Preserving Both Higher Legal Rent and Preferential Rent in Rent-Stabilized Renewal Leases

 Q As a result of the rent laws passed in June, I know that a preferential rent granted in a rent-stabilized tenant’s lease rider or provision must become the base rent upon lease renewal for that tenant, subject to applicable RGB renewal increases. I’m about to offer my tenant a renewal lease. On a two-year renewal with a preferential rent, when filling out the renewal lease form, is the 2.5 percent increase calculated on the allowable rent or the preferential rent?

A Currently, a rent-stabilized tenant with a preferential rent must now get renewal of the preferential rent at rent guideline increases as long as he or she remains the rent-stabilized tenant, no matter what the preferential rent rider says. But the owner is entitled to preserve and must preserve both the higher legal regulated rent and the preferential rent in any rent-stabilized renewal leases and on rent registrations, says attorney Eileen O’Toole. Otherwise, the DHCR would say that the preferential rent became the legal regulated rent.

The rent-stabilized lease form provides for setting forth the current lease term legal regulated base rent at the top, then calculating the one- and two-year increases and what the new legal regulated rent will be upon renewal. At item 5 on the renewal lease form (RTP-8), the owner should list the preferential rent to be charged based on one- or two-year guideline increases over current preferential rent.

It’s still a preferential rent, even if the owner is required to continue the preferential rent for the tenant, says O’Toole. “So there is still a higher legal regulated rent that should be preserved on the next renewal lease and on annual rent registrations, or else the owner risks losing the legal regulated rent increase because it’s not listed,” she adds. When there’s a vacancy, the owner doesn’t have to continue the preferential rent and the chargeable rent reverts to the legal regulated rent.