In the last couple of posts we focused on the difference between apartments that are rent-controlled versus rent-stabilized. In this final post of the series, with a little help from Curbed New York, we cover a third type of reduced rent called preferential rent.
Preferential rent, is known as the rent charged to a rent-stabilized tenant that is lower than the legal rent. As we mentioned in our previous post in the series, “The Difference Between Rent-Controlled and Rent-Stabilized Part 2…“, rent stabilization sets a maximum legal rent for each apartment. It’s a number based on the unique history of each apartment and regulated by the city; 50% of apartments in NYC are currently rent-stabilized.
However, in certain circumstances a landlord may offer a lease to a tenant that is lower than the already reduced stabilized rent. Landlords might do this if they’re having trouble filling apartments, or if they are trying to remain competitive in the market. According to ProPublica, the number of leases offering preferential rents is increasing: more than 250,000 of the city’s approximately 610,000 rent-stabilized units in 2015 were offered at a preferential rent, rather than following the traditional rent-stabilization rules.
So if tenants are getting a discount and preferential rents are quite common, what’s the big deal? Well the thing to keep in mind is that having a preferential rent can also mean that when your lease is up for renewal, the landlord can hike your rent way up (as opposed to the usual small percentage dictated by the Rent Guidelines Board for rent-stabilized apartments). This can come as a shock for many tenants who can see thier rent jump hundreds of dollars or more.
This could mean that even during years when the Rent Guidelines Board agrees to have rents frozen for one-year leases, landlords may choose to make the money up somewhere else, such as raising preferential rents. After all, even during periods of rent freezes, operating costs for owners often continue to rise due to property taxes and water rates.
The advice for anyone being offered preferential rent is pretty standard, read your lease carefully when you move in. In order to be able to revoke your preferential rent, the landlord needs to have clearly stated both the legal rent and the preferential rent in the lease and they need to have registered the preferential rent. At Waterman Realty and Tax Pro, we thoroughly go over any lease you should sign so tenants are aware of the fine print. Contact us today.