New York State
Division of Housing and Community Renewal
Office of Rent Administration
Gertz Plaza, 92-31 Union Hall St.
Jamaica, New York 11433
Public Information: (718)739-6400

Mario M. Cuomo, Governor
Donald M. Halperin, Commissioner
Joseph A. D'Agosta, Deputy Commissioner for Rent Administration


New York City Rent Stabilization Code
New York City Rent and Eviction Regulations


OPERATIONAL BULLETIN 85-2 (SEPTEMBER 9, 1985)

RENT INCREASES FOR RENT STABILIZED
HOUSING ACCOMMODATIONS BASED UPON
OWNER HARDSHIP-GUIDELINES AND PROCEDURES.


INTRODUCTION

This Operational Bulletin relates to increases in the legal
regulated rents of rent stabilized housing accommodations located
inside and outside New York City which may be available to owners
who file hardship applications with the New York State Division
Of Housing and Community Renewal (DHCR). The DHCR may grant such
increases pursuant to the Emergency Tenant Protection Act of 1974
(ETPA), or Title YY of the New York City Administrative Code,
which constitutes the New York City Rent Stabilization Law (RSL).

A)   Definition of Hardship

The ETPA and RSL provide a mechanism for adjusting rents pursuant
to orders issued by the Local Rent Guidelines Boards, which
determine, on an annual basis, the rent increase, if any, to
which an owner is entitled upon execution of new or renewal
leases. Both the ETPA and RSL also provide, in the unusual
situation, where the guidelines rent adjustments are insufficient
to per nit a particular property to keep up with increased
operating costs, that the owner can file with the DHCR, an
application for building-wide rent increases based upon a
hardship. Both the ETPA and RSL contain provisions for a
"comparative hardship" pursuant to which an owner may obtain a
rent increase sufficient to maintain the same position with
respect to certain income and operating expenses as it
experienced in defined base years. The precise statutory formulas
are markedly different inside, as opposed to outside, New York
City. The procedures for processing these applications are of
long standing and have been established through usage and
practice.

Chapter 403 of the Laws of 1983, which amended both the ETPA and
RSL, provides an alternative method for determining a hardship
increase based essentially on an owner's maintaining certain
gross rent income, as later defined, at a level which exceeds
reasonable operating expenses by five percent.

B)   Comparative Hardship Outside of New York City

The comparative hardship formula is stated in Section 6(4) of the
ETPA.

It essentially provides that: (1) an owner must establish, by
application, the existence of a hardship as further defined, and
(2) the DHCR must determine whether additional rent increases are
needed to maintain approximately the same average ratio (as
defined by usage and upheld by applicable appellate case law)
between operating expenses and gross rents for the preceding five
year period. The criteria for determining such an application are
detailed in Section 34(c), [2502.4(c)], of the Tenant Protection
Regulations, Tenant Protection Bulletin No. 20 and Supplement 1
thereto.

C)   Comparative Hardship Inside New York City

Inside New York City the comparative hardship formula is set
forth in Section YY51-6.0c(6) of the Administrative Code of the
City of New York, and is administered primarily through the Rent
Stabilization Code. Pursuant thereto DHCR will, in essence, grant
an appropriate rent adjustment where:

1)   The owner has not maintained the same average net income in
     a current three year period when compared with the average
     net income during a three year base period, generally
     defined as 1968 through 1970;

2)   The circumstances and accuracy of the information provided
     in the owner's application has been adequately substantiated
     by submission of copies of certified financial statements or
     federal income tax returns and other pertinent documents
     which might be required; and

3)   All other requirements of the granting of such rent
     increases have been met.

To restore the owner's average net income in the current period
to the average net income in the base period, the rent adjustment
granted by the DHCR. in order to conform with the Rent
Stabilization Code, is computed as follows:

1)   Subtract the average net income in the current period from
     the average net income in the base period (after
     adjustments).

2)   The result represents the dollar amount of annual gross rent
     adjustment.

3)   To convert the dollar amount into a percentage rent
     increase, divide the dollar amount by the annual gross rent
     roll of the stabilized apartments submitted with the
     application. (The rent roll should be dated within two (2)
     months of the date of the filing of the application).

The collection of any increase in the stabilized rent for any
apartment cannot exceed six (6) 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. The collectibility of
any dollar excess above said sum is spread forward in similar
increments and added to the stabilized rents as established or
set in future years. No more than one order adjusting any
stabilization rent because of hardship may be issued in any
thirty-six (36) month period.

