Rules of withdrawing a rental offer

Rent it Right

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Jun. 8, 2011

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Rent it Right

Janet Portman
Inman News™

Q: We rent out a single-family house, and recently had rather lengthy discussions with a potential tenant. He wanted to get a pet; our lease says no pets. He wanted painting, but we were hesitant to go with his color scheme. He wanted an option to renew, but we didn't like that.

He got the message and backed off, and at 6 p.m. I emailed him the lease, saying, "I'll be at the house tomorrow at 9 a.m.; either sign it as is, or forget it."

Then later that evening, we got a call from a business associate who would be the perfect renter. We decided to rent to her, but wonder whether we face legal liability by not going forward with the original applicant. --Michael and Lynne

A: Your question would delight law school professors everywhere, who subject students to an entire year of questions like this. At the risk of my bar card, I'll take a stab.

Every contract begins with an offer and ends with an acceptance. There doesn't have to be a lot of fanfare or legal words. Simply clicking "I accept" when you buy a book online includes an offer to sell a particular item, under stated conditions; and your clear decision to accept the terms.

But offers don't remain "out there" forever; unless there's a specified time line, the offer is good for a reasonable time or until the seller withdraws it. Importantly, the offer must be complete (that is, it must include the essential terms of the deal).

Now, what about the acceptance? That, too, must be unequivocal ("Sounds good, I'll get back to you" won't do). It must not have strings attached ("OK, but only if you replace the washer" is not an acceptance).

Viewed against these rules, how does your situation stack up? All of the back-and-forth between you and the applicant concerning pets, painting, and options were simply offers and (from the applicant) counteroffers. Until you emailed the lease, they bound no one.

But upon sending the lease, you arguably made a firm offer: The essential terms of the deal were presumably in the lease; you indicated how long the offer would remain available; and you said that all he had to do was sign your lease and the deal was on.

Let's assume you didn't communicate your change of heart to the applicant and didn't show up at 9 a.m. as promised, but he did, pen in hand. When he didn't get the chance to sign your lease, you can bet he was disappointed, and maybe a little mad. He might even have begun to think of a lawsuit.

For example, if rentals are scarce, or your home is unique, he might be inclined to sue for the difference between a similar but more expensive house, or for the value of the amenities that your house, but no others, would have offered. And if he drove all night to be there in the morning, or flew from San Francisco to Los Angeles to meet you, he might be inclined to sue for the value of his time and travel.

What are his chances? This depends on how a judge would view your promise to leave the offer open until the following morning. Generally, sellers and lessors can withdraw even firm offers prior to acceptance. Luckily for you, the applicant didn't write back that evening and tell you, "I accept, I'll sign in the morning." Had he done so, you might have been bound right then.

However (isn't there always a "however" in legal answers?), the rule that you can withdraw a firm offer prior to acceptance has a significant exception: When buyers or applicants reasonably rely on a firm offer (especially when the seller knew or should have known about that reliance), and take steps that end up costing them (in money or lost opportunities), the withdrawing seller might be on the hook to compensate the disappointed buyer/tenant.

Your applicant could have reasonably concluded that all he had to do was stop negotiating, sign the lease as is, and he'd have the rental. Based on that reasonable assumption, he may have made decisions that put him in a bad spot when you didn't show up.

For instance, he may have rejected other rentals he had been considering upon getting your email. Especially if you knew that this was the case -- that he was holding out for your house, but considering others -- a judge might find it unfair that your unexplained withdrawal resulted in losing not just your house, but others as well.

If the applicant spent time and money to get to your house in the morning, especially if you knew of the distance involved, that, too, is something that a judge might compensate him for.

In hindsight, it would have been a good idea to withdraw your offer as soon as you learned of the superior applicant. Even if you had sent the message late that night, you would have done your best to head off any steps, such as those mentioned above, that the applicant might have been ready to take in reliance on your offer. That would have reduced his chances of recovering in court.

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