How the Preferential Rent Scam Works

How the Preferential Rent Scam Works

March 2017

A preferential rent is any rent charged to a tenant that is lower than the legal rent. As stabilized rents have risen to unprecedented heights, more and more tenants are paying preferential rents, usually in neighborhoods where market rents aren’t high enough for landlords to charge the full legal rent. According to the state housing agency, landlords in 2015 registered 266,279 rent-stabilized apartments with preferential rents in New York City and Westchester, Nassau, and Rockland counties.

Here’s how the scam works: The landlord gives a new tenant a one-year lease for $1,100 a month, for an apartment with a registered rent of $1,900. The tenant does not know that the $1,900 number might be fraudulent or why she should look into it. A year later, the landlord says that if she wants to renew her lease, she’ll have to pay $1,900 plus whatever increase is allowed by the local Rent Guidelines Board. Unable to pay $800 a month more, she moves. The landlord gets an automatic 20 percent “statutory vacancy bonus,” which brings the legal rent closer to the $2,700 deregulation threshold, and rents the apartment to another unsuspecting tenant for $1,200. A year later, when that new tenant gets a lease-renewal offer, it’s for more than $2,250 a month. When he moves out, it triggers another 20 percent vacancy bonus….

A reform bill introduced in the state legislature would require landlords to renew the lease based on the lower preferential rent as long as the tenant stays in the apartment. The Assembly has passed the bill every year for the last several years, but the Republicans and turncoat Democrats who control the state Senate have refused to pass it.

The Senate bill (S3712) is sponsored by Liz Krueger (D-Manhattan) and several other Democrats, plus four members of the Independent Democratic Conference: Marisol Alcantara (Manhattan), Tony Avella (Queens), Jesse Hamilton (Brooklyn), and Jose Peralta (Queens). Jeff Klein, the IDC leader, has not sponsored the bill. The Assembly version is A741, sponsored by Rodneyse Bichotte (Brooklyn) and three other Democrats.