Why is my landlord acting against his own economic interests?

March 27, 2009 11:46 AM

NYCRentFilter: My landlord is letting me walk after my lease is up rather than cut my rent, even though the apartment will be vacant for at least a month after I leave. Why?

So I have a nice but pricey apartment in the West Village. Had a two year lease with the same rent the whole time. We signed the lease near the high water mark of the Manhattan rental market. When the landlord gave us our renewal forms, he left the rent the same, which in the NYC market is a pretty major concession to the current economic situation. But, my girlfriend and I felt, not enough. We sent a letter proposing a cheaper rent; we were hoping to meet in the middle-- taking roughly one month's rent off of the year, spread out over each month. They said they weren't in a position to budge arguing that: a, getting the same rent for another year was enough of a concession already and b, their properties are low vacancy and they are not having problems filling them.

For two years, we've been excellent tenants and always paid on time; the response to our letter by the landlord even said so. But still, not even a counter offer, just take it or leave it. We left it.

So here's the kicker: we found a great place in Brooklyn. We're very happy with it. But we found out our old apartment will be vacant at least one month for refreshing (repainting, cleaning etc.) while they find a new tenant. Why would they choose to expose themselves to this horrible market in addition to "losing" the same amount of money? By giving us a cheaper monthly rent would've made LESS work for themselves then having to find a new tenant as the market gets softer every day? If they had someone ready to go for 4/1, I could understand choosing to let us walk, but I was stunned to hear they'd rather eat a month's rent and risk worse tenants than give a discount to good tenants.

Speculation is fine, but I want some real concrete theories, based in taxes (taking an operating loss, perhaps?) or things like that. This is just really confusing me right now. Could they really be exposing themselves to the market, and the possibility that it won't bear our old rent, out of pure stubbornness? I should say this is a good size LLC with a lot of buildings, not a one person show. And our building is coming out of rent control, so a lot of people pay very little in rent compared to us.

That said, I can't wait to get to Brooklyn, so it's worked out for the best anyway. I just am trying to figure why my landlord seems slow to adjust to the new realities of market rent, when they seemed quite happy to accept market rent when it was high. I should mention also that the application process was grueling. They did not seem to be looking for renters to turn and burn at the time, but rather long term, stable people. Theories?

posted by raconteur to work & money (38 comments total)

My guess would be that they don't want to set a precedent that the rent is negotiable. With all those long-term, stable tenants, people are bound to talk, and word will get around.

It's entirely possible that they receive enough unsolicited inquiries about vacant apartments that they are very confident in their ability to get a new tenant as soon as they want.
posted by desuetude at 11:52 AM on March 27

But we found out our old apartment will be vacant at least one month for refreshing (repainting, cleaning etc.) while they find a new tenant.

It's much easier to get someone to move in when you can show them a place actively being spruced up instead of one that's been lived in for two years. It's also easier to clean and repaint a place when it's not being lived in. I mean, I'm not in the property management business, but it seems to me that this is what's going on. (Also, maybe the guy was tired of your attitude regarding the rent and would rather just have you gone than quibble, which might make other tenants think they could do the same.)
posted by phunniemee at 11:54 AM on March 27 [4 favorites has favorites]

Phunniemee, we sent one polite letter, and after receiving a polite reply, we sent notice that were vacating per the terms of our lease. I don't see where there was enough attitude to grow tired of. But leave your phrasing aside, perhaps your point as stated by desuetude is not too far off; this is a very chatty building.
posted by raconteur at 11:59 AM on March 27

Your assuming that people always act rationally. That is a very bad assumption.
posted by COD at 12:04 PM on March 27 [15 favorites has favorites]

I think your landlord was right....even though he is losing one month rent...there is still the possibility of renting the place at a HIGHER price...if you've been there for 2 years that means you were renting at 2007 levels..

There is always a market for apartments in manhattan specially in the west village so it made no sense for him to negotiate...even if you were a "good" tenant it wasnt like he was hanging out in your kitchen every other day and and is not like he is "cool" with you either.
posted by The1andonly at 12:08 PM on March 27 [2 favorites has favorites]

I guess I don't see why you think there is more to it than: "a, getting the same rent for another year was enough of a concession already and b, their properties are low vacancy and they are not having problems filling them."

