On-Time Rent Payment Discount Was Unlawful

Rent-stabilized tenant complained of rent overcharge. The DRA ruled for tenant and reduced tenant's rent. Tenant's lease provided for a substantial rent discount every month as long as tenant paid rent promptly. Landlord considered this a preferential rent. But the DRA found that it was improper to charge a discounted rent in the manner that landlord did. The DRA reduced tenant's legal rent from the monthly lease rent of $1,665 to the discounted rent of $1,475.

Landlord appealed and lost. Landlord argued that, if an on-time discounted rent provision was illegal, the penalty should simply be to bar landlord from collecting more than the discounted rent for the current lease term. Landlord claimed that the legal regulated rent shouldn't be reduced. The DHCR disagreed. DHCR Fact Sheet No. 40 now provides that, since the DHCR has found that a landlord can demand a late fee of only up to 5 percent of the rent charged and paid, and since preferential rents can't be terminated during a lease term, the DHCR wouldn't permit a landlord to enforce a clause in a rent-stabilized lease that permits landlord to end a preferential or discounted rent by a certain day of the month. In addition, a 2014 appeals court case found that an on-time discount provision in a tenant's lease was an "unconscionable late charge and penalty." So the DRA properly reduced tenant's legal regulated rent.
 

Kings Park 148, LLC: DHCR Adm. Rev. Docket No. GV110003RO (11/5/19) [2-pg. doc.]