Rent it Right
by Janet Portman, Inman News
Q: Our lease says that we can renew our lease for another year, “at market rates.” Now it’s time to renew, but the management company has given us a rent figure that we think is way over market. How can we convince management to get real? –Margaret M.
A: Unfortunately, your renewal clause has been written very poorly. As anyone with any real estate experience will tell you, “market rates” is a somewhat subjective term. And that could doom your renewal right.
When a contract (including a lease) provides for something to happen, but that act is not certain or clear (that is, a judge cannot easily order the parties to comply with it), the contract or that portion of it might be held unenforceable. If you end up in court trying to force the landlord to renew “at market rates,” a judge may refuse to issue the order simply because it’s not clear what “market rates” really are. (Incidentally, this is why, in many leases and other contracts, you’ll see a “savings” clause at the end, providing that if any portion of the contract is ruled unenforceable by a court, the balance of the contract will survive.)
But all may not be lost if you and the management company really want this renewal to happen. You need to agree on a procedure for coming up with a figure for market rent that you can both accept. This shouldn’t be too hard. You could each nominate another real estate professional (a broker who deals with rentals, or other management companies), and ask them to arrive at a figure. If they can’t agree, each of you could agree on a third professional who would break the tie.
You shouldn’t have to pay for this service; these professionals should offer their time and expertise in the spirit of helping their colleague (the management company responsible for the poorly drafted clause), and in hopes that you will remember them when and if you decide to become a homebuyer.
In the future, if you encounter another renewal clause, make sure that it contains a mechanism for arriving at “market rates.” You might use the method just described if the landlord and tenant cannot initially agree. And be sure to specify when the tenant must exercise this right to renew (it should be a month or more before the lease’s ending date, to enable the landlord to re-rent before the term ends, if the tenant decides to move). Finally, make sure the lease tells the tenant how to notify the landlord that he or she plans to renew (written notice is always best).
Janet Portman is an attorney and managing editor at Nolo. She specializes in landlord/tenant law and is co-author of “Every Landlord’s Legal Guide” and “Every Tenant’s Legal Guide.” She can be reached at firstname.lastname@example.org.
Copyright 2010 Janet Portman
See Janet Portman’s feature, Are Occupancy Limits Legal?
American Apartment Owners Association offers discounts on products and services for landlords related to your commercial housing investment, including real estate forms, tenant debt collection, tenant background checks, insurance and financing. Find out more at www.joinaaoa.org.
To subscribe to our blog, click here.