Is it ethical to make money from subleasing an apartment?

May 24, 2008 7:14 AM

Is it ethical to make money subleasing an apartment to others while not living there myself? Does the landlord need to know?

Specifically, I have a long-term lease on a two-bedroom apartment, and I am pretty sure if I move out into a cheaper apartment that I just found, I can sublease my two-bedroom for more than the monthly amount I am paying to the landlord. In other words, each month until the end of the lease I would be earning money from the sublet.

Is this ethical? I have had people say "that's not fair," but I am having trouble identifying what makes this any different than the "buy low sell high" mentality of stock trading, or, really, from any other kind of real estate transaction.

I sort of think if any landlord were to hear that he could be making more money off his apartment, he would wish he were doing so. So I'm inclined not to tell him how much money the subletters would be paying me.

The lease requires the landlord's "advance agreement" for sublets (it doesn't specify oral or written agreement). I currently sublet one of the rooms of the apartment, which the landlord has approved (orally). So can I simply tell the landlord that I will be doing another sublet, as I have done in the past? In the past, in subletting discussions, there was never any talk about the financial details...the landlord was always getting his rent in full, as agreed in our lease. Am I under any obligation, legal or ethical, to tell him how much money I am subletting for?

posted by anonymous to work & money (18 comments total)

Yes it is ethical, people do it all the time. Your landlord maybe could make more money, but he contracted with you to allow you use of the premises for the amount you're to pay in rent and he must abide by the contract. Provided you act within the contractual terms (and local housing code) with regard to notice, occupancy, and any other relevant provisions, you're fine.
posted by Inspector.Gadget at 7:22 AM on May 24, 2008

Isn't this (i.e., making more money by leasing the apartment to you but not living there himself) what your landlord is already doing?
posted by Wet Spot at 7:23 AM on May 24, 2008

Am I under any obligation, legal or ethical, to tell him how much money I am subletting for?

No.
posted by ssg at 7:34 AM on May 24, 2008

Yeah, if the prices have gone up then your landlord will almost certainly raise the rent himself the next time he leases the place. You just have the benefit of a lower, contracted price right now.

Check your lease — almost all of them will say what to do if you need to sublet.
posted by electric_counterpoint at 7:35 AM on May 24, 2008

Nobody here can give you the answer. You need to check your lease and your local housing code.
posted by footnote at 7:37 AM on May 24, 2008

I am having trouble identifying what makes this any different than the "buy low sell high" mentality of stock trading

The difference is that stocks are freely tradeable under clear rules and your apartment lease isn't. It all depends on the specific terms of your lease agreement. If you get your landlord's consent to sublet then it's perfectly ethical. If you mislead your landlord about what you're doing, it's not.

By the way, it's not free money. You have a lot of legal liabilities with the arrangement you're describing. As long as no one flakes on the rent or damages the apartment you're fine. But if there's a problem, you may well be left being the one financially responsible.
posted by Nelson at 8:10 AM on May 24, 2008

Nothing unethical about it at all. (If your prospective tenants don't have a lot of cash, there's nothing stopping them from taking the cheaper apartment you've got your eye on.) But there are risks...

If your apartment is rent-controlled or rent-stabilized, then there may be very specific restrictions about subletting. In NYC, for instance, you can only charge a subletter a 10% premium on the original rent, and that only if you provide furnishings. Check your lease, which should indicate any such restrictions.

Also, if you're not going to be resident in the apartment, then you absolutely need a sublease contract. One, so your renters are on the hook for damages if they trash the place, and two, so it's easier to boot them out should you want or need to move back in. Again for instance in New York, full legal protections kick in for your tenants after 30 days of residence, whether or not there is a lease, and whether or not they've ever even paid rent. After that you would need to go to housing court to evict them, and the paper trail will make it marginally less painful for you.
posted by a young man in spats at 8:20 AM on May 24, 2008

"By the way, it's not free money. You have a lot of legal liabilities with the arrangement you're describing. As long as no one flakes on the rent or damages the apartment you're fine. But if there's a problem, you may well be left being the one financially responsible."

This is exactly why it's not unethical -- you're not getting something for nothing, you're being compensated for taking some risks.
posted by toomuchpete at 8:39 AM on May 24, 2008

Check your lease and your local area and state laws. This may very well be illegal. Plus, you need a written subletting agreement to protect yourself, as a young man in spats mentioned. I think it's a pretty shady arrangement, honestly. Like scalping tickets but with housing. Plus, you technically would need to be reporting the difference you collect as income and paying taxes on it.
Also, I'm 100% certain that if/when your landlord finds out, he will revoke his agreement to let you sublet at all.
A few more issues
1- If you tell the landlord you want to do a second sublet, I bet he will be much more likely to want the financial particulars since it's only a 2-bedroom and this may raise suspicion.
2- Does the landlord come out personally to inspect the property, do regular maintenance, or respond to maintenance requests? If you don't tell him about the 2nd sublet and he sees that you don't live there, you may well get caught.
3- He has the right as the landlord to lease the property for whatever because he owns it. That means he pays property taxes, maintenance costs, leasing costs, etc. You don't. That's what separates your rights from those of an actual landlord.
posted by fructose at 8:47 AM on May 24, 2008

It's impossible to know the answer without knowing all the details of your lease, not just the specific clause you quoted. There could be rules about your occupancy of the premises, including notifying the landlord if you will be absent for an extended period of time.
posted by Fuzzy Skinner at 8:48 AM on May 24, 2008

If your landlord agrees to let you sublet, you don't have to tell him how much you're subletting for unless that disclosure is specified in your lease. Some landlords, however, do specify that the subletters pay them directly to avoid just this type of thing.

