Preferential to Legal rent increases

[darknesis]

Hello, I am trying to understand how preferential rents and legal regulated rents increase.

If my landlord renews his pref rent with an increase of 5/7%, will the legal regulated rent still increase as well according to the RGB? Or is the legal regulated rent more of a "cap" that doesn't increase until the landlord decides to revoke the pref rent at renewal and start charging the legal?

For example, assuming:

1-Year RGB renewal: 2%
2-year RGB renweal: 3.5%
Landlord preferential 1-year increase: 5%
Landlord preferential 2-year increase 7%
Current legal regulated rent: $2000
Current preferential rent (term of lease): $1500

Year 0: $1500 (pref) $2000 (legal)
Year 1: $1575 (pref) $2000 or $2040 (legal)?

Does this make sense? In other words, assuming preferential rents are renewed at the landlord's discretion, will they ever "catch up" to the legal regulated rent?

Thank you.

[Clorox]

I'm not totally sure, but it's my understanding that, unless you sign a rider indicating otherwise (the landlord promises in a contract attached to the lease to give you special rights/exemptions), the landlord is always allowed to take the RGB increases on the LRR regardless of what your pref rent is.

If you don't have a rider saying that you're entitled to that pref rent for the duration of your tenancy (i.e., as long as you live there) or something like that, the LL could technically raise the rent to the LRR (with all applicable RGB/whatever other increases) the next time you renew.

It seems to me that if your LL is taking higher % increases on your pref than the RGB allows on the LRR, it's absolutely possible that your pref could "catch up" to the LRR, and, absent any rider/contract provisions that say otherwise, eventually charge you the full LRR with all applicable RGB/other increases.

I'm presuming you've already done this, but you should obviously request your registration history, do the math, and consult with a tenant attorney if you think it's necessary, as sometimes even "pref rents" can be overcharges and are used by LLs as a means to conceal this.

[TenantNet]

For the rules on Preferential Rents, see this:
http://www.nyshcr.org/Rent/factsheets/orafac40.pdf

It doesn't answer your question. But your question does not make sense. What year's RGB increase are you citing? This year it's 0/2%. So if the LL wants to raise the rent by 5/7%, well then that's illegal.

We checked with a tenant attorney who seems to think that the RGB percentage increases woul affect BOTH the legal rent and the PR. His view is that the PR can't go up any increase the LL desires unless the LL drops the entire PR. And as the DHCR Fact Sheet states, that can only be done if the LL preserved his rights.

The PR can't be ended mid-lease, and in our view, it can't be partially lifted.

[darknesis]

Thanks. I'm trying to figure out what might happen once my rent is up for renewal.

There is no clause for perpetuity of the PR: it is only for the term of the lease.

But once my lease is up for renewal, can the landlord give me a renewal offer with a brand new PR for anything between 0% and the LRR + RGB % increase? Or would he have to completely repeal the PR and move me up to the LRR + RGB % increase?

[TenantNet]

Read the DHCR Fact Sheet

[BubbaJoe123]

My understanding is that, assuming the landlord preserved his rights by making it clear in the lease that the PR was for the duration of that lease, not for the duration of the tenancy, that the LL can offer, or not offer, any PR he/she wants when the lease is renewed. So, if the legal rent is $1900, and the PR is $1500, the LL can offer a PR of anything between $1 and $1899.99 for the new lease.

[TenantNet]

Our view is that while PR may be ended by the LL if reserved in the lease as per DHCR Fact Sheet #40, the LL must still limit increases to the RGB percentages, and that includes increases to the legal rent and preferential rents.

We've check with several tenant attorneys on this. We are unable to get any information from DHCR on this and the fact sheet is silent on this issue.

[BubbaJoe123]

So, the position of the attorneys you've talked to is that, in a hypothetical where the legal rent is $1900, and there's a PR of $1500 in place, the LL can only offer either (a) a $1500 PR upon renewal (0% increase, in line with RGB) or (b) the $1900 legal rent (0% increase, in line with RGB), but couldn't offer a $1600, or $1400, or $1800 PR? That doesn't make a lot of sense, since it would tend to drive tenant turnover.

