A collection of Brooklyn landlords are facing a class action suit, alleging they defrauded both their own tenants and New York State by promising a “rent-free” month to get around rent stabilization laws. This scheme allegedly allowed landlords to overcharge their tenants for apartments that were supposed to be regulated, in violation of state law. The plaintiff alleges this scheme also allowed landlords to raise their rents higher than they normally would be allowed, harming tenants.
What is Rent Stabilization?
Rent stabilization, also known as rent control, refers to a state law that requires residential landlords to set aside a certain amount of apartments as “regulated.” These regulated apartments, unlike regular apartments, cannot have their rents raised whenever the landlord wants to raise them. Instead, all rent increases must be approved by state regulators, meaning that rent stabilized apartments tend to be much cheaper than unregulated apartments.
The key thing to understand is that a landlord can only raise the rent of a rent stabilized apartment by a certain percentage of the current rent. In other words, the amount a landlord can raise the rent on a rent stabilized apartment is dependent on how much rent the landlord already charges. The more the current rent is, the higher they will be allowed to raise the rent.
How the Alleged Scheme Worked
According to the class action lawsuit brought by affected tenants, landlords would offer tenants in rent regulated apartments one month rent-free when they first signed their lease agreement. This would allow them to keep the rent under the levels required by rent control laws. However, when the landlord registered the rent with the state, they failed to take into account this “rent-free” month, instead registering it at the rent that would have been paid if that rent-free month had never happened.
So, for example, one tenant involved in the suit signed a 13-month rental agreement with one month rent-free, for a total rent of $3,092.30. But when the landlord registered that apartment with the state, the landlord claimed the full rent, omitting the rent-free month, for a total of $3,350. In effect, this allowed the landlord to inflate the rent of the apartment while hiding its value from tenants.
The Impact of the Alleged Scheme
With this “rent-free” trick, landlords were allegedly able to do two primary things. First, it allowed them to raise rent on their regulated apartments higher than they would if they had been honest about what their tenants had actually paid on their rent. Second, it allowed them to trick tenants into signing leases on apartments that were going to become more expensive than they should have been. This could potentially cost tenants hundreds of dollars every year.
The lawsuit remains in its earliest stages, and much of the information about this scheme still remains a matter of speculation. The plaintiffs who filed the suit do not even know exactly how many tenants may have been affected by the promises of a rent stabilized apartment with one month rent-free. However, as the case progresses and opens up to discovery, they expect to find answers to just how extensive this alleged fraud was.
If you have questions regarding your rights as a landlord or tenant, you should seek advice from an attorney experienced in handling these matters. A New York landlord-tenant lawyer, who is experienced in handling landlord-tenant cases of all sorts, can advise you of your legal rights and will fight for your best interests in court. If you are facing a dispute over unpaid rent, lease violations, or other similar issues, contact the Suffolk County landlord-tenant attorneys at McGuire, Peláez and Bennett at (631) 348-1702.