A Significant Appellate Ruling on post-HSTPA Rent Concessions Grey v LIC Dev. Owner, L.P., 2026 NY Slip Op 01458 (1st Dept 2026)

On March 17, 2026, the Appellate Division, First Judicial Department, issued a significant ruling concerning rent concessions offered after the June 14, 2019 enactment of the HSTPA and early occupancy license agreements executed in a 421-a(16) building (see Grey v LIC Dev. Owner, L.P., 2026 NY Slip Op 01458 [1st Dept 2026]).

 

In a holding that may apply broadly to post-HSTPA rent concessions, the Appellate Division effectively found that concessions offered to rent stabilized tenants are the functional equivalent of a preferential rent. Accordingly, when a landlord is determining the rent which may be charged upon renewal of a rent-stabilized lease, that rent must be based upon “the rent charged to and paid by the tenant prior to that renewal, as adjusted by the most recent applicable guidelines increases and any other increases authorized by law,” and must factor in any post-HSTPA rent concession.

 

The Appellate Division affirmed the denial of summary judgment on tenants’ class claims for rent overcharges based on pre-HSTPA rent concessions because they are distinguishable from preferential rents under the pre-HSTPA version of DHCR’s Fact Sheet 40.  However, the Court granted the tenants summary judgment arising from post-HSTPA rent concessions. In effect, the Court ruled that post-HSTPA rent concessions are indistinguishable from preferential rents because after the HSTPA, DHCR removed such distinction from its guidance. The Court did not address whether a landlord must calculate a net effective rent based on the amount charged and paid on a monthly basis, or whether the concession must be repeated on each renewal as a term and condition of the tenancy. It is possible that there will be further litigation on these questions, and we recommend you speak with R&E to decide how to proceed on a going forward basis.

 

Separately, the Appellate Division addressed early occupancy license agreements offered by the landlord. The agreements granted tenants a short, rent-free license to occupy prior to lease commencement but provided that the early occupancy period is exempt from rent stabilization and that the landlord may terminate the license for any lease default by notice to quit. The Court held that the landlord’s use of the agreements violated rent stabilization because a waiver of rights under rent stabilization is void against public policy and because, by issuing renewal leases based on the lease term only without consideration of the early occupancy period, the landlord failed to offer renewal leases at the proper intervals.

 

As a consequence, the Appellate Division imposed a rent freeze under RSL § 26-517(e), holding that “[i]n these circumstances, the early occupancy license agreements must be declared void, and the leases extended to proper one- or two-year terms…Accordingly, with respect to any class member who received a renewal lease at an unauthorized lease interval under the void early occupancy license agreements, the unauthorized rent increases must be vacated, and the rent frozen until proper rent registrations are filed.” The Court’s ruling with respect to the rent freeze is based on the particular agreements utilized by this landlord and is supported by reasoning that the early occupancy agreements created unauthorized lease intervals based on the facts of this case. Nevertheless, tenants may attempt to broaden its applicability.

 

The entire decision may be reviewed at the following link: Grey v LIC Dev. Owner, L.P., 2026 NY Slip Op 01458 [1st Dept 2026]). Given the potential broad implications of this decision, we recommend you reach out to R&E to discuss best practices.

 

If you have questions about this decision, please reach out to your trusted R&E attorney, Member Deborah E. Riegel, Ethan R. Cohen, Head of the firm’s Appellate Litigation Department, or Zachary J. Rothken, Head of the firm’s Administrative Law Department, who authored the above industry alert.