MODIFYING THE RENT AMOUNT

Unfortunately these days’ managers often have to lower rent rather than raise rent each year. With the huge surplus of vacant homes and condos in the rental market at the moment, residents are balking at paying the same amount of rent at renewal time, and are even asking the manager to lower the rent during the tenancy, knowing they can find cheaper accommodations. Out of desperation, many managers are agreeing to lower the rent rather than have a vacant unit. Usually the resident initiates contact with the owner during the lease or at renewal time to discuss the rental rate, and the usual threat is made that if the rent is not lowered, the resident will be moving.

Owner Issues

If the resident is dealing directly with the property owner or agent in an apartment setting, the negotiations can be done directly with the resident. It is crucial that the manager does not imply a particular rent amount will be owed unless this has been decided. Any promise or implication that the rent will be lowered will be latched onto by the resident and relied upon. It must be made clear that no deal will be consummated unless it is done in writing and signed by all the parties involved.

Mid-Lease Modifications

A mid-lease modification can be handled by a simple addendum stating the new rent amount and signed by all parties. This may present a good opportunity for the property manager to have the resident sign a brand new lease, thus extending the tenancy, but some residents may wish only to stay until the natural expiration of the lease, and an addendum will be the appropriate vehicle. If the resident also pays other amounts in addition to the rent, it is imperative that this addendum wording does not end up inadvertently reducing the rent further than what the manager expected. Often there is “base” rent plus other items making up the “entire” rent. The resident may currently be paying a rent amount of $700 plus $50 for the garage and $25 for cable. In the resident’s mind, rent is $775, because that is what he pays each month. In your mind, “rent” is the base amount of $700 plus the other charges, and you are lowering it to $650. Putting a clause in an addendum that states that the parties simply agree that the rent shall be lowered to $650 will cause an ambiguity. Is the total rent now $650 as the resident may assert, or is it now $725 as you will assert? Any ambiguity in the agreement is construed against the party creating the document (most often the manager), so the ambiguity will almost always work in the resident’s favor; this presents a clear danger to the manager.

An Early Payment Option

As an incentive for the resident to pay the now reduced rent, it is possibly to place a clause in your addendum stating that the rent shall be $X amount if paid by a certain date and $Y amount if paid by a later date. Many managers are already familiar with early payment discounts, but this is structured a bit differently and has 2 distinct rent amounts. Problems occur when the resident pays the lower amount at the later date; this can cause disputes, so care and thought should go into making such an addendum.

New Lease Rent Modifications

The parties may agree to a lower rent amount in a new lease. We recommend that any negotiations be memorialized in writing prior to lease signing and that all parties execute the new lease before the beginning date. In lease execution, care should be taken to have all residents sign the new lease, never allowing just one resident to sign if other residents are listed on the lease.

What About Prepaid Last Month’s Rent?

The resident may have paid a last month’s rent upon moving into the unit. How is this affected by the rent modification? The resident of course will want to be refunded any amount to the extent that the last month’s rent exceeds the new rent amount. When will this occur? Now? At the beginning of the last month? We recommend that this refund is done at the time of vacating the premises, and this can be addressed in the addendum to the lease. Another option is that the excess in the last month’s rent shall be added to the security deposit, which will give the manager a larger sum to use in the event of damages or other money owed. Anything can be done; it is all in the addendum wording.

Fair Housing Considerations

In the multi-family setting, if you reduce a resident’s rent, word will spread like wild fire throughout the apartment community. You should expect other residents to come into your office asking for a rent reduction. Is everyone entitled to a rent reduction? Should you only reduce rent where you know a resident has lost her job? It is imperative that a written policy is in place before you ever begin negotiating rent with a current resident. It is bad enough when new residents are getting concessions and lower rents, and now you have to deal with the irate resident who has been with you for 5 years. Failure to give a rent reduction to someone of a protected class could result in a discrimination complaint that you may have difficulty overcoming.