Looking to Remove your Building from Rent Stabilization? Substantial Rehabilitation Pitfalls

Arun Perinbasekar, Partner

In the past few years the DHCR has made the requirements for substantial rehabilitation more difficult. Prior to the application process Owners should be aware that in order to succeed on a claim of substantial rehabilitation they must establish a building was substantially deteriorated prior to the renovation (this is presumed if the building is 80% or more vacant); that 75% of all building wide systems must be fully replaced; that all surfaces in common areas (walls, ceilings and floors) must be replaced; and that the renovation work be full compliance with law and DOB requirements. The Owner needs to substantiate these requirements through documentary evidence and affidavits of professional engineers and architects.

DHCR has taken it upon itself to examine documentation closely, especially DOB documentation, and tends to try to pick holes in submissions. While the DHCR does still does grant applications, we have noticed a trend toward more exacting review of applications. DHCR’s standard of review remains fluid and is subject to change. The following are key issues that an Owner should be aware of during the renovation process which will help avoid pitfalls and failures that have caused applications to be denied.

If you have specific issues, please contact us to discuss them further as the following list is not an exhaustive list of considerations.

1. PW3/Cost Affidavit
a. The owner is obligated to provide an accurate cost affidavit
b. The final cost affidavit should reflect the actual cost of the project
c. All building wide systems that were replaced should be listed on the PW3 with their approximate costs

2. Work Permit Data
a. Permits should reflect that a substantial renovation of the whole building has occurred
b. Owners should indicate that they performed work in 50% of or more of the building
c. Owners should indicate that they are demolishing 50% of more of the area of the building
d. Owners should indicate they are altering 10% or more of the existing floor surface area of the building

3. DOB and ECB Violations
a. There can be no violations issued during and/or related to the renovation process

4. Electrical System
a. Necessary permits must be pulled
b. Necessary signoffs must be obtained

5. Plumbing System
a. Necessary permits must be pulled
b. Necessary signoffs must be obtained

6. Tenant Occupancy During the Renovation
a. The plans and permits must reflect an accurate accounting of how many units are occupied
b. If there are occupied units there must be a proper Tenant Protection Plan in place

7. Architectural Plans/Drawings
a. The plans should reflect the actual scope of work and properly address all relevant systems

8. Concrete work
a. If concrete work is required it should be indicated on DOB plans, permits and filings

9.  Steel Reinforcing
a.  If steel reinforcing is required it should be indicated on DOB plans, permits and filings

10. Letter of Completion/Certificate of Occupancy
a. Should be issued prior to the filing of an application as there are occasions when DOB delays issuance and DHCR may dismiss your application


11. Proof of Vacancy
a. Documentation should be provided to establish the building was at least 80% vacant prior to the renovation
b. Proofs generally include pictures, surrender agreements, litigation documents, and correspondence; rent roll at closing

12. Proof of Substandard Condition Prior to Renovation
a. Documentation should be provided to establish the building was seriously deteriorated or dilapidated prior to the renovation.
b. Proofs include pictures, violations, and affidavits of an owner and engineer and/or architect.

13. Documentary Proof of Renovation
a. Provide all contracts, invoices and cancelled checks
b. The total cost should be reflected in the contracts and invoices and substantiated with the cancelled checks
c. It is important that contracts indicate that renovation and replacement is occurring, not simply repair or refurbishment.

14. Photographs
a. “Before” photographs should be taken to show the general disrepair of the building, and to justify the need for the renovation
b. “During” photographs should capture the scope of work and establish the job is substantial.
c. “After” photographs to be provided to show the final product

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