Temporary Rent Reduction Agreements

Posted by wasserman

Before the COVID-19 crisis changed our world, owners were usually not asked to temporarily reduce or forbear a tenant’s rent. That reality has now changed, as unemployment numbers are off the charts and incomes are drying up. Rent Board decisions in the past have held that where a landlord agrees to temporarily reduce a tenant’s rent due to genuine financial hardship specific to the tenant, the owner may restore the prior base rent after giving written notice to the tenant. Restoration of the prior rent does not affect the tenant’s anniversary date for the purpose of future rent increases. Examples of tenant hardship included a job
loss, an increase in expenses, or even losing a roommate that was helping to pay rent.

However, rent reductions based upon weakening market conditions are usually deemed to be permanent. For example, if a tenant threatens to vacate because a comparable unit somewhere else nearby is renting for less, and the owner reduces the rent for a period of time in order to incentivize the tenant to stay, then that reduction becomes permanent regardless of any lease addendum or contract between the landlord and tenant that states otherwise.

Today we have a unique situation where tenants are experiencing unprecedented economic insecurity and the overall rental market is
declining because people are simply leaving town for lack of employment. Unfortunately, we cannot offer clear guidance as to what may happen with a temporary rent reduction or forbearance agreement that may arguably be predicated on both a tenant’s particular hardship and a softening rental market.

That said, we encourage all rental property owners to freely use the new SFAA Rent Forbearance Agreement. Owners must do what they can to assist tenants during this unsettling time in our history. Please actively engage every resident who expresses the inability to pay all or a portion of rent for the April through July time period (and perhaps beyond). Most agreements will state that the request emanates out of a tenant’s particular economic hardship, and certainly no one doubts that these hardships exist. In this vein, please consult with your legal counsel to make sure the Forbearance Agreement is properly drafted to accurately reflect the intentions and needs of both the owner and tenant. The agreement should at a minimum state the nature of the tenant’s financial hardship and whether rent is being reduced but the reduced amounts are being paid back at a later time, being forgiven outright, or being partially forgiven with arrearages to be paid back in subsequent months. In addition, the duration of the rent forbearance, rent reduction, and/or rent forgiveness periods should be clearly specified. Do not get stuck on demanding “proof” that the tenant is experiencing hardship. Yes, you are permitted to request verifiable documentation evidencing the loss of income, but please be very accommodating and humane throughout these difficult times.