Q&A Regarding Rent Increases

September 1, 2017

 Q: On a yearly lease that has been renewed twice with increases, the tenants are asking for a rent reduction. I’m willing to give a temporary rent reduction for one year. Is there a way for me to legally do this, and base future rent increases on the previous non-reduced rate?

 

A: You might informally agree to accept less rent from your tenants without objection. This is viable so long as no dispute arises later. However, as the question suggests, the lack of a formal adjustment may imply a waiver of the actual rent for the premises, and could lead to an effectively permanent rent reduction. This is especially true if the tenant develops any expectation that the reduction would continue indefinitely, or if the endpoint is in any way unclear. This is therefore the riskiest path.

Another alternative would be to mutually amend the lease with a temporary rent addendum. The addendum can state on its face that a rent reduction is applicable for a specific period of time, and then the rent is restored to the original value. If the same lease is renewed again in the future, the amendment would remain in place, but inoperative, since the effective dates would have passed. However, if the tenants change their mind during the reduction, or at any time after, they may petition the rent board for relief from an unlawful rent increase, despite the fact it was written into their contract. The possibility for open-ended uncertainty unfortunately makes even a mutual agreement an unattractive solution.

A safer method would be to accept the lower rent amount, but with a receipt issued to the tenant every month stating that you are conditionally accepting the partial payment, but reserving the right to request the balance in the future. You may then choose not to enforce the balance outstanding. This explicitly reserves your rights to avoid the waiver, but allows you to accept reduced rent temporarily. You may cease reserving your rights once you decide the original rent should be due.  This also has the advantage of allowing you to withdraw the “reduction” earlier if you decide the basis for the reduction no longer exists.

Another possibility is for the tenants to continue paying the base rent up front, and then the landlord refunds a portion equal to the rent “reduction.” That ensures that the rent is paid in full, and the “reduction” becomes a gift transaction, rather than a rent transaction. This has the clear advantage of requiring the tenants to perform in good faith in order to receive the discount, but obviously requires the tenants to possess the money to begin with. If the tenants do not, a variation could have the landlord gifting the “reduction” to the tenants first, who turn around and pay the rent in full. However, in that case the landlord bears the full risk of loss.

Because there is no established safe harbor for landlords to temporarily reduce rent for their units, the regrettable result is that it is better to strictly enforce the lease in full, without any charity. But if you must forebear receiving rent to preserve a good tenant, either issue a refund after receiving the rent in full, or clearly reserve your rights to collect the full amount, in writing, after each and every partial payment by your tenants. 

 

​​Copyright © 2017 by Fried & Williams LLP. All Rights Reserved. The information in this article is general in nature and should not be considered legal advice. For any specific matter, please consult with an attorney.

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