D)   Alternative Hardship

Rent increase applications may be filed by owners based upon
alternative hardship applications pursuant to Section 6(5) of the
Emergency Tenant Protection Act, (ETPA) and Section YY51-6.0c.(6-
a) of the New York City Administrative Code. Section 6(5) of the
ETPA is directly implemented by Section 34(d), [2502.4(d)], of
the Tenant Protection Regulations. The alternative hardship
enables an owner of a building not owned as a cooperative or
condominium, acquired by the same owner or a related entity three
years prior to any application, to receive an appropriate rent
adjustment where the DHCR finds (subject to the definitions and
restrictions stated in the regulations) that such an increase is
necessary because the annual operating expenses are not less than
95 percent. The nature and source of the annual gross rent income
is set forth in Section 34(d)(1)(a), [2502.4(d)(1)(i)] of the
Tenant Protection Regulations. The instructions and application
forms previously issued by the DHCR reflect these regulations.


ALTERNATIVE HARDSHIP FORMS AND PROCEDURES

The following is designed to give further guidance as to the DHCR
policy and procedure in processing these applications after the
forms are completed by owners in accordance with the instructions
and the applicable Regulations. Instructions which accompany the
forms referred to in this operational bulletin, provide further
details.

The DHCR has broad discretion under the applicable regulations
to, inter alia, accept or reject applications, extend time for
filing, hold hearings, and require production of documents. See
Sections 85 and 86, [2507.5], [2507.6], of the Tenant Protection
Regulations. In the absence of a Rent Stabilization Code
containing Alternative Hardship Provisions, the DHCR has
authority and discretion in accordance with Chapter 403 of the
Laws of 1983 to utilize reasonable procedures in carrying out its
statutory mandate. Nothing herein should be construed as a waiver
of that discretion. This bulletin advises on how that discretion
will ordinarily be exercised.


A)   APPLICABLE FORMS

RTP45, RTP45A-G     Owner's Application for Rent Increase Based
                    on Alternative Hardship

RTP 45.1            Notice to Tenant of Commencement of
                    Proceeding for Rent Increase Based on an
                    Alternative Hardship

RTP 45.2            Instructions for filing an owner's
                    Application for Rent Increase Based on
                    Alternative Hardship

RTP 45.3            Owner's Certification of Service of Notice to
                    Tenant; Re Commencement of Proceeding for
                    Rent Increase based on Alternative Hardship
                    RTP 45.4

RTP 45.4            Instruction for Notifying the tenants that a
                    Proceeding for a Rent Increase based on an
                    Alternative Hardship has been commenced.

RTP 3               Tenant's Answer

RAR 1, RAR 2        Petition for Administrative Review (PAR)


B)   PROCEDURE

     I.   Docketing

     An owner shall file three copies of the application form
     including appropriate schedules (RTP45, RTP45A through (G)
     with the District Rent Office (DRO) in the-district in which
     the building is located. The DRO will assign the application
     a docket number.

     II.  Preliminary Review

     The DHCR will then perform a preliminary review of the
     application to determine whether the application on its face
     indicates eligibility for an alternative hardship increase.
     To affirmatively pass such review:

     (1)  the building, as evidenced by the application, must be
          experiencing a hardship as defined in Section 34(d)(1),
          [2502.4(d)(1)], of the Tenant Protection Regulations.
          (See RTP45D of the application forms);

     (2)  the owner must answer a series of threshold questions
          which further determine if the owner has met all the
          requirements which otherwise may bar the owner from
          filing or receiving increase (See Section 34(d)(2),
          [2502.4(d)(2)], of the Tenant Protection Regulations
          entitled Restrictions; see also RTP 45A, B, and C of
          the application forms); and

     (3)  all the forms must be completed and all relevant
          supporting schedules attached.

     If the application is not complete, the DHCR will reject it
     and return two copies of the submission to the owner. Such a
     rejection is a Final Order subject to review by the
     Commissioner. (PAR) (See Sections 131-142, [2510 et seq.],
     of the Tenant Protection Regulations, and Part XI of this
     Operational Bulletin) However, the rejection is without
     prejudice to refiling a completed application with the DRO,
     as a new application with a new filing date, provided the
     owner is still eligible to use the same test year as defined
     in Section 34(d)(1)(g), [2502.4(d)(1)(vii)], of the Tenant
     Protection Regulations. For good cause shown, the DHCR may,
     in exceptional cases, provide a reasonable cure period in
     its rejection which would enable an owner to preserve his
     right to use a particular test year. See Section 85(d),
     [2507.5(d)], of the Tenant Protection Regulations. If the
     application passes preliminary review the owner shall be
     notified on Form RTP45.4, that he may thereafter notify the
     affected tenants that an alternative hardship proceeding has
     been commenced.

