On-Time Rent Discount Doesn't Qualify as Preferential Rent

Rent-stabilized tenant complained of rent overcharge in 2018. He claimed that his unit had been unlawfully deregulated while the building received J-51 tax benefits. His lease also contained an on-time rent discount provision. The $3,754 monthly rent was reduced to $1,599 per month for the first year and $1,679 for the second year provided tenant paid rent by the 5th of the month.

The DRA ruled for tenant, set the four-year base date rent at $1,599, and rejected landlord's claim that the on-time rent discount was a preferential rent. The total overcharge, with triple damages, was $13,050.

Landlord appealed and lost. Landlord argued that it had properly preserved the legal regulated rent in tenant's lease and that the DHCR had no authority to reject the preferential rent offered in the form of the on-time rent discount. Landlord pointed to some court decisions it claimed supported its position. But recent Appellate Division, First Department and Second Department, cases listed in the DHCR's PAR decision had upheld DHCR rulings that on-time discount clauses are invalid, that such reduced rents didn't constitute a preferential rent, and that the rent charged became the legal regulated rent. Courts had rejected landlord's argument that DHCR Fact Sheet #40 has no language stating that an on-time discount becomes the legal rent. That Fact Sheet states that a landlord can demand a late fee of up to 5 percent of the rent charged and paid and that preferential rents may not be terminated during a lease term. The Fact Sheet further states that the DHCR "will not permit an owner to enforce a clause in a rent stabilized lease that provides that the owner may end a preferential or discounted rent where the tenant fails to pay the preferential or discounted rent by a certain day of the month." [Download PDF of decision here.]

Jamaica Seven, LLC: DHCR Adm. Rev. Docket No. JT110025RO (1/24/22)[5-pg. document]