On-Time Rent Payment Discount Isn't Preferential Rent

Rent-stabilized tenant complained of rent overcharge. The DRO ruled for tenant but found no amount due to tenant since landlord had already refunded $9,000, including interest. Landlord appealed and lost. Tenant’s 2009 vacancy lease stated that the legal rent was $3,073 with a preferential rent of $1,489. With tenant’s 2011 and 2013 renewal leases, landlord included a “Lease Renewal Discount Rent Rider for ‘On Time’ Payment” (the “on-time rider”). Under this rider, if tenant paid his rent by the fifth day of the month, the rent would be discounted. Under the 2011 renewal, the legal rent of $3,211 was discounted to $1,676. Under the 2013 renewal, the legal rent of $3,275 was discounted to $1,795. Landlord had argued that the on-time rent was a preferential rent, but the DRO disagreed.  In its PAR, landlord again argued that the on-time rent was a preferential rent and claimed that housing court had made such a ruling in a case between landlord and the tenant.

The DHCR disagreed. In the housing court case between landlord and tenant, the court said only that the “on-time provisions of the instant tenant’s leases are like preferential rents in that they cannot be discontinued in the middle of the lease term.” The court didn’t rule on whether tenant’s on-time rent was a preferential rent. In addition, DHCR Fact Sheets 40 and 44, both issued in 2015, limit the amount of a late fee to 5 percent and reflect established DHCR policy. The on-time provisions in tenant’s leases therefore were illegal because they provided for late fees far in excess of 5 percent. An on-time rent lease provision is an unconscionable late charge and penalty. Other court cases cited by landlord were distinguishable.

Hillside Place, LLC: DHCR Adm. Rev. Docket No. DU110037RO (4/12/16) [12-pg. doc.]