The question in this case, as limited by appellant’s brief, is whether the “useful life” rule applies to individual apartment improvements (IAIs) made by a property owner and, if so, whether the owner bears the burden of proof at trial to demonstrate compliance with that rule.
The rent regulation laws generally prohibit property owners from increasing regulated rents. But there are exceptions, including that an owner can increase a regulated rent to account for certain improvements. One type of improvement that permits a rent increase is a “major capital improvement.” Another is any improvement that results in “a substantial increase . . . of dwelling space, or an increase in the services, or installation of new equipment or improvements, or new furniture or furnishings” in the apartment. An improvement covered by this provision is commonly referred to as an individual apartment improvement (or “IAI”).
The rent regulation laws set forth a schedule that identifies the “useful life” for a range of capital improvements, and provide that no rent increase may be granted within the useful life of a major capital improvement that was the basis for an earlier rent increase. There is no similar useful-life schedule for IAIs. But the rent regulation laws nevertheless provide that an owner, who obtained a rent increase for the installation of “new equipment, or new furniture or furnishings,” cannot obtain another rent increase for installing “similar equipment, or new furniture or furnishings” within the useful life of the previous installation.
This case comes to the Court after a bench trial on plaintiff’s claim that defendant improperly raised her regulated rent on the basis of claimed IAIs. At trial, defendant offered proof to establish that it had undertaken the claimed IAIs; Supreme Court found that proof insufficient, but the First Department reversed on its de novo review of the factual record. Plaintiff’s appeal to the Court of Appeals does not purport to raise any claim of error with respect to that aspect of the trial.
Instead, plaintiff raises an independent basis to find that the claimed IAIs were invalid. At trial, plaintiff argued that defendant’s claimed IAIs (made in 2009) were invalid because defendant had taken earlier rent increases based on similar IAIs in 1995 and 1998. But, plaintiff argued, defendant failed at trial to prove that those earlier improvements had exceeded their useful life, such that the claimed IAIs could support a new rent increase.
Supreme Court ruled for plaintiff on this ground, but a divided panel of the First Department reversed. The majority concluded that plaintiff had waived her “useful life” claim by failing to plead it in her complaint or raise it by motion in Supreme Court. In any event, the majority held that defendant was not required to prove that the useful life of the earlier IAIs had been excluded because it was not required to file those IAIs with an administrative agency or to “adhere to a useful life schedule in performing IAIs.” Two dissenting judges would have gone the other way. In their view, defendant was required at trial to prove its compliance with the useful-life rule, and plaintiff was not required to plead the issue since she bore no burden on it.
Plaintiff appealed to the Court of Appeals as a matter of right based on the two-judge dissent.