Rent Coach: What is "preferential" rent?

By Mike Akerly | January 16, 2014 - 12:51PM

Q. I noticed that my lease shows the "legal" rent and "preferential" rent, which is significantly lower than the legal rent and the amount that the landlord is offering to rent the apartment for. What exactly does this mean? And is there any protection against the landlord raising our rent after the lease based on the legal (and higher) rent rather than the preferential rent we're currently paying?

A. When a lease contains a preferential rent rider (or other mention of it in the body of the lease), it means that the apartment is rent stabilized but that the landlord is offering it for rent for less than the amount he is legally allowed to charge. The "legal" rent, including annual increases, is set by the Rent Guidelines Board (RGB), while the lower rent that the landlord is offering to accept is known as the “preferential rent.”

The preferential rent is, at least theoretically, the market rent: It’s what the market is willing to bear at the time the lease is signed. Preferential rents can be found in any stabilized lease, however, they are most common in buildings that were submitted to the rent stabilization program because of tax benefits the landlord chose to take advantage of (e.g. the 421-a or J-51 programs).

It is important to remember that the landlord can renew the lease to the amount equal to the legal rent stated in the lease plus any new permitted increases promulgated by the RGB.--unless the lease you negotiate restricts future increases in some manner.

For example, you might attempt to negotiate a year or two of optional renewals with agreed upon increases to the rent in the first year. In this way, you can attempt to reduce potentially large upward swings in the renewal rent. Of course, the landlord is in no way obligated to agree to do so.

Mike Akerly is a New York City real estate attorney, landlord, and real estate broker. He is also the publisher of the Greenwich Village blog VillageConfidential.

Note: The information provided here is for informational purposes only. It should not be construed as legal advice and cannot substitute for the advice of a licensed professional applying their specialized knowledge to the particular circumstances of your case.

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