Note: this Fact Sheet is from 2008 and has been superceded by a newer varsion dated May 2015. This version is kept here for archival purposes. See the newer version at a post below.
#40 - Preferential Rents
DHCR Fact Sheet #40
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.
Although a complaint of Rent Overcharge is limited to an examination of the apartment's rent history only for the four (4) years preceeding 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. The lease contained a clause that stated "the preferential rent shall be offered only for the term of this lease."
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. 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. 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 Registration form with DHCR that listed a legal regulated rent of $1,200 and a preferential rent of $1,000.
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. 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. The lease contained a clause that stated "the preferential rent shall be offered for the entire term of the tenancy."
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. 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.
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 $2,000 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:
Chapter 82 of the Laws of 2003
New York City Rent Stabilization Code, Section 2521.2
Tenant Protection Regulations, Section 2501.2
Last updated on 02/15/08