Crafting a tenant buyout

Rent it Right

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Jul. 21, 2011

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Rent it Right

Janet Portman
Inman News™

Q: We rented out our family home when my husband was transferred to a branch office in another state. We thought the transfer would last two years, but after a year, he was told to return to his original office. Trouble is, we leased our home for two years, and our renters are refusing to move out. Is there anything we can do about this? --Ronny and Debra D.

A: I sympathize with your predicament. Facing the prospect of renting in your own town while renters occupy your home must sting. But unless you can convince them to vacate, there's nothing you can do about it. Just as you would expect the renters to honor the length of the lease, so must you abide by it (absent, of course, any misbehavior or failure to pay rent that would justify terminating the tenancy).

That said, you might want to think about ways to entice your renters to leave. First, try to figure out why they are refusing to move. Certainly the "hassle factor" must be high on their list, as it would for anyone, but maybe there's more. The more you can learn about their desire to stay, the more you can design a buyout package that might entice them to move.

First, address the inconvenience factor. Anyone moving out must deal with packing up and physically moving their belongings. Although the renters would have to do this anyway at the end of their two-year lease, you could offer to pay for this now. That's a pretty hefty incentive.

Next, consider their other issues. Does your home have unique features that will be hard to replicate? If so, be prepared to compensate them for the loss, say, of the great view of the hills. On the other hand, if there's plenty of similar housing for rent in the neighborhood, compensation on this issue can be smaller.

Other issues will affect what you should offer in exchange for an early termination of the lease. If the family has school-age kids, you may learn that moving out of the neighborhood would create a long commute or, worse, a change of schools, which the parents might not want.

Similarly, if the location is conveniently near public transport, or happens to be within easy commuting distance of the parents' workplaces, the value of your rental goes up. You get the picture: By attaching a dollar amount to the reasons why your renters don't want to move, you'll be able to offer a fair and meaningful deal.

But despite all your careful assessments, you may still face reluctance. You're not alone; Chicago's mayor, Rahm Emanuel, faced the same issue when he decided to return to Chicago from Washington, and wanted his home back from his renters. You can be sure Rahm offered his renters as sweet a deal as he could, but the tenants held firm. The Emanuel family had to live in a rented condo until the lease was up.

In the event that you (and Rahm) face a similar opportunity to live elsewhere for a time, you may want to design your lease so that it will terminate early in certain circumstances. For instance, you could specify that if your husband's company moves him back to your hometown, your renters' lease will terminate in, say 60 days.

True, that would make the rental much less attractive to many tenants, and you might have some trouble finding people who would be willing to live with such uncertainty. But, as ever, maybe money could salve their worries; you might offer the same kinds of services mentioned above (free moving) as an incentive to sign.

If you choose this method, be sure that the event that triggers your right to terminate the lease is clearly defined. For instance, a job transfer is an occurrence that can be verified with written documentation and isn't subject to interpretations; after all, you've either been transferred or you haven't. For this reason, some renters will feel comfortable living with it.

On the other hand, giving you the right to move back if you don't like living in the new town is far too ambiguous and hard to pin down. If the matter were to come before a judge, the former standard would likely be enforced, but the latter might not.

Q: My husband and I rented a house in a particular neighborhood because we wanted our kids to attend that neighborhood school. When we visited the rental, we told the agent about our choice, and made it clear that we were choosing this rental because of its proximity to the school.

Just before we were slated to move in, the district suddenly announced that the school would be closed, and its students sent to one several miles away. This takes away our reason for choosing this rental. Can we get out of our lease? --Bernie and Alice

A: I don't think you can find a persuasive legal theory to support your wish to be excused from your lease. The closest you might come is a claim of "mutual mistake," but alas, that won't work.

When parties to a contract are both mistaken as to a central aspect of the contract, a judge will declare it void. The classic example is an agreement to buy a Stradivarius violin. Thinking that they're dealing with the real thing, the parties set an appropriately high price. Suppose the buyer discovers that, to everyone's surprise, the violin is a fake.

A judge would likely order the seller to repay the buyer's money, on the grounds that both parties were mistaken about the violin's provenance.

As you can see, "mutual mistake" requires a common mistake about an important fact. In your case, when the lease was signed, no one was mistaken about the school and its proximity to the rental.

The law will presume that you and the landlord understood that the continued operation of the school was subject to facts beyond your control, such as variations on the school-age population, school district finances, political pressures, and so on.

The same can be said of bus routes, operating hours of a nearby library, and any other aspect of a neighborhood that is subject to change. When change happens, the deal usually will not fall apart.

In the last sentence, you might have focused hopefully on the word "usually." People who do not want a deal to go through if a particular event takes place can write a clause into their contract that specifies what will happen in that situation.

For example, you could have asked your landlord for the right to void the contract if the local school ever closed its doors. Most landlords wouldn't agree to such a clause, but who knows? In a soft market, the landlord might have taken a chance.

Without a clause like this, and without the ability to claim mutual mistake, there's only one more possible hook for you: intentional or even negligent deception on the part of the landlord. If your landlord had known of the school's planned move, but had remained silent while hearing you say that the school was the major reason you were choosing this rental, you would have an argument, called "intentional (or negligent) misrepresentation."

You could argue that upon learning of the importance of this school, the landlord was obligated to come clean with what he knew. But again, it doesn't sound like the facts would support this argument. You describe the school's closing as "sudden," which suggests that the landlord was as surprised as you.

In the future, if a feature of the neighborhood is crucial to your decision to rent, keep in mind that only a "but if" clause as described above will give you the legal chops to void the lease.

Janet Portman is an attorney and managing editor at Nolo. She specializes in landlord/tenant law and is co-author of "Every Landlord's Legal Guide" and "Every Tenant's Legal Guide." She can be reached at janet@inman.com.

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