Preferential Rent Question

[lljubicich@aol.com]

Last year I signed a lease based on a preferential rent. It's time to renew and the management company (whom I've always experienced as friendly and not corrupt) is offering me the chance to resign a 1 year lease at the legal rent but be rebated the difference between the legal and preferential rent as long as I pay before the 10th of the month.

If I choose a 2-year lease, they will charge me the legal rent with no rebate option. When I initially signed the lease, I did some research about preferential rent and recall reading that it is illegal for the landlord to raise the rent back to the legal rent unless there is a vacancy. It was my understanding that the preferential rent would be the base that future increases would come from as long as I was the leasee.

It looks like the management company has found a loophole with the rebate option. Can anyone give me some feedback here or point me in the right direction? I'd appreciate your help.

[Phil Cohen]

As I recall, there were a couple of court cases on this subject. My understanding is that if the lease says specifically that the preferential rent is only for a limited time, the LL can charge a higher non-preferential rent on renewal. But if the lease is silent on the subject, but just charges a preferential rent, then the lease must be renewed, for one or two years at the tenant's option, at the preferential rent.

Also I believe the DHCR's position is that the renewal lease must be preferential, even if there is a clause saying it is preferential for only a limited time. That is because a lease must be renewed on the same terms as the old lease.

The above is my understanding--someone should pls. correct me if I am wrong.

[jot0n0]

Here's a case point I found on Tenant.net concerning the subject:

Legal Citation: Missionary Sisters of the Sacred Heart v. DHCR: NYLJ, 5/29/01, p. 22, col. 1 (App. Div. 1 Dept.).

The landlord entered into a two year rent stabilized lease with the tenant. The legal rent was $1,448.14 but the tenant was given a preferential rent of $1,379.77. A rider to the lease indicated that the preferential rent was given only for the two-year term and that the reason stated was to do the "economically depressed market." At the end of the two years, the landlord gave a renewal lease, again at a legal rent, but with a lower preferential rent given to the tenant, and the parties executed an identical rider. A second renewal lease was tendered but it no longer contained a preferential rent. The tenant refused to execute the renewal lease without this rent concession. As a result the landlord commenced a DHCR proceeding seeking a determination of whether the tenant could be charged the legal regulated rent, and the tenant likewise sought a determination of what constituted the appropriate rent.

The DHCR ruled that the landlord cannot resume the legal rent until the tenant who has been given the preferential rent moves out. The landlord appealed, and lost on a PAR, and lost in an Article 78 appeal of the PAR. The Appellate Division, however, reversed and ruled that the landlord was not bound to keep the rent at a preferential rent for the duration of this tenant's tenancy. The Appellate Division interpreted the statute, Rent Stabilization Code 2521.2(b) as not specifying when or whether the landlord may start charging the legal rent and stop offering a preferential rent. The Court held that the statute was intended as guidance "in those situations where no written agreement controls and/or where the rent concession is open ended or where the tenant, and possibly the landlord also, are unaware the rent being charged is not the maximum allowable." It was not intended, held the Court, to apply in situations where the parties are aware that the rent charged could be higher but agree to a lower rent for a limited period of time.

The Appellate Division reasoned that one purpose of the rent laws was to avoid unjust and oppressive rents, and that an unlimited rent concession does not violate any public policy. The Court analyzed this situation based on typical contract law, what the parties agreed to. The Court held that it was very clear that the parties did not intend for an indefinite concession and that the concession was specifically tied to economic conditions prevailing at the time the lease was signed and the concession applied to that particular term of the lease. A dissenting judge pointed to a Code statute which requires that leases be renewed on the same terms and conditions as expiring leases. For this reason, the dissenting judge would have given the tenant continued concessions for the duration of his tenancy.

[broadwayblue]

check the terms of the preferential rent rider. if it says "limited to term of initial lease only" or similar they can end the preferential rent. if they don't specifically state that then they must base all future renewals on the preferential rent.