tenant another accommodation. The tenant will have 10 days to inspect it to consider its suitability.

If the DHCR determines that the accommodation is suitable, the tenant then has 15 days to accept it. A tenant who refuses to accept relocation to any housing accommodation the DHCR determines is suitable will lose the right to relocation by the owner and to receive payment of moving expenses or any stipend.

APPLICATION PROCESSING

Once you’ve filed an application, you may refuse to renew tenants’ leases until a determination of the application has been made. Tenants may remain in occupancy during this period, and you may not raise the rents. If the application is denied or withdrawn, you must again offer prospective renewal leases to the tenants, as directed in the DHCR’s order of denial or withdrawal.

In addition, you’re required to serve tenants with termination notices, which among other things state “that the tenant shall not be required to vacate until DHCR has issued a final Order approving the RA-54 application.” In New York City, pursuant to Rent Stabilization Code Section 2524.2(c)(3), after filing a demolition application, an owner must serve each tenant with a Termination Notice at least 90 and not more than 150 days prior to the expiration of the tenant’s lease term. Provided that each tenant whose “window period” occurs before the order is issued is served with a timely termination notice, the order granting the application may be issued.

In one case, however, an owner didn’t send the tenant a required termination notice within the window period specified in the Rent Stabilization Code but was able to show that his action wasn’t willful due to special circumstances related to the purchase of his building. Initially, the district rent administrator said the owner could re-apply in the future during the window period applicable to an existing lease. On appeal, the court said DHCR Operational Bulletin 2009-1 states that if an owner doesn’t send a tenant the required termination notice during the window period but can show that such failure wasn’t the result of “a willful attempt to evade this obligation” and that the owner has otherwise substantially complied with its obligation to send the notice, the DHCR won’t have to terminate a demolition application.

In this case, the owner showed that its actions weren’t willful. There was only one remaining tenant in the building, and the owner bought the building after the tenant’s last lease had already expired. The tenant had been without a lease since 2014, had received the owner’s application, and hadn’t objected to the application. To hold an owner to a stricter requirement under the circumstances involved would create an undue hardship since the rest of the building was vacant and unrentable. The owner’s application otherwise met the requirements for demolition approval. The owner demonstrated that the project included a gutting of all the interior building space and submitted an architect’s statement attesting to the plan along with filed DOB plans and a Tenant Protection Plan (TPP). The owner also showed proof of current financial ability to complete the project [1714 Madison LLC: DHCR Adm. Rev. Docket No. IS210005RP, August 2020; LVT #30963].

If your RA-54 application is granted, the DHCR order will contain terms relating to relocation stipends and moving expenses, and will give the tenant a reasonable amount of time to vacate the apartment. It’s important to note that the DHCR can’t order the eviction of any tenant. In other words, if you get a vacate order from the DHCR and the tenant doesn’t go, then you need to take the tenant to Housing Court. Warrants of eviction must be obtained from the court.

On the other hand, if your application is denied or withdrawn, the DHCR order will direct you to offer the tenants prospective lease renewals. In either case, whether the order is granted or denied, any party aggrieved by the DHCR’s determination may file a Petition for Administrative Review (PAR) within 35 days. The filing of the PAR or appeal freezes the order.