Ask Sam: What does "preferential rent" mean, and are there any downsides?

Dear Sam: My new rent-stabilized apartment has preferential rent. What does that mean exactly? And why would the landlord make my rent lower than he has to?

If you've got "preferential rent," that simply means that your landlord is charging you less than your apartment's maximum legal regulated rent, says Sam Himmelstein, a lawyer who represents residential and commercial tenants and tenant associations. Landlords might do this if they're having trouble filling apartments, or if the market rate for the neighborhood is actually less than what they're legally allowed to charge.

Sounds ideal, right? For the most part, yes, but having a preferential rent can also mean that when your next renewal rolls around, the landlord can hike your rent way up (as opposed to the usual small percentage dictated by the Rent Guidelines Board for rent-stabilized apartments). "People fall into a false sense of security," says Himmelstein's colleague David Hershey-Webb, who frequently deals with preferential rent issues. "Say you're renting an apartment for $2,100 a month, and think all the future rent increases will be based on that, until the landlord comes to you and says 'Oh by the way, your legal rent is $2,900, and that's what I'm going to charge you now.'"

To prevent yourself from being blindsided, Hershey-Webb advises, read your lease carefully when you move in. In order to be able to revoke your preferential rent, the landlord needs to have clearly stated both the legal rent and the preferential rent in the lease and they need to have registered the preferential rent with the DHCR. Another potential (but fairly rare) scenario: the lease states that the preferential rent will remain as long as you're in occupancy, meaning that all future rent raises will be based on your current price.

If your landlord is hiking the rent and you suspect they haven't the followed the rules, you have two likely options for legal recourse. The first (and riskier) option is to refuse to re-sign the lease on the grounds that it's an "improper renewal" since the landlord is trying to do away with your preferential price. In this case, the landlord will almost certainly take you to housing court, which could land you on the tenant blacklist, and, if you lose, in the hole for your landlord's legal fees (as well as your own). If you win, however, they wind up paying your legal fees.

The safer (albeit slower) option is to sign the new lease, but file for a rent overcharge as well as failure to renew with the DHCR. "It's less risky and less costly, and it doesn't involve an eviction," says Himmelstein. "It just involves an agency deciding whether or not you're correct." Unfortunately, the DHCR is "notoriously slow" on these matters, and it may take up to a year for your case to be resolved (and for you to be reimbursed the excess rent).

Ultimately, whether or not you choose to pursue legal action against the landlord will likely depend on how much they're trying to raise your rent—if it's $100, it may not be worth, but, says Himmelstein, "If you've got a $500 or $600 difference, then it becomes worthwhile."

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Sam Himmelstein, Esq., represents NYC tenants and tenant associations in disputes over evictions, rent increases, rental conversions, rent stabilization law, lease buyouts and many other issues. He is a partner at Himmelstein, McConnell, Gribben, Donoghue & Joseph in Manhattan. To submit a question for this column, click here. To ask about a legal consultation, email Sam or call (212) 349-3000.