On-Time Rent Discount in Rent-Stabilized Lease Is Improper Late Fee

Tenants complained of rent overcharge and claimed that their apartment was improperly deregulated in 2007 while the building received J-51 tax benefits. The DRA ruled for tenant, finding that the apartment was rent stabilized, that the base date rent was the $1,675 rent charged on that date, and that tenant's base date lease contained an improper discount rent clause that the DHCR considered an illegal late fee. The DRA ordered landlord to refund $11,224, including interest and triple damages, although this was offset by tenant's underpayment of rent.

Landlord appealed and lost. Landlord argued that there should be no triple damages since tenant, in effect, received a refund through nonpayment of rent. Landlord also argued that the discount clause wasn't unconscionable and shouldn't result in a rent reduction. Tenant's base date lease stated that the rent was $1,775 per month and that, if tenants paid the rent by the fifth of the month, the rent would be discounted by $100, to $1,675. But since none of tenant's leases preserved a legal regulated rent and a preferential rent, landlord could only charge the rent collected. And some courts have ruled that an on-time discount provision is an unconscionable late charge and penalty. The DRA correctly assessed triple damages. Although landlord didn't collect rent from tenant for two years, when rent collection resumed in 2016, landlord hadn't adjusted tenant's rent and still collected an overcharge for another year.

ST Equities LLC: DHCR Adm. Rev. Docket No. FS210045RO (5/25/18) [7-pg. doc.]