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're paying "preferential rent" that means that your landlord is charging you less than your apartment's maximum, legal regulated rent, says Sam Himmelstein, a lawyer with the firm Himmelstein, McConnell, Gribben, Donoghue & Joseph who represents residential and commercial tenants and tenant associations. Landlords might do this if they're having trouble finding tenants for apartments, or if the market rate for the neighborhood is actually less than what they're legally allowed to charge.
Preferential rent sounds ideal, but it used to come with the potential for unpleasant surprises. Prior to The Housing Stability and Tenant Protection Act of 2019, as the recent changes to the rent laws is known, having a preferential rent could mean that when lease renewal time came around, the landlord could hike your rent way up (as opposed to the usual small percentage dictated by the Rent Guidelines Board for rent-stabilized apartments).
"People fell 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.'"
Before HSTPA went into effect, there were two types of preferential rent that tenants might be given: temporary and permanent preferential rent.
“For temporary preferential rent, it had to be clearly stated in the lease that the rent tenants were initially charged could be terminated at the landlord’s option when the lease was renewed, and that it was only agreed to for the length of the lease. Landlords had to register both the legal rent and preferential rent with the Division of Housing and Community Renewal,” Himmelstein says. “If that clause wasn’t in the lease or the rent wasn’t registered, then the preferential rent was permanent.”
The 2019 legislation made all preferential rents permanent, regardless of whether there was a rider in the lease stating otherwise.
“For any tenant with preferential rent, that rent is now locked in for the duration of their tenancy, plus each year’s renewal increases,” Himmelstein explains. “Once the tenant moves out, then the landlord can raise the rent back to the legal regulated rent.” Note that for stabilized apartments, the Rent Guidelines Board sets rent increases to be charged upon lease renewal, often a small percentage of the rent. This year, the Rent Guidelines Board approved a freeze for the first six months on one-year leases, and a 1.5 percent increase for the second six months.
If your landlord is hiking the rent and you suspect they aren’t following the new laws for preferential rent, you can file an improper lease renewal or rent overcharge complaint with the DHCR. Note that the DHCR can be slow with these matters, and it can take some time for your case to be resolved. But if the landlord is raising your preferential rent by more than the percentages set by the RGB, the DHCR will decide in your favor.
“And if the landlord tries to evict you for refusing to sign the lease renewal, or for continuing to pay your preferential rent, that case would be dismissed or stayed, pending the outcome of the DHCR complaint,” Himmelstein says.
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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.