On-Time Rent Discount Was Improper and Resulted in Rent Overcharge

Rent-stabilized tenant complained to the DHCR of rent overcharge. The DRA ruled for tenant and ordered landlord to refund $2,662, including triple damages. Tenant's lease listed a legal rent of $2,124.25 per month and gave tenant a monthly "on-time" discount of $935.25 if landlord received the discounted rent payment of $1,189 by the fifth day of each month. If tenant failed to make the on-time payments, the full rent would be due and the discount discontinued.   

The DRA stated that the on-time rent discount clauses violated the Rent Stabilization Law and Code. The DHCR denied landlord's PAR. Landlord then filed an Article 78 court appeal, and the case was sent back to the DHCR for reconsideration. The DHCR again ruled against landlord and cited DHCR Fact Sheet 40, which states: "since the agency has found that an owner may only demand a late fee of up to 5% of the rent being charged and paid and since preferential rents may not be terminated during a lease term, the agency will not permit an owner to enforce a clause in a rent-stabilized lease that provides that an owner may end a preferential or discounted rent by a certain day of the month." The DHCR also pointed out that a number of appeals court decisions disallowing similar lease clauses. One appeals court had ruled that a "rent discount scheme" was "an unconscionable late charge and penalty."

166 Street LLC: DHCR Adm. Rev. Docket No. KR110003RP (7/22/22)[3-pg. document]