Tenants insisting on rent discount due to repairs

[Hector Hernandez]

I'm a relatively new landlord and am nearing the end of my first 12-month lease with my current tenants. The property is a 2/1 with me occupying a 300sqft ADU on the same lot. Recently we had some major water damage due to leaking and busted pipes that involved extensive demo of the bathroom and adjacent wall of one bedroom because of mold/water damage. I'm in the military and have been away from the property for several months on deployment, using the ADU as a short-term rental in the meantime. When I learned about the extent of the project I apologized for the inconvenience and told them I'd clear my bookings so they could use my ADU for whatever purposes they saw fit.

They accepted and seemed understanding at first, but the relationship quickly soured. They began insisting that they were entitled to rent reduction or outright abatement since part of the space they technically signed the lease for was uninhabitable. But it's obvious to me from our conversations that they continue to use both the main house as well as my ADU, and the square footage effected is less than the amount I'm giving them access to. Now in addition to an expensive bathroom rehab and loss of short term rental income, they're insisting they also deserve a rent discount for the duration of the project. Again, I've acted as quickly as I could in dealing with insurance, restoration company, and contractors to get this all done. Still, they insist that me granting them access to the ADU isn't a factor, since that's nowhere mentioned on the lease, instead they point to a clause saying that if there are repairs to a part of the home that's uninhabitable, they're entitled to rent abatement.

From my perspective, granting them access to an equal or better space should have negated this part of the contract. Either that or I should be allowed to keep renting out my ADU if they really want to assert their right to rent abatement, but it seems they're trying to have it both ways. I've also continued paying 1/3 of the utilities for the last several months I've been away, even though the ADU has been mostly vacant in that time. I mentioned this fact to them, that I had been basically subsidizing their utilities while away, and again they insisted that it didn't matter and that wasn't a factor since it's what we'd agreed to in the lease- irrespective of whether anyone was occupying the unit. Again, I've no issue upholding my part of the contract on this, but the fact that they refuse to even consider that financial burden on me seems unfair if they're also asking for a break on rent.

In sum, I'm not sure what the right thing to do is in this situation. They've been mostly good tenants up until now, and there's only another 2 months left in the contract. But this whole experience with these renovations has been a nightmare with me having to answer constant calls and texts from them during my work hours, it just seems like it's not worth the trouble anymore and I know at the very least I won't be renewing their contract. Right now I've basically told them if they really feel like I'm breaching the contract, then they can terminate the lease early and move out before their 12 months are over and pay a pro-rated rent. 

Any advice as to how to approach this tricky situation would be greatly appreciated. 

[Dan H.]

I typically agree with what Joe states (except for his strong perspective on cash flow being primary qualifier on quality of RE investment), but this time I mostly agree with the tenants in that what matters is what the lease states.  The tenants are not in the wrong expecting the lease terms to be followed.  

I think you made various mistakes. When you offered the ADU, it should have been clear it was in lieu of any reduction in rent. My lease requires a tenant to have renters insurance and does not offer any discount per lease for these unexpected items. The tenant can choose to use their renter's insurance and stay elsewhere if the impact is more than they desire. In actuality, if the tenants choose to stay in the unit we typically provide them a rent rebate. Because we are not obligated to provide any rebate, the tenants usually appreciate any rebate that we provide.

The number of times I point to terms in our lease to point out issues with tenants, it would be hypocritical if I took a different stance when it benefits the tenant.  Just a month ago I had tenant at max occupancy (and in Ca max occupancy is high), move in a child for every other weekend.  Tenant claimed visitor.  We pointed out lease defines visitor and this does hot qualify.  They claimed child, we stated they are at max occupancy.  We did not hit them up for full fee that lease indicates because it was such low occupancy, but they are paying $100/month extra (lease indicates $200).

Tenants do not need to be your friends or vice versa to be good tenants.  They need to follow the lease, take care of the property, pay the full rent on time, every time.

We end up with good tenants that often stay forever (we had an inherited tenant stay a total of 27 years - only left when he retired and moved to be near their daughter).  

To me the lease is gospel.  To resent a tenant for expecting what the lease states seems unfair.  

Good luck

@Joe Villeneuve