Tenant Claims Rent Concession Was Improper Preferential Rent in 421-a Building

Tenant in a building receiving 421-a tax benefits sued landlord, claiming rent overcharge and violations of the Rent Stabilization Law. Tenant also sought to make the case a class action. The court denied landlord's request to dismiss the case for failure to state a cause of action.

Landlord appealed and lost. Tenant's complaint stated that landlord didn't register the monthly rents that were actually charged and paid but, instead, improperly inflated the registered initial rents by offering prorated discounts disguised as one-time monthly concessions, resulting in rent overcharge. These claims were sufficient to state a cause of action. The terms of tenant's lease specifically included a concession of two free months, which the First Department has held didn't affect the legal regulated rent. But, DHCR Fact Sheet #40 states that prorated discounts are actually preferential rents, which must be the rent registered under RSC Section 2521.1(g) for buildings under the 421-a program. There was also proof that the apartments in the building were being advertised at prorated "net effective" rates that took the one-month concession into consideration. The claim in tenant's complaint that landlord improperly manipulated the initial legal regulated rent was sufficient to survive landlord's motion to dismiss.

Bascom v. 1875 Atlantic Ave. Development LLC: Index No. 502056/21, App. No. 2021-07525, 2024 NY Slip Op 02515 (App. Div. 2 Dept.; 5/8/24, Duffy, JP, Miller, Ford, Love, JJ)