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Preferential Rents in a Rent Stabilized Lease...

Example #2 continued

  1. Registration form with DHCR that listed a legal regulated rent of $1,200 and a preferential rent of $1,000.

  2. 2.On October 1, 2007, when Mr. Jones' one year lease renewal begins, the preferential rent increases by 3% to $1,030. Mr. Jones will pay the $1,030 rent.

  3. 3.In this example, the owner did not preserve the legal regulated rent of $1,200 for future use as it was not written in the lease. The registration the owner filed did not establish the legal regulated rent for future use.

Example #3

Mr. Jones signed a one year lease, effective October 1, 2006. The lease cited a legal regulated rent of $1,200 and a preferential rent of $1,000.

  1. 1.The lease contained a clause that stated "the preferential rent shall be offered for the entire term of the tenancy."

  2. 2.On October 1, 2007, when Mr. Jones' one year lease renewal begins, the legal regulated rent increases by 3% to $1,236 and the preferential rent increases by 3% to $1,030. Mr. Jones will pay the $1,030 rent.

  3. 3.In this example, the owner must continue to base lease renewal rent increases for Mr. Jones on the preferential rent, due to the lease clause cited above.

Example #4

The owner, ABC Corporation offers Ms. Santiago a lease. Ms. Santiago signed a one year lease, effective October 1, 2006. The lease cited a legal regulated rent of $1,500 and a preferential rent of $1,000.

  1. 1.The lease did not contain any clause that clarified whether the preferential rent was for the "term of the lease" or "the entire term of the tenancy". It was silent on this issue.

  2. 2.On October 1, 2007, when Ms. Santiago's one year lease renewal begins, the legal regulated rent increases by 3% to $1,545 and the preferential rent increases by 3% to $1,030. ABC Corporation can choose to require that Ms. Santiago pay the $1,545 rent.

  3. 3.In this example, the owner can terminate the collection of the preferential rent at the time of the lease renewal as the lease did not contain a clause stating that the preferential rent was for "the entire term of the tenancy".

Preferential Rent and Deregulation:

When a tenant who has been paying a preferential rent vacates and a new tenant moves into the apartment, the new tenant will not be under rent stabilization if the legal regulated rent for the prior tenant plus the rent increases that are allowed for a new tenant equals at least $2,500 per month.

Concessions:

There are two types of rent concessions. One is a concession for specific months, as for example, where the lease provides that the tenant will not have to pay rent for one or more specified months during the lease term. This type of concession is not considered a preferential rent.

The other type is a prorated concession, where the dollar value of the rent free month(s) is prorated over the entire term of the lease and not tied to a specific month or months. A prorated concession is really the same as a preferential rent and will be treated in the same manner.

Sources:

  1. Chapter 82 of the Laws of 2003

  2. New York City Rent Stabilization Code, Section 2521.2

  3. Tenant Protection Regulations, Section 2501.2

For more information or assistance, call the DHCR Rent InfoLine (718-739-6400) or visit your Borough or County Rent Office.

On occasion, the maximum legal rent that a landlord can charge for a rent stabilized apartment is higher than the market is willing to pay at that time. In order to find a tenant, the landlord may choose to lower the rent, but at the same time preserve their right to one day move back up to the maximum legal rent if and when the market allows. The way that landlords can do this is through the use of a “preferential rent” clause in the lease.


A preferential rent clause informs the tenant of the maximum legal rent allowed, but also stipulates that the rent will be lower for the time being. The rent can be lower for the term of the lease ( 1 or 2 years), the term of the tenancy (multiple years with lease renewals) or the preferential rent clause may avoid mentioning the term. In each case, the rights of the tenant are a little different.


The New York City Rent Guidelines Board explains the circumstances and the rights of the tenant here.


Let’s take a look at what the Rent Guidelines Board says;


Fact Sheet #40 Preferential Rents

A preferential rent is a rent which an owner agrees to charge that is lower than the legal regulated rent that the owner could lawfully collect.

Owners can decide to terminate the preferential rent and charge the higher legal regulated rent upon renewal of the lease or when that tenant permanently vacates the apartment (see Example #1). However, the rent laws impose a condition on an owner's right to charge the claimed legal regulated rent. The legal regulated rent must have been written in the vacancy or renewal lease in which the preferential rent was first charged. Registration with DHCR of the legal regulated rent by itself will not establish the legal regulated rent for future usage (see Example #2).

The legal regulated rent need not be written in any subsequent renewal lease; however, failure to do so within a four (4) year period will effectively result in the preferential rent being established as the legal regulated rent.

In addition, the terms of the lease itself, may affect the owner's right to terminate a preferential rent. If the lease agreement contains a clause that the preferential rent shall continue for the term of the tenancy, not just the specific lease term, then the preferential rent cannot be terminated for that tenancy (see Example #3). The preferential rent continues to be the basis for future rent increases. However, if the lease was silent and did not contain a clause that clarified whether the preferential rent was for the "term of the lease" or "the entire term of the tenancy", then the owner may terminate the preferential rent at the time of the lease renewal (See Example 4).

Although a complaint of Rent Overcharge is limited to an examination of the apartment's rent history only for the four (4) years preceding the filing of a complaint, DHCR may look beyond the four (4) year period in proceedings involving the original terms and conditions of a preferential rent offer. A rent that is not challenged by a tenant within four (4) years and modified by a DHCR written order becomes the legal regulated rent.

Examples:

Example #1

Mr. Jones signed a one year lease, effective October 1, 2006. The lease cited a legal regulated rent of $1,200 and a preferential rent of $1,000.

  1. 1.The lease contained a clause that stated "the preferential rent shall be offered only for the term of this lease."

  2. 2.On October 1, 2007, when Mr. Jones' one year lease renewal begins, the legal regulated rent increases by 3% to $1,236 and the preferential rent increases by 3% to $1,030. Mr. Jones will pay the $1,236 rent.

  3. 3.In this example, the owner can terminate the collection of the preferential rent at the time of the lease renewal due to the lease clause cited above.

Example #2

Mr. Jones signed a one year lease, effective October 1, 2006. The lease cited a legal regulated rent of $1,000.

  1. 1.The lease did not contain any clauses stating that this was a preferential rent and the lease did not cite the legal regulated rent of $1,200. On April 1, 2007, the owner filed a