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N.Y. Comp. Codes R. & Regs. tit. 9 § 2522.4 : EXECUTIVE DEPARTMENT — Division of Housing and Community Renewal — Rent Stabilization Regulations — Rent Stabilization Code — Rent Adjustments — Adjustment of legal regulated rent

(a) Increased space and services, new equipment, new furniture or furnishings; major capital improvements; other adjustments.
(1) An owner is entitled to a rent increase where there has been a substantial increase, other than an increase for which an adjustment may be claimed pursuant to paragraph (2) of this subdivision, of dwelling space or an increase in the services, or installation of new equipment or improvements, or new furniture or furnishings, provided in or to the tenant's housing accommodation, on written tenant consent to the rent increase. In the case of vacant housing accommodations, tenant consent shall not be required.
(2) An owner may file an application to increase the legal regulated rents of the building or building complex on forms prescribed by the DHCR, on one or more of the following grounds:
(i) There has been a major capital improvement, including an installation, which must meet all of the following criteria:
(a) deemed depreciable under the Internal Revenue Code, other than for ordinary repairs;
(b) is for the operation, preservation and maintenance of the structure;
(c) is an improvement to the building or to the building complex which inures directly or indirectly to the benefit of all tenants, and which includes the same work performed in all similar components of the building or building complex, unless the owner can satisfactorily demonstrate to the DHCR that certain of such similar components did not require improvement; and
(d) the item being replaced meets the requirements set forth on the following useful life schedule, except with DHCR approval of a waiver, as set forth in clause (e) of this subparagraph.

Useful Life Schedule For Major Capital Improvements

Replacement Item or Equipment Years - Estimated Life

1) Boilers and burners
(a) Cast iron boiler ............ 35
(b) Package boiler ............ 25
(c) Steel boiler ............ 25
(d) Burners ............ 20
2) Windows
(a) Aluminum ............ 20
(b) Wood ............ 25
(c) Steel ............ 25
(d) Storm ............ 20
(e) Vinyl ............ 15
3) Roofs
(a) 2-Ply (asphalt) ............ 10
(b) 3-4 Ply (asphalt) ............ 15
(c) 5-Ply (asphalt) ............ 20
(d) Shingle ............ 20
(e) Single-ply rubber ............ 20
(f) Single-ply modified bitumen ............ 10
(g) Quarry tile ............ 20
4) Pointing ............ 15
5) Rewiring ............ 25
6) Intercom system ............ 15
7) Mailboxes ............ 25
8) Plumbing/repiping
(a) Galvanized steel ............ 25
(b) TP Copper ............ 30
(c) Brass cold water ............ 15
(d) Fixtures ............ 25
9) Elevators
(a) Major upgrade ............ 25
(b) Controllers and selector ............ 25
10) Doors
(a) Apartment entrance ............ 25
(b) Lobby/vestibule ............ 15
11) Bathroom upgrading
(a) Toilets and valves ............ 20
(b) Bathroom and sinks ............ 20
(c) Vanity ............ 20
12) Kitchen upgrading
(a) Metal/wood cabinets ............ 20
(b) Ranges ............ 20
(c) Refrigerators ............ 15
(d) Sinks ............ 20
13) Water tanks
(a) Metal ............ 25
(b) Wood ............ 20
14) Waste compactors ............ 10
15) Air conditioners
(a) Individual units/sleeves ............ 10
(b) Central system ............ 15
(c) Branch circuitry fixtures ............ 15
16) Aluminum siding ............ 25

Vinyl siding ............ 15

17) Catwalk ............ 25
18) Chimney
(a) Steel ............ 25
(b) Brick ............ 25
19) Courtyards/walkways/driveways

Cement ............ 15

Asphalt ............ 10

20) Fire escapes ............ 25
21) Fuel oil tanks
(a) In vaults ............ 25
(b) Underground ............ 20
22) Water heating units
(a) Hot water/central heating ............ 20
(b) Hot water heater (domestic) ............ 10
23) Parapets brick ............ 25
24) Resurfacing exterior walls ............ 25
25) Solar heating system ............ 25
26) Structural steel ............ 25
27) Television security ............ 10

For major capital improvements not listed above, the owner must submit with the application evidence that the useful life of the item or equipment being replaced has expired.

