I’ve been to quite a number of industry meetings the last several months, notably those hosted by RSA and CHIP, where there have been warnings about the new Tenant Protection Unit or TPU. This is a new group within the New York State Homes and Community Renewal agency (formerly DHCR), created last year by Governor Andrew Cuomo to proactively increase and enforce compliance with the New York State Rent Stabilization Law.
New kitchen
I had heard that the initial focus of the unit was on looking for owners who hadn’t properly registered regulated units over the past four years. At least, as an owner, if you know you’ve properly registered all your regulated apartments consistently, you should be free of any harassment on this front. The other area of focus has been on individual apartment improvements (IAIs). As many of my readers will know, one can gain rent increases by making certain improvements to an apartment. The allowable increase is equal to 1/40th of what was spent on the improvement if your building has 35 or fewer units and 1/60th for those buildings larger than 35 units. This lesser benefit for larger buildings was a new twist passed last year. If someone is living in an apartment, he/she has to preapprove such an improvement and the resulting rent hike in advance. Since most tenants will never agree to any improvement that is going to increase rent, most IAIs happen when there is a vacancy, at which point the landlord can do whatever he/she wants in terms of upgrades.
Kitchen “Before”
In 2011 we got back a low rent apartment after a bit of a battle. The tenant of record had moved to Florida, which we could prove, but her estranged husband then tried to argue that he had rights to the apartment and could allow it to be used by an unrelated female acquaintance and her thug boyfriend. Eventually we got an eviction and proceeded to fully renovate the apartment. Before and after photos punctuate this blog post. The legal rent went from below $900 to around $2300, which I guess made us a ripe target for the algorithm that is triggering a TPU audit, since the rent went up by much more than the typical 20% vacancy increase.
I first got a letter dated 3/19/13 stating that I had to comply with the TPU audit requirements. I had been told by the folks at RSA that the key thing is to just respond quickly with as much information as possible, so I started working diligently on it, having my assistant gather information as well. A couple of days later, I got another letter from TPU stating that I was still being audited, but they had referenced the wrong rent registration years in their first letter. That same day, I got yet another letter that read exactly the same as the one I got on 3/19. So, this unit has now contacted me three times about the same IAI. Efficient government at work!
New Open Layout
The core of what one has to do to comply is as follows:
Please submit all supporting documents that justify the cost of the IAI. This would include, but not be limited to: leases, bills, cancelled checks, receipts, contracts and invoices from contractors. In addition, please include the date the work was completed and the calculation of the new legal regulated rent (including the prior tenant’s last rent, the vacancy allowance, any longevity allowance, and the increase due to the IAI). If you do not have a contractor’s itemized breakdown of costs, you must submit a notarized Owner’s Affidavit which must contain the following information: (1) a detailed description/explanation of the work performed; (2) the installation dates of the work; (3) the identity of the coutractors/subcontractors; and (4) a breakdown of the cost of the work. Please note that all costs claimed for the IAI need to be broken down and itemized. Many renovations include non-allowable costs which our staff will be unable to segregate if a complete breakdown is not submitted. If the TPU cannot determine which items are allowable, it could result in the entire IAI being found unacceptable, which, in turn, may lead to a finding that the rent is too high and further administrative or legal remedies. Please mail all documents back to the Tenant Protection Unit with a copy of this letter and a cover letter, at the address indicated above. You may also submit these documents to us electronically at the following email address: tpuiairesponse@nyshcr.org.
Luckily I keep very good records and had copies of everything. Additionally, because we also have a design/build business, I have accounting software that allows me to accurately track job costing. So, at least I was able to run a single report and see every cost that was applied to this renovation, grab check numbers, vendors, etc. Still, organizing everything for TPU was quite a pain and consumed many hours on the part of my assistant and me. We scanned every contract, bill, and credit card statement we had that pertained to the job. Then, since no one gets back cancelled checks per se, we create PDFs of all the bank statements that pertained to any checks that had been written and cross referenced them to a spreadsheet listing each expense. Though not requested, I sent some before and after photos as visual proof of the work done. I also had to write an affidavit giving a “detailed cost breakdown,” a list of all our contractors, etc. and get it notarized. The alternative to this is having your GC breakdown all the costs, but who is to say that he’d be able to do that in a manner that would be satisfying to TPU. Given that there are no real guidelines as to what’s expected in an itemized cost breakdown, it feels a bit like they are making this all up as they go along.
New bedroom finishes
That said, there certainly are some less than reputable characters out there in the multifamily ownership world who I’m sure are playing a little loose with the IAI increase rules. So, I understand the motivation behind what TPU is doing. However, I’m sure that such individuals would have little trouble creating a paper trail sufficient to get whatever legal rent they needed to get to. For people like us, who are doing the right thing, by the books, these audits are just one more regulatory burden to be subject to, one that doesn’t even prove that the actual work done matches the claimed dollars spent.
NYC Multifamily Property Management - Tips from the Trenches 