Preferential Rents

What is preferential rent? What is a “legal rent”?

 Preferential rent is any rent charged to a rent stabilized tenant that is lower than the legal rent. If you are one of the 250,000 tenants with preferential rent your rent can be raised anywhere up to the legal rent when you renew your lease, which is some cases could mean a hike of hundreds of dollars!

There is a maximum legal rent for each apartment, based on the unique history of that apartment. It’s not based on the apartment’s size, nor the going rent of apartments in that area, nor the income of the tenant. Rents can be increased by small amounts every time the lease is renewed, and by larger amounts every time there is a new tenant or the apartment is renovated.

Why did my landlord offer a preferential rent? Should I be grateful, or concerned?

Your landlord may have offered you a preferential rent:

• because your landlord was unable to find someone willing to pay the apartment’s legal maximum rent
• so that you could qualify for a program with a rent cap (such as Section 8 or FEPS)
• as a concession for you doing your landlord a favor (for example, moving to a smaller apartment)

However, your landlord may have offered you a preferential rent to cover up the fact that he has registered a fraudulent “legal” rent for your apartment. The term “legal registered rent” is confusing, because in many cases the amount registered is not legal at all. New York State Homes and Community Renewal (HCR) is the government agency that administers the rent stabilization program. However, landlords are responsible for registering the legal rents for their own apartments with HCR, and the agency does not verify or investigate their claims. The lack of oversight makes it easy for landlords to file false registrations. Only a complaint made by the tenant living in the apartment will trigger an investigation.

Often tenants with preferential rents don’t investigate their situation until they receive a renewal lease without the offer of a preferential rent, and are faced with paying a higher “legal registered rent” – in many cases hundreds of dollars more per month.

By the time a preferential rent is revoked, it may be too late to challenge the “legal registered rent.” The law requires tenants to raise rent overcharge complaints within four years of the date at which the overcharge first occurred (with limited exceptions). Landlords that fraudulently register rents typically wait four years before revoking preferential rents from tenants so to buffer themselves against rent overcharge complaints.

How do I know if I have a preferential rent?

The first lease you sign when you move in (or the first lease after you are offered a preferential rent) should contain language indicating that the rent is a preferential rent. Sometimes preferential rents are called by a different name. For example, many leases call a preferential rent a “lower rent to be charged” or a “temporary rent concession”.

What happens to my preferential rent when I renew the lease?

Preferential rents do not all work the same way.

• EITHER you have the right to keep preferential rent, and that amount must be used as the basis for calculating rent increases every time your lease is renewed,
• OR, your landlord may have the right to revoke the preferential rent and offer to renew your lease based on the “legal regulated rent”, plus allowable increases, at any future lease renewal.

Here are the general guidelines for figuring out which scenario applies to you:

The lease must state that it is a preferential rent:

In order for the landlord to have the right to charge the higher “legal regulated rent” when the lease is renewed, the initial lease (or the first lease that had the preferential rent) must have stated that the rent was preferential and must have also stated the amount of the “legal regulated rent”. If the initial lease stated only the preferential rent, the landlord must use the preferential rent for future renewal leases, and must calculate rent increases based on the preferential rent amount.

Check for language in your original lease or in a rider that explains what happens to the preferential rent after the first lease expires:

If there is language in either the lease or rider stating that the preferential rent was only for that lease term, then your landlord may revoke the preferential rent and charge you the “legal regulated rent”, plus allowable increases, when the lease is renewed.

If there is no language in the lease or in a lease rider indicating what happens to the preferential rent when the lease is renewed, the preferential rent is assumed to be for one lease term only. The landlord can revoke the preferential rent and charge the higher “legal regulated rent”, plus allowable rent increases, at any future lease renewal. (The assumption that preferential rents are temporary unless otherwise indicated reflects an anti-tenant change to rent-stabilization laws in 2003, pushed for by landlord lobbyists.)