(e)
(1) An owner who wishes to request a waiver of the useful life requirement set forth in clause (d) of this subparagraph must apply to the DHCR for such waiver prior to the commencement of the work for which he or she will be seeking a major capital improvement rental increase. Notwithstanding this requirement, where the waiver requested is for an item being replaced because of an emergency, which causes the building or any part thereof to be dangerous to human life and safety or detrimental to health, an owner may apply to the DHCR for such waiver at the time he or she submits the major capital improvement rent increase application.
(2) If waiver is denied, the owner will not be eligible for an MCI increase. If it is granted, the useful life requirement will not be a factor in the determination of eligibility for the major capital improvement rent increase. However, approval of the waiver does not assure that the application will be granted, as all other requirements set forth in this paragraph must be met.
(3) An owner may apply for, and the DHCR may grant, a waiver of the useful life requirements set forth in the useful life schedule, if the owner satisfactorily demonstrates the existence of one or more of the following circumstances:
(i) The item or equipment cannot be repaired and must be replaced during its useful life because of a fire, vandalism or other emergency, or "act of God" resulting in an emergency.
(ii) The item or equipment needs to be replaced because such item or equipment is beyond repair, or spare parts are no longer available, or required repairs would cost more than 75 percent of the cost of the total replacement of the item or equipment. Certification by a duly licensed engineer or architect, where there is no common ownership or other financial interest with the owner, shall be considered substantial proof of such condition(s). The owner may also be required to submit proof that the item or equipment was properly maintained. Such proof may include receipts for repairs and parts or maintenance logs.
(A) An appropriate New York State or local governmental agency has determined that the item or equipment needs to be replaced as part of a government housing program.
(B) For the owner to qualify for a New York State or local government long-term loan or insured loan, the governmental lender or insurer requires the remaining useful life of the building or building complex, as well as the component parts of such building or building complex, to be as great as or greater than the term of the loan agreement.
(iv) The replacement of an item or equipment which has proven inadequate, through no fault of the owner, is necessary, provided that there has been no major capital improvement rent increase for that item or equipment being replaced.
(4) In the event that the DHCR determines that an installation qualifies for a waiver of the useful life requirements, the DHCR may:
(i) where no previous increase was granted within the useful life of the item or equipment being replaced and the cost of repair would equal or exceed the cost of replacement, approve 100 percent of the substantiated cost of the item or equipment, including installation;
(ii) where no previous increase was granted within the useful life of the item or equipment being replaced and the cost of repair is more than 75 percent of the cost of replacement, grant a prorated increase based upon the remaining useful life;
(iii) where it is determined that an item is eligible to be replaced during its useful life, grant an increase based upon the difference between the substantiated cost of the item or equipment, including installation, and (a) the amount reimbursed from other sources, such as insurance proceeds or any other form of commercial guarantee, and (b) the amount of any increase previously granted for the same item or equipment either as a major capital improvement, or pursuant to other governmental programs, if such item or equipment has not exhausted at least 75 percent of its useful life at the time of the installation;
(iv) where it is determined that an item is eligible to be replaced even though it has not exhausted 75 percent of its useful life and that it was installed as part of a substantial rehabilitation or the new construction of a building for which the owner set initial building-wide rents, the DHCR may reduce the increase granted for a major capital improvement by a proportion of the remaining useful life of such item or equipment.
(5) Notwithstanding the provisions of subclause (4) of this clause, where an owner had substantially commenced work on the major capital improvement installation before February 1, 1991, based on prior DHCR decisions and policies, and where adherence to useful life requirements or to the conditions of the waiver would create an undue hardship, the owner's application will be determined in accordance with those prior decisions and policies.
(ii) There has been other necessary work performed in connection with, and directly related to a major capital improvement, which may be included in the computation of an increase in the legal regulated rent only if such other necessary work was completed within a reasonable time after the completion of the major capital improvement to which it relates. Such other necessary work must:
(a) improve, restore or preserve the quality of the structure and the grounds; and
(b) have been completed subsequent to, or contemporaneously with, the completion of the work for the major capital improvement.
(iii) With approval by the DHCR, there has been an increase in services or improvement, other than repairs, on a building-wide basis, which the owner can demonstrate are necessary in order to comply with a specific requirement of law.
(iv) With approval by the DHCR, there have been other improvements made or services provided to the building or building complex, other than those specified in subparagraphs (i)-(iii) of this paragraph, with the express consent of the tenants in occupancy of at least 75 percent of the housing accommodations.
(3) Improvements or installations for which the DHCR may grant applications for rent increases based upon major capital improvements pursuant to paragraph (2) of this subdivision are described on the following schedule. Other improvements or installations that are not included may also qualify, where all requirements of paragraph (2) of this subdivision have been met.

