Will You Renegotiate Rent to Keep Tenants Leased?

More tenants will be asking landlords for rent reductions in the next 3 months.

There is an interesting dynamic that’s leading to these increasing rent reduction requests, sometimes legit and sometimes not.

Do you know how you’ll respond to tenant’s rent discount requests?

Landlords Can Grant Discounts for Good Tenants

Even for some good tenants, rent is a challenge, but as we know, the government is shifting the pandemic’s cost onto property owners who have their own mortgages to pay.

Please do check out ManageCasa property management software while you’re visiting. It’s a modern property management system that allows you to automate rent discounts and accounting entries, thus saving you and your accountant, significant time.

Zillow Reports

Zillow reported in September that new renter concession rates have risen from 16% last February to 30% in July. Free month rent or reduced/waived deposit were the top discounts mentioned. They found that 63% of multifamily renters report getting at least one rent discount, and 59% of renters in other home types. Only 35% of single-family renters reported receiving any concessions.

Share of Concessions to New Renters in Washington and San Francisco Rising

The Answer is Usually No

So would it then be wise for landlords or property managers to agree to a 10% to 30% pandemic rent decrease? Most landlords I’ve heard respond to that question emphatically say no.

However, there are exceptions. USAtoday reports one case where the landlord actually agreed to knock $800 per month off the rent price of a 4 bedroom apartment. Do you think the landlord made the right decision?

First, is it the responsibility of a landlord to provide discounts that no other business is offering? Mortgages might be renegotiated by bankers, but often a penalty or fee is applied. Second, it is legally tricky to renegotiate and a real estate lawyer may be needed. You might want to create a brand new lease to avoid legal issues.

What About Potential Financial Disaster for Landlords?

And most landlords reject a rent renegotiation directly based on the fact that they themselves are facing financial difficulties. Many small mom and pop landlords can’t get by nor get loans to cover their losses.  Should the landlord risk their assets to offer renters a break?

Such discounts might perpetuate the ‘rich landlord‘ theme that’s popular in the media and then most other tenants would expect the same discount. And a request is a signal the renter may be unable to pay rent in future (accounts receivable, evictions).

Should you be saving your revenue for higher collection costs and legal costs?

If your tenant in the food services, personal services, or entertainment/sport industries, they are in for tough times. A rent reduction may not actually be a productive solution for them.  If they can’t pay rent, they should look to stay with family or friends. Some are doing this.

However, falling asking rents, lower rent collection rates, and no stimulus bill means multifamily and apartment property landlords are in for a rough go.

Yet by asking for a rent reduction, the tenant is actually breaking the lease contract terms which specified on time payment at the specified price.

Will they really leave if they don’t get a discount? Some tenants may threaten, but with such low vacancy rates (outside of Manhattan, Washington DC, Boston, and San Francisco), they’re lucky to have the apartment, condo or house they have now.

When Will They Ask?

Some renters may ask for concessions when they’re in financial straights or when their lease comes up for renewal. Or they might just believe that their rent should be commensurate with general rates which they heard are falling lately. They may be gambling that you won’t want to lose them. It could be a ploy to get out of paying rent. We have some tips on how to deal with that below.

Metro Landlords Under Pressure

In major cities, lease termination and move-outs are on the increase and that means many apartment landlords are concerned about their business outlook for the next year. So the matter becomes one of hanging onto apartment renters and getting them to sign a new lease.

And as rent forbearance, rent default, and low back rent payment, evictions are becoming more common. There are plenty of news stories about attempted evictions as landlords seek to free up some of their rentals to keep themselves afloat.

The incoming President Biden has suggested he is more open to business shutdowns as a way to slow down pandemic spread. With infections rising, this is a possibility. And with new infections out of control across much of the US (and Canada, UK, France, Germany and Spain), we wonder how landlords will deal with the situation.

Rent Negotiation Strategy

Your management strategy will depend on the legal requirements for rent negotiations in your country, state or city. Your approach should be to limit your risk instead of making it worse.

Your approach might depend on how good a tenant they were. If they have a history of late payments, high repair costs, and their employment situation has always been troubled, then they remain high risk and don’t really deserve a break from their landlord.

From a good tenant, you may want to discuss a temporary reduction for the pandemic period, perhaps for the next 6 months. Compare the local rent price trends as a way of being compassionate.

Hopefully the economy will be strongly recovered by late spring. Of course, if rents in your town or city are rising, you may want to simply help the struggling renter move onto their next accommodation. You should offer help to the tenant and mention you’ll accept their termination at end of lease. You may offer some help to them for moving costs to help them out. Better to help them leave so you can ready yourself for the next tenant.

Please do conduct tenant screening and write rental ads professionally to ensure you have «recession-proof» tenants because the economy is far from sure.

Rent Discount Request Responses for Landlords

Perhaps the best way to play the request is to always ask for your own concessions from them in return. When they ask for a rent reduction you could:

• ask for detailed financial information so you can validate that the request is valid
• ask for credit card and debit card statements from last 6 months (pandemic period)
• ask them to find a co-signer (parent) who will guarantee payment should they default
• give them 6 months reduction with a new lease at a higher rate from thereafter
• give them the option to pay the rent up for one year upfront for a 10% discount
• demand they use your online rent payment system and increase their late fees/NSF charges (banks will also charge NSF fees)
• renegotiate the lease but apply a fee for the rewrite
• offer to let them drop the lease if they pay all back rent due and provide 2 months rent to help you find another tenant
• have them sign a non-disclosure agreement with fines or retraction of discount if they renege on the NDA
• offer them gift cards instead

The media would have you believe that not paying rent and getting automatic rent discounts is a divine right. Although well-meaning, reducing their rent could be a risky move in tenant relations and financial survival.

Hopefully, you can help those truly in need and use the opportunity to get your best tenants leased even longer!

ManageCasa property management software should be the foundation of your business. Automate, streamline, scale-up, and grow revenues using our user-friendly solution.

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