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Level playing field begins to emerge at DHCR.

In years past, owners of rent regulated property engaged in proceedings before the New York State Division of Housing and Community Renewal (DHCR) could often be heard to mutter: "DHCR? It takes forever for anything to be decided and, when they do make a decision, its always in favor of the tenant. "While DHCR has miles to go before it reaches a state of perfection (or even close to it), this past year we have witnessed dramatic changes at the State agency which should give owners of regulated property a sense that better days are ahead.

Belkin Burden Wenig & Goldman, LLP practices extensively before DHCR representing owners (large, small and anywhere in-between) on the myriad of legal issues that come before the agency. We have observed significant changes in the speed, reasoning and, perhaps most importantly, the mind-set with which DHCR addresses the disputes coming before it. In addition, Governor Pataki's appointees (Joseph Holland, Commissioner, and Paul Roldan, Deputy Commissioner in charge of the Office of Rent Administration) have shown a willingness to tackle tough issues and to clarify areas of prior ambiguity.

For example, in the area of luxury decontrol, DHCR responded to our firm's request for an Advisory Opinion by unequivocally determining that improvements made during a period of vacancy will be imputed into the prior base rent. As a result, if the subsequent rental exceeds the $2,000 monthly threshold, the unit will be permanently exempt from regulation. This has enabled us to counsel our clients that own luxury apartments as to the precise computations (in guideline increases and improvement allowances) that will result in a permanently exempt apartment.

DHCR has also attempted to plug many of the loop-holes in the luxury decontrol process itself regarding high-income tenants. The agency significantly bolstered the answer form that tenants and occupants of high-rent apartments are now required to complete in order to flesh out all household income. In addition, via a recently promulgated Operational Bulletin, the Division has attempted to clamp down on those additional occupants that might temporarily vacate so that their income will not be included in the mix.

Lastly, the agency has announced a procedure whereby those owners faced with the prospect of being obligated to offer a lease renewal during the pendency of a decontrol application will be able to offer a voidable (non-binding) renewal lease. As evidence of DHCR's newly discovered mind-set, the agency has stated that this policy is "To assure that the legislative intent of the RRRA is fully effectuated..." That DHCR would actually seek to fully effectuate legislation that is generally perceived as being pro-owner is a clear indication that the rules of the game are changing.

Our firm has filed scores of such high-rent/high-income deregulation petitions, many of which have already been granted, resulting in exempt apartments. We anticipate that many more will be granted in '96; the 1996 "test period" runs from January 1 through May 1, 1996.

This past year, the agency clarified that owners of cooperatives and condominiums qualify as potential applicants for hardship rent increases. As a result, we have been able to prepare and file numerous hardship applications on behalf of co-op and condo owners of apartments occupied by rent controlled and rent stabilized tenants. We anticipate that in 1996 even more owners will begin to take advantage of this potential source of increased revenues.

The processing of major capital improvement applications (MCI's) has seen significant advancement. Whereas in past years, virtually every MCI application would seem to lie fallow for a period of years (perhaps to enable the agency to rotate the crops), this past year saw DHCR make a concerted effort to address owner applications on a more expeditious basis. Although some applications continue to drag on endlessly, in a number of instances MCI applications that we have filed for our clients have been granted by DHCR in a matter of months, not years. This is truly an astonishing development. Moreover, inasmuch as the Court of Appeals upheld the 6 percent cap for annual MCI increases that may be passed onto rent stabilized tenants, the expedited time frame within which an MCI application can be processed becomes crucial for collectibility.

Of course, owner applications for increased rent or deregulation are not an owner's sole exposure to DHCR. Tenant complaints, of seeming endless variety, make up a significant portion of the agency's (and our firm's) administrative case-load. Again, 1995 evidenced a more reasoned approach by the Division, resulting in repeated favorable decisions for our clients. Whether the complaint was overcharge, fair market rent appeal, harassment or decreased services, we found time and again that a well-documented and thoroughly researched presentation would be well-received by DHCR.

While, of course, there are no guarantees for success in administrative proceedings, more than ever, 1995 demonstrated the need for proper presentation from the outset. With the Division seeming to be more receptive to the real estate owner's position, the failure to set forth all arguments from the outset can forever doom your case. Our firm is often called upon to represent owners at the PAR or Article 78 level. It is extraordinarily frustrating to review a case, find a meritorious argument, only to then find that the owner failed to make the argument from the outset. This failure can result in would-be winning cases being relegated to failure. Inasmuch as DHCR seems to have demonstrated a greater willingness to listen to all sides (including the owner's), no argument, claim or defense should go unstated.

As yet further evidence of the State's new mind-set, the Division announced a new equitable policy on service reduction claims and revoked a prior draconian policy pertaining to overcharges. As to the former, DHCR has declared that de minimis (minor) service items (both individual apartment and building-wide) will no longer be found to constitute actionable reductions in services or the basis for rent reductions. As to the latter, the Division voided a prior, highly controversial policy whereby overcharge penalties owed to vacated tenants would be escrowed with the agency and could, after a period of time, actually escheat to the State's coffers. That the new administration recognized that this prior policy was impractical, at best, and potentially invalid, at worst, further demonstrates the quantum leaps taken by DHCR during 1995 to transform prior policies that led to housing destruction back into the rent regulation that the legislature intended.

I anticipate that in 1996 we will continue to observe the metamorphosis of DHCR. Of course, 1996 will only be the prelude for events to come in '97; the year that rent regulations are set to expire. If we recall that the 1993 enactment of both luxury decontrol and the rent registration amnesty coincided with the last potential expiration of regulation, as 1996 leads into 1997, this should prove to be a most interesting period indeed.
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Title Annotation:Annual Review and Forecast; New York State Division of Housing and Community Renewal
Author:Belkin, Sherwin
Publication:Real Estate Weekly
Date:Jan 31, 1996
Words:1141
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