Preferential Rent Registered with DHCR Accidentally Too Low – MICHELLE’S MONDAY MANDAMUS!
March 13, 2018
March 11, 2018: This Q&A post originally appeared on the LandlordsNY blog, where Michelle Maratto Itkowitz is the “Legal Expert”.
Hi, Michelle here. I am the LandlordsNY “Legal Expert”. I answer landlord and tenant questions. My goal is to post in the blog all of the questions I get from LandlordsNY members (keeping the member anonymous) and my answers thereto, when I think that such questions and answers would be of interest to other people. Let me know if this is helpful. These questions are excellent, keep them coming.
Question: “I accidentally registered a Rent Stabilized tenant’s preferential rent at $1,300 with the DHCR, while the lease specifies the preferential rent at $1,500. Do I need to change the monthly rent in accordance with what the DHCR has on file? Do I need to lower the tenant’s preferential rent?”
Answer:
The lease and the DHCR registrations must match up. Discrepancies give rise to an inference of fraud, which can be damaging to a landlord whenever a rent history is under scrutiny. So, if you made a mistake with the DHCR filings, you need to fix them. We will talk about how to do that below.
If the preferential rent in the lease is $1,500.00, then you must correct the registration at DHCR that says that the preferential rent is only $1,300.00. I do not think that you are stuck with the $1,300 preferential rent and that you must adjust the lease downward to meet what is on file at DHCR at this time. I need to explain my answer, because this is important.
Understand what a “preferential rent” is in Rent Stabilization. A preferential rent is a rent that an owner agrees to charge a tenant, which is lower than the legally regulated rent according to New York City Rent Guidelines Board increases (the “legal rent”). Rent Stabilization Code § 2521.2 states:
“(a) Where the amount of rent charged to and paid by the tenant is less than the legal regulated rent for the housing accommodation such rent shall be known as the “preferential rent.” The amount of rent for such housing accommodation which may be charged upon renewal or vacancy thereof may, at the option of the owner, be based upon either such preferential rent or an amount not more than the previously established legal regulated rent, as adjusted by the most recent applicable guidelines increases and other increases authorized by law.
(b) Such legal regulated rent as well as preferential rent shall be set forth in the vacancy lease or renewal lease pursuant to which the preferential rent is charged.
(c) Where the amount of the legal regulated rent is set forth either in a vacancy lease or renewal lease where a preferential rent is charged, the owner shall be required to maintain, and submit where required to by DHCR, the rental history of the housing accommodation immediately preceding such preferential rent to the present which may be prior to the four-year period preceding the filing of a complaint.”
Therefore, please understand that a preferential rent is a contract between landlord and tenant, and as such is arbitrary, it is not tied to the Rent Guidelines Board increases in the first instance. Therefore, if you and your tenant agreed to $1,500 as a preferential rent, assuming that such is lower than the legal rent, then that is your deal. Just because you accidentally wrote a 3 instead of a 5 on the DHCR registration does not change that deal.
Having said that, it is difficult to file amended registrations with DHCR. DHCR does not just allow you to waltz in and file new registrations. DHCR opens a Docket No. and scrutinizes the new registrations and the reasons therefore. They want to make sure you are not covering up any former fraud or funny business. Nevertheless, you should spend the time and effort to do the amendment of the registrations.
This is especially important now that vacancy increases are tied to preferential rents. With passage of the Rent Act of 2015, if a vacating tenant was paying a preferential rent, the vacancy lease rent increase that can be applied to the vacating tenant’s legal rent will be limited to 5% if the last vacancy lease commenced less than two years ago, 10% if less than three years ago, 15% if less than four years ago and 20% if four or more years ago; see http://www.nycrgb.org/html/guidelines/vacancy.html. I do not mean to imply that the AMOUNT of the preferential rent affects the amount of the vacancy increase. I do mean to say that accuracy and consistency everywhere is always important in Rent Stabilization. All the pieces need to fit together.
Thank you for this question. Finally, I am obligated to say that this answer is for general informational purposes only, does not constitute legal advice, and does not create an attorney and client relationship between us or between you and LandlordsNY.
Let me know if you need anything else.
Michelle Maratto Itkowitz
Itkowitz PLLC
26 Broadway, 21st Floor
New York, New York 10004
(646) 822-1805