SCHEDULE OF MAJOR CAPITAL IMPROVEMENTS

1. Air conditioner--new central system; or individual units set in sleeves in the exterior wall of every housing accommodation; or, air conditioning circuits and outlets in each living room and/or bedroom (see Rewiring).
2. Aluminum siding--installed in a uniform manner on all exposed sides of the building (see Resurfacing).
3. Bathroom modernization--complete renovation including new sinks, toilets, bathtubs and/or showers and all required trims in every housing accommodation; or any individual component or fixture if done building wide.
4. Boiler and/or burner--new unit(s) including electrical work and additional components needed for the installation.
5. Boiler room--new room where none existed before; or enlargement of existing one to accommodate new boiler.
6. Catwalk--complete replacement.
7. Chimney--complete replacement, or new one where none existed before, including additional components needed for the installation.
8. Courtyard, driveways and walkways--resurfacing of entire original area within the property lines of the premises.
9. Doors--new lobby front entrance and/or vestibule doors; or entrance to every housing accommodation, or fireproof doors for public hallways, basement, boiler room and roof bulkhead.
10. Elevator upgrading--including new controllers and selectors; or new electronic dispatch overlay system; or new elevator where none existed before, including additional components needed for the installation.
11. Fire escapes--complete new replacement including new landings.
12. Gas heating units--new individual units with connecting pipes to every housing accommodation.
13. Hot water heater--new unit for central heating system.
14. Incinerator upgrading--including a new scrubber.
15. Intercom system--new replacement; or one where one existed before, with automatic door locks and push-button speakerboxes and/or telephone communication, including security locks on all entrances to the building.
16. Kitchen modernization--complete renovation, including new sinks, counter tops and cabinets in every housing accommodation; or any individual component or fixture if done building-wide.
17. Mailboxes--new replacements and relocated from outer vestibule to an area behind locked doors to increase security.
18. Parapet--complete replacement.
19. Pointing and waterproofing--as necessary on exposed sides of the building.
20. Repiping--new hot and/or cold water risers, returns, and branches to fixtures in every housing accommodation, including shower bodies, and/or new hot and/or new cold water overhead mains, with all necessary valves in basement.
21. Resurfacing of exterior walls--consisting of brick or masonry facing on entire area of all exposed sides of the building.
22. Rewiring--new copper risers and feeders extending from property box in basement to every housing accommodation; must be of sufficient capacity (220 volts) to accommodate the installation of air conditioner circuits in living room and/or bedroom; but otherwise excluding work done to effectuate conversion from master to individual metering of electricity approved by DHCR pursuant to paragraph (d)(3) of this section.
23. Roof--complete replacement or roof cap on existing roof installed after thorough scraping and leveling as necessary.
24. Solar heating system--new central system, including additional components needed for the system.
25. Structural steel--complete new replacement of all beams including footing and foundation.
26. Television system--new security monitoring system including additional components needed for the system.
27. Waste compactor--new installation(s) serving entire building.
28. Waste compactor room--new room where none existed before.
29. Water sprinkler system (for fire control purposes)-- new installation(s).
30. Water tank--new installation(s).
31. Windows--new framed windows.
(4) Prior to September 24, 2011, the increase in the monthly stabilization rent for the affected housing accommodations when authorized pursuant to paragraph (1) of the subdivision shall be 1/40 th of the total cost, including installation but excluding finance charges; on or after September 24, 2011, the increase in the monthly stabilization rent for the affected housing accommodations when authorized pursuant to paragraph (1) of this subdivision shall for buildings and complexes containing 35 or fewer housing accommodations be 1/40th of the total cost, including installation but excluding finance charges, and for buildings and complexes containing more than 35 housing accommodations by 1/60th of the total cost, including installation but excluding finance charges; and any increase pursuant to paragraph (2) of this subdivision shall be 1/84 th of the total cost, including installation but excluding finance charges as allocated in accordance with paragraph (12) of this subdivision. For increases pursuant to subparagraphs (2)(iii) and (iv) of this subdivision, in the discretion of the DHCR, an appropriate charge may be imposed in lieu of an amortization charge when an amortization charge is insignificant or inappropriate.
(5) Such increases shall not be collectible during the term of a lease then in effect, unless a specific provision in the tenant's lease authorizes an increase during its term pursuant to an order issued by the DHCR, except that increases pursuant to paragraph (1) of this subdivision may be collected upon installation.
(6) The determination of the appropriate adjustment of a legal regulated rent shall take into consideration all factors bearing on the equities involved, subject to the general limitation that the adjustment can be put into effect without dislocation and hardship inconsistent with the purposes of the RSL, and including as a factor a return of the actual cost to the owner, exclusive of interest or other carrying charges, and the increase in the rental value of the housing accommodations.
(7) An owner may apply for the DHCR's advisory prior opinion pursuant to section 2527.11 of this Title, as to whether the proposed work qualifies for an increase in the legal regulated rent.
