Where There Is Smoke There Is Not Always Fire – Occasionally a Preferential Rent is Done Correctly
February 24, 2019
Our story today, wherein I represented a residential landlord, concerns not one, but two, unicorns.[1] First, we have a Preferential Rent for a Rent Stabilized apartment that was properly discontinued and, Second, we have a parking space that really could be eliminated and not considered an essential service.
Most Preferential Rents are just B.S. and do not stand up to scrutiny.[2] If the legislature kills Preferential Rents in June of this year, I say good riddance to them. Usually Pref’s are used as a ploy to illegally deregulate an apartment. Typically, the Preferential Rent is, at the very best, the Legal Rent in disguise. Or if a Preferential Rent is really what it purports to be, it usually is not properly structured to last for only one lease term, rather it will typically last for the life of the tenancy.
Here, however, everything was shockingly in order. There was no rent overcharge on the Legal Rents. Preferential Rents had never before been utilized. The DHCR rent history was in no way sloppy or suspicious. The lease for the subject tenant had a rider that could not have been clearer, check this out:
Notwithstanding the rent reserved on the face page of the Lease, the tenant shall only be required to pay the Preferential Rent of $1,650.00 per month for the 2-year term of the Lease, expiring on June 30, 2018.
The Legal Rent is $2,434.00. The tenant acknowledges that the subject apartment will be registered with the…DHCR… at the Legal Rent of $2,434.00 reserved in this lease.
The landlord reserves the right to resume charging tenant the Legal Rent of $2,434, plus any lawful increases, when the term of this lease ends on June 30, 2018.
Nothing ambiguous there.
Then we had the parking spot. There were two parking spots in front of each of the ten buildings, in this horizontal multiple dwelling. There were curb cuts from the street allowing people to park in these spots. Landlord rented the spots out, some to people who lived within the ten buildings and some to outsiders. There are more apartments in the buildings then there are parking spaces and the parking spaces were never assigned to individual units. In other words, the spots do not go along with the apartments. The subject tenant rented a parking spot, in front of one of the ten buildings, not the one he lived in. Tenants had a separate contract for the parking spot, independent of the lease, with a different beginning date. The rent the tenant paid for the parking spot was not included in his rent. [See 110-15 71st Road Associates, LLC v. DHCR, NYLJ, 9/8/08, p. 32, col. 1 (App. Div. 2 Dept.), LVT Number: #20722, 18 years in to a Rent Stabilized tenancy, tenant rented a parking space from landlord for the first time, where there were 40 parking spots for a 74-unit building. Landlord won when the appellate court decided that parking wasn’t an ancillary building-wide service.] But back to our story…
Here’s where it gets crazy. All my landlord client wanted to do was to raise the rent that tenant was paying a little. My client was not asking to go back to the Legal Rent. My client was willing to do another, slightly higher, Preferential Rent. Nor did my client want the parking spot back.
Nevertheless, this tenant had resources and hired once of my erstwhile competitors, who enthusiastically and preemptively sued the landlord in Supreme Court for a declaratory judgment regarding both the status of the Preferential Rent and the parking space that we were not looking to recover. Just like that, the dispute turned into global-thermal-nuclear war.
So silly.
We went all the way through discovery – the exchange of paper documents and a deposition. I gave tenant’s zealous counsel absolutely everything he asked for. Did he want the deed, which was online as a public record – HERE! Did he want the old leases for the apartment going back to 1942, which took landlord’s secretary all day to scan – HERE! Did he want my client’s management records for the unit, which I could have objected to as irrelevant – TAKE ’EM ALL! Live it up. None of it changes the fact that the plain-language of the lease goes my way in this matter.
I, however, did not ask for discovery on my routine counterclaims. I had everything I needed with that lease clause, and a healthy DHCR Rent Roll and leasing history. I tried to keep my client’s fees and expenses low by taking the path of least resistance. I was Rocky letting Apollo Creed exhaust himself. Well, in my analogy Rocky really doesn’t get hurt.
On the eve of trial, tenant’s counsel called up contrite and wanted to settle. Which we did. On exactly the terms my client had proposed 18 months earlier. If my client was not a nice man and a reasonable businessperson, this tenant could have ended up losing his apartment.
What’s the lesson? There are several:
- Preferential rents are controversial and troublesome, even when done correctly.
- Leases should always be written in plain language and should be clear.
- People litigate too much; most problems can be solved outside of court, if the lawyers take the time to analyze their cases thoroughly at the beginning so they understand their strengths and weaknesses.
Respectfully submitted,
[1] Some of the details have been changed to protect the innocent.
[2] This is my “Story” blog, not my “Teaching” blog, therefore we are not going to go in to all the in’s and out’s of Preferential Rents here. See Rent Stabilization Code § 2521.2.
