When to Include Engineer/Architect Fees in MCI Increase Applications

When you get a major capital improvement (MCI) performed at your building, you may hire a consultant such as an engineer or architect in addition to the contractor doing the work. For example, you may hire an engineer when you get your building’s parapet replaced. Can you include the engineer’s or architect’s fees as part of the cost of the MCI when you calculate your rent increase?

     The Division of Housing and Community Renewal (DHCR) has allowed owners to include these fees as part of the cost of an MCI—but only in certain situations. Here’s what you should know.

When Fees Can Be Included

Although there are no hard-and-fast rules, and the DHCR makes its decisions on a case-by-case basis, in general the DHCR allows owners to include these fees if they’re:

• Related to the MCI;
• For work that’s not part of the contractor’s responsibilities; and
• “Necessary and customary” to the accomplishment of the improvement.

     Admittedly, these standards aren’t clear-cut. But in some recent cases, the DHCR has indicated that if you hire an engineer or architect to perform preparatory inspections and to draw plans or specifications for the MCI, it’s more likely to find that you’ve met the above standards and allow you to include these costs in the MCI increase. For example, in one case the DHCR had granted the owner’s application for MCI rent hikes based on the installation of a central air conditioning system but disallowed the cost of engineering fees. The owner appealed and won. Given the complexity of the installation, the engineer’s preparation of drawings, specifications, and bid documents were a necessary part of installing the central air conditioning system. The DHCR added the costs for this work into the MCI increase calculation [145 East 16th Street: DHCR Adm. Rev. Docket Nos. YF410033RT, YG410035RO, March 2013].

     Another case involved an elevator upgrade project. Tenants appealed the MCI rent hike, claiming that the district rent administrator (DRA) arbitrarily approved engineering consultant fees claimed by the owner as part of the cost of the elevator upgrade. The DHCR ruled against the tenants. The DHCR approves certain engineering or architectural expenses that are directly related to an MCI. Preparatory inspections, along with the cost of drawing plans and specifications for a particular installation or expenses for professional services, are necessary and customary. Here, the owner’s engineering consultant made preparatory inspections for the elevator project, designed the plans and specifications for the elevator modernization, prepared and distributed the bid package to prospective contractors, and supervised or monitored the elevator installation to ensure conformity with the specs and the current Elevator Codes and Building Code. All this, the DHCR found, was necessary and customary for the completion of the elevator upgrade and was properly included in the approved cost of the MCI [67-00 192nd Street: DHCR Adm. Rev. Docket No. UC110047RT, May 2009].

When Fees Can’t Be Included

Again, there are no hard-and-fast rules. But if the engineer or architect is hired to do supervisory or administrative work, the DHCR is more likely to find that this work simply duplicates the work of the contractor performing the MCI and won’t allow you to include their fees in the increase.

     For example, one owner applied for MCI rent hikes based on elevator upgrading. The DHCR ruled for the owner but later modified its order to disallow the cost of 16 shaftway doors and the elevator consultant’s fees. The owner appealed and lost. The owner argued that the consultant’s fees didn’t duplicate the contractor’s fees and were incorrectly disallowed.

     But the architect consultant was retained to survey the passenger elevator and prepare the upgrade specifications, provide bid analysis, review drawings, conduct weekly on-site observations, and inspect the completed work. And the elevator upgrade contract stated that the contractor before starting work would study and compare drawings, take field measurements of the existing conditions of the elevator, and supervise, be solely responsible for, and have control over construction means, methods, techniques, sequences, and procedures of the elevator upgrade. The contractor was also required to warranty that the work be done in strict compliance with all building rules and regulations and procure governmental certificates of approval. So the DHCR ruled that tenants shouldn’t have to pay additional supervisory and administrative expenses such as the architect’s consulting fee [135 West 225th Street: DHCR Adm. Rev. Docket No. WK430032RO (12/27/12)].

Submit Architect’s/Engineer’s Statement

To increase your chances of getting the architect’s or engineer’s expenses included in the MCI rent hike, submit a notarized statement from the architect or engineer you hired and get clear documentation of the scope of the work. In the statement, the architect or engineer should explain what she did and why her work was needed for the MCI. For example, the architect or engineer had to draw up plans for the Department of Buildings. The statement also should specify why the work was separate from the work done by the contractor performing the MCI.

     As with all MCI expenses, you should include proof of the cost of the architect’s or engineer’s expenses with your application. For example, you could include a copy of your contract with the architect or engineer and the canceled checks you used to pay her.

     In one case, the owner applied for MCI rent hikes based on rewiring and related consulting engineer fees. The DRA disallowed a portion of the engineer fees. The owner documented only $5,400 of the $6,800 claimed cost. Any proof of the cost of the added fee was submitted only after the DRA order was issued, so it couldn’t be considered [Crestwood Lake Section One Corp.: DHCR Adm. Rev. Docket No. ZA910037RO, December 2011].

     In another case, the DHCR found that the architect’s fees hadn’t been adequately documented. The architect’s invoices weren’t sufficiently detailed to allow the DHCR to determine exactly what work was directly related to the MCI and what work was for other items. Many of the items charged merely noted the number of hours worked by the architect’s employee, not what was done [241 Central Park West: DHCR Adm. Rev. Docket No. TE430010RK, December 2005].