Legal Corner Q & A

Re-Renting After the Bust

By Various Authors

Q. With the current economic slowdown, many tenants are moving into less expensive apartment units. Several have approached me and requested that if I match the rent of a less expensive apartment down the street, they will stay in my building. With the hassles associated�with re-renting, this approach appeals me. However, when times improve, will I be able to increase the rent back to the original rate?

A. Take care in making any changes to rental agreements. I recommend you do not pursue this type of rent rebate scenario. For example, I handled a case of an elderly and generous landlord who reduced the rent on a unit when her tenant suffered a serious illness. Several years later, after the tenant recovered and returned to work, the landlord attempted to re-institute the actual base rent. The tenant repaid her kindness by filing an unlawful rent increase petition with the Rent Board. Not surprisingly, the ruling of the Administrative Law Judge in favor of the tenant found that the landlord had re-established the base rent with the noticed rent reduction. Fortunately, I was able to reverse this decision on appeal only after great expense and hassle to the landlord.

I often claim no one is ever in this business to make friends. Simply try to tough out this recession and be aware that tenants know moving is expensive. If you feel compelled to appease the tenant, explain your willingness to accept partial payment of the base rent. In a written agreement, document the fact that the base rent will remain the same although you will accept a lower amount for a specific period of time. Do not make any representation, oral or otherwise, indicating any change or alteration to the base rent. Otherwise, you may be unable to readjust the rental amount again.

Remember that the rules governing rent increases are very strict and precise. Any appearance that the rent has been improperly raised later could subject you to liability. My three rules of thumb for landlords are: never tinker with the base rent payment; provide a clear written agreement about any temporary reduction in rent for a specified period; and indicate this “favor” has no bearing on the tenant’s lawful rental obligation as set forth in the lease agreement.
— David Wasserman

Q. With the recent downturn in the residential rental market, dot-comers and others have broken their leases. What are the rules/laws regarding their actions? Can I recover the difference if I re-rent the unit at a lower rate?

A. The bubble definitely has burst with rates for both commercial and residential rental property reflecting the economic downturn. Although there are clear rules regarding the breaking of leases, landlords should be guided by common sense in responding realistically to the changing rental market.
If a lease is breached, the non-defaulting party is entitled to all damages resulting from the breach. In the case of a fixed term (often one year) rental agreement broken by a vacating tenant, the landlord is entitled to all lost rent for the balance of the lease term. However, the landlord has a duty to re-rent the premises in order to avoid lost rent. In today’s tight housing market, units will re-rent almost immediately though usually not at the rate previously paid by the breaching tenant.

The landlord’s best interest is to try to rent the unit immediately and get the highest rent possible. However, if the landlord attempts to get a higher rate than formally paid by the breaching tenant, and there are no takers, a court could rule that the landlord failed to act reasonably in fulfilling the obligation to re-rent. A more prudent course of action is to offer the unit at the same rent or somewhat less than the previous rate. Landlords must be realistic and understand that they cannot get the same rents they were receiving a year ago.

A landlord who initiates a legal course of action may sue a defaulting tenant in small claims court for the loss of rent in the months remaining on the lease from the time the breaching tenant vacated the unit. The landlord also is entitled to regain costs associated with re-renting the unit such as commissions, cleaning, painting and advertising.

Keep in mind that dot-comers and others came to San Francisco from around our country and other parts of the world. Now that the proverbial bubble has burst, many simply will return home, breaking their lease as they depart. While landlords might be able to obtain a favorable financial judgment, the actual collection of money may prove cost prohibitive or impossible.
—Clifford Fried

Q. May I quote one price in renting an apartment, assuming a single renter, but if a couple wants to rent then ask a higher price due to the additional wear and tear exerted by another person?

A. You should not be doing this in spite of the rationale, for your actions could be interpreted as discriminating against families. Therefore, you should quote a sufficient rental fee regardless of how many people live in the unit.
— Saul M. Ferster

Saul M. Ferster can be reached at 863-2678. Clifford Fried is with Wiegel & Fried, 552-8230. David Wasserman is with Wasserman & Taxman, 567-9600. The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of the SFAA or the SF Apartment Magazine. The information contained in this article is general in nature; you should consult the advice of an attorney for any specific problem.