How to Minimize Chances of MCI Application Processing Delays

When you apply to the Division of Housing and Community Renewal (DHCR) for major capital improvement (MCI) rent hikes, you want the DHCR to process your application as quickly as possible and grant your rent hike. The sooner it grants your rent hike, the sooner you can start collecting it.

As a result, it's imperative that you do nothing in your power to delay an already potentially long process. According to Sheldon Mann, director of management and development at Langsam Property Services Corp., the MCI approval process is taking much longer than it did several years ago. For him, it has been taking at the minimum three months now, and could reach six months or more.

It's easy to make mistakes that can slow down the application process and even derail your application. To help you get your application processed and your rent hike granted as quickly as possible, we've come up with a Model Form: MCI Application Checklist, that you can use before you file your application. You may copy the checklist for your own use or give it to your employees who supervise your MCI applications. If you can check off each point on the checklist that applies to your situation, your application should be approved by the DHCR with minimal delays. Below is an explanation of all the points on the checklist. We've divided these points into three categories—Eligibility Requirements, Application Requirements, and Other Documents Needed.

Eligibility Requirements

To get an MCI rent hike, you must meet some basic eligibility requirements. If you don't, your MCI application will be denied.

1. Useful life requirement met. This is something you should check before you begin any work. To be eligible for an MCI rent hike, the item you're replacing must have exceeded its useful life, according to the DHCR's useful life schedule (set out in DHCR Operational Bulletin 90-2) before the item is replaced. If it hasn't, do one of the following:

• Delay the work until the item's useful life expires; or

• Ask the DHCR to waive the useful life requirement before you start the work. Under certain conditions—in an emergency or when equipment is beyond repair—the DHCR will let you replace an item that has time left on its useful life.

PRACTICAL POINTER: Know how to navigate the useful life schedule and use it to help guide the level of maintenance needed for a project. Mann uses pointing and related waterproofing as an example. “Once an MCI is approved for pointing, a subsequent application will not be approved for 15 years, even if the pointing is needed in a new area. So, owners should do as much pointing as might be needed in the near future, or not apply for an MCI increase if only doing a little pointing now,” he notes.

2. Rent-stabilized apartments properly registered. To qualify for an MCI, each rent-stabilized apartment in your building must be properly registered with the DHCR. This means you must have filed an initial apartment registration as well as subsequent annual rent registrations for each rent-stabilized apartment. If you file your MCI application while registrations are missing, you'll be denied MCI increases for the apartments with missing registrations.

Before you file the MCI application, you should check that your building's rent-stabilized apartments have been properly registered. To do this, go to your local borough rent office (BRO) and ask for your building's rent registration records. Bring proof of ownership and your rent roll. If you discover any missing registrations, correct the problem.

3. No rent reduction orders in effect for reduced services. The DHCR can deny the application in whole or in part, if the owner is not maintaining all required services, or if there are current immediately hazardous violations outstanding pursuant to any municipal, county, state, or federal law relating to the maintenance of such services.

An MCI rent increase won't be approved if there's a DHCR finding of harassment outstanding on the building or if there's a DHCR-issued building-wide rent reduction order in effect, based upon a decrease in services. A tenant whose apartment has an individual rent reduction order in effect, based upon a decrease in service, will be exempt from the MCI rent increase until the rent is restored by the DHCR.

Before you file your MCI application, check for these types of orders by going to your local BRO. Ask for a printout of all pending and closed cases on your building.

It's important to note that the DHCR will expedite any owner-filed rent restoration applications. In other words, the DHCR won't automatically deny your MCI application if you've filed a petition for administrative review (PAR) challenging the rent reduction order or if you've applied to restore the rent. If you haven't filed a PAR, make sure you apply to get the rent restored before you file your MCI application. But note that the processing of your MCI application will be delayed. The DHCR will hold off deciding your MCI application until it issues a decision on your rent restoration application and/or your PAR.

4. Filing deadline for application met. To get an MCI rent hike for rent-stabilized apartments, your application must be filed within two years after the date the work upon which the application is based was physically completed. The DHCR will reject an application that isn't filed by that deadline. Don't confuse the date the work was completed with the date you made the final payment for the work. That's not the date the DHCR looks at.

Application Requirements

The MCI application consists of several sections. It's easy to make mistakes. Here are some key points in the application where mistakes are common:

5. “Owner's application” completely filled out. The first part of the MCI application is the “Owner's Application for Rent Increase Based on Major Capital Improvements (MCI)” RA-79 (5/06), which we'll call the owner's application. If you don't completely fill it out, the DHCR will reject your application.

6. Section A of Supplement 1 completely filled out. Also be sure to completely fill out “Section A —Owner Information” of Supplement 1 to the owner's application (“Supplement 1—Owner and Contractor/Vendor Affirmation for Owner's Application for Rent Increase Based on Major Capital Improvements” RA-79 Supplement 1 [5/06]). If you don't, the DHCR will reject your application.

7. Section B of Supplement 1 completely filled out by contractor. Your contractor must fill out this section and sign the affirmation on the bottom. If this section is incomplete, the DHCR will reject your application.

8. Two places indicate age of item replaced exceeds its useful life. You must give information about the replaced equipment's useful life in two places on the MCI application form.

First, in the chart on p. 2 of the owner's application, you must list the age of the item replaced. Unless you've gotten a waiver from the DHCR, this number must exceed the item's useful life as listed in the DHCR's useful life schedule for you to get an increase. Also, on Supplement 1, you're asked if the replaced item has exceeded its useful life. You're advised to explain if the answer is no. If you've gotten a waiver of the useful life requirements from the DHCR, say so here. Attach a copy of the DHCR order granting the waiver to your MCI application.