     III. Restrictions

     The restrictions against filing or receiving an alternative
     hardship increase are fully set forth in Section 34(d)(2),
     [2502.4(d)(2)] of the Tenant Protection Regulations. They
     are listed below, with further explanations where
     appropriate.

     a)   Maintenance of Services

     Section 34(d)(2)(b), [2502.4(d)(2)(ii)], of the Tenant
     Protection Regulations sets forth the DHCR's broad
     discretionary authority with respect to alternative hardship
     and the requirement of maintenance of services. That
     discretion is limited by sec. YY51-6.0.3 which specifically
     bars an owner from applying for or collecting further rent
     increases upon a determination by the DHCR that an owner has
     failed to maintain services as defined therein. Thus, where
     the DHCR has issued an order determining that an owner has
     failed to maintain services as defined in the applicable law
     and regulations, the DHCR may not grant an alternative
     hardship application pending service complaints or tenant
     answers which raise lack of maintenance of services as an
     issue do not, in and of themselves, bar the hardship
     application or the granting of an increase. The DHCR will
     act with respect to those applications in accordance with
     its discretionary authority and may issue an order granting
     the increase conditioned on the removal of violations or
     conditions affecting services.

     b)   Pending Tax Certiorari Proceedings or Objections

     Section 34(d)(2)(a)(v), [2502.4(d)(2)(i)(e)], of the Tenant
     Protection Regulations provides for the resolution of legal
     objections to real estate taxes and water and sewer charges
     for the test year. This restriction is derived from the
     requirement that the applicable increase be based on-
     expenses that are both actual and reasonable, as well as the
     DHCR's authority to safeguard tenants from practices which
     would otherwise subvert the levels of rent adjustment as
     provided by the applicable law. In lieu of an absolute bar,
     the DHCR as a reasonable alternative, will accept submission
     by an owner, of applicable proof of taxes based upon the
     proposed assessed value (as set forth in its certiorari
     petition or duly filed objection to such tax), together with
     proof of actual payment 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
     application, an additional increase may be granted
     prospectively, if warranted. Similar reasonable alternatives
     will be entertained as to unresolved water and sewer
     charges.

     c)   Ownership by the Same or Related Entity for 36 Months

     Section 34(d)(2)(a)(ii), [2502.4(d)(2)(i)(b)], of the Tenant
     Protection Regulations sets forth the requirement that an
     owner or an entity related to the owner must have acquired
     the building at least 36 months prior to the date of the
     application in order to be eligible for alternative hardship
     increases. A cooperative corporation or the Board of
     Managers of a condominium will 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 will be unable to file
     alternative hardship applications.

     d)   Five Percent Equity in the Property

     Owner's equity is defined in Section 34(d)(1)(e),
     (2502.4(d)(1)(v)], of the Tenant Protection Regulations.
     That equity must exceed five percent of the sum of the
     amounts listed in Section 34(d)(2)(a)(iii),
     [2502.4(d)(2)(i)(c)] of the Tenant Protection Regulations.
     (See Form RTP 45B.) Owners will generally satisfy this
     requirement and avoid the more complex statutory
     calculations required, if the arms length purchase price of
     their property, less the unrepaid principal of any loan or
     mortgage used to finance the purchase of the property
     exceeds five percent of the arms length purchase price. (The
     precise formulation is set forth in Form RTP 45A, question 5
     through 9 and the applicable instruction therefore).

     e)   The Grant of a Previous Hardship Increase

     Section 34(d)(2)(a)(iv), [2502.4(d)(2)(i)(d)], of the Tenant
     Protection Regulations has the effect of prohibiting the
     filing or granting of an application where the building had
     been granted a hardship increase within 36 months of the
     effective date of the issuance of a previous hardship
     application order, or if a six percent increase is still in
     effect based on a prior application.

     IV.  Owner Notification to Affected Tenants

     Within twenty days of receipt of the RTP45.4, the owner must
     hand deliver or mail a complete set of the application forms
     submitted to the DHCR, to the affected tenants, plus a DHCR
     notice of the Proceeding (RTP45.1) and 3 copies of the DHCR
     answer form (RTP3).

