Struggling Landlords Should Favor Rent Forgiveness

If we simply pay tenants’ rent indiscriminately, we have no way of knowing where the ultimate benefit goes.

Photo by Flickr user Markus Spiering, CC BY-NC-ND 2.0


To illustrate article about rent forgiveness, photo shows "apartment for rent" sign with a row of up arrows.

Photo by Flickr user Markus Spiering, CC BY-NC-ND 2.0

As paradoxical as it might seem, small, local landlords might benefit more from rent forgiveness than emergency rental assistance—provided the funds that would be freed up by rent forgiveness are dedicated to local economies.

Consider our circumstances. Because of the pandemic, tenants were between $25.1 and $34.3 billion in arrears, with around 8.4 million households—or 20.1 million individual tenants—at risk of eviction as of January. Months will likely pass before the nation is sufficiently vaccinated for people to return to normal working lives, and we don’t know if most low-income workers will ever regain their pre-pandemic level of income. Low-income tenants will likely remain at risk of eviction for a long time to come.

The CDC and many local governments have postponed and restricted evictions—a necessary but short-term response. But not every jurisdiction has determined what will happen when these restrictions end. If something isn’t done, 20 million people or more may be evicted, and a lot of smaller landlords will go under.

The American Rescue Plan adds more than $20 billion to the $25 billion in emergency rental assistance funds allocated in December. That assistance can keep a lot of people housed. But paying tenants’ rent is only one way of preventing evictions. Unless we are certain that the rental aid will cover all tenants’ arrears—something we just can’t know at the moment—rent forgiveness could be a better option for both low-income tenants and small landlords.

Why? Because if we simply pay tenants’ rent indiscriminately, we have no way of knowing where the ultimate benefit goes. As noted in Shelterforce previously, “Roughly 7.5 million homes are in 2- to 4-family buildings, and over 13.7 million homes are in 5- to 49-unit buildings, with roughly 7 out of 10 such properties owned by smaller ‘mom and pop’ landlords.” Some rental assistance payments may go to struggling landlords who would not survive without it. But some will likely go to large corporate landlords (possibly including foreign corporations and global equity firms) who are still making a considerable profit, while smaller landlords still don’t get what they need—either because their tenants don’t qualify for assistance, or because the available funds for rental assistance in the stimulus bills are simply not enough to cover all tenants’ unpaid rent.

When smaller landlords are not assisted, some properties may fall into disrepair, shrinking the housing stock. Some smaller landlords will sell; others will default. Either way, global equity firms may buy their buildings at bargain prices, siphoning more money out of local economies

Any financial assistance is initially going to be income- and asset-restricted in some way. If we want to help the people who are struggling most, that makes sense. People making, say, $300,000 this year don’t get a stimulus payment, even if they would have made $500,000 if it weren’t for the pandemic. But then why should a landlord whose rental property is still generating a net profit of the same amount get assistance? Sufficiently profitable landlords would not qualify for income- or asset-restricted assistance if they applied directly. But some of them will effectively receive stimulus payments indirectly if we provide their tenants with rental assistance. After all, that aid quickly passes through a tenant’s hands and into the hands of their landlords—whether those landlords are struggling or not. Decisions about who gets limited rental assistance will likely be made (appropriately) based on tenant need, not landlord need, so some wealthy corporate landlords will end up with that assistance passed through to them as rent payments, while some smaller, struggling landlords will continue to face unpaid rent burdens.

For example, my office, Hudson Valley Justice Center, received a small rental assistance grant at the end of 2020. The goal of the grant was to preserve as many of our clients’ tenancies as possible. We negotiated with landlords, but the landlords’ circumstances were simply not our concern. We are concerned with our clients’ interests above all else. This means some larger landlords received assistance, while some smaller landlords—whose tenants didn’t happen to connect with our office in time, or whose tenants might not have qualified for assistance for various reasons—did not. Our grant was not large enough to pay every client’s full arrears, and, again, it was simply inappropriate for us to consider the landlords’ circumstances, rather than our clients’ needs, when settling cases. Most other administrators will, rightly, be in the same position.

If landlords wouldn’t qualify for aid because their income/assets exceed a certain threshold (factoring in their overhead expenses), and we mainly want to help people below that threshold, why give the people below the threshold payments that we know will be immediately transferred to people above the threshold? According to CBS News, some larger landlords are still making record profits. For instance, Invitation Homes, the nation’s largest single-family home landlord has collected $50 million more in rent than the year before, even after factoring in the loss of rent due to the pandemic. This was partly because Invitation Homes experienced a reduction in tenant turnover and administration costs, CBS reports. Invitation Homes does not need financial assistance.  

Forgive tenants’ rent and we can avoid this. If rent is forgiven, we won’t have to devote as much of the funds in the stimulus bills to merely keeping people housed. Money allocated to assistance could then be directed to struggling landlords, small businesses, and other purposes where it could do more good.

If—and only if—the loss of rental income brings a landlord below a certain income or asset threshold, funds could be there for them. Where helping struggling landlords is the goal, we could assist them directly, dispensing with the pointless ceremony of dragging stimulus funds devoted to rental assistance through tenants’ hands for a few moments beforehand. If the loss of income does not bring a landlord below a certain income/asset threshold, then they are just like any other person or business that has simply not been harmed enough during the pandemic to warrant receiving aid.

To achieve this purpose, administrators would have to ensure that the funds originally set aside for rent remain dedicated to housing and local community economic development—for landlord support, and also other related purposes. For example, some tenants were evicted before the CDC’s moratorium began, and some tenants were certainly evicted because they missed court dates or were unaware of possible defenses. Households that lost family members to the pandemic likely lost income as well. Even if their unpaid rent is forgiven, these households may need help finding new homes.

