Topic No. 311: How to Notify Tenants of a Capital Improvement Increase
To impose a capital improvement passthrough, landlords must first file a Capital Improvement Petition at the Rent Board, and then issue a written notice of increase to the affected tenants. The notice can be served only after the petition is filed, or the landlord can wait until after the Rent Board issues a decision. If the notice is served before the petition is filed, the notice is void and cannot be the basis for a lawful capital improvement passthrough. Rent increases based on capital improvements may be imposed at any time and need not be imposed only on the tenant’s anniversary date. Prior to or at the hearing, the landlord must submit a copy of each rent increase notice served on the tenant(s) after the petition was filed.
State law requires service of a thirty-day notice if the passthrough, either by itself or combined with any other rent increase in the one year period before the effective date, is no more than 10%. A sixty-day notice is required if the increase, either by itself or combined with any other rent increase in the one year period before the effective date, is more than 10%. If the rent increase notice is served by mail, the required notice period must be extended by an additional five days.
Tenants are not required to pay the passthrough until a final decision or order is issued by an Administrative Law Judge after a hearing. However, the passthrough, if approved, will be retroactive to the effective date of a valid notice of increase.
A capital improvement passthrough does not become part of the tenant’s base rent, and the passthrough must therefore not be included when calculating an annual or banked rent increase. The capital improvement passthrough should be listed separately from the base rent in every notice of rent increase. Once the passthrough is fully amortized, or paid back to the landlord, it must be discontinued. If the landlord fails to discontinue the passthrough at the proper time, the landlord is liable to the tenant for the overpayments.