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DHCR sets 10.8% Max. Base Rent.

DHCR sets 10.8% Max. Base Rent

A Maximum Base Rent factor of 10.8 percent was announced late last week by the Division of Housing and Community Renewal, (DHCR) and will apply to the collection of rents for rent-controlled apartments over the next two years.

This "MBR" as the Division of Housing and Community Renewal (DHCR) calls the factor, is applied to those apartments that are already at their maximum base rent, however, no rent can be raised more than 7.5 percent in any one year. This means beginning Jan. 1, 1992, owners can begin to bill tenants at 7.5 percent while on Jan. 1, 1993, tenants will receive at least a 3.3 percent increase. Some tenants may have hold-over or "banked" raises from previous increases that will raise the total over 3.3 percent.

Rubin Pikus, president of Millbrook Properties, which owns and manages apartment buildings, said of the rate, "That's a killer. We're losing the money when we need it the most. They're still talking about a double-digit water rate increase in frontage. It's only a plus because it's a little bone they're throwing us to say our fight and our efforts are not in vain."

"The sad thing," explained Dan Margulies, executive director of the Community Housing Improvement Program (CHIP), "is that the factor wasn't higher - as we believed the numbers called for - and the decision was made just late enough to prevent owners from getting the orders in time for many of them to adjust January rent bills. The result is that thousands of tenants will be unncessarily troubled in February."

Jack Freund, director of research for the Rent Stabilization Association, said, "We think it's totally inadequate. For the same time period, the operating costs for rent-stabilized apartments increased by more than 16 percent, but yet DHCR would have us believe that for rent controlled apartments in the same building, operating costs only increased by 10.8 percent. That's patently ridiculous."

Freund said every two years DHCR conducts this "charade" and hides behind a formula that they know to be wrong. For instance, he said, DHCR dictates that the rent increases be offset by commercial income. "But yet we know that very few of these rent-controlled buildings have any commercial income and if that were accounted for, the MBR factor this year would be about 15 percent, which is where it should be," he said.

Margulies said DHCR indicated there is an "unusually high delinquency" and a number of owners have not yet paid their MBR fees, which come to $30 for the two years per apartment, and orders will not be sent out until the fees are paid. "If owners have the bills sitting around, they ought to pay it, and if they haven't received a bill, they ought to call DHCR to find out why not."

Of the close to 7,000 applications, 2,531 have not paid a fee and submitted a violation certification, said Ronald Susser, director of the Owner Case Unit. Of those, 937 could not be billed because they did not include a rent schedule. Susser said the owners have been notified, but eventually an order will be sent out denying the application.

"In that sense it's quite serious," he said. "The owner could reapply but could lose months in the process because it will be effective from when he reapplys." "Those who have not paid will not get a grant order but, worse, they will get a denial order and have to reapply and get back into the cycle."

The previous MBR for the 1990-91 cycle was 8 percent over two years. The 1988-89 MBR was 16.4 percent. Tenants could have leftover credits from past years that would apply to bring the total increase for a year to 7.5 percent.

The MCR, the Maximum Collectible Rent, goes up 7.5 percent and acts as a cap. "If the factor was 20 you could collect 7.5 the first year, 7.5 the next year and 5 percent the following year," said DHCR Spokesman Joseph D'Agosta. If the next MBR factor was 2 percent, the owner could collect the 5 percent in the "bank" plus the 2 percent for a total of 7 percent.

In order to collect the MBR timely, a Violation Certification (VC) had to be filed on or before June 30, 1991 while owners had until Oct. 2 to file an Operation and Maintenance of essential service certification (OM).

"As long as those two were received timely they will receive a timely order," said Susser.

DHCR received 14,856 certifications from building owners by last October's deadline and has determined that 6,664 applications are already qualified. Susser said about 1,000 notices to owners are going to be in the mail this week and the rest will be mailed later.

Margulies said, "It's a shame DHCR didn't get them out a week ago to give owners time to bill for Jan. 1." Now, Margulies said, most tenants will receive retroactive bills in February that will contain a two-month increase.

"We are now in the process of going through the applications," said D'Agosta. The first group qualified because they either had no rent-impairing violations and fewer than 15 non-rent impairing violation, he said, or less than one non-rent impairing violations for very two units in the building, not to exceed 50 non-rent impairing violations. The effective date of any MBR is six month after filing the violations certification so, if the owner is late with the VC, it is six months from the date it is filed. If the OM is late, however, it becomes a three-months penalty for every month it is late.

D'Agosta said DHCR receives a tape record from HPD (Housing Preservation and Development) with violations as of Jan. 1, 1991. "We send out that list to owners and they have to cure 100 percent of rent-impairing violations and 80 percent of non-rent impairing violations," he explained.

A rent-impairing violation could include things like not paying New York City owner's registration fee as well as not providing hot water, while a non-rent impairing violation includes such items as vermin infestation, chipped paint, and blocked drains.

Because HPD has not updated records nor has there probably been an actual inspection, D'Agosta said, violations from the last cycle will probably still be there.

If the violations are the same ones that existed in the last MBR cycle, and were proved cured at that time, D'Agosta said, to expedite the matter, owners should submit the previous docket number and copies of the proof of curing those violations. With new violations, the owner has to submit proof that they have been cured.

Owners should not send anything to DHCR in Jamaica, Susser warned, but to the lock box noted on their bill and attach a copy of their bill so it is properly credited.

For this MBR cycle, an automated system is comparing the owner's paperwork with the violations automatically. "You say its late but it's really quite early compared to other cycles where owners had to wait months to get into the cycle," said Susser.

The RTC, which owns occupied, rent-controlled units at 444 East 57th Street, has not applied for increases, nor have owners of any of the 12 rent-controlled units in that building.

Freund said it is very tough for a co-op building to apply and that an individual owner cannot apply. "If you own a rent-controlled unit in a co-op building you have to get the managing agent to apply for all the rent-controlled units in the building," he said. The effect of that is to starve a large segment of the rent-controlled stock."

"While we're glad the orders are finally coming out we will be looking into the possibility of suing for a higher factor based on some technical mistakes that DHCR made in computing the factor," Margulies said. "I'm sure that the other organizations will be look at this to see if there are grounds for a challenge."

Freund of the RSA said, "We'll be looking to see if there is anything more we can do to get an increase for rent-controlled units, which you know have a rent level 30 percent lower than rent-stabilized units which are well below the rent levels to maintain them. We're talking about the most vulnerable units in the city and they are getting the lowest possible rent increases. It just doesn't make sense."
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Title Annotation:Division of Housing and Community Renewal
Author:Weiss, Lois
Publication:Real Estate Weekly
Date:Dec 25, 1991
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