Rent Coach: Should I get a discount for signing a 2-year lease?

By Mike Akerly | September 13, 2012 - 10:28AM

Q. I am negotiating to rent an apartment in Manhattan and have offered to sign a two year lease. Should the landlord give me a discount on the rent due to my willingness to rent the apartment for an extended period?

A. No. New York City landlords tend to presume that the rental value of their apartments will increase every year. Historically, this has largely proven to be true. Because of this, discounts are not offered for two year leases.

At best, your landlord may agree not to raise the rent in the second year, though even that may be unlikely. Landlords that value stability in their cash flow more than maximizing profits (such as perhaps a single unit owner) are more apt to agree to this option.

Two year leases typically contain what is a known as an escalation clause. This provision is used to increase the rent in year two by a set percentage of the total rent. An escalation of 3 – 6% is often agreeable to both the tenant and the landlord. Of course both parties are guessing what the rental market will look like next year and either could be disappointed should the market perform better or worse than they anticipated.

Yet another possibility is the lease option. The tenant can request to have an option to renew the lease for a second or even third year at their sole discretion. The option provision is paired with the escalation provision to set the rental amount in year two or three should the tenant opt to exercise the right to renew.

Lastly, a landlord may offer a two year lease without a rental escalation in the second year if the tenant agrees to a higher rent in year one. A prospective renter can compare this option to a two year lease with an increased rent in the second year by adding up the total rent paid over twenty-four months in each scenario to calculate the net effective rent for the entire lease term.

Mike Akerly is a New York City real estate attorney, landlord, and real estate broker. He is also the publisher of the Greenwich Village blog VillageConfidential.

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