Q: I am a licensed real estate salesperson and I am representing a tenant who is considering renting an apartment that is rent stabilized. The landlord is offering the tenant a preferential rent. Can you explain what a preferential rent is and how it works?
A: In the context of a rent regulated building, each apartment has a legal maximum rent (the “Maximum Rent”) that a landlord may charge for the apartment. However, a landlord may offer the apartment for a lower rent than the Maximum Rent. The lower rent that a landlord decides to charge is called the preferential rent (the “Preferential Rent”). Depending on the type of Preferential Rent offered by a landlord in a lease, a tenant may have the benefit of the Preferential Rent only for a particular term of a lease (i.e. one year) or for as long as a tenant lives in the apartment (i.e. multiple lease renewals).
The following items should also be noted when a tenant is offered a Preferential Rent: (i) the amount of security deposit that a landlord can collect from a tenant is based on the Maximum Rent, (ii) the proportionate share of the rent that a tenant can charge a roommate is based on the Preferential Rent; (iii) depending on how the lease is structured, if the Preferential Rent expires the rent payable by the tenant will increase to the Maximum Rent and (iv) the sublet allowance that a landlord can charge a tenant (which a tenant can pass on to a subtenant) is based on the Maximum Rent.
Important Tip: The laws governing rent regulated apartments are complex. If a tenant has questions regarding Preferential Rents or rent regulations the tenant should be referred to an attorney who specializes in these matters.
The Legal Line Question by:
Neil B. Garfinkel
REBNY Broker Counsel
Partner-in-charge of real estate and banking practices at Abrams Garfinkel Margolis Bergson, LLP