If you’re a New York renter, you may have been offered a lease with two numbers on it: first, an amount stating the rent of the apartment; then, lower on the lease, a number showing the “preferential rent,” which is the amount your potential new landlord is asking you to pay, along with a rider detailing how you are receiving a preferential rent credit.
What is preferential rent?
If you live in a rent-stabilized apartment, you might want to go check your lease right now: some tenants pay a “preferential rent” for years without even realizing it. According to Section 2521.2 of the Rent Stabilization Law, preferential rent is when the amount of rent charged to and paid by the tenant is less than the legal regulated rent.
Why does it exist?
Let’s say that, after many years, a rent stabilized apartment stops being stabilized and the landlord can now legally charge $1,800 a month for his one-bedroom apartment in a less desirable neighborhood. He has a problem: no one will rent the apartment for that amount, at least not without significant upgrades and renovations that the landlord doesn’t want to do.
Enter the “preferential rent credit” - the landlord will attach a rider to your lease stating that you will be given a preferential rent credit of some amount of money, probably a few hundred dollars, thus reducing your rental obligation to match what the market would bear in your new neighborhood. Your $1,800 rent can become $1,200 dollars through this credit. Sounds great, right? Not so fast.
The dark side of preferential rent
In 2017, ProPublica did a deep dive on the preferential rent phenomena in New York, and how it has impacted tenants directly. What they found was disturbing.
Before 2003, state law held that preferential rents can only be raised by a certain percentage, so that tenants in certain rent-stabilized apartments wouldn’t be hit with massive unexpected rent hikes. In 2003, the state legislature revoked this law - now, preferential rents have essentially no legal significance at all, and landlords can disregard them once a lease term is up. This provided landlords with a useful new weapon to use against tenants they wanted to force out: once a lease is up, the landlord could simply remove the preferential rent credit and begin charging the full legal rent.
In some cases, this means rents on supposedly stabilized apartments can increase by hundreds of dollars. A tenant who can’t pay the new requested rent is forced to move out. Landlords can use this tactic when a neighborhood gentrifies and a new class of renters are willing to pay more. It’s an easy way to clear out an entire apartment building, and it entirely defeats the purpose of rent stabilization, which is meant to provide an element of predictability and, yes, stability to tenants.
It gets worse. As Curbed NY points out, the only one legally mandated to keep track of the legal rent in a stabilized unit is the landlord himself. When a tenant pays preferential rent for years and years, she might not be paying close attention to the ever-changing “actual” rent that can be charged. This means that landlords can play fast and loose with that number, including setting it hundreds of dollars over the actual legal rent, with no one noticing. This is illegal, but in order to catch it, you would have to know what the legal rent on your apartment is, and you probably don’t, since you’ve been paying an artificially reduced preferential rent for some time.
What to know if you're paying preferential rent
If your lease indicates that you are paying a preferential rent, the first thing to understand and internalize is that your landlord can raise this number, probably by a significant amount, once your lease is up, and you will may have no legal recourse. In other words, don’t think that just because you live in a rent-stabilized apartment you can relax.
There are certain situations where a landlord may not raise the preferential rent to the legal rent. This occurs when, in the initial lease entered into by the tenant and landlord, there is a provision stating that the tenant will be offered the preferential rent throughout his or her occupancy of the unit. In effect, the landlord has waived his right to do away with the preferential, as happened in the 2008 case Von Rosenvinge v Wellington Fee, LLC. So take a look at the original lease you and your landlord signed - does it promise you the preferential rent into the foreseeable future? If so, your landlord may be barred from raising your rent.
If not, check your current lease and see what your landlord lists as the actual rent that can be charged on the unit. Studies have found that so-called “false rent registration” is widespread in New York, meaning that your landlord might be making up this number entirely. You can order a copy of your building’s rent history from the NYC Department of Housing and Community Renewal. If you think it looks suspicious—say, it contains sudden large increases in certain years after ownership changed hands—take it to a tenant’s rights lawyer, who will be able to tell you what the actual legal rent on your apartment should be, and if your landlord is trying to bilk you.
The information provided on this website does not, and is not intended to, constitute legal advice.