Also keep in mind that if any of your subletters break their lease with you - as people often do - then you personally are still on the hook for coming up with the money. For two apartments, now. I'd think long and hard about whether making a couple extra hundred bucks a month is worth the potential risk.

So it may be perfectly legal, but no, I don't think it's ethical to try and make money off someone else's property (that's where it's different from buy high-sell low... it's not your investment). I mean, how would you feel if your subletters turned around and let the apartment to other people at an even higher rate? A little taken advantage of, maybe? Now think how the landlord would feel if he learned that one of his tenants was using the property that he had invested in, taken risks on, and cared for in order to skim a little extra money off the top. At the very least, you would go on my list of people to never rent to again.
posted by GardenGal at 8:57 AM on May 24, 2008

but I am having trouble identifying what makes this any different than the "buy low sell high" mentality of stock trading, or, really, from any other kind of real estate transaction.

While as a Georgist I'm in the distinct minority here, the moral difference IMV is that real estate is a different class of property -- in most places there is a scarcity of places to live vs. the demand.

Buying & selling equities does not impact other people who just want to live in a location, while monopolizing locations via real estate transactions certainly does.

But there's ~1000 years of real estate law counter to Georgist morals, and 200 hundred years of history of people profiting from ground rents, so I don't expect the Georgist world view to gain much traction in my lifetime.

Landlords, IMV, can at least charge rent for use of the CAPITAL IMPROVEMENTS they have built or purchased. What great service, economically, are you providing your future subtenants?

But, go for it, I guess, since this is a world, and real estate is the central sewer, of greed and getting something for nothing.
posted by tachikaze at 9:18 AM on May 24, 2008

As footnote said, you should check the relevant laws in your jurisdiction to make sure it's legal. Also read the lease closely.

As far as whether it's ethical (regardless of legality), I think it is. People sublet and get below the full rent regularly. I see no reason people shouldn't have to pay more either.
posted by gauchodaspampas at 9:37 AM on May 24, 2008

I'm in the minority, but I think it's sleazy. Perhaps from my experience of living in scarce housing areas. And there's not a huge amount of liability -- a refundable deposit from a sublettor could cover any damages or liability.
posted by ClaudiaCenter at 1:50 PM on May 24, 2008

I know people who are doing it. Part of the justification for charging higher rent is that if the person jets out on you or if you don't have a tenant for any amount of time then you are still on the hook for that money.
posted by furtive at 2:53 PM on May 24, 2008

I can't speak to the legal issues, but it's certainly ethical. You assume risk; why shouldn't you profit?

I mean, how would you feel if your subletters turned around and let the apartment to other people at an even higher rate? A little taken advantage of, maybe?

I will never understand this point of view. Are the things you have no good unless others have less? Anyway, get your lease and check with a pro with regards to the legal stuff, but under no circumstances should you feel even a little bad - no one is being forced to sublet from you at the rate you're naming.
posted by Optimus Chyme at 3:11 PM on May 24, 2008

This is pretty much cut and dry. If you had an opportunity to read the lease before signing it, then you're ethically bound to follow it. The landlord has the option of agreeing to this new sublet or not. You cannot do it ethically (or legally) without his agreement. If he wants to know the financial situation before agreeing, you're ethically bound to tell him the truth (or simply decline to tell him anything and give up on the idea). If he doesn't specifically ask, then there are likely two possibilities.

The first is that you reasonably believe that he doesn't care if you're making a profit or not. If you reasonably believe this, then you're not ethically bound to volunteer the information to him.

The second is that you reasonably believe he's making a false assumption based on two things: his not asking the financial information and you not volunteering it. If you don't volunteer it to correct him, then you are at least partly responsible for this false assumption, and are misleading him. This may fall short of a legal standard, but you are acting unethically.

You specifically say that you think your landlord would care about making more money from the apartment, so your answer's right there. Things would be different if he was the absentee landlord who couldn't care less about what his tenants did, but it doesn't look like he is. If you care about being ethical in this situation, you should tell him.

This isn't about you using your place to make money. Go for broke with that buy low, sell high stuff. And yes, you are taking on legal responsibility (though, so is he...which is specifically why most leases have that clause in them). But this isn't about that. You agreed to give him a veto on sublets, and you shouldn't pretend it's ethical to hide the ball from people when they're making the decision.

To let you know I'm not trying to be harsh, I'd definitely compromise my ethics on this one. The money could be good, and for all I know you're ethical the other 99 percent of the time (hell, you stopped to ask this question, after all).
posted by aswego at 12:38 AM on May 25, 2008

GET EVERYTHING IN WRITING!

never never never make oral arangements with a landlord. never.

trust me i learned the hard way, if for any reason you end up in court, all that matters is what's written down. (espescially if you have strangers living in your apt)
posted by swbarrett at 7:12 AM on May 25, 2008