Was Rent Concession Granted to Initial 421-a Building Tenants Instead an Improper Preferential Rent?

Tenant in a building receiving RPTL Section 421-a tax benefits sued landlord for rent overcharge. Tenant claimed that landlord engaged in a scheme to evade the rent stabilization law by using rent concessions to register higher initial apartment rents at the building with the DHCR. Landlord had attached construction riders to tenants' leases, as well as to the leases of the first tenants in each apartment in the building. The riders stated that, due to continued work in the building to complete various public areas such as the lobby, hallways, health club, and laundry facilities, tenants were given two one-time monthly rent credits on specified dates under their first lease to compensate for the inconvenience. The rider in question also specified that the "construction concession" didn't constitute a preference or reduction in the apartment's legal regulated rent. Tenant claimed that there was no construction going on at the time the construction concessions were offered and that the building was fully constructed and complete when the concessions were offered.

Landlord asked the court to dismiss the case without trial. The court ruled against landlord. Unlike a case where an appeals court had ruled that a construction concession didn't affect the legal regulated rent, there was a question in this case as to whether there was construction ongoing at the time the initial leases were signed. The court found that pretrial discovery was needed to determine whether the "free" months of rent offered to tenants were in fact construction concessions, or disguised preferential rents mislabeled to enable the landlord to raise future rents beyond what would be permissible under rent stabilization rates.  

Damassia v. Bedford Stuyvesant S One LLC: Index No. 160827/2022, 2023 NY Slip Op 34269(U)(Sup. Ct. NY; 12/8/23; Frank, J)