We are frequently asked, "Are preferential rents dead?"
And, unfortunately, we have to equivocate a bit when giving an answer.
Preferential rents are "reduced" rents granted to occupants of rent-stabilized apartments (when market conditions--or other factors--will not support charging the legal regulated rent; the base rent registered with the New York State Division of Housing and Community Renewal (DHCR)). Prior to 2001, once these reductions were afforded to tenants they were not rescindable. All future renewal leases and guidelines increases, for an existing tenant, were calculated from that "lowered basis." The higher legal regulated rent could only be charged to a new tenant upon a vacancy. That policy changed as a result of an appellate division decision (In re Missionary Sisters of the Sacred Heart, III v. DHCR, 283 A.D.2d 284 (1st Dep't 2001)) and subsequently ensuing legislation which amended the Rent Stabilization Code.
If one were to base an opinion on a DHCR publication which addresses the topic, or even upon a review of the governing statute, you might think that all preferential rents went the way of the dinosaur.
Rent Stabilization Law section 26-511(c)(14) provides, that as far as a preferential rent is concerned, "the amount of rent...which may be charged upon renewal or upon vacancy...may, at the option of the owner, be based upon such previously established legal regulated rent, as adjusted by the most recent applicable guidelines increases and any other increases authorized by law."
DHCR's Fact Sheet #40, entitled "Preferential Rents and Rent Concessions for Rent Stabilized Apartments in New York City...," guides, in part, as follows:
Prior to June 15, 2003, provisions in both the New York City Rent Stabilization Code and the Emergency Tenant Protection Regulations generally permitted an owner to charge the higher legal regulated rent only if the tenant who was paying a preferential rent permanently vacated the apartment. Those provisions were repealed by Chapter 82. Owners now have the option of charging the higher legal regulated rent upon renewal of the lease of a tenant who was paying a preferential rent as well as when that tenant permanently vacates the apartment. (Emphasis in original.) There is no requirement that the expiring lease contain a provision allowing the owner to terminate the preferential rent upon the occurrence of any event. In fact, if there is such a provision, it is no longer binding. (Emphasis added.)
The statute's language, particularly that last sentence in the DHCR's Fact Sheet, has been the source of considerable consternation and has been interpreted by some to mean that "all" preferential rents were rescindable, at the owner's option.
A recent decision issued by the Appellate Term, First Department, dispels any notion that preferential rents are extinct. In Colonnade Management, LLC v. Sturgis Warner, the court provides that when the terms of the parties' rent-related concessions are unambiguous, that agreement remains enforceable. As the AT1 noted just a few months ago:
The preferential lease rider under review here unequivocally and explicitly provides for a rent concession for the duration of the tenancy. Since the parties' intent is clearly and unambiguously manifested in the written agreement, the agreement controls, and tenant is entitled to the benefit of the preferential rent provision throughout his tenancy[.]
If nothing else, Colonnade reinforces that like hope and love, preferential rents can spring eternal.
For a copy of DHCR's Fact Sheet #40, please click on the following link:
http://www.dhcr.state.ny.us/ora/pubs/html/orafac40.htm
For a copy of the Appellate Term's decision in the Colonnade case, please click on the following link:
http://www.nycourts.gov/reporter/3dseries/2006/2006_26055.htm