(8) No increase pursuant to paragraph (2) of this subdivision shall be granted by the DHCR, unless an application is filed no later than two years after the completion of the installation or improvement unless the applicant can demonstrate that the application could not be made within two years due to delay, beyond the applicant's control, in obtaining required governmental approvals for which the applicant has applied within such two-year period. No increase pursuant to paragraph (2) of this subdivision shall be granted within the useful life of an improvement or installation for which an increase was previously granted except with prior DHCR approval for required improvements. In addition, an increase pursuant to paragraph (2) of this subdivision shall not be collectible from a tenant to whom there has been issued a currently valid senior citizen rent increase exemption pursuant to section 26-509 of the Administrative Code of the City of New York, to the extent such increase causes the legal regulated rent of the housing accommodation to exceed one third of the aggregate disposable income of all members of the household residing in the housing accommodation. The collection of any increase in the legal regulated rent for any housing accommodation pursuant to paragraph (2) of this subdivision shall not exceed six percent in any year from the effective date of the order granting the increase over the rent set forth in the schedule of gross rents with collectibility of any dollar excess above set sum to be spread forward in similar increments and added to the legal regulated rent as established or set in future years. In no event shall more than one six-percent increase in the legal regulated rent pursuant to paragraph (2) of this subdivision be collected in the same year.
(9) An increase for an improvement made pursuant to paragraph (2) of this subdivision shall not be granted by the DHCR to the extent that, after a plan for the conversion of a building to cooperative or condominium ownership is declared effective, such improvement is paid for out of the cash reserve fund of the cooperative corporation or condominium association. however, where prior to the issuance of an order granting the increase, the funds taken from the reserve fund are returned to it by the sponsor or holder of unsold shares or units or through a special assessment of all shareholders or unit owners, the increase may be based upon the total cost of the improvement. Nothing in this paragraph shall prevent an owner from applying for, and the DHCR from granting, an increase for such improvement to the extent that the cost thereof is otherwise paid for by an owner.
(10) The DHCR shall not grant an application pursuant to this subdivision for an increase for any improvement made pursuant to paragraph (2) of this subdivision to the extent that the cost of such improvement is paid for by an owner with funds received pursuant to a grant from any governmental agency or entity. A low interest loan or subsidy shall not be considered a grant for the purposes of this paragraph. Nothing in this paragraph shall prevent an owner from applying for, and the DHCR from granting, an increase for such improvement to the extent that the cost thereof is otherwise paid for by an owner.
(11) An owner who is entitled to a rent increase based upon the installation of new equipment, or new furniture or furnishings pursuant to paragraph (1) of this subdivision shall not be entitled to a further rent increase based upon the installation of similar equipment, or new furniture or furnishings within the useful life of such new equipment, or new furniture or furnishings.
(12) Rent adjustments pursuant to paragraph (2) of this subdivision and subdivisions (b) and (c) of this section shall be allocated as follows: The DHCR shall determine the dollar amount of the monthly rent adjustment. Such dollar amount shall be divided by the total number of rooms in the building. The amount so derived shall then be added to the rent chargeable to each housing accommodation in accordance with the number of rooms contained in such housing accommodation.
(13) The DHCR shall no grant an owner's application for a rental adjustment pursuant to this subdivision, in whole or in part, if it is determined by the DHCR, based upon information received from any tenant or tenant representative or upon a review conducted on DHCR's own initiative that, as of the date of such application for such adjustment that the owner is not maintaining all required services, or that there are current immediately hazardous violations of any municipal, county, State or Federal law which relate to the maintenance of such services. However, as determined by the DHCR, such application may either be granted upon condition that such services will be restored within a reasonable time, or dismissed with leave to refile within 60 days which time period shall stay the two year filing requirement provided in paragraph (8) of this subdivision. In addition, certain tenant-caused violations may be excepted.
(14) In the case of an improvement constituting a moderate rehabilitation as defined in section 5-02 of title 28 of the Rules of the City of New York, an owner may elect that the total cost for such improvement be deemed to be the amount certified by the Office of Tax Incentive Programs of HPD in the certificate of eligibility and reasonable cost issued by such office with respect to such improvement. Such election shall be binding on the DHCR and shall waive any claim for a rent increase by reason of any difference between the total cash paid by the owner and such lesser certified amount.
(15) Where during the processing of a rent increase application filed pursuant to paragraph (2) of this subdivision, tenants interpose answers complaining of defective operation of the major capital improvement, the complaint may be resolved in the following manner:
(i) Where municipal sign-offs (other than building permits) are required for the approval of the installation, and the tenants' complaints relate to the subject matter of the sign-off, the complaints may be resolved on the basis of the sign-off, and the tenants referred to the approving governmental agency for whatever action such agency may deem appropriate.
(ii) Where municipal sign-offs are not required, or where the alleged defective operation of the major capital improvement does not relate to the subject matter of the sign-off, the complaint may be resolved by the affidavit of an independent licensed architect or engineer that the condition complained of was investigated and found not to have existed, or if found to have existed, was corrected. Such affidavit, which shall be served by the DHCR on the tenants, will raise a rebuttable presumption that the major capital improvement is properly operative. Tenants may rebut this presumption only on the basis of persuasive evidence, for example, a counter affidavit by an independent licensed architect or engineer, or an affirmation by 51 percent of the complaining tenants. Except for good cause shown, failure to rebut the presumption within 30 days will result in the issuance of an order without any further physical inspection of the premises by DHCR.
