Take Four Steps When Tenant Withholds Rent

May 26, 2015

A difficult situation an owner may face is when a tenant withholds all or part of the monthly rent over a claimed problem in his apartment. For example, the tenant may claim no heat or hot water or a broken dishwasher. If you investigate the problem and find that it exists, you must then decide what to do. In certain situations, it may pay to reach an out-of-court settlement agreement with the tenant, giving the tenant a rent abatement for the months when the problem existed.

We’ll give you a rundown on the basics of rent withholding and what you should do when a tenant withholds rent because of a legitimate problem in the apartment. We’ll also give you a sample settlement agreement you can adapt and use.

Rent Withholding Basics

Tenants can’t legally withhold rent for just any reason—for example, because they think they need new carpeting or because they don’t like their neighbors. They can legally withhold rent only if an owner breaches what’s called the “warranty of habitability,” which Section 235-b of the state’s Real Property Law says is implied in every residential lease in New York. This warranty requires you to keep apartments free from conditions that could be dangerous or hazardous to a tenant. If you breach—that is, violate—this warranty, a court can cut the amount of rent the tenant owes you for the time that the problem exists.

Not every problem breaches the warranty of habitability. According to the law, the problem must be dangerous or hazardous to the tenant. For example, courts have ordered rent abatements for such problems as inadequate heat and hot water, no water, water leaks, gas shut-offs, exposed wiring, plumbing and gas leaks, and serious mildew conditions.

Less serious problems shouldn’t breach the warranty of habitability. For example, courts have found that certain minor problems, such as dog barking noises or broken window screens, don’t breach the warranty of habitability. But it’s tricky to try to figure out whether a court will consider a less serious problem a breach of the warranty of habitability. Courts have ordered rent abatements for conditions that on the face of it aren’t dangerous or hazardous conditions such as an unpainted bathroom ceiling.

To prove breach of the warranty of habitability, a tenant must show that: (1) the premises was less than fit for human habitation; (2) the owner knew or should have known of the same; (3) the owner had a reasonable opportunity to cure but didn’t; and (4) the value of the premises had been diminished by the owner’s failure to cure.

FOUR STEPS TO TAKE

Here are four steps you can take if a tenant withholds all or part of the monthly rent over a problem that you determine actually exists.

Step #1: Fix Problem

Fix the problem in the tenant’s apartment as soon as possible. If the problem is serious (for example, no heat or hot water, or a continuous leak), try to fix it within 24 hours. This way, even if the problem is serious enough to warrant a rent abatement, you’ll cut down on the length of time the abatement will be in effect.

Step #2: Decide Whether Tenant Has Right to Withhold Rent

The tenant may not have the right to withhold rent, even if you determine that the problem he’s complaining about does exist. In general, a tenant doesn’t have the right to withhold rent—and a court shouldn’t give the tenant a rent abatement—unless certain conditions are met.

Problem is serious enough to count as a breach of the warranty of habitability. A court will consider serious problems, such as inadequate heat and hot water, water leaking from the ceiling, and exposed wiring, to breach the warranty of habitability. Minor problems shouldn’t count.

Tenant notified you of problem. The tenant must have given you notice of the problem before withholding the rent.

Tenant gave you access to fix problem. The tenant must have given you or your employees access to the apartment to make any needed repairs.

If you decide that the tenant has met the conditions for withholding rent, consider offering to sign an out-of-court settlement agreement giving the tenant a rent abatement for the problem (see Step #3). If you decide that the tenant hasn’t met the conditions for withholding rent, you can start a nonpayment case against him (see Step #4). If you’re not sure whether the tenant has met these conditions, you’ll have to decide between these two steps. Consult your attorney on which step to take.

Step #3: Consider Out-of-Court Settlement Agreement Giving Rent Abatement

If you determine that the tenant has met the conditions for withholding rent, you can offer to sign an out-of-court settlement agreement giving the tenant a rent abatement for the problem. In fact, if the tenant’s claim is legitimate, you may want to offer this type of settlement even if you’re not sure whether the problem is serious enough to warrant a rent abatement or whether the tenant has met all the conditions for withholding rent. That’s because if you’re forced to go to court to get the full rent owed, you take the chance that a judge will find that the problem is serious and award the tenant an even larger rent abatement than the amount the tenant has been withholding.

Also, it may not be easy to prove that the tenant hasn’t met all the conditions for a rent abatement. For example, the tenant may claim that he gave you oral notice of a particular condition. And even if you win against the tenant, you’ll be out your court costs and legal fees.

Here’s what you should keep in mind if you’re contemplating signing a settlement agreement with the tenant.

