April 12, 2026

 

This is an excerpt from a 20-unit building Rent Regulatory Due Diligence that I conducted. One of the main functions of a Rent Regulatory Due Diligence is to test, before a purchaser closes on the acquisition of a multifamily building, whether the apartments that the seller alleges are NOT subject to Rent Stabilized are truly not subject to Rent Stabilization.

 

It is very important to keep in mind that a court or DHCR can look back in time endlessly to determine whether an apartment is subject to Rent Stabilization. Gersten v 56 7^th Avenue LLC, 88 AD3d 189 [1st Dept 2013], appeal withdrawn 18 NY3d 954 [2012]. Upon such a challenge, “consideration of events beyond the [damage determination] period is permissible if done not for the purpose of calculating an overcharge but rather to determine whether an apartment is regulated” East W. Renovating Co. v DHCR, 16 AD3d 166, 167 [1st Dept 2005]; 150 E. Third St. LLC v Ryan, 201 AD3d 582 [1st Dept 2022]. See also Rent Stabilization Code (“RSC”) § 26-516(h) (applicable after June 14, 2019), which allows a court or DHCR, “in investigating complaints of overcharge and in determining legal regulated rents, [to] consider all available rent history which is reasonably necessary to make such determinations…” The burden is on the owner to show that an apartment is properly deregulated. Matter of Kostic v DHCR, 188 AD3d 569, 569 [1st Dept 2020] (It is landlord’s burden to prove High Rent Vacancy Deregulation.).

 

One of the few exceptions that would take an apartment out of Rent Stabilization is High Rent Vacancy Deregulation. Therefore, most fights about illegal deregulation from Rent Stabilization are about whether a unit has been High Rent Vacancy Deregulated.

 

The High Rent Vacancy Deregulation Exception to Rent Stabilization

 

High Rent Vacancy Deregulation occurred when an apartment’s legal regulated rent had, upon the apartment becoming vacant (see Altman v 285 West Fourth LLC, 31 NY3d 178 [2018]), reached a prescribed deregulation threshold. Rent Stabilization Law (“RSL”) § 26-504.2(a). The High Rent Vacancy Deregulation thresholds changed over time. On June 14, 2019, High Rent Vacancy Deregulation was abolished by the Housing Stability and Tenant Projection Act of 2019 (“HSTPA”). Although High Rent Vacancy Deregulation was abolished, as per the HSTPA, past deregulations are still valid. RSL § 26-504.2.

 

Getting to the Deregulation Threshold with Individual Apartment Improvements

 

Before the HSTPA in 2019 eliminated High Rent Vacancy Deregulation, landlords were always eager to get to the deregulation threshold. One way to hasten getting there was to do Individual Apartment Improvements (“IAIs”). A landlord may secure a rent increase based on a substantial modification or enlargement of dwelling space and/or upon provision of additional services, improvements, equipment, furniture, or furnishings to a Rent Stabilized unit. RSL § 26-511(c)(13); RSC § 2522.4(a)(1). No tenant consent is required when the IAI is made during a vacancy. RSC § 2522.4(a)(1). DHCR distinguishes between “improvements” and “repairs” or “maintenance” in determining whether the work qualifies for the increase. Rockaway One Co., LLC v Wiggins, 9 Misc. 3d 12 [App Term, 2d Dept 2004], order rev’d on other grounds, 35 AD3d 36 [2d Dept 2006].

 

Before the HSTPA in 2019, in a building with 35 or fewer apartments, a landlord was allowed to add to a Rent Stabilized tenant’s rent the equivalent of one-fortieth (1/40) of the cost of the new service or equipment, including installation costs, but not finance charges. RSL § 26-511(c)(13); RSC § 2522.4(a)(4). For example, if a new refrigerator was installed in an apartment and the landlord’s expense was $400.00, then the tenant’s monthly rent was increased by $10.00 (1/40 x $400). This kind of IAI was often used to juice the rent to the deregulation threshold.