(iii) General requirements. There must be no common ownership, or other financial interest, between such architect or engineer and the owner or tenants. The affidavit shall state that there is no such relationship or other financial interest. The affidavit must also contain a statement that the architect or engineer did not engage in the performance of any work, other than the investigation, relating to the conditions that are the subject of the affidavit. The affidavit submitted must contain the original signature and professional stamp of the architect or engineer, not a copy. DHCR may conduct follow-up inspections randomly to ensure that the affidavits accurately indicate the condition of the premises. Any person or party who submits a false statement shall be subject to all penalties provided by law.
(16) When determining the adjustment of legal regulated rents pursuant to paragraph (2) of this subdivision, where the subject building contains commercial rental space in addition to residential rental space, and the DHCR determines that such commercial space benefits from the improvement, DHCR shall allocate the approved costs between the commercial rental space and the residential rental space based upon the relative square feet of each rental area.
(b) Comparative hardship.
(1) An owner may file an application on forms prescribed by the DHCR, and the DHCR shall grant, on the application of an owner, appropriate rent adjustments as hereinafter provided, where the gross rental income is insufficient to yield to the owner an average annual net income (which shall be computed without regard to debt service, financing costs or management fees), for the three-year period ending on or within six months of the date of the filing of the owner's application, equal to the annual average net income of the property for:
(i) the period 1968-1970; or
(ii) the first three years of operation, if the building was completed after 1968; or
(iii) the first three fiscal years after a transfer of title to a new owner who acquired title to the building as a result of a bona fide sale of the entire building, and who has been unable to obtain requisite records for the fiscal years between 1968 through 1970, despite diligent efforts to obtain the same from predecessors in title, provided that such new owner submits financial data for not less than six years of continuous and uninterrupted operation of the property under his or her ownership.
(2) Notwithstanding anything to the contrary herein, no increase granted pursuant to this subdivision shall, when added to the annual gross rents as determined by the DHCR, exceed the sum of:
(i) the annual operating expenses;
(ii) an allowance for management services as determined by the DHCR;
(iii) actual annual mortgage debt service (interest and amortization) on its indebtedness to a lending institution, an insurance company, a retirement fund or welfare fund under the supervision of the banking or insurance laws of the State of New York or the United States; and
(iv) 81/2 percent of that portion of the fair market value of the property which exceeds the unpaid principal amount of the mortgage indebtedness referred to in subparagraph (iii) of this paragraph. Fair market value for this subparagraph shall be six times the annual gross rent.
(3) Restrictions.
(i) The collection of any increase in the legal regulated rent for any housing accommodation pursuant to this subdivision shall not exceed six percent in any year from the effective date of the order granting the increase over the rent set forth in the schedule of gross rents, with collectibility of any dollar excess above said sum to be spread forward in similar increments and added to the legal regulated rent as established or set in future years.
(ii) If the building was previously granted a hardship increase, such increase must have become effective more than 36 months prior to the filing date of the application.
(iii) The owner has resolved all legal objections to any real estate taxes and water and sewer charges for the test period. However, if there is a pending certiorari proceeding relating to the real estate tax expense for the test period, an owner may be permitted to file a hardship application. In such cases, the amount of real estate tax expense that will be recognized for purposes of the test period will be based upon the amount of proposed assessed value set forth by the owner in the certiorari petition; provided, however, that the owner submits proof of actual payment of all taxes due on the owner's proposed assessed value, in accordance with applicable law. If after such tax objection is resolved, the owner's actual and reasonable tax expense allocable to the test period exceeds the amount the DHCR used in determining the hardship application, an additional increase may be granted prospectively by the DHCR in its discretion. The DHCR may also, in its discretion, accept reasonable alternatives as to unresolved water and sewer charges.
(iv) The DHCR shall not grant an owner an increase as provided, in whole or in part, if it is determined prior to the granting of approval to collect an increase pursuant to this subdivision that the owner is not maintaining all required services or there are current immediately hazardous violations of any municipal, county, State or Federal law which relate to the maintenance of such services. However, as determined by the DHCR, where the DHCR determines that insufficient income is the cause of such failure to maintain required services, hardship increases may be granted upon condition that such services will be restored within a reasonable time, and certain tenant-caused violations may be excepted.
(v) In buildings that also contain housing accommodations subject to the City Rent Law, appropriate adjustments for both income and expenses will be made by the DHCR in order to calculate the pro rata share for those housing accommodations subject to this application.
(vi) The DHCR shall set a rental value for any housing accommodation occupied by the owner or managing agent, a person related to, or an employee of the owner or managing agent, or unoccupied at the owner's choice for more than one month at the last legal regulated rent plus the minimum number of guidelines increases. If no such legal regulated rent existed or is known, the DHCR shall impute a rent equal to the average of rents for similar or comparable housing accommodations subject to this Code in the building during the test period.
