ROB REYNOLDS (d.), owner of hotel business
Alfred E. Kahn
Davis Polk & Wardwell LLP
EVERYDAY, a friend and I fall into an argument about business activity. It always comes back to whether I am allowed to skip out on my lease. The root of the quarrel is rent-to-own: The rent is due monthly, which means we both pay full market price, but if I skip and go shopping, or use that $1,000 first-floor room to produce my Web site or attend my daughter’s wedding, I take out a $1,500 one-month extension on the lease. If I pay the extension, my rent goes up — and that means I have to make a monthly payment that I don’t have. Why can’t the tenant just take out the money I owe for the year, make that payment, and then move on?
The law is clear — and intuitive. If you don’t pay rent, the building has a contractual right to evict you. The reason is the rent is contractual. The tenant and the building’s owner have different motivations to rent and to evict. If a tenant defaulted on rent, the owner of the building could seize the residence and sell it, placing the proceeds into the building’s coffers. Instead, the owner could use the funds to pay outstanding litigation or to subsidize existing tenants. The owner might want the tenant out to extend the term of the lease. In other words, the owner takes advantage of the tenant’s condition, rather than preventing her from defrauding the building.
The Wilson Anti-Fraud Act, passed in 1947, was intended to stop fraud through nonpayment of rent. But today, tenant lawyers routinely use the law to evict tenants. Typically, tenants are viewed as criminals who deserve punishment, not legitimate tenants who should be tolerated rather than thrown out. But tenancy laws make it difficult to evict tenants who are constantly behind on payments.
Generally, there is not much that a landlord can do to encourage a tenant to pay up or to enforce its rights against a tenant who fails to pay rent on time. A landlord cannot legally force a tenant to sign a lease. Courts rarely order the tenant to reimburse the landlord for rent lost. And the failure to pay may not be serious enough to warrant a tenant’s eviction. Courts will instead arrange “lease modifications” — temporary licenses for a year or more, typically with a modified schedule of payments, as long as the tenant continues to comply with the terms of the lease.
These rules might be revised in the future. But for now, tenants need to be wary.