As far as leaving it empty for one month to re-do some things:

1. That's an expected cost for a building owner, and I would guess it comes down to "pay it now or pay it later". Since you guys don't want the place, then sweet! Leave your two years' wear-and-tear to clean up. It's cheaper than repairing four years' wear-and-tear.

2. Maybe they can raise the rent ("newly refinished!") and make more than they were going to make off of you anyway.

3. Though the market sucks, they still feel they aren't having trouble filling their places. Responding to their offer with a counter-offer for less money than you ever paid may have made you seem just cheeky/high-maintenance enough to be worth losing---especially on the off-chance that you were the only tenants who did so.
posted by juliplease at 12:09 PM on March 27 [1 favorite has favorites]

You also assume they're not going to increase the rent when someone new moves in, so one month vacancy might not be an issue.
posted by inigo2 at 12:09 PM on March 27

But we found out our old apartment will be vacant at least one month for refreshing (repainting, cleaning etc.) while they find a new tenant.

Wait. What? Did you not think, for a minute, that people could move in on April 15th or maybe the 10th? It does not take 1 month to clean and paint an apartment. And that their location (and the fact that most of their other buildings are low vacancy) means that they probably have an assumption that they'll be able to rent the apartment out quicker and at the rent you paid? Why are you automatically assuming that they'll HAVE TO lower the rent to find a tenant? I bet they won't.

You might feel that they should lower your rent but they obviously don't think that way. You have antecedents to justify your point of view. They might have experience or numbers to justify theirs. They could be completely wrong but this is New York City. Even with our official unemployment rent jumping from 6.9 to 8.1 in one month doesn't mean they won't be able to find a tenant to take that spot. You might be right but they could be right as well. And they're taking that bet thinking that they'll be able to make more money waiting for a new tenant than letting you stick around for another year. It's a gamble but they own the building, not you.
posted by Stynxno at 12:13 PM on March 27

I agree they are going to get more money for the apartment now. Even in this economy, West Village apartments are like gold.
posted by roomthreeseventeen at 12:15 PM on March 27 [1 favorite has favorites]

They can spruce it up (and that's a deductible business expense) and probably rent it for more. This increases the value of the property as a whole, which is a smart move if they want to leverage this property to buy other properties. It's a great time to be a landlord and pick up real estate inexpensively.
posted by Ostara at 12:18 PM on March 27 [1 favorite has favorites]

No one negotiates down their rent in New York. The fact that in a non-stabilized or non-controlled apartment your rent was going to stay the same when the contract was up for renewal is itself remarkable. The West Village is one of the most desirable neighborhoods to live in on planet earth. I have little doubt that once it's been re-painted and cleaned, the apartment will easily rent for a considerably higher price than what you were paying.
posted by ornate insect at 12:23 PM on March 27 [5 favorites has favorites]

Yep, they can rent it for more (far more, based on the location!) to offset the loss of a one-month (or less) vacancy, plus can deduct the cost of cleaning, painting, and repairs (which probably won't be that costly anyway, given that you've only been in the apt. for two years and presumably didn't trash it). Landlords do this all the time.
posted by scody at 12:27 PM on March 27

I think you're underestimating their ability to find a tenant who will pay more than you did. Yeah, the economy sucks, but there are still plenty of gainfully employed folks in NYC who can pay their rent no problem.
posted by amro at 12:28 PM on March 27

A big factor in something like this is that lowering your base rent also lowers the basis on which they can charge and increase your rent in the future. Lowering your rent by 8% this year would mean they'd have to increase it by more than that, percentage-wise, next year, to bring it back up to the same level, never mind the level they'd have arrived at by simply increasing the rent of the new people who will presumably be paying what would have been your current rent.
posted by jacquilynne at 12:28 PM on March 27 [1 favorite has favorites]

And yeah, painting/cleaning an apt. usually only takes a few days (again, assuming you didn't trash it). If you're out on the 31st and they're moitivated, they could easily have the place ready to go in a week, 10 days tops.
posted by scody at 12:31 PM on March 27

Pretty much everyone I know is moving right now because there are so many great deals to be had--nicer place for about what they were paying in their old building. I have no doubt your landlord means what the letter said about no vacancy problems.