(vii) Each owner who files an application for a hardship rent increase shall be required to maintain all records as submitted with the subject application, and further be required to retain same for a period of three years after the effective date of the order.
(viii) Each application under this subdivision shall be certified by the owner or his or her duly authorized agent as to its accuracy and compliance with this subdivision under the penalties of perjury.
(ix) The maximum amount of hardship increase to which an owner shall be entitled shall be the difference between the average annual net income for the three-year base period and the average annual net income for the three-year current period.
(4) Right of tenant to cancel lease where rent increase based upon hardship is granted. In the event that an order is issued increasing the legal regulated rent because of owner hardship, the tenant may within 30 days of his or her receipt of a copy of the DHCR order, cancel his or her lease on 60 days' written notice to the owner. Until such tenant vacates, he or she continues in occupancy at the approved increase in rent.
(c) Alternative hardship. As an alternative to the hardship application provided under subdivision (b) of this section, owners of buildings, not owned as cooperatives or condominiums, acquired by the same owner or a related entity owned by the same principals three yeare prior to the date of application, may apply to the DHCR, on forms prescribed by the DHCR, for increases in excess of the level of applicable guidelines increases established under the RSL, based on a finding by the DHCR that such guidelines increases are not sufficient to enable the owner to maintain an annual gross rent income collectible for such building which exceeds the annual operating expenses of such building by a sum equal to at least five percent of such annual gross rent income collectible, subject to the definitions and restrictions provided for herein.
(1) Definitions. The following terms shall mean:
(i) Annual gross rental income collectible shall consist of the actual income receivable per annum arising out of the operation and ownership of the property, including but not limited to rental from housing accommodations, stores, professional or business use, garages, parking spaces, and income from easements or air rights, washing machines, vending machines and signs, plus the rent calculated under subparagraph (2)(vi) of this subdivision. In ascertaining income receivable, the DHCR shall determine what efforts, if any, the owner has followed in collecting unpaid rent.
(ii) Operating expenses shall consist of the actual, reasonable costs of fuel, labor, utilities, taxes (other than income or corporate franchise taxes), fees (not including attorney's fees related to refinancing of the mortgage), permits, necessary contracted services and noncapital repairs for which an owner is not eligible for an increase pursuant to this Part, insurance, parts and supplies, reasonable management fees, mortgage interest, and other reasonable and necessary administrative costs applicable to the operation and maintenance of the property.
(iii) Mortgage interest shall be deemed to mean interest on that portion of the principal of an institutional or a bona fide mortgage, including an allocable portion of the charges related to the refinancing of the balance of an existing mortgage or a purchase-money mortgage. Criteria to be considered in determining a bona fide mortgage other than an institutional mortgage shall include, but shall not be limited to, the following: the condition of the property, the location of the property, the existing mortgage market at the time the mortgage is placed, the principal amount of the mortgage, the term of the mortgage, the amortization rate, security and other terms and conditions of the mortgage.
(iv) Institutional mortgage shall include a mortgage given to any insurance company, licensed by the State of New York or authorized to do business in the State of New York, or any commercial bank, trust company, savings bank or savings and loan association (which must be licensed under the laws of any jurisdiction within the United States and authorized to do business in the State of New York). The DHCR may determine in its discretion that any other mortgage issued by a duly licensed lending institution is an institutional mortgage.
(v) Owner's equity shall mean the sum of:
(a) the purchase price of the property less the principal of any mortgage or loan used to finance the purchase of the property;
(b) the cost of any capital improvement for which the owner has not collected an increase in rent less the principal of any mortgage or loan used to finance said improvement;
(c) any repayment of the principal of any mortgage or loan used to finance the purchase of the property or any capital improvement for which the owner has not collected an increase in rent; and
(d) any increase in the equalized assessed value of the property which occurred subsequent to the first valuation of the property after purchase by the owner.
(vi) Threshold income shall mean that annual gross rental income collectible for such building which exceeds the annual operating expense for such building by a sum equal to five percent of such annual gross rental income collectible.
(vii) Test year shall mean any one of the following:
(a) the most recent calendar year (January 1st to December 31st); or
(b) the most recent fiscal year (one year ending on the last day of a month other than December 31st, provided that books of account are maintained and closed accordingly; or
(c) any 12 consecutive months endng within 90 days prior to the date of filing of the hardship application. Such period must end on the last day of a month. Nothing herein shall prevent the DHCR from comparing and adjusting expenses and income during the test year with expenses and income occurring during the three years prior to the date of application in order to determine the reasonableness of such expenses and income.
(2) Restrictions. No owner may file an application, nor may an owner be granted an increase in excess of the level of applicable guidelines increases, unless:
(i) the collection of any increase in the legal regulated rent for any housing accommodation pursuant to this subdivision shall not exceed six percent in any year from the effective date of the order granting the increase over the rent set forth in the schedule of gross rents, with collectibility of any dollar excess above said sum to be spread forward in similar increments and added to the legal regulated rent as established or set in future years;
