Court Upholds DHCR's Rent Increase Surcharge For Wealthier Residents of Roosevelt Island's Rivercross Mitchell-Lama Co-op

Roosevelt Island Rivercross Rent Surcharge Decision by DHCR Upheld by NY Supreme Court

As first reported by RI 360, the NY State Supreme Court has upheld the NY State Division of Housing and Community Renewal's (DHCR) decision to increase the annual rent surcharge imposed upon residents of Roosevelt Island's Mitchell-Lama Rivercross Co-op whose income exceeds the maximum allowed for the building.

The Court provides some background history on the dispute.

... At the time the building opened in the middle 1970's, the initial offering plan of Rivercross specified that income based surcharges would not exceed 10% of carrying charges. In 1999, Rivercross increased the surcharge maximum to 20% upon the recommendation of DHCR. Certain dissenting shareholders sued unsuccessfully to prevent imposition of this increase (see Vink v. DHCR, 285 AD2d 203 [1m Dept. 2001]).
In 2007, the Board of Directors of Rivercross ("Board") approved and submitted to DHCR an application seeking to increase the monthly maintenance charge to shareholders by 4% in order to allow Rivercross to meet its expenses. Rivercross did not seek to change the surcharge schedule applicable to residents with incomes exceeding the maximum income allowed for continued occupancy. Despite an absence of any request to alter the surcharge schedule, the DHCR staff examined the impact of an adjustment of the surcharge schedule on the size of the maintenance charge increase required to enable Rivercross to meet all of its projected expenses. The DHCR staff analysis revealed that the maintenance charge increase could be avoided by increasing the surcharge maximum to 40%. PHFL § 31(3) authorizes maximum surcharges of up to 50% of the carrying charges.
Prior to taking action on the application, DHCR recommended that Rivercross give consideration to an increase of the maximum surcharge. Rivercross considered the request but elected to retain the existing surcharge schedule without modification. Thereafter, the DHCR Commissioner signed an order approving a smaller increase of the maintenance charge than was requested and imposing an increase of the maximum surcharge from 20% to 30% ("Order")... (Page 5, Scribd document)

The Rivercross Co-Op Board asserted in their lawsuit that the DHCR's rent surcharge increase was an illegal order and an abuse of government authority. From an earlier post on subject:

It will be interesting to see how the DHCR seeks to justify overruling the business judgement of the Rivercross Board. After all, as the Main Street WIRE reported in a prior 2001 case involving a Rivercross rent surcharge increase agreed to by both DHCR and the Board, the Appellate Division of the NY State Supreme Court ruled:
DHCR rationally construes the PHFL [Public Housing Finance Law] to allow Mitchell-Lama cooperatives to be responsible for creating their own individual surcharge schedules, in recognition of the business and practical factors unique to each..."

Now, on this issue of a rent increase surcharge the DHCR and Rivercross Board disagree and DHCR is seeking to overturn the business judgement of the Rivercross Board.

The NY State Supreme Court answered the claims of the Rivercross Board by declaring:

... However by affording the Board an opportunity to promulgate the surcharge schedule the court did not thereby endorse Rivercross' assertion that the Rivercross Board has sole authority to set it. Rivercross is not entitled to thwart DHCR's supervisory authority by stubbornly refusing to consider and act on DHCR's recommendations.

In this case, DHCR invited the Board to consider and promulgate carrying charge and surcharge increases that would allow Rivercross to cover its expenses, mindful that the Mitchell-Lama Law is "directed mostly at maintaining a stratum of middle rather than high income people" while not excluding higher income people from these buildings that receive substantial government financial support (id at 20). DHCR exercised its supervisory powers only after it engaged the Board and the Board refused to make any change to the surcharge schedule. Rivercross has not shown that DHCR acted outside the scope of its authority in this instance.... (Page 9-11 of scribd document)

In response, the Rivercross Co-Op Board issued the following memorandum.(Click on image to read.

Commenting on this case, Assembly Member Micah Kellner said:

I'm greatly disappointed in the Judge's decision which I believe ignores the facts and previous decision. The precedent set by this decision will have as yet unknown and possibly negative effects on all Mitchell Lama Coops.