Is tenant worth it? It’s important to evaluate the tenant before offering a settlement deal. Some tenants are just problems from day one. They never pay their rent on time and are always looking for any excuse not to pay rent. Unless the problem is serious and the tenant is clearly entitled to a rent abatement, it’s probably not worth trying to sign an out-of-court settlement with this type of tenant.

But you can consider offering a rent abatement to other tenants who pay their rent on time, and whose partial withholding of rent was just an isolated incident based on a legitimate claim about needed repairs that you didn’t immediately attend to.

How much of a rent abatement to offer? Once you decide to offer a rent abatement due to a problem in the apartment, you should decide how much you want to offer the tenant to settle the claim. In a few cases, this may be easy to figure out. For example, if the tenant wasn’t able to occupy half of her apartment for one month because the heat in those rooms wasn’t working, you could offer the tenant a one-month rent abatement equal to half of her monthly rent.

But most cases aren’t so clear cut. You’ll have to use your discretion to figure out how much to offer, depending on how serious the defect was and how long it lasted. For example, you may want to offer more to a tenant who wasn’t able to use her stove for an entire month than to a tenant who had a broken dishwasher for a few days.

Here are some examples of what abatements courts have ordered for various problems.

Water leaks. One court ordered a 20 percent abatement for a leak in the apartment ceiling [200-230 W. 99 Realty LLC v. Wilson, February 2015].

Failure to provide heat and hot water. The boiler didn’t work and there was inadequate heat, which prompted the court to give a tenant a 20 percent rent abatement for the applicable months [Amerifirst Mortgage Corp. v. Green, June 2005].

Mold and water leaks. A court ordered a 30 percent rent abatement for chronic water leaks and mold in the tenant’s apartment [River Park Residences LP v. Wims, January 2015].

Mice and obstructions and defects in the bathtub waste line. The court ordered a 25 percent rent abatement for these conditions [R&O Management v. Allen, June 2014].

Kitchen sink drain backup, mold, mildew, and uneven floor conditions. These conditions and noxious odors from the kitchen sink forced the tenant to evacuate the apartment for two weeks and the tenant was unable to remain in the apartment after that because the owner failed to make repairs. The court awarded the tenant a 100 percent rent abatement [NYCHA-Coney Island Houses v. Feliciano, December 2014].

Bedbugs. A bedbug condition made the apartment uninhabitable causing constructive eviction. The tenants therefore weren’t responsible for rent payment after owner was put on notice of the condition [Gawad v. Aviad, September 2012].

What should agreement say? Your agreement should include:

Amount of abatement. State the amount of the monthly rent abatement and the month or months it applies to;

Settlement of all claims. Say that it settles all claims the tenant has against you;

Acknowledgment of repairs. Have the tenant acknowledge that you have repaired the problem in his apartment;

Notice of balance due. State that the tenant must pay the balance of the rent due or the agreement will be null and void. For example, say the tenant has withheld his full monthly rent for the month of May. You then agree to a rent abatement equal to 40 percent of the tenant’s rent. You want to make sure the tenant pays you the other 60 percent of the rent owed. For example, your agreement could say something like this:

It is understood that, in consideration of a rent abatement in the amount of [insert $ amount] for the months of [insert months during which problem existed], Tenant agrees to settle all warranty of habitability claims against [insert owner’s name] (“Owner”) through and including [insert date that rent abatement ends]. Tenant further recognizes that Owner has satisfactorily repaired the problem of [insert problem tenant complained about, e.g., a leaking faucet] in Tenant’s apartment.

It is understood, however, that, for this agreement to take effect, Tenant must pay the balance of rent due and owing for the months of [insert applicable months]. If Tenant doesn’t pay the full rent due and owing, this agreement is null and void.

Step #4: Start Nonpayment Case Against Tenant Under Certain Circumstances

In certain circumstances, you may need to start a nonpayment case against the tenant even if a problem exists or existed in the apartment. For example, you may need to take this step if:

You think the tenant’s withholding of rent is unjustified (for example, because the problem is minor or because the tenant never notified you of the problem before withholding rent), and you don’t want to or can’t reach a settlement agreement with the tenant;
You determine that the tenant has the right to withhold rent for a particular problem, but the tenant continues to withhold rent even after you’ve fixed the problem, or has withheld more rent than you think the condition warrants and won’t settle for a lesser amount; or
The tenant signs a settlement agreement, but then doesn’t pay the balance of rent he owes.

Before you start a nonpayment case, contact the tenant and let him know that you expect full payment of rent or you’ll start a nonpayment case against him.

Topics

Feature