(ii) if the building was previously granted a hardship increase, such increase must have become effective more than 36 months prior to the filing date of the application;
(iii) the owner has resolved all legal objections to any real estate taxes and water and sewer charges for the test year. However, if there is a pending certiorari proceeding relating to the real estate tax expense for the test year, an owner may be permitted to file a hardship application. In such cases, the amount of real estate tax expense that will be recognized for purposes of the test year will be based upon the amount of proposed assessed value set forth by the owner in the certiorari petition; provided, however, that the owner submits proof of actual payment of all taxes due on the proposed assessed value, in accordance with applicable law. If after such tax objection is resolved, the owner's actual and reasonable tax expense allocable to the test year exceeds the amount the DHCR used in determining the hardship application, an additional increase may be granted prospectively by the DHCR in its discretion. The DHCR may also, in its discretion, accept reasonable alternatives as to unresolved water and sewer charges;
(iv) the DHCR shall not grant an owner an increase as provided, in whole or in part, if it is determined prior to the granting of approval to collect an increase pursuant to this subdivision that the owner is not maintaining all required services or there are current immediately hazardous violations of any municipal, county, State or Federal law which relate to the maintenance of such services. However, as determined by the DHCR, where the DHCR determines that insufficient income is the cause of such failure to maintain required services, hardship increases may be granted upon condition that such services will be restored within a reasonable time, and certain tenant-caused violations may be excepted;
(v) in buildings that also contain housing accommodations subject to the City Rent Law, appropriate adjustments for both income and expenses will be made by the DHCR in order to calculate the pro rata share for those housing accommodations subject to this application;
(vi) the DHCR shall set a rental value for any housing accommodation occupied by the owner or managing agent, or a person related to, or an employee of the owner or managing agent, or unoccupied at the owner's choice for more than one month at the last regulated rent plus the minimum number of guidelines increases or, if no such regulated rent existed or is known, the DHCR shall impute a rent equal to the average of rents for similar or comparable housing accommodations subject to this Code in the building during the test year;
(vii) each owner who files an application for a hardship rent increase shall be required to maintain all records as submitted with the subject application, and further be required to retain same for a period of three years after the effective date of the order;
(viii) each application under this subdivision shall be certified by the owner or his or her duly authorized agent as to its accuracy and compliance with this subdivision, under the penalty of perjury;
(ix) the annual gross rent income collectible for the test year does not exceed the annual operating expenses of such building by a sum equal to at least five percent of such annual gross rental income collectible;
(x) the owner or a related entity owned by the same principals acquired the building at least 36 months prior to the date of application. A cooperative corporation or the board of managers of a condominium association shall not be considered the owner of the building, nor are individual shareholders or unit owners building owners for the purpose of eligibility for the alternative hardship, and as such are not permitted to file alternative hardship applications;
(xi) the owner's equity in the building exceeds five percent of the sum of:
(a) the arm's-length purchase price of the property;
(b) the cost of any capital improvements for which the owner has not collected an increase in rent pursuant to paragraph (a)(2) of this section;
(c) any repayment of principal of any mortgage or loan used to finance the purchase of the property or any capital improvements for which the owner has not obtained an adjustment in rent pursuant to paragraph (a)(2) of this section; and
(d) any increase in the equalized assessed value of the property which occurred subsequent to the first valuation of the property after purchase by the owner; and
(xii) the maximum amount of hardship increase to which an owner shall be entitled shall be the difference between the threshold income and the annual gross rent income collectible for the test year.
(3) Right of tenant to cancel lease where rent increase based upon hardship is granted. In the event that an order is issued increasing the legal regulated rent because of owner hardship, the tenant may within 30 days of his or her receipt of a copy of the DHCR order, cancel his or her lease on 60 days' written notice to the owner. Until such tenant vacates, he or she continues in occupancy at the approved increase in rent.
(d) An owner may file an application to decrease required services for a reduction of the legal regulated rent on forms prescribed by the DHCR on the grounds that:
(1) the owner and tenant, by mutual voluntary written agreement, consent to a decrease in dwelling space, or a decrease in the services, furniture, furnishings or equipment provided in the housing accommodation; or
(2) such decrease is required for the operation of the building in accordance with the specific requirements of law; or
(3) such decrease results from an approved conversion from master metering of electricity, with the cost of electricity included in the rent, to individual metering of electricity, with the tenant paying separately for electricity, and is in amounts set forth in a schedule of rent reductions for different-sized rent stabilized housing accommodations included in Operational Bulletin 2003-1 governing electrical conversions issued pursuant to this paragraph and section 2527.11 of this Title by DHCR, 92-31 Union Hall Street, Jamaica, Queens, NY, and available at DHCR's website at www.dhcr.state.ny.us, and determined as follows:
