Apartment hunting during the COVID-19 pandemic has allowed many tenants to find great deals on great apartments. Many landlords have offered a certain number of months free when signing a lease, and many others have drastically reduced the monthly rent amounts. These deals have sparked questions about landlord's tactics and have highlighted the issues that these lowered monthly rents can cause for tenants when they seek a lease renewal, specifically in the context of rent stabilized units.
Rent stabilized units protect tenants from high rent increases each year and provide tenants the right to a lease renewal. Overall, rent stabilized units help keep housing affordable for the tenants that live in them, and make it more difficult for a landlord to evict the tenant. Even if you don't have a rent stabilized unit, there are other ways that housing can remain affordable. Some landlords offer a preferential rent, which is a rent that an owner agrees to that is less than the legal regulated rent that they could lawfully collect from you. Rent concessions, such as your landlord giving you two months free, a lowered security deposit, or covering your broker fee, are also ways tenants can benefit financially from their landlord.
Recently, two cases, Chernett v. Spruce 1209 and Flynn v. Red Apple 670 Pacific St., were decided by the Appellate Division, First Dept. Both of these cases involved temporary concessions that had been issued in rent stabilized units. Tenants in these cases argued that their landlords were contravening the Rent Stabilization Code, by reporting their higher, undiscounted rent figure as the legal regulated rent, instead of the lower, discounted rent that the tenant was paying, due to certain rent concessions they had received. It was the tenants' contention that their rent concessions were more accurately preferential rents. The landlords countered that rent concessions, that only apply to certain months or periods of time, do not affect the legal regulated rent, and are not akin to preferential rents where the discount has been prorated over the length of the lease.
Ultimately, the court found in both cases that there is a difference between rent concessions and preferential rents. However, the court did note that the reason given for the rent concession matters, as do other facts about the concession and the tenant receiving it (the length of time of the concession, how explicit the concession is on the duration and applicability, etc.). Thus, the court left open the question of whether rampant use of temporary rent concessions or improper use, could lead to the net effective rent converting into a preferential rent. It is important to remember that the court's decision is specific to setting a first rent in 421-a buildings, however it will be interesting to see how the cases progress and to see the effects of COVID era concessions on affordable housing.