Some landlords have come up with a crafty way to make sure rent is paid on time by adding language to a lease that gives a tenant a discount if rent is paid by a certain date (for instance the fifth of the month). The benefit is obvious here, the landlord is creating an incentive for the tenant to pay on time — but in a rent-stabilized apartment, there may be a problem with this incentive.
The increasing trend of the courts and the Division of Housing and Community Renewal (DHCR) is to limit a late charge to five percent of the rent. Both the courts and DHCR have held that if an apartment owner agrees to accepting a lower amount of rent and the rent is timely paid, then the actual rent in the lease includes a late fee.
That determination is harmful to landlords because if the late fee or reduced rent is equal to more than five percent, then the landlord is charging an unlawful rent. In other words, the discounted rent becomes the legal rent, regardless of when it is paid, and the tenant becomes obligated to only pay the discounted rent.
Both the DHCR and courts have ruled that the discounted rent becomes the preferential rent. Even worse for landlords, if the difference between discounted rent and the late fee or penalty is over five percent, the landlord may be threatened with an overcharge claim.
As many landlords know, most overcharge claims come with the threat of treble damages. Any landlord who intends to include these provisions in a lease in a rent-stabilized apartment should never have more than a five percent difference between discounted rent and the late fee or penalty.
Jordi Fernandez Law, P.C.
420 Lexington Avenue, Suite 2920
New York, NY 10170