(i) Direct metering. Where the conversion is to direct metering of electricity, with the tenant purchasing electricity directly from a utility, such schedule of rent reductions is based on the median monthly cost of electricity to tenants derived from data from the United States Census Bureau's 2002 New York City Housing and Vacancy Survey, as tabulated by the New York City Rent Guidelines Board, 51 Chambers Street, Suite 202, New York, NY, and available on its website at www.housingnyc.com. The charge for electricity is not part of the legal regulated rent and is not subject to this Code. The resolution of any dispute arising from the billing or collection of such charge is not within the jurisdiction of the DHCR. A conversion to direct metering is required to include rewiring the building unless the owner can establish that rewiring is unnecessary.
(ii) Submetering. Where the conversion is to submetering of electricity, with the tenant purchasing electricity from the owner or a contractor retained by the owner, who purchases electricity from a utility at the bulk rate, such schedule of rent reductions is based on the median monthly cost of electricity to tenants derived from data from the United States Census Bureau's 2002 New York City Housing and Vacancy Survey, as tabulated by the New York City Rent Guidelines Board, 51 Chambers Street, Suite 202, New York, NY, and available on its website at www.housingnyc.com, adjusted to reflect the bulk rate for electricity plus a reasonable service fee for the cost of meter reading and billing, based on the maximum estimated fee included in the Residential Electric Submetering Manual revised October 2001, published by the New York State Energy Research and Development Authority, 17 Columbia Circle, Albany, NY, and available on its website at www.nyserda.org, and reflected in Operational Bulletin 2003-1. The owner or contractor retained by the owner is not permitted to charge the tenant more than the bulk rate for electricity plus a reasonable service charge for the cost of meter reading and billing. The charge for electricity as well as any related service surcharge is not part of the legal regulated rent and is not subject to this Code. The resolution of any dispute arising from the billing or collection of such charge or surcharge is not within the jurisdiction of the DHCR. A conversion to submetering does not require rewiring the building provided the owner submits an affidavit sworn to by a licensed electrician that the existing wiring is safe and of sufficient capacity for the building.
(iii) Recipients of senior citizen rent increase exemptions (SCRIE) or disability rent increase exemptions (DRIE). For a tenant who on the date of the conversion is receiving a SCRIE or DRIE authorized by section 26-509 of the Rent Stabilization Law of 1969, the rent is not reduced and the cost of electricity remains included in the rent, although the owner is permitted to install any equipment in such tenant's housing accommodation as is required for effectuation of electrical conversion pursuant to this paragraph.
(a) After the conversion, upon the vacancy of the tenant, the owner, without making application to DHCR, is required to reduce the legal regulated rent for the housing accommodation in accordance with the schedule of rent reductions set forth in Operational Bulletin 2003-1, and thereafter any subsequent tenant is responsible for the cost of his or her consumption of electricity, and for the legal rent as reduced, including any applicable major capital improvement rent increase based upon the cost of work done to effectuate the electrical conversion.
(b) After the conversion, if a tenant ceases to receive a SCRIE or DRIE, the owner, without making application to DHCR, may reduce the rent in accordance with the schedule of rent reductions set forth in Operational Bulletin 2003-1, and thereafter the tenant is responsible for the cost of his or her consumption of electricity, and for the legal rent as reduced, including any applicable major capital improvement rent increase based upon the cost of work done to effectuate the electrical conversion, for as long as the tenant is not receiving a SCRIE or DRIE. Thereafter, in the event that the tenant resumes receiving a SCRIE or DRIE, the owner, without making application to DHCR, is required to eliminate the rent reduction and resume responsibility for the tenant's electric bills.
(iv) Every three years, upon the publication of a new housing vacancy survey, and tabulation of the survey data by the New York City Rent Guidelines Board, DHCR shall issue a new operational bulletin governing electrical conversions setting forth rent reductions based on the new survey data, and shall move to amend the regulations to incorporate by reference the new operational bulletin, housing vacancy survey, and rent guidelines board tabulation. At such time as NYSERDA issues a new residential electric submetering manual setting forth a new maximum estimated submetering service fee, DHCR shall move to amend the regulations to incorporate that document by reference;
(4) such decrease is not inconsistent with the RSL or this Code. No such reduction in rent or decrease in services shall take place prior to the approval by the DHCR of the owner's application, except that a service decrease pursuant to paragraph (2) of this subdivision may take place prior to such approval.
(e) An owner may file an application to modify or substitute required services, at no change in the legal regulated rent, on forms prescribed by the DHCR on the grounds that:
(1) the owner and tenant, by mutual voluntary written agreement, consent to a modification or substitution of the required services provided in the housing accommodation; or
(2) such modification or substitution is required for the operation of the building in accordance with the specific requirements of law; or
(3) such modification or substitution is not inconsistent with the RSL or this Code.

No such modification or substitution of required services shall take place prior to the approval of the owner's application by the DHCR, except that a service modification or substitution pursuant to paragraph (2) of this subdivision may take place prior to such approval.

(f) Pursuant to section 452(7) of the PHFL, as an alternative to the rental adjustments for which an owner may file an application under subdivision (a) of this section, upon the completion of the rehabilitation of a multiple dwelling which is aided by a loan made pursuant to article VIII- A of the PHFL, HPD may adjust the rent for each housing accommodation within the multiple dwelling pursuant to such law. Any work required pursuant to or as a condition of an article VIII- A loan for which a rent adjustment is granted under section 452(7) of the PHFL is not eligible for an increase pursuant to paragraph (a)(2) or (3) of this section.

N.Y. Comp. Codes R. & Regs. Tit. 9 § 2522.4