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Changing the terms of an oral agreement
Q: I moved into a friend’s mother’s house in December. Our agreement was a verbal
one. We agreed I would pay $650 a month in rent with the utilities included. Now she is asking me to pay $460 dollars of a combined utility bill for June & July of $771.35. But there are five people living in her home downstairs, which consists of the first floor and the basement. I live on the top floor with only my 3 year old daughter.
I do not have the money for this. Can you please give me some advice on this matter?
Chandra Savage
Jamaica, NY
A: You’re in a spot stickier than a sweaty summer night in New York. Verbal agreements usually are only as good as the paper they’re written on. And I could mangle more clichés, but . . . .
Before you do anything else, sit down with your friend’s mother and write down the terms of your agreement. What is included in your rent? Is it a monthly rental or a long-term lease? Your agreement doesn’t have to be fancy. It just has to be in writing. Put the basic terms down on a piece of paper. Both of you should sign and date the paper when you finish.
Otherwise, it’s your word against hers. Even if you never end up in court, a written agreement is much better than relying on your memory or hers, especially as the months start to pass by.
Beyond that, I agree her request seems a bit much. You’re only using one third of the house, and you’re only two sevenths of the people living there. Yet, she wants you to pay almost 60% of the utility bill.
Nevertheless, you’ve got to resolve this problem. I’d start with the simple math argument. Ask her why she thinks $460 is your fair share. Explain that you did not budget the money because you thought rent included your utilities. She’ll either have to compromise if she wants you to pay or try to evict you. Without a written agreement, she may have a hard time trying to evict you though.
In any landlord-tenant relationship, problems will arise that both parties have to resolve with compromise. Usually, it’s the tenant that ends up bending a little more than the landlord. That’s just the way it is because the landlord owns the property.
So, when you’re looking at prospective rentals, evaluate the owner or manager just like they’re evaluating you. Ask questions so you get some sense of whether the person’s reasonable. Just like any other relationship, it’s one that requires some trust and compromise from both parties to make it successful.
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Defining liquidated damages
Q: I recently renewed my "rental agreement" through the end of November. But, I just gave notice to my complex that I would be moving in September due to an opportunity to move out of state. I told them I would be out of my apartment by the 15th of August. I also told them they were welcome to paint, replace the carpet and whatever they needed to do to re-lease the apartment during the last two weeks of August, for which I am still paying rent.
A clause in my rental agreement says I must pay $25 less than my monthly rent as "liquidated damages and not as a penalty fee" if I do not stay through November. The manager explained to me that liquidated damages is the lost money they might incur between residents. They assure me, however, that they can release my apartment by September 1st, if not before. But, if they release the apartment by September 1st and don't lose a single day's worth of rent, they haven't incurred any liquidated damages, have they? Can they hold me accountable for this money if they are not losing any and the clause states it is not a penalty fee?
Elizabeth
Bothell, WA
A: Well, I’m always happy to see a budding lawyer, or at least somebody who’s paying attention to their lease terms. Your apartment manager clearly needs a little education regarding liquidated damages.
Generally, if you break a contract, you must reimburse the other party to the contract for any loss that results from your breach. In the rental context, this usually means you must pay your rent for any period the unit sits empty, but only until the end of your lease. It also means that you must pay any difference between the rent you paid and the new rent the manager receives if it doesn’t rent for as much. (Yes, rents actually do go down sometimes!)
Sometimes it’s difficult to calculate the resulting loss from a party’s breach of their contract. If the parties know this ahead of time, they can agree upon the monetary damage amount for breaching the contract ahead of time. This amount is known as a liquidated damage amount. They’re “liquidated” because the parties set the amount prior to the breach. As long as it’s a reasonable attempt to estimate the damages, a court will uphold the liquidated damages amount. But, the liquidated damages are a substitute for the actual damages.
For example, suppose you hire the Backstreet Boys to play at the grand opening of your new mall expecting them to bring hordes of crazed, screaming teenage girls ready to shop ‘til they drop. If they breach the contract and don’t show, you can see it would be pretty difficult for you to show how much you lost in sales that day. Instead, you could have agreed upon a liquidated damages amount when you signed them to your contract. Then, if they didn’t show, they would have to pay you that amount.
In your case, the liquidated damages clause doesn’t seem reasonable at all. It’s not difficult for a rental owner to prove their loss--how long a rental unit remained vacant after the tenant broke a lease. If someone moves in right away and pays at least the same rent, they haven’t lost any income.
Keep in mind, however, that your property owner may have other empty units. If so, they could argue that they would have put the new renter in one of the other empty units. In that case, they really have lost rental income.
Unfortunately, to challenge the liquidated damages amount, you may have to take your case to court. Talk to your landlord and try to persuade him that you don’t owe the liquidated damages. If he insists, you’ll have to work out something, or it may just end up as a past due debt on your credit report. |
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About Phil Rhodes
Phil Rhodes is an experienced commercial credit attorney in Northern California with his own practice, emphasizing bankruptcy, real estate finance, and other consumer and small business credit issues. Phil is also a happy renter, now on his sixth successful landlord-tenant relationship. |
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Disclaimer
Information provided by Phil or Greg should not be construed as real estate or legal advice. State and local laws may vary, so please consult legal counsel in your area with respect to your individual situation.
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