 

IAI’s receive scrutiny by courts or DHCR. See Operational Bulletin 2016-1 “Individual Apartment Improvements”, which deals extensively with the types of proof the DHCR requires of a landlord who wants to substantiate IAI’s, and which states:

 

Claimed individual apartment improvements are required to be supported by adequate and specific documentation, which should include:

 

1. Cancelled check(s) (front and back) contemporaneous with the completion of the work or proof of electronic payment;

 

2. Invoice receipt marked paid in full contemporaneous with the completion of the work;

 

3. Signed contract agreement; and

 

4. Contractor’s affidavit indicating that the installation was completed and paid in full.

 

Here are some examples of how landlords mess up substantiation of IAI’s:

 

• The invoices do not contain an address or apartment number or contain multiple apartment numbers.

 

• The cancelled checks do not indicate what invoices were being paid.

 

• There are no invoices marked “paid”.

 

• The amounts of alleged expenditures do not match up with the invoices.

 

• The invoices are chronologically discordant with the alleged work.

 

• Landlord does not provide signed contracts.

 

• Landlord does not provide contractors’ affidavits.

 

• Landlord does not provide before and after pictures of the apartment.

 

The issue of whether the deregulation threshold was achieved via IAI’s has been the subject of much litigation. Below is a survey of cases in this area.

 

Sufficiency of IAI Records

 

Some landlords have sufficient records available to substantiate IAI’s. Suffice it to say, the more records a landlord has, the better it is for landlord. If the records exist, then there are a series of other questions which must be answered.

 

Do the records substantiate the dollar amount of IAI’s needed to reach the deregulation threshold? See 150 E. Third St., LLC v Ryan, 2020 WL 9396600 [New York City Civil Court, New York County, 2020], modified and remanded, 71 Misc.3d 1 [App Term 1st 2021], affirmed as modified, 201 AD3d 582 [1st Dept 2022]. (“In this case, rent for the premises jumped in 2006 from $508.89 to $3,000.00, an approximate 600% increase. The petitioner allegedly spent $67,240.00 on improvements to a 500 square feet apartment. This expenditure was barely sufficient to support an increase which removed the premises from regulation. The premises are located in the East Village neighborhood of New York City…As detailed in the court’s March 9, 2020 analyses, petitioner failed to provide documentation to support purported $67,240.00 in Individual Apartment Increases (“IAIs”). It also failed to proffer reasons why documentation was not available. Those records produced included affidavits from contractors which were created approximately a decade after work was done in the premises. No evidence was provided to substantiate the costs, alleged. The affidavits are silent as to how those executing same recalled the specifics of the renovation. A careful analysis revealed that only $37,040.00 of the $67,240,00 improvements alleged supported a rent increase.”)

 

Contrast Ryan with Sandlow v 305 Riverside Corp., 201 AD3d 418 [1st Dept 2022] (“[Landlord] sufficiently documented the apartment improvements by proffering the estimate, invoices, checks showing payment of all the sums charged, and testimony from its own agents and the general contractor that the work was done [citations omitted]. [Tenant’s] expert’s credible testimony as to the amount the contractor should have charged, how much of the renovation would have qualified as individual apartment improvements, and the contractor’s subpar work or failure to install crown molding does not prove that the work was not performed…”)

 

Does the work substantiated constitute improvements or just repairs? See Rockaway One Co., LLC v Wiggins, 9 Misc. 3d 12 [App Term 2d 2004], order rev’d on other grounds, 35 AD3d 36 [2d Dept 2006] (“…DHCR commonly allows increases for the installation of new stoves and refrigerators when these are installed as part of an overall remodeling of the kitchen…”)

 

Did the useful life of the current fixtures in the apartment justify “improvements”? RSL 26-511(c)(13); RSC 2522.4(a)(11); Dilorenzo v Windermere Owners LLC, 36 NY3d 965 [2020].