If your landlord can fill your old apartment for the same or slightly higher rent than you were paying, but by someone who thinks it's a great dea", they make up the difference in the one month's "lost" rent within the second year of the lease. Plus they have the option of raising the rent with the new tenant, whereas you have established yourself as a hard bargainer.

They might also simply build a month's vacancy into the cost of the rent assuming that they're going to have to paint/refresh every time a tenant leaves. My apartment was vacant for a month before I found it and the landlord let me move in on the 15th instead of the 1st, so it was vacant a whole six weeks. An apartment on the floor below mine was recently vacant for about six weeks as well, though it got a gut remodel. When your building's big enough, you can subsidize these things.

Congrats on the new place!
posted by peanut_mcgillicuty at 12:34 PM on March 27

Also, think about two years in the future. If he lowers the rent, in two years you will go back, maybe, to paying what you're paying now. But, if he finds someone to pay what you are paying now, in two years he'll be getting more.
posted by milarepa at 12:38 PM on March 27 [1 favorite has favorites]

So far I think ostra and jacquilynne have it, and milarepa made me think about the timeline they are on as owners, years rather than months. Good point.

Let me clarify to those beside themselves in this thread that we are paying at the top of the market for what we have, no questions asked. My friends gasp at my rent. The landlord is in no way going to get more than a token amount of money, if that. In fact, landlords are now even paying broker fees for new tenants due to the economic downturn. Part of my cheek in negotiating was that I know the surrounding market well and similar apartments are indeed currently going for cheaper. We could have stayed in the West Village, but given we were moving anyway, we found Brooklyn to be a better fit.

Still, if any neighborhood could hold out, it would as some of you pointed out, be the West Village.

For those who think no one negotiations rent down in NYC, I agree. Except, not anymore.

As to how we found the place (thanks for the congrats!) we read craigslist (brooklyn by-owner no-fee) like it was the freakin' bible, were well prepared, and got very lucky. YMMV.
posted by raconteur at 12:43 PM on March 27

The landlord is in no way going to get more than a token amount of money, if that.

Maybe. And if not, that's for right now. But there's no way they want to be stuck in a 2 year contract with you at a lower rate than they're getting.

I moved back to Manhattan from Brooklyn about a year ago, to live with my SO. I used to think Brooklyn was great, but I can't imagine going back. The location thing is too important.
posted by roomthreeseventeen at 12:58 PM on March 27

Also, if you own a rental property, and want to sell it, the buyers often want the rental histories of the units. So he or she would have to disclose that to someone who wanted to buy the building. The seller could be worried that they'd have to explain why 2A is renting for less than 2B: not to mention that missing monies would be factored into the selling price (via various ROI calculations). So your missing $400 per month could wind up costing the guy tens of thousands of dollars if/when he were to sell. QED.
posted by zpousman at 1:00 PM on March 27

No one negotiates down their rent in New York. The fact that in a non-stabilized or non-controlled apartment your rent was going to stay the same when the contract was up for renewal is itself remarkable. The West Village is one of the most desirable neighborhoods to live in on planet earth.

Yep, they can rent it for more (far more, based on the location!) to offset the loss of a one-month (or less) vacancy, plus can deduct the cost of cleaning, painting, and repairs (which probably won't be that costly anyway, given that you've only been in the apt. for two years and presumably didn't trash it). Landlords do this all the time.

Real estate always goes up, right?
posted by Kwantsar at 1:15 PM on March 27 [3 favorites has favorites]

The renewal would actually have been for one year, roomthreeseventeen. The initial term was two years.

Anyway, thanks all, for the theories. I have to go with the thought that the landlord is thinking in terms of years and simply thinks the apartment will rent for plenty of money because there is always a sucker lined up to take an overpriced apartment in Manhattan. (see: 3/2007, me) I was told as much by the building staff, that since deregulation, the owner has no problem with apartments turning over regularly. I guess I thought this was the one time in history they might want to avoid turnover in favor of security.
posted by raconteur at 1:41 PM on March 27

A guy I work with who lives in a very nice part of downtown manhattan asked for down 30% on his lease renewal. They said no despite him having comps to show them that were down 30%. He was really looking for down 20% and some flexibility on when the lease ended. They told him no way.

