The substantial rehabilitation exemption: what DHCR requires
A gut renovation does not take a building out of rent stabilization by itself. The owner has to prove it met DHCR's standard, with documents.
The rule
Buildings substantially rehabilitated as family units on or after January 1, 1974 are exempt from rent stabilization. Rent Stabilization Code § 2520.11(e). The owner carries the burden of proving it.
DHCR's current standard is Operational Bulletin 2023-3, issued in November 2023. It replaced Operational Bulletin 95-2, which governed for nearly three decades. The core requirements did not change much, but one did: the Code amendments effective November 8, 2023 eliminated the presumption that a building at least 80% vacant when work began was substandard.
What the owner has to show
- The building was substandard or seriously deteriorated when the rehabilitation began.
- At least 75% of the listed building-wide and apartment systems were each completely replaced with new systems.
- Common-area ceilings, flooring, and wall surfaces were replaced.
- All building systems comply with applicable codes, and the owner has the certificate of occupancy from before and after the work, where one is required.
The listed systems are plumbing; heating; gas supply; electrical wiring; intercoms; windows; roof; elevators; incinerators or waste compactors; fire escapes; interior stairways; kitchens; bathrooms; floors; ceilings and wall surfaces; pointing or exterior surface repair as needed; and all doors and frames, with non-fire-rated items replaced by fire-rated ones. Systems a building does not have are not counted.
Occupied rent-regulated apartments that were not rehabilitated stay regulated for as long as those tenants remain, even if the rest of the building qualifies.
Timing: work begun before and after January 1, 2024
| When the work began | What the law requires |
|---|---|
| On or after January 1, 2024 | The owner must file an application within one year after completion and obtain a DHCR determination confirming the exemption. |
| Before January 1, 2024 | No mandatory application, but DHCR can still investigate and start a proceeding on its own. The owner still has to prove the exemption when challenged. |
The proof
DHCR's guidance asks for an itemized description of replacements and installations, approved building plans, architect's or general contractor's statements, contracts for the work, government approvals, and photographs of conditions before, during, and after the work. It may also require proof of payment.
Claims tend to fail on the documents, not the construction. A construction contract alone does not prove that 75% of systems were replaced. No new certificate of occupancy has defeated claims on its own. Work done apartment by apartment over several years, without DOB permits covering the full scope, is hard to present as one rehabilitation.
Where this comes up
Most often when DHCR notices a building that stopped registering, or never registered its apartments after a renovation, and asks the owner to register or explain why the building is exempt. See late registration notices.
Have Evan review it
I measure the DOB permit record, the certificate of occupancy history, the contractor file, and the DHCR registration history against the standard below, and tell you in writing whether the exemption is supportable and what is missing.
Flat fee, quoted in writing before any work begins. Written memo delivered on a fixed date.