Major Capital Improvement Rent Increase Should Not Have Been Denied in Its Entirety
In a full-fledged opinion by Justice Renwick, the First Department determined the NYS Division of Housing and Community Renewal’s (DHCR’s) complete denial of a rent increase for a Major Capital Improvement (MCI) to an apartment building was arbitrary and capricious. In the past, DHCR had denied an MCI rent increase only with respect to a small percentage of all the apartments in the improved building which were experiencing problems (like water damage) after the improvement was complete. Here the DHCR had denied the increase in its entirety (for all apartments) based upon problems in a small number of apartments. In noting that the DHCR determination was not supported by any relevant precedent (one aspect of a court’s “arbitrary and capricious” review under Article 78), the First Department wrote:
It is well settled that “[j]udicial review of administrative determinations is limited to whether the determination was affected by an error of law or was arbitrary and capricious or an abuse of discretion… . Further, the Court of Appeals has held that an administrative agency’s determination is arbitrary and capricious when it ” neither adheres to its own prior precedent nor indicates its reason for reaching a different result on essentially the same facts'”… . “[A]n agency that deviates from its established rule must provide an explanation for the modification so that a reviewing court can determine whether the agency has changed its prior interpretation of the law for valid reasons, or has simply overlooked or ignored its prior decision'” … .
When a party mounts an attack upon a decision by DHCR as inconsistent with prior determinations, our task is to examine DHCR’s precedent in similar situations. In those cases where the DHCR has denied an exterior renovation (waterproofing and pointing) MCI rent increase outright in the first instance, this Court has upheld such determinations where the owner failed to prove that the work was necessary and comprehensive… . There is, however, no evidence that the DHCR has ever had a specific policy to deny a rent increase outright in the first instance in the type of situation, as here, where defects (water damage) relating to the improvement are found in a relatively small number of the building’s apartments. Nor does DHCR present any evidence of such policy. Matter of 20 Fifth Ave, LLC, 2013 NY Slip Op 05434, 1st Dept 7-23-13