He got a lease on one of the comps. The day he had the certified checks for the new place in hand his old building called him back and said "we'll give you down 20%" . He said "too late to deal. down 30% and an 18 month lease. I already hired movers" They said "deal"


No one negotiates down their rent in New York. The fact that in a non-stabilized or non-controlled apartment your rent was going to stay the same when the contract was up for renewal is itself remarkable. The West Village is one of the most desirable neighborhoods to live in on planet earth.

Ironic given your view the entire financial system is bankrupt and yet a huge proportion of the W. Vill is exactly those people. At 40x Rent for the typical 3500 k W Vill 1 bed you got make 140k minimum for a 1 bedroom.
posted by JPD at 1:44 PM on March 27 [2 favorites has favorites]

their properties are low vacancy and they are not having problems filling them.

They don't need your extra money, they're doing fine, thanks. Beats the precedent you'd set.

Also? NYC landlords can just be jerks.
posted by cestmoi15 at 1:48 PM on March 27 [1 favorite has favorites]

Maybe it's simply because they're professionals in their business and you're not. They know things you don't, and they made an informed decision.
posted by sageleaf at 2:14 PM on March 27 [3 favorites has favorites]

As much as it might irk some of you guys/gals to consider it, not all landlords are greedy jerks. It is a business after all and the end objective is to make money. Ever occur to you that perhaps the landlord can't afford to give you the place at a lower rate? That perhaps his property tax, maintenance costs, utilities, etc, all add up to a sum that requires he/she maintain a certain monthly earning? I agree that there are alot of shysters out there, but there are alot of tenants with serious self entitlement issues as well. Your landlord has nothing to lose by taking a month to fix the place up and seeing if he/she can get the same if not more for the place.
posted by scarello at 2:34 PM on March 27

Real estate always goes up, right?

I assume you're being sarcastic. Of course real estate doesn't always go up, and I don't think anyone is suggesting as much. Historically, real estate values and rents have indeed tended to follow similar patterns -- rents tend to increase more or less as real estate increases, and tend to decrease more or less as real estate decreases.

However, this last boom didn't follow that pattern. While housing prices went off the charts, rents did NOT rise at the same rate (even though, god knows, living in L.A. as a renter it felt like it). In fact, based on the "Gap Years" chart here, it appears that national rents actually decreased slightly c. 2001-04, even as housing prices were going through the roof. Even in boom areas, the increase in real estate far outpaced increases in rent. For example, in San Diego:

Interestingly, this price explosion occurred at a time when rents were growing fairly modestly. This is somewhat strange because the factors that typically drive home prices, such as incomes, employment, and population growth, also affect rents. Yet after 2001, while prices of already richly-valued homes increased 98 percent and the monthly payments on those homes rose 88 percent, rents only increased 31 percent.

A study by Federal Reserve economists at the beginning of 2008 noted:

Between 1960 and 1995, rents and house prices rose at relatively the same rate. Rents fluctuated between 5 percent and 5.5 percent of home prices during this period.

In 1996, the market started to change. House prices climbed rapidly--much faster than rents. Within ten years, the cost of buying had more than doubled. The cost of renting did not. By 2006, the rent-price ratio fell to the historically low level of 3.5 percent--approximately 30 percent less than its long-term average.

...It is worth noting that these are national estimates. In areas of California, where the gap between house prices and rents is larger, it is likely that house prices will need to fall much more than 15 percent to be in line with rents once again.

And that's precisely what happened: SoCal real estate has gone down by as much 30-50% in some areas. But at the same time, rents in L.A. went up by about 5% last year -- the slowest increase in a decade, to be sure, but an increase nonetheless, even factoring in a small decrease (less than 1%) in 4Q 2008. And even if L.A. rents do slightly decrease overall in 2009 -- which is actually a possibility -- the distance rents can fall doesn't correlate with the distance real estate has had to fall.