     A complete copy of the owner's submission to the DHCR
     including all required schedules and all supporting
     documentation plus a copy of the DHCR's Instruction Booklet
     (RTP45.2) must be made available at the DRO and at the
     subject building or complex in the office of the resident
     manager, managing agent or superintendent during normal
     working hours. If such office is not available on site,
     these documents must be made available at a near-by
     alternative location. If such location is not available, as
     attested to by affidavit of the owner, such documents may be
     inspected at the DRO.

     V.   Filing of the Application with the DHCR

     After completing notification to the affected tenants, the
     owner must then complete and file with the appropriate DRO
     the DHCR's form "Owner's Certification of Service"
     (RTP45.3). The date that this form is received by the
     appropriate DRO will be considered the date of completion of
     filing with the DHCR. The DHCR will, where necessary, take
     appropriate action to verify the accuracy of the owner's
     certification of service. At the time of filing the RTP-
     45.3, the owner must also submit a certified rent roll as of
     the date of the filing of the application.

     VI.  Tenant Answer

     Tenants shall submit two copies of their answers, if any, to
     the appropriate DRO within twenty days of receipt unless,
     for good cause shown, an extension is granted by the
     District Rent Office.

     VII. Mortgage Interest as an Includable Expense and its
          Impact on Processing

     The alternative hardship, unlike the two comparative
     hardship formulas, allows for the inclusion of interest on a
     bona fide mortgage as an allowable expense in computing the
     appropriate rent adjustment. (See Section 34(d)(1)(b), (c),
     and (d), [2502.4(d)(1) (ii)(iii) and (iv)], of the Tenant
     Protection Regulations; Form RTP45E and instructions
     therefore.) Even where the mortgage is "bona fide", as
     defined by Sections 34(d)(1)(c) and (d), [2502.4(d)(1)(iii)
     and (iv)], of the Tenant Protection Regulations, the DHCR on
     its own initiative where warranted, or in the face of a
     meaningful tenant objection, will also ascertain whether the
     claimed mortgage interest expense is reasonable, actual,
     applicable to the operation and maintenance of property,
     reasonably allocable to the test year and in keeping the
     general legislative purposes and intent.

     Because mortgage interest, as an allowable expense, is a new
     feature belonging solely to this hardship, adjudication of
     mortgage interest expense issues can only be further defined
     by a case by case determination. Where a unique
     unprecedented issue regarding claimed mortgage interest
     expense is raised in a meaningful manner it will be reviewed
     by a mortgage interest committee established by the DHCR to
     aid the District Rent Administrator (DRA) or the Director of
     processing in his determination. However, two general
     examples of proposed adjudications by the DHCR are set forth
     below:

     Example 1

     Where there has been a change in mortgage debt since the
     effective date of the addition of the alternative hardship
     provisions to the applicable law, the DHCR will make
     appropriate adjustments to the claimed mortgage interest
     expense, to disallow interest on that portion of the
     principal balance of the current mortgage which exceeds the
     expiring balance of the previous mortgage. This will assure
     that the mortgage interest expense reflects the actual and
     reasonable cost of maintenance of the property. Monies
     otherwise utilized from refinancing for the operation and
     maintenance of the property, to the extent compensable by
     application, is covered by Operational Bulletin 844, issued
     November 13, 1984, entitled Major Capital
     Improvements/Substantial Rehabilitation/Increased Services
     and Equipment and the applicable law, code and regulations
     cited therein.

     Example 2

     Points and other charges payable during the test year which
     represent prepayment of interest (and are therefore a non-
     recurring expense) will be allocated over the term of the
     mortgage, or a reasonable period, to more accurately reflect
     the reasonable and actual expenses of the operation and
     maintenance of the property. In addition, they will be
     adjusted to reflect that portion of the mortgage expense
     allowed for mortgage interest computations.

     VIII. Issuance of the Order

     The DRA or the Director of Processing, after taking all
     necessary and appropriate action, shall issue a
     determination either dismissing the application if it fails
     to substantially comply with the provisions of the
     Regulations, or granting the application, in whole or in
     part.

