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BLOG / 05.05.26 /Vanity Muniz

Back Rent Treated as Consumer Debt Subject to 2% Post-Judgment Interest

Instead of the traditional 9% statutory rate, New York courts are beginning to apply a 2% post-judgment interest rate to judgments for residential rent arrears, following guidance from the Office of Court Administration (“OCA”).

On April 22, 2024, OCA issued a memorandum to all New York State judges regarding the Fair Consumer Judgment Interest Act (“FCJIA”), signed into law on December 8, 2021. The memorandum, titled “Presumed 2% Interest Rate in Consumer Debt Default Judgments,” clarifies that courts should presume the 2% interest rate applies to consumer debt judgments unless a party demonstrates otherwise.

Before FCJIA’s effective date of April 30, 2022, rent arrears were not treated as consumer debt, and landlords could collect 9% post-judgment interest under CPLR § 5004. The amended statute now defines consumer debt broadly as an obligation of a natural person arising from a transaction primarily for personal, family, or household purposes. Courts are now interpreting this definition to include residential rent obligations.

The reduced interest rate does not apply to businesses or organizations, which remain subject to the 9% statutory rate.

What This Means for Landlords

Courts are increasingly applying the 2% interest rate to residential rent judgments, consistent with OCA’s guidance. However, the reduced rate generally does not apply to commercial leases or residential leases where the tenant is not a natural person, such as when the tenant is an LLC, estate, or trust.

Even where the reduced interest rate applies, landlords can take steps to protect their recovery. Lease agreements should authorize the recovery of late fees, legal fees, and interest at the maximum legal rate in the event of default. These provisions allow landlords to include permitted fees and pre-judgment interest in their rent ledger and maximize the total judgment amount allowed by law.

Landlords should also act promptly when tenants stop paying rent. Default notices and collection actions should be initiated as soon as possible, as delays may jeopardize recovery of older arrears.

Protecting Your Interests

The evolving treatment of rent arrears as consumer debt underscores the importance of careful lease drafting and timely enforcement of tenant obligations.

The litigation team at Smith, Buss & Jacobs LLP regularly advises landlords on rent recovery and lease enforcement strategies. If you have questions about how these developments may affect you, please contact our office to discuss your situation.