On December 28, 2021, the Appellate Division, First Department issued two decisions concerning temporary concessions and their effect on rent stabilized rents: Flynn, et al., v. Red Apple 670 Pacific St., LLC and Chernett, et al., v. Spruce 1209, LLC. R&E represented REBNY, RSA and CHIP as amici curiae in both cases. The cases involved the owner’s use of temporary concession riders in recently constructed buildings receiving 421-a tax benefits.
Flynn upheld the lower court’s dismissal of the tenant’s class action complaint and held that the rent concession given to the tenant during construction did not constitute a “net effective rent” and the tenant had no claim for a reduction of the legal rent. The court in Flynn relied heavily upon R&E’s arguments, including that DHCR’s Fact Sheet #40 clearly distinguishes between a concession and a preferential rent and that the facts mandate that the concession have no effect on the legal or preferential rents.
The same panel of justices in Chernett upheld the lower court’s denial of the owner’s motion to dismiss and held that discovery was appropriate to determine whether the temporary rent concessions used, both at initial renting and for later tenants, provided valid reasons so as not to be treated as preferential rents (i.e., reduced “net effective rents”).
While no bright-line rule has emerged from these important appellate decisions, what is clear is that much thought and consideration is needed before giving tenants rent concessions. As these and other cases make their way through the courts (in both the First and Second Judicial Departments), we are likely to see court decisions citing a number of factors, including: (a) the language of the temporary rent concession rider; (b) the reason stated for the concession; and (c) the timing of the concession.
We continue to actively monitor developments in this rapidly developing area of law. As always, we encourage you to reach out to us to discuss the particular facts and circumstances of any rent concessions.