     In the event an application is granted, the collection of
     any rent increase shall not exceed six percent of the legal
     regulated rent in effect on the filing of the application.
     The collectibility of any amount above that sum shall be
     spread forward in similar increments and added to the rent
     as established or set in future years. In buildings
     containing residential apartment units subject to Rent
     Control or otherwise exempt from regulation, adjustments for
     both income and expenses will be made to calculate the
     appropriate share for those apartments subject to this
     application. No application may be made for any hardship
     until such time as the increase based on a prior hardship
     application falls below six percent for a given year. In no
     event may an application for hardship be made within thirty-
     six months of the effective date of the issuance of previous
     hardship application order.

     IX.  Effective Date of the Order

     In New York City, the DHCR will use the Rent Stabilization
     Code to ascertain the effective dates of any order granting
     an increase, with due consideration to all factors bearing
     on the equities involved, as required by the Rent
     stabilization Code.

     The effective date of the rent increase for buildings
     located outside of New York City is governed by Section 32,
     [2502.2], of the Tenant Protection Regulations, which
     provides that adjustments of legal regulated rents are
     effective at the date of the issuance of the order unless
     the order itself provides otherwise. Rent increases shall be
     expressed on a percentage basis.

     X.   Petition for Administrative Review (PAR)

     A PAR is the method of review of a DRA or Director of
     Processing order and is a prerequisite in order to obtain
     judicial review.

     Any person aggrieved by an order of a DRA or a Director of
     processing may file a PAR (Forms RAR-1 and 2) within 33 days
     after the date of such order. A PAR served by mail,
     postmarked not more than thirty-three days after the date of
     such order, shall be deemed in compliance with this
     paragraph. See Operational Bulletin 84-1 and Sections 8 and
     131-143, [2500.8, et seq.], of the Tenant Protection
     Regulations for the relevant procedure by the DHCR upon
     administrative review.*

------------------------------

*    Pursuant to Chapter 888 of the Laws of 1985, the DHCR has
     been authorized to amend the Rent Stabilization Code for New
     York City. At such time as the amended Code is promulgated,
     the DHCR will issue a supplement to this Bulletin providing
     cross references for the new Code to the ETPA Regulations
     contained in this Bulletin.

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DHCR Operational Bulletins are issued by the New York State
Division of Housing and Community Renewal (DHCR) and update
agency administration of the rent laws.

Electronic versions of the documents on TenantNet
are for informational purposes only and there is no guarantee
they will be accepted by any court (or even DHCR) as true copies
of DHCR policy. The reader is advised to obtain true copies of
these documents from DHCR. Also see DHCR Policy Statements,
DHCR Advisory Opinions, the Rent Stabilization Code, the Rent
Stabilization Law and various Rent Control Statutes.

Every attempt has been made to conform to the original Operational
Bulletins as issued by DHCR; TenantNet makes no
representation the enclosed material is current or will be
applied as written.  The reader is advised that DHCR often fails
to properly apply, interpret or enforce housing laws.  Since
housing laws are complex and often contradictory, it is
recommended the reader obtain competent legal advice from a
tenant attorney or counseling from a tenant association or
community group. (rev. 3/13/96) DHCR documents
are public documents; the electronic version of such documents
have been developed by TenantNet and any added value, enhancements
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For more information or assistance. call the DHCR Rent Infoline
at (718) 739-6400, or visit your Borough Rent Office.

Queens Central Office
92-31 Union Hall St. 4th Fl.
Jamaica, NY 11433
(718) 739-6400

Bronx
One Fordham Plaza
Bronx, NY 10458
(718) 563-5678

Brooklyn
250 Schermerhorn St.
3rd Floor
Brooklyn, NY 11201
(718) 780-9246

Lower Manhattan
156 William Street
9th Floor
NY, NY 10038
(212) 240-6011, 6012
South side of 110th St. and below

Upper Manhattan
163 W. 125th St.
5th Floor
NY, NY 10027
(212) 961-8930
North side of 110th St. and above

Staten Island
350 St. Mark's Place
Room 105
Staten island, NY 10301
(718) 816-0277

Nassau County District Rent Office
50 Clinton Street, 6th Floor
Hempstead, NY 11550
(516) 481-9494

Westchester County District Rent Office
55 Church Street, 3rd Floor
White Plains, NY 10601
(914) 948-4434

Rockland County District Rent Office
94-96 North Main St.
Spring Valley, NY 10977
(914) 425-6575

Albany Regional Office
119 Washington Avenue
Albany, NY 12210
(518) 432-0596

Buffalo Regional Office
Ellicot Square Building
295 Main St., Room 438
Buffalo, NY 14203
(716) 856-1382
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