 

Age of the Deregulation

 

The older the deregulation, the less scrutiny a court or DHCR is likely to give the IAIs. The more recent the deregulation, the more scrutiny a court or DHCR is likely to give the IAIs.

 

See Gun Hill Associates LLC v Martinez, [New York City Civil Court, Bronx County, 2021] (No amendment of answer allowed where tenant alleged that, in 2010, the rent went from $955.47 to an unexplained $1,911.53, ten years after the alleged deregulation.)

 

See 150 W. 82nd St. Realty Assoc., LLC v Linde, 36 Misc.3d 155(A) [App Term 2d 2012], where summary judgment was denied to landlord where there was an unexplained $1,061 rent increase in 1997 (at the time of the decision, that was 15 years earlier).

 

Dollar Amount of IAI’s

 

The less expensive the deregulation, the less scrutiny a court or DHCR is likely to give the IAIs. The more expensive the deregulation, the more scrutiny a court or DHCR is likely to give the IAIs. See Widsam Realty Corp. v Joyner, 66 Misc.3d 132(A) [App Term 2d 2019], where a tenant was granted discovery in a summary proceeding when IAI’s from 1989 were at issue and the amount the landlord needed to spend to improve the apartment in 1989 was over $50k.

 

Proximity of Owner to the Deregulation

 

If the current owner was not the owner when the deregulation occurred, the less scrutiny a court or DHCR is likely to to give the IAIs. If the current owner was the owner when the deregulation occurred, the more scrutiny a court or DHCR is likely to to give the IAIs. See 3225 Holdings LLC v Imeraj, 65 Misc.3d 1219(A) [New York City Civil Court, Bronx County, 2019], where the court held:

 

The court also finds the rent increases in 1996 and 2001 are not inherently unreliable and, as they predate [landlord]’s ownership by five and 10 years respectively, and pre-date [tenant]’s claims by 18 and 23 years respectively, it would be highly prejudicial to [landlord] to have to justify those relatively small increases. [Footnote omitted.] Those records, were they available, are not “reasonably necessary” for this court to determine the central issues here—whether [tenant] has been overcharged in the last six years or whether the premises were improperly deregulated.”

 

In Imerag, however, the court was willing to look back to 2002-2005, when the rent in that case jumped from $789.10 to $1,226.94, a 70% increase, with no explanation offered from landlord.

 

Proximity of Tenant to the Deregulation

 

If the current tenant was not the tenant when the deregulation occurred, the less scrutiny a court or DHCR is likely to give the IAIs. If the current tenant was the tenant when the deregulation occurred, the more scrutiny a court or DHCR is likely to give the IAIs.

 

See Haskin v DHCR, 203 AD3d 603 [1st Dept 2022] (“Even though the law required the landlord to maintain records of individual apartment improvements (IAIs) for only four years, the landlord nonetheless submitted an affidavit from its managing agent, along with invoices, all of which demonstrated that work was done [citations omitted]. Given these submissions, and given [tenant]’s own statement in her complaint that renovations were done before a prior tenant moved in, it was not arbitrary and capricious for DHCR to draw upon its own expertise and resources in concluding that $28,126.80 was not an inordinate expenditure to renovate an apartment that had become vacant for the first time in at least 21 years.”)

 

See 486 Bklyn Realty, LLC v Charles, 70 Misc.3d 142(A) [App Term 2d 2021] (“It is undisputed that, in addition to a vacancy increase and a long-term prior tenant increase, landlord relied upon a $1,300 individual apartment improvement (IAI) increase to bring the rent above the threshold. Tenant argues that, in order to justify an IAI increase of $1,300, landlord would have had to have made approximately $50,000 worth of repairs to the apartment. In opposition to landlord’s motion, tenant described conditions in the apartment, seeking to demonstrate that any repairs and updates that may have been made could not have cost $50,000. Upon a review of the motion papers, we find that tenant has not demonstrated that her defense has potential merit.”)

