In 1987, DHCR promulgated a new Rent Stabilization Code (9 NYCRR 2520 et seq.). New §2520.4(a)(1) continued the policy set forth in section 20(C)(1) of the superseded Code.

The IAI rule, however, still had no predicate in the Rent Stabilization Law itself. That changed in 1993, pursuant to L. 1993, ch. 253, the so-called Rent Regulation Reform Act of 1993 (the “act”). Section 19 of the act added §26-511(c)(13) to the RSL to provide that:

…an owner is entitled to a rent increase where there has been a substantial modification or increase of dwelling space or an increase in the services, or installation of new equipment or improvements or new furniture or furnishings provided in or to a tenant’s housing accommodation, on written tenant consent to the rent increase. In the case of a vacant housing accommodation, tenant consent shall not be required. The permanent increase in the legal regulated rent for the affected housing accommodation shall be one-fortieth of the total cost incurred by the landlord in providing such modification or increase in dwelling space, services, furniture, furnishings or equipment, including the cost of installation, but excluding finance charges.

For years, tenant advocates had complained that owners—who usually performed IAI work when an apartment was vacant—were inflating costs, and that in any event the 40-month amortization period was too short. In a memorandum in opposition to the act, the New York State Tenant & Neighbor Coalition wrote:

This formula is now 1/40th of the total cost, resulting in a complete payback to the landlord in three years and four months. The increase remains in the base rent for determining future rent increases, on which rent guidelines are compounded.

This formula is in fact quite generous to the landlord, resulting in hefty rent increases. [Tenant & Neighbor] has long campaigned for a change to 1/72nd of the total cost of monthly rent increase, resulting in full payback in six years. The increase still would remain in the base rent for determining periodic general rent increases. The Governor has committed himself to this 1/72nd formula, and the State Division of Housing and Community Renewal is working on the necessary administrative implementation. Enshrining the 1/40th factor is regressive.

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