The treasury may have to carefully draft its guidelines to meet these purposes. Local administrators would need enough latitude to address their unique circumstances, but guidance and regulations would need to ensure that the funds are devoted to housing issues in local communities. Striking the right balance would be a challenge, but this should be the goal.

How to Relieve Struggling Tenants of Their Rent Obligation — An Implied Force Majeure Clause

Blanket rent forgiveness may not be politically feasible. It would almost certainly face legal and constitutional challenges, and it may not fare well before conservative courts. But blanket forgiveness is not the only option.

What does paying rent ultimately do? It satisfies a condition of a tenant’s lease, the agreement that gives a tenant the right to occupy a building. In order to enforce this obligation, a landlord must typically petition a court to issue a judgment against the tenant.

The landlord-tenant relationship is defined by both contract and statute. Landlords and tenants enter into contracts for the use of property over the life of a lease term, but these contracts are governed by statute and case law. These laws usually impose certain implied terms.

For example, in New York, each written or verbal residential lease necessarily contains an implied warranty of habitability —even if it doesn’t appear in writing. The implied warranty of habitability cannot be waived. If a lease contains a warranty of habitability waiver, that provision of the lease is deemed void and unenforceable. The implied warranty of habitability is codified at Section 235-B of New York’s Real Property Law.

Force majeure or “act of god” clauses typically appear in commercial contracts. These clauses may relieve parties of contractual obligations if something sufficiently disastrous or unexpected occurs.

If blanket rent forgiveness is not feasible, legislatures may forgive certain tenants’ rent with an implied “act of god” clause. Just as the New York legislature added, by statute, an implied warranty of habitability clause to all residential leases, legislatures interested in forgiving rent could add an implied force majeure or “act of god” clause to every residential lease in response to the pandemic. The clause should relieve tenants of the obligation to pay rent if they lost work or income. Let tenants who could not pay rent raise this defense in any nonpayment eviction proceeding or other action seeking unpaid rent. If they can show that the pandemic prevented them from paying rent, the court should not issue a judgment of any kind in the landlord’s favor.  Records showing a loss of income would meet this burden, but some tenants may have to resort to testimony. At least one court has used a similar rationale to discharge a commercial tenant’s obligation to pay rent during the pandemic shutdown. Legislatures could protect tenants further by requiring landlords or landlords’ attorneys to inquire into tenants’ financial circumstances, and affirmatively declare under oath that they believe the tenant hasn’t been financially impacted by the pandemic before filing an action. That would place the burden on landlords to ensure that they aren’t pursuing tenants who are exempt from judgment under the law.

New York’s Tenant Safe Harbor Act protects tenants from evictions if they suffered a financial hardship during the pandemic. But landlords are still entitled to money judgments against tenants for the rent owed. This means landlords can’t evict a tenant who fell behind because of the pandemic, but landlords can garnish tenants’ wages and seize bank accounts, among other things, until they are fully compensated, with interest. I’m proposing a policy in which no judgment is issued.

To avoid the administrative burden of litigating each case, struggling tenants could deliver sworn declarations to their landlords, claiming a financial hardship during the pandemic. New York’s COVID-19 Emergency Eviction and Foreclosure Prevention Act, for example, utilizes tenant declarations to postpone eviction proceedings for tenants suffering a financial hardship. If landlords could use these declarations to document their loss of income when applying for direct aid, each party would have an incentive to cooperate. This type of defense should last as long as necessary to prevent financially vulnerable tenants from eviction. We simply don’t know when low-income tenants will regain their income, and a longer-term program might be necessary.

If coupled with funding that makes up the loss for struggling landlords, this type of program would likely be harder to challenge than blanket rent forgiveness. Ultimately, it merely acknowledges that tenants lack the means to pay rent. A landlord can’t pay a mortgage or other expense with a judgment against a tenant who has no money anyway. Evicting that tenant isn’t likely to get money for arrears to the landlord any quicker either. It harms the tenants, with little benefit to the landlords. If the landlords who are struggling because of a loss of rental income (again, factoring in overhead expenses) can apply for assistance directly, rent forgiveness may not harm them at all. Give those landlords something like Paycheck Protection Program loans or direct grants when necessary to maintain buildings, pay taxes, service debt, pay employees, or otherwise avoid falling below a certain threshold.

A building’s operating costs could be factored into an assistance threshold. Buildings need maintenance, repair, and even management. That takes effort, and that effort should be compensated just as much as the effort required to, say, grow and deliver food. But maintenance and management are services that can be bought on the market like all others. If a landlord maintains and manages a property for no reward, the stimulus funds should compensate the owner. But any amount a building brings in that exceeds the amount it would have cost the owner to hire someone else to do the work, at the going market rate, should be treated differently. That income may or may not need to be completely replaced with stimulus funds. Apartments won’t necessarily fall into disrepair if the cost of maintenance, taxes, and debt servicing is covered.

The cost of keeping struggling buildings afloat will be much less than the cost of paying every tenant’s rent. As long as the funds that are freed up by the rental forgiveness are dedicated to local communities, small landlords, local businesses, and vulnerable tenants alike will benefit. Again, the treasury would have to allow local administrators to reallocate rental assistance in this way, and the administrators would have to carefully target the funds. But local communities will benefit more if less of the stimulus—and less real estate—ends up in the hands of global equity firms.

We should assist the people who have been harmed most by the pandemic. Low-income tenants are the most vulnerable, and we should protect them from eviction by waiving rent. If blanket rent forgiveness isn’t feasible, this could be accomplished with a force majeure clause applied to residential leases. If rent is forgiven in this way, public funds will not end up making profitable landlords and global equity firms even wealthier. With this approach to the looming eviction crisis, the people who need assistance will get it. The people who are still well off without the assistance will be, perhaps, less well off than they would have been, but they will still be fine.

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