If your lease or rider says that the preferential rent is for the length of your tenancy (i.e. as long as you are the tenant) your landlord must continue to offer the preferential rent, plus allowable rent increases, every time you renew your lease. If your building is sold, the new owner/landlord is also obligated to continue offering you the right to renew your lease based on the amount of your preferential rent.

The circumstances may be a factor:

It’s always better to have your rights clearly written into a contract. However, even if there is nothing written in your lease or lease renewal about the terms of your preferential rent, you may be able to argue that the circumstances under which you signed the preferential rent entitle you to keep your preferential rent level when you renew your lease. Generally, this is because the preferential rent was offered in connection with something you did to accommodate your landlord. An example of this would be: you previously lived in a different apartment in the building, or in another building owned by the same landlord, and you agreed to a relocation.

If you are unclear about how your preferential rent works, or if your landlord seeks to revoke your preferential rent, you are strongly encouraged to seek the counsel of an experienced tenant lawyer or advocate at the earliest point possible.

How can I investigate and challenge the “legal regulated rent”?

You can challenge your apartment’s “legal regulated rent” even if you are currently paying the lower preferential rent. There reasons why you shouldn’t wait to start the investigation.

Start by obtaining your rent history. You can call HCR at 718-739-6400 and ask them to mail you a copy, or visit an HCR borough rent office (with a copy of your lease and photo ID in hand.) Insist on a rent history that goes back to 1984, the first year when HCR started keeping the records.

The rent history you obtain from HCR is a report of the registrations filed by your landlord each year. HCR does not verify the truthfulness of the registrations. It is up to you as the tenant to investigate and challenge the rent if an overcharge is suspected. Numerous studies have shown fraudulent rent registrations to be widespread, with the biggest abuses coming when there is a change in tenancy. New tenants are often unaware of their rights, and have only four years challenge the legality of a rent increase in most cases.

Once you have your rent history, show it to an experienced tenant attorney or advocate. It’s not simply a matter of checking what the document lists as the “legal registered rent” for your apartment. A lawyer or advocate can scrutinize rent increases and try to determine if they were valid.

The ‘legal rent’ for a rent stabilized apartment is based on the apartment’s unique history. The number of vacancies, the extent and cost of renovations, and other factors, all go into determining the legal rent.

• When a tenant renews the lease, the landlord can charge the increase set by the Rent Guidelines Board for that year (usually a few percent). (Review the chart of all Rent Guidelines Board orders from 1969 to 2013.)
• When there is a new tenancy, the landlord can collect a vacancy bonus (usually 20% for a two-year lease, or slightly less for a one-year lease) plus an additional percentage increase if the previous tenant lived there for eight or more years.
• When a major building system (eg. roof, boiler) is replaced, the landlord can apply to HCR for a Major Capital Improvement (MCI) rent increase and pass on the cost of the renovation as a monthly rent increase using a specific formula. (Read more about Major Capital Improvement (MCI) rent increases.)
• When new fixtures and appliances are installed, the landlord can add an Individual Apartment Improvement (IAI) rent increase of 1/40th or 1/60th of the total cost (depending on the year the work was done and/or size of the building.) Landlords can add IAI rent increases without oversight from HCR, making it easy for them to falsify records for work performed when apartments are vacant. In an overcharge complaint, tenants can require their landlords to prove that sufficient money was spent on eligible work to justify the IAI rent increase.

After examining your lease and your rent history, the next steps will depend on the unique circumstances of your case.

Challenging the legal rent may cause your landlord to refuse to offer the preferential rent when you next renew your lease. If you want to challenge the legal rent, be advised that you may have different outcomes based on whether you file a rent overcharge complaint with HCR, or raise it as a defense in a Housing Court proceeding. An experienced tenant lawyer will consider your unique circumstances before suggesting a course of action.

If at all possible, seek the counsel of a tenant lawyer experienced with rent stabilization rent overcharges and with preferential rents before taking action.