Setting Rent for Unit Previously Rented to Commercial Tenant

Q One of my apartments had been commercially rented for three years and is registered as exempt from rent regulation. Now, I'd like to rent out the apartment to a residential tenant. How do I calculate the rent for an incoming rent-stabilized tenant? Is there a process to “bridge the gap” to set the new stabilized rent?

A According to attorney Alan Kucker, there is no official formula, but there is one based on the case law. He says the safest way to calculate the new rent is to take the stabilized rent prior to the commercial tenancy and calculate a two-year vacancy lease followed by a one-year renewal increase. It would never be an overcharge if you calculate the increase based on the minimum increases, says Kucker. Of course, the unit must have been actually exempt and not vacant for this principle to apply.

You should also take note of the date that you expect your new residential tenant to move in. Depending on how long it takes you to rent out the apartment, you may be able to apply two two-year renewal increases instead of a two-year renewal and a one-year renewal increase.

Attorney Niles Welikson points to a DHCR Opinion Letter issued in September 1993. The letter deals with an apartment that was exempt from rent regulation because it had been rented to a commercial tenant since 1986.

The owner wanted to rent the apartment to a residential rent-stabilized tenant, and asked the DHCR how to calculate the rent. The owner claimed that the last rent-stabilized tenant was paying $900 per month when he moved out of the apartment in 1986.

The DHCR told the owner to compute the rent as follows: (1) use $900 as the starting point; (2) add the guideline and vacancy increases applicable for a two-year lease beginning in 1986; (3) add the guideline increase for two two-year renewal leases (1988 and 1990); (4) if the new tenant's move-in date is less than seven years after the last residential tenant moved out, add the guideline increase for a one-year renewal; (5) if the move-in date is after seven years, use the increase for a two-year renewal for 1992.