 

Other Factors – Such as Large Gaps in DHCR Records

 

The court and DHCR will scrutinize IAI’s more closely if there are other suspicious facts afoot, such as when DHCR records have unexplained gaps.

 

See Thompson Assets LLC v Raffelo, [App Term 1st 2018] (“Nor does the DHCR rent registration history, which contained unexplained time gaps over ten years and indicated neither the initial legal rent nor the amount of rent collected for more than twenty years, support landlord’s claim of high rent deregulation.”)

 

Recent DHCR Cases

 

Finally, I leave you with the three recent IAI cases that have come out of DHCR.

 

In re Colette Draught-Diggs, Docket LR410012RT, LVT 33706, April 3, 2025, the deregulation was upheld, and the Agency held:

 

The records show that the legal registered rent in 2001 was $456.88. A renovation in the claimed amount of $38,000 was completed by Crest Contracting Inc. in 2001, with proof of payment of $35,000 in the form of cancelled checks and a bank account debit shown. Tenant A took possession in 2001, with the vacancy increase of $100 increase plus the $875 IAI increase (1/40th of $35,000), resulting in the collectible rent (“CR”) of $1,431.88. Tenant B took possession in 2003, with 18% vacancy increased added, resulting in CR of $1,689.62. The increase of 4.5% in 2004 resulted in the CR of $1 ,765.65. The increase of 3.5% in 2005 resulted in the CR of $1,827.45. Due to the vacancy created by the Tenant B moving out, there would be a legal vacancy increase of 17.25% for Tenant C, whose lease starting in August 2006 was provided by the owner. With this increase, the rent would be $2,142.69, and that would be in excess of the $2,000 deregulation threshold in effect at the time. As the Petitioner was not a tenant at the time of the deregulation, no notice to the Petitioner was required.”

 

[Emphasis supplied.]

 

In re Oscar Torres, Docket MW210007RT, LVT 33710, May 27, 2025 the deregulation was upheld, and the Agency held:

 

…the owner provided the lease of the last rent stabilized tenant from September 2006 at a rent of $937.69 per month. The owner asserted that it spent $39,000 to renovate the apartment, 1/40th of which would increase the rent by $975 per month. The owner argued that this individual apartment improvement (IAI) increase, coupled with the applicable vacancy allowance of 20% ($187.54), pushed the legal rent over the deregulation threshold of $2,000 per month in effect in 2006- 2007. In support of the IAIs, the owner produced an affidavit from the owner itemizing the IAIs which included kitchen, bathroom, electrical wiring, flooring and all sheetrock walls being renovated. The owner also produced the affidavit of the contractor who states that he performed the work and was paid $39,000. The owner also produced the affidavit of the building superintendent who stated that she witnessed the work being performed in the subject apartment.”

 

[Emphasis supplied.]

 

In re Marine Joyner, Docket MW210027RT, LVT 33713, April 15, 2025, the deregulation was upheld and the Agency held:

 

The rental history for the subject apartment demonstrates that the prior tenants, Dorthe Alstrup and Keith Lopez, signed a lease commencing February 1, 2006 through January 31, 2008 with a monthly rent of $1,519.29. Their rent was registered as of Aprill , 2007. Following their vacancy from the apartment prior to the termination of their lease, the owner performed Individual Apartment Improvements (IAIs) in the apartment and submitted an invoice and proof of payment for $12,000 in expenditures. The IAI rent increase along with the statutory vacancy increase when added to the prior rent of $1,519.29 raised the legal rent above the high rent vacancy deregulation threshold of $2,000 effective in 2007. Therefore, the apartment was legally deregulated when the complaining tenant took occupancy in June 2007 and was contemporaneously registered as Exempt.”

 

[Emphasis supplied.]

 

Respectfully submitted,

Michelle Itkowitz