If the market rate for the apt is $1600, the landlord would be better off telling the current tenant "no more PR, $1900 legal rent or move out," having the current tenant refuse the (above market) $1900 rent and move out, and then rent to a new tenant at a $1600 PR, rather than renting to the existing tenant at a $1600 PR.

Seems counterintuitive to me.

This is all, of course, assuming that the LL reserved the right to end the PR in the lease.

[TenantNet]

Makes perfect sense and gives tenants predictability and prevents huge increases. If the LRR is $1900 with a PR of $1500, for a 2-year renewal of 2% (this year the 1-year renewal being 0%), the LRR would go up by 2% and the PR (the rent paid) would go up by 2%. The rent the tenants pays would then be $1530. The LRR would increase to $1938.

Of course it's counterintuitive to you. You're a LL apologist.

Again, we have not been able to get any position from DHCR and are not aware of any case law.

[BubbaJoe123]

Except in your example, you're assuming that the LL DOESN'T have the right to not offer the PR in a new lease. If the LL didn't include the language making it clear that the PR was for the term of the lease, not the tenancy, then I'd agree.

If the LL _does_ have the right to terminate the PR, then the LL could just say "it's $1900 (or $1900+2% for a 2 year lease), take it or leave it." Seems very odd that the LL couldn't offer a different PR than $1500 (for a 1 year lease) or $1538 (for a 2 year lease), since he clearly could for a new tenant.

[Clorox]

I'd really like to agree with you TenantNet, and certainly agree that a pref can't be revoked mid-lease, but you are basically making the argument that unless the LL expressly says otherwise in the lease, that all pref rents are for the life of the tenancy? I might think a tenant may have more rights in situations where LL engaged in fraud or did not inform tenant of RS rights, but in my dealings with tenant attorneys I haven't seen that argument made. Interesting research topic.

[TenantNet]

Clorox, that's not what we said.

[BubbaJoe123]

Actually, just reread the fact sheet, and realized I had it slightly wrong. So long as the landlord doesn't explicitly state that the PR is good for the duration of the tenancy, the PR can be cancelled on lease renewal. In other words, the PR is assumed to only be valid for the term of the lease (not the tenancy) absent a statement in the lease that the PR is valid for the tenancy.

[darknesis]

After some research, it seems like many of the new construction luxury buildings take advantage of 421a tax-breaks but circumvent stabilized RGB renewal increases. They do this by issuing term-of-lease preferential rent leases at market value for apartments with very high legal regulated rents (often set pre-opening without market price "testing"), and then repeal and re-offer a new 1/2-year preferential rent at time of renewal.

In my building, for example, the legal regulated rent is 80-90% higher than the market value preferential rent, and the preferential rent increases at 6-10% each year. Management uses this "gap" between the preferential rent and legal regulated rent to increase rents beyond the RGB % guidelines.

I'm surprised this has never been tested in the courts. Feels like a sneaky way for the developer to get tax breaks without offering the predictable increase stabilization benefits to tenants.

[TenantNet]

Yes, it's sneaky and a number of articles (see ProPublica) are now looking at 421-a scams. You didn't say you were in a 421-a building until now.

Bubba objects to our interpretation of how Pref. rents can be increased where BOTH the legal rent and PR are limited by the RGB increase. As we said, we checked with several tenant attorneys We haven't seen any case law on this and DHCR has been silent.

However, in re-reading the fact sheet #40, it does appear that DHCR is limiting the PR to the RGB increase (if the PR is not terminated):

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.

Similar statements are in the other examples as well. Look at example #3 where the PR is good for the entire tenancy, the rent paid - the PR - is limited by the RGB percentage increases.

In example #1, the owner can end the PR because the original lease stated the PR was good only for the term of the lease. But if they do not end the PR, it would remain at the original amount plus any legal RGB increase.

In example #3, the owner is precluded from ending the PR by the terms of the original lease, so the continuing PR increase is limited by the RGB increase.

It's pretty clear that BOTH the LRR and the PR are both limited by the RGB increase.