9. Two entries for total number of rooms match. You must enter the total number of rooms in the building on p. 1 of the owner's application. You also must enter the total number of rooms on the rent roll in “Supplement 2—Schedule of Monthly Rental Income for Owner's Application for Rent Increase Based on Major Capital Improvement” RA-79 Supplement 2 (5/06). If these numbers don't match, your application will be delayed while the DHCR contacts you to ask why.

Also, Mann recommends that you refer to prior MCI applications. “The dwelling unit and room counts should be consistent with prior MCI applications for a building,” he notes.

10. All professional and commercial units in the building and their rents identified. This information should appear on the rent roll in Supplement 2. If this information is missing, the DHCR will delay your application until you provide it. “If there's a commercial unit, owners should take care to calculate the right square footage, because that will determine the reduction ordered for increases per room,” says Mann.

PRACTICAL POINTER: According to Mann, the DHCR is saying that a laundry room counts as a commercial unit if the tenants pay for the machines. His company is currently challenging that designation. He recommends that owners not report that there's a laundry room—take it off the rent roll that's submitted—and if tenants don't raise the issue, the DHCR isn't likely to.

11. Super's apartment and its approximate value identified if live-in super doesn't pay rent. This information should appear on the rent roll in Supplement 2. If any of this information is missing, the DHCR will delay your application until you provide it.

12. Appropriate supplement filled out if commercial or professional tenants benefit from MCI. To avoid automatic rejection, you should fill out “Supplement 3: MCI Cost Allocation For Commercial Benefitting From The Major Capital Improvement(s)” RA-79 Supplement 3 (5/06).

13. Your signature on bottom of p. 1 of owner's application. Either the building's owner or agent must sign here. Without the proper signature, the DHCR will reject your application.

14. Your signature on bottom of Supplement 1, under “Affirmation By Owner.” Either the owner or agent must sign here. Without the proper signature, the DHCR will reject your application.

Other Documents Needed

You may have to give the DHCR other documents in addition to the MCI application. Mann recommends being as thorough as possible here. As stated above, the owner must file for the increase only after the work has been completed, but not more than two years after the work was completed. If granted, the effective date of the application will be set retroactive to 30 days after the owner filed the application, but tenants don't have to pay until the DHCR approves the application and mails rent increase orders to them.

In Mann's experience, the DHCR is looking now for any excuse not to include the appropriate retroactive period in its MCI orders. “Before, we would submit the application with the basic documents; now they may ask for additional documents and then approve only minimal retroactive amounts, because they say the application wasn't complete until we answered their questions,” says Mann. Where applicable, be sure to include the following with your application:

15. Necessary city approvals attached, where applicable. Make sure all required permits are submitted with the initial application. If you need a permit or approval from a city agency for the work, attach a copy of it to your MCI application to get quick processing from the DHCR.

16. Copy of your application for a necessary approval attached if you don't yet have approval. Sometimes city permits or approvals aren't available before the deadline for filing the MCI application. If that happens, don't wait to file your MCI application. If you file after the application deadline, your application will be denied. Instead, attach a copy of your application for the city permit or approval to your MCI application. Then submit the permit or approval when you get it. The DHCR won't grant your MCI rent hike until it gets the approval. But you'll avoid getting your application denied for not filing it on time.

17. Proper proof of payment attached. To speed processing, owners are strongly urged to pay for all MCI costs by check. To prove payment for the MCI by check, you must submit copies of checks, front and back, after they've cleared the bank. Also, make sure the checks you submit add up to the cost you're claiming in your MCI application. If cash payments are made for allowable MCI expenses, they must be supported by adequate documentation, such as an affidavit from the contractor, a copy of the work contract, and receipts or invoices indicating full payment.

Also, if it's found that there's an equity interest or an identity of interest between the contractor and the building owner, then additional proof of cost and payment, specifically related to the installation, may be requested.

18. Discrepancies explained if checks don't add up to cost of work. If the checks you've submitted don't add up to the cost you're claiming in your MCI application, explain why on a separate sheet attached to your application. For example, the checks may total more than the MCI cost because you paid one contractor with a check that covered both MCI work and non-MCI work. If you don't submit the right proof or an acceptable explanation, your application will be delayed while the DHCR contacts you to request it. If you still don't submit the required proof, the DHCR will deny your application.

19. Copy of MCI work contract attached. If you don't submit a copy of the contract for the work, it will take the DHCR longer to process your application.

Respond Promptly to Tenants' Comments

We've highlighted steps that are in the owners' control and that should be undertaken to minimize any chance of delay with their MCI application. One thing that owners can't control is how tenants will respond to the MCI application submission.

When an owner submits an MCI application, the DHCR notifies the tenants and gives them an opportunity to submit written responses to the application. They are instructed to comment on the subject installation(s) as specifically as possible. The DHCR will then review the application, consider the tenant responses, and may request additional documentation if deemed necessary.

Although, the owner can't control tenant responses, Mann emphasizes that owners should be diligent in providing written responses to each tenant comment regardless of how ludicrous or off-topic a tenant's comment may seem. For example, a tenant comment as broad as “It's the owner's responsibility, why should I have to pay for it,” needs a swift response from the owner. In this example, the owner can respond, “This is irrelevant. We're entitled to the rent hike according to the law.” If an owner doesn't respond, the owner may lose the MCI, says Mann.

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