As a landlord managing rent-stabilized properties in New York City, maximizing your investment while complying with regulations is key. One effective way to increase rental income is through Individual Apartment Improvements (IAIs). These allow you to recover costs for upgrades made to individual units by applying for permanent rent increases. Whether you're renovating a vacant apartment or working with occupied units, understanding IAIs can help boost your property's value and revenue.
IAIs refer to enhancements, equipment installations, or service increases made to a specific apartment in a rent-stabilized or rent-controlled building. Common examples include installing new appliances (like refrigerators or stoves), upgrading flooring, bathrooms, kitchens, or even painting under certain qualifying conditions. These improvements must be substantial and add value to the unit.
Unlike Major Capital Improvements (MCIs), which apply building-wide, IAIs are unit-specific. They enable landlords to pass on a portion of the improvement costs as a permanent rent hike, making them a popular tool for property owners looking to modernize apartments without losing rent stabilization status.
To qualify for an IAI rent increase, your property must be under rent stabilization or rent control laws in New York. Landlords of both occupied and vacant units can apply, but rules differ based on occupancy:
Qualifying work includes new installations or replacements that improve the apartment's condition. Routine maintenance, like minor repairs, doesn't count. For instance, replacing outdated wiring, plumbing, or adding energy-efficient windows could qualify. Painting may be eligible if it's part of a broader renovation, but check DHCR guidelines for specifics.
Following the Housing Stability and Tenant Protection Act (HSTPA) of 2019 and updates effective October 17, 2024, DHCR introduced a two-tier system for IAI rent increases. This caps costs and standardizes calculations based on building size.
These increases are permanent and added to the base rent. Use DHCR's Operational Bulletin #2024-2 for detailed examples and FAQs.
Applying for an IAI is straightforward but requires electronic filing through DHCR's Owner Rent Regulation Applications (ORRA) system.
1. Plan and Perform the Improvements: Document all costs with invoices, contracts, and proof of payment. The application on ORRA systems requires “before” and “after” photos of the unit.
2. Obtain Tenant Consent (If Applicable): For Tier 1 in occupied apartments, get written informed consent using DHCR Form RN-19C. This form is available in multiple languages.
3. Gather Documentation: Collect "after" photos matching the "before" ones. Include canceled checks, invoices, and any permits. Prepare an itemized list of work performed, including a description and reason for each improvement. ORRA systems classify the costs based on apartment areas, like kitchen and bathroom, so sort the invoices based on these categories.
4. File the Notification: Submit Form RN-19N: Individual Apartment Improvement Notification immediately after completion of the work. Upload photos and consent form if required. For Tier 2, apply for eligibility certification first, and include additional pre- and post-installation documentation such as itemized invoices, receipts, and proof of payment.
5. Update Rent Registrations: Amend your annual apartment registration to reflect the new rent. If errors occur, file an amendment promptly.
6. Collect the Increase: Once filed, you can implement the rent hike.
To ensure your application is approved without issues, prepare:
Form RN-19N: The main notification form, which must include an itemized list of work performed and a description/reason for the work.
Before and After Photos: High-quality images showing the improvement, required for all notifications.
Form RN-19C: Tenant consent for occupied units.
Proof of Costs: Itemized invoices, receipts marked "paid in full," canceled checks or electronic payment proofs, signed contracts, and contractor affidavits. These must be submitted for Tier 2 and retained for all IAIs in case of DHCR requests or tenant disputes.
Building Details: Confirm the number of units to determine the calculation formula.
Incomplete filings can lead to delays or denials, so double-check everything before submission. DHCR may request additional information at any time.
Tenant involvement is critical, especially in occupied units. You must obtain explicit written consent, and tenants have the right to challenge increases by filing complaints with DHCR (e.g., Form RA-89 for overcharges). For vacancy leases, tenants can request supporting docs within 60 days of signing, and you must provide them within 30 days.
Failing to comply can result in rent freezes or reductions, so transparency is essential.
Applying for IAIs in rent-stabilized properties is a smart way to invest in your building while securing permanent rent increases. By following DHCR's guidelines and the two-tier system, landlords can efficiently recover costs.
This article is for informational purposes only - consult a qualified attorney for personalized advice. Elad Michael is a dedicated NYC real estate attorney focused on commercial transactions, helping investors and businesses navigate the complexities of the New York market.