So yeah, real estate is down. That doesn't automatically mean that every renter is going to get a discount just for asking, or that it's necessarily irrational for landlords of particularly desirable units or locations to bank on rents at least holding steady through the next couple of years.
posted by scody at 3:50 PM on March 27

All well and good, but rents in NYC did not behave like that during this cycle - and empirical evidence would seem to indicate the they have declined much more quickly then real estate prices have (our re market only really turned over in Q4)

Maybe because our housing bubble was driven more by unsustainable increases in income for marginal buyers rather then unsustainable "innovations" in lending. NY didn't have a lot of alt-a or subprime stuff, and a meaningful % of our housing stock (co-ops) required 20% down plus reserves. So basically in CA people who should have been renting were able to buy so the demand for rental housing declined. In NYC this didn't really happen.
posted by JPD at 4:18 PM on March 27 [1 favorite has favorites]

Yeah, I was going to say the same thing- rents don't always track with the real estate market. If it's easy to buy a house, then rents would tend to go down. If it's hard to buy a house, rents would tend to go up. Even if the NYC rental market is different than "normal", these forces still happen.
posted by gjc at 4:27 PM on March 27

A lot of good concrete theories here, so I thought I'd throw in a little speculation.

I think you've wandered into an area of behavioral economics that's illustrated by an psychology experiment called The Ultimatum Game.

In this experiment, Adam is given $10. Adam can then offer some portion of that $10 to Bob. Bob can either accept the offer, or reject the offer. If Bob rejects, neither player gets anything.

Under rational economic theory, Bob should accept any offer, because Bob will be better off with something rather than nothing. However, in this experiment, the player in the Bob position is likely to reject any offer below 20%.

One theory for this rejection is that we have an innate or biological tendency to reject offers we deem "unfair", even if we would be rationally better off accepting this offer. Some evolutionary theories posit that this is to "punish" unfair actors who we may have reason to trade with in the future.

In this case, perhaps the landlord was operating from this initial feeling of "fairness". You were willing to pay $2000 a month in May, but in June you only wanted to pay $1800 a month. Since the apartment hasn't changed and the services have remained the same, the landlord may feel like you are trying to take advantage of them.

Therefore, they would rather incur a short term cost of a vacant apartment with the chance of a tenant who will not take advantage of them than have a long term income loss and also a tenant who will definitely take advantage of them.

As a side note, one may ask why *you* are behaving irrationally? You are willing to give up an apartment you like at a price you were willing to pay a month ago with a landlord who has given good service for your entire tenancy and incur the costs of moving and commuting. Furthermore, you are taking the risk that your new apartment's landlord might not be as reasonable as your current landlord. Is the reduction in your rent price worth this short term cost and risk?

Best of luck.
posted by davidamann at 5:07 PM on March 27 [3 favorites has favorites]

When you try to negotiate your rent down, your negotiating leverage is your threat to leave, and the costs/risk that will expose the landlord to. From the landlord's perspective, your threat to leave may or may not be a bluff; after all, it exposes you to costs, risk, and hassle too.

The landlord may have thought there was a chance that you were bluffing, and you would in fact pay the higher rent. After all, you were happy enough doing so in the past.

Furthermore, as other people have said above, the landlord may be confident in their abilities to find new renters willing to pay the higher rate of rent. And as desuetude points out above, if your neighbours heard you had got your rent lowered, they might all go to the landlord demanding the same thing, leading to a larger loss than your one month's rent.

We sent a letter proposing a cheaper rent; we were hoping to meet in the middle-- taking roughly one month's rent off of the year, spread out over each month. [...] If they had someone ready to go for 4/1, I could understand choosing to let us walk, but I was stunned to hear they'd rather eat a month's rent and risk worse tenants than give a discount to good tenants.

If they accept your reduction, it's certain they lose one month's rent; and your neighbours might request the same, costing them one month's rent for every person you tell.

If they reject your reduction, there's a chance you'll back down, costing them nothing. There's a chance they'll get a new tenant in less than a month, which would mean they lost less than a month's rent, or they could get a tenant in precisely a month, so they would lose precisely one month's rent. On the other hand, there's also a chance the apartment will sit empty for more than a month; and/or that they will end up having to reduce the rent anyway to attract a tenant.

