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'Burg Case Reveals the Complicated World of Preferential Rent

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Curbed University has tackled the topic of preferential rent before, but until a renter at the Driggs in Williamsburg contacted us about landlord problems he's been having, we didn't realize just how complicated the topic really is. Last year, Mark Burstiner complained to the Driggs management about several habitability issues?people smoking in the building, broken AC, brown water (it is a Hot Karl building, after all). When little to nothing was done, he started researching his rights as a tenant and soon found himself dealing with a much more complicated issue.

The Driggs, as it happens, is a registered 421-a building, which means the rents are to be stabilized under rent regulation laws for the duration of the 421-a tax abatement. Burstiner's lease had a preferential rent rider, but no stabilization rider. He consulted a tenant lawyer, spent hours doing research, and realized that, oh hey, the Driggs was not following the rules they should be following. "I'd known about preferential rent loopholes for years," says Burstiner, "but only really became aware of how widespread they are and the extent to which they can be utilized once we started dealing with these issues." He's now set to face his landlord in court. So what should renters know to avoid this same fate?

Preferential rent, as Curbed U previously discussed, is a rent that is even lower than the legally regulated rent. "Regulated rent" is the key here?preferential rent only applies to regulated units. They simply don't make any sense for unregulated units because landlords can change the rent to whatever they want when a lease expires. But, according to the Metropolitan Council on Housing (and real world renting experiences of Curbed Staff members), there are plenty of leases out there that include "preferential rents" on units that are allegedly unregulated. WTF, right? As it turns out, there is a serious lack of oversight in the rent-regulated world, which makes it easy for landlords to skirt the rules and fraudulently include preferential rent riders. "I believe that in the majority of cases where you see a 'preferential rent' on an allegedly market-rate apartment," says Mario Mazzoni, former director at the Met Council, "the truth is that the apartment is supposed to be rent-stabilized"?which seems to be the case for Burstiner at the Driggs. Reasons for doing this are complicated, but Mazzoni says that some landlords may feel that including the preferential rent rider gives them some "wiggle room" if a tenant does investigate and take them to court over illegal deregulation.

Landlords are responsible for registering their legal rents with the Department of Housing & Community Renewal, but DHCR doesn't actually have the mandate to verify landlords' claims. If that sounds like a pretty shoddy self-regulation system, it is. According to the Met Council, "numerous studies have shown fraudulent rent registrations to be widespread." Mazzoni reiterated this in an email to us, "Landlords routinely lie and bank on the fact that well over 90 percent of tenants will never investigate and will not even know what is going on."

So what's a tenant to do? First, you should determine whether or not your building is supposed to be rent stabilized. If your landlord is actually following the rules, this should be easy: just read your lease. If not, you can check with the DHCR. In general, a building is stabilized if it was built before 1974, contains more than six units, and is not a co-op or condo building. But there are a LOT of exceptions to this?for example, 421-a buildings, like the Driggs, which are new construction. Buildings receiving the 421-a tax exemption are required to keep units stabilized for the duration of the abatement, but, of course, there are exceptions to this as well. Affordability requirements vary depending on the neighborhood, how much other financial assistance a developer received, and how great the abatement is. The Rent Guidelines Board has a detailed FAQ about 421-a and stabilization, and the HPD has documents detailing the 421-a laws for every area it applies. If you're not sure if your building is a 421-a, you can check with the Department of Finance. You can download a list of all 421-a exempt buildings on their website.

You can also request your building's rent history from the DHCR, and if you're concerned about illegal overcharges, you should have a tenant lawyer or advocate investigate. If your lease is for a supposedly unregulated apartment and it has a preferential rent rider, this could be a red flag?as Mazzoni said, many landlords include theses on leases that are supposed to follow rent stabilization laws.

But not all landlords are sneaky bastards. Sometimes preferential rent riders appear on leases where illegal deregulation is not happening, like in buildings with less than four units. Why? Many landlords, like many tenants, simply just don't understand the laws. "This is way more common than you think," says Mazzoni.

Panicked and confused? Don't be. In a city of 8 million people, chances are you are not being scammed. That said, knowledge is power, so read your lease, research your building, and know the laws.
· Buildings That Contain Stabilized Units [RGB]
· 421-a Exemption [Department of Finance]
· Preferential Rents Info [Met Council]
· Department of Homes and Community Renewal [official]
· Preferential Rent: When You Get It and How You Keep It [Curbed]
· All Curbed University [Curbed]

The Driggs

205 N 9th St, Brooklyn, NY, Brooklyn, New York 11211