The landlord has information on how probable the various outcomes are, based on the enquiries they receive, and their experience of the market.

Most likely they weighed the costs and estimated probabilities of the various outcomes and decided, overall, they were better off rejecting your reduction and taking their chances, than accepting your reduction and losing money for sure.
posted by Mike1024 at 6:10 PM on March 27 [1 favorite has favorites]

No one negotiates down their rent in New York.

That may be true as I didn't even need to negotiate to get my rent reduced for the next lease term. The landlord called me to see if I was going to renew, I said I didn't know yet, and they said that they were dropping the rent 10% below what I am currently paying. Thats $500 a month less than what it was going to be, and less than when I moved in, 4 years ago. What they didn't know is that I would've stayed if they just would have kept the rent the same, no increases.
I have since found out that they made this same offer to several others in the building.
posted by newpotato at 7:20 PM on March 27

I honestly think some NYC management companies and brokers just refuse to see that things have changed. Really things have always been absolutely ridiculous in NYC (don't even get me started on brokers...). Landlords and management companies could demand virtually anything and as long as it was legal (and often even if it wasn't) they could get away with it. I think there is a large subset of landlords who think they can hold out and eventually force tenants to agree to their terms because they always have in the past. I got turned down for an apartment because I didn't perfectly meet the management company's very specific requirements despite that the other person on the lease had been there for two years, I had ample savings and a local co-signor I didn't have a job yet so no deal. There were three other identical apartments in the building that had been vacant for a couple of months. There is no way they didn't lose money. I wouldn't be surprised if 2 months later it's still vacant, but they wouldn't budge or consider any alternatives or anything. It was a rent controlled apartment so it wasn't even like they were trying to get more rent from someone else. It was totally illogical and clearly just a result of them doing things the way they had always done them, never willing to compromise, which is just bad business in my opinion. I'd be really interested to see how many brokers and management companies are left at the end of this recession. I have a feeling a lot of landlords will realize they are losing money because of these attitudes and will take back to managing their own properties so that they save money and can be more competitive.
posted by whoaali at 8:27 PM on March 27 [1 favorite has favorites]

No one negotiates down their rent in New York.

Not true these days.
posted by Tin Man at 8:27 PM on March 27 [1 favorite has favorites]

These last few answers have been really thoughtful and interesting. Thanks, all. Davidamann, I feel I was behaving rationally in taking the new apartment. We were willing to consider staying unless we found a better all-around deal, by which I mean, not just economically.

Our risk in having a worse landlord is mitigated by the following: so far he's been great and is recommended by his other tenants, and the property is in great shape. Also, the apartment is so much cheaper yet superior in size and quality that moving expenses will be amortized in less than two months of the difference in rent. Finally, we are moving to Ft. Greene, a neighborhood that feels better to us because it's less crowded and more organized for actual living. As much as I love the picturesque W. Village, it began to feel as if the restaurants and stores exist almost solely for tourists, foreigners or people with far more money than I. That's fine, but it makes living here expensive and annoying.

As for the last irrationality, not being willing to pay the rent in April that we paid in March, it's obvious to us that the economics of the market have changed and as another person noticed, there are deals to be had. As I said, my main confusion was that the landlord seemed happy to take advantage of a hot market, but slow to adapt to a cooling one. Whoaali I think has it right here but also, rents lag behind the real estate sales market, which lags behind the economy in general, especially in NYC as those who can hold out tend to do so. But the spring and summer are hot markets for rentals. So methinks the reckoning is coming.
posted by raconteur at 10:03 AM on March 28

Tin Man, from your NYT link:

"Owners with more property — and deep pockets — generally would rather offer incentives than reduce rents because when the market comes back, they start from a stronger bargaining position. But landlords of smaller buildings tend to just lower the rent."

That may be the case with my landlord.
posted by raconteur at 10:08 AM on March 28

Why Are These Renters Smiling?
posted by raconteur at 10:19 AM on March 28

What was that about LA rents not going down?
posted by JPD at 6:52 AM on April 8