RICHARD VIERRA (B), RMP
Principal Broker & Director of Property Management
Hawaii Reserves, Inc.
National Association of Residential Property Managers
Regional Vice President / Past President, Oahu Chapter
Q. I own a small apartment building and have two tenants who have always been really good. Both are having separate problems but the same ending for me, no rent on time! One of my tenants lost his job and cannot pay me in full and I know he is looking for work. The other has developed a very costly health issue that is diverting money from rent to medical treatments. I feel very sorry for her. I like both of these tenants and they have been good for years but I do rely on their rent to pay my mortgage. What can I do? Are there options?
A. There are times when being a landlord or property manager involves the letter of the law. Hawaii Revised Statutes (HRS) Chapter 521, more commonly called the “Landlord Tenant Code,” outlines most everything from notice periods and timing, to detailing the requirements of a landlord and tenant before, during, and after tenancy. And as it would be with most statutes, there are means and venues to settle claims, disputes, and arguments relative to HRS 521, namely the Small Claims Court, a division of the District Court system. Yet from time to time, circumstances concerning rental property fall outside the legal system, and although they may have a clear legal remedy, fall back to the human element or the people skills required to resolve certain issues. Such is the case in this example.
You stated that you have two “really good” tenants who have recently fallen on hard times due to a job loss and a medical condition. We must assume that there is either a written or verbal rental agreement in place by which the landlord has, in the past, asked for and received his monthly rent on time. So the owner is in a predicament because the rent that is collected pays the mortgage on the house. There are several ways to go about resolving the problem. 1. The owner can send a demand letter anytime after the day the rent is due. Note that although it is a common practice to give tenants a “5 day grace period,” this is not required. If rent is due on the 1st, and it is not paid, then it is late on the 2nd. The 5 day period (which is often mistaken for a “grace period,”) is the period of time a landlord is required to give a tenant the opportunity to cure or pay the rent. If, for instance, rent is due on the 1st and is not paid, a landlord can give the tenant written notice of demand on the 2nd and file a complaint at the Small Claims Court on the 6th (note that the 5 day cure period is 5 business days). In this situation though, you are dealing with two valued, longtime tenants and taking this course may be not only difficult, but the Court process takes time, sometimes several weeks and possibly months. So, with a mortgage to pay, court action may not be an efficient means to an end. 2. The owner can work out a payment plan. If both tenants are not able to pay the full rent on the 1st, perhaps you can ask for half of the rent on the 1st and the other half on the 15th of the month. Or ask for weekly payments. These are unusual steps but this is an unusual situation. In any case in which the payment periods are modified, it is imperative that the plan is clearly identified, discussed, agreed upon and documented. This would include a clear amendment to the rental agreement which is signed by all parties. 3. The owner can lower the rent. Difficult times are not limited to those who have lost jobs or become ill. Today’s economics affect everyone in different ways. Tuition increases, job cutbacks, furloughs, lower wages, child care costs, increased utility bills, food costs and insurance premiums all slowly take away from the bottom line we all have established. There is no difference in the rental and property management industry. In this case, it is possible that the owner has built into his rental rates a cushion that can be adjusted downward to accommodate his tenants. Often a rent reduction is a safer and better way to maintain cash flow as opposed to vacating a unit only to find that it is harder to rent it. In most cases, owners and landlords have an idea of what they can accept and will negotiate.
These are just three examples of what can be done to help where the law leaves off. As stated, much of the residential rental industry is cut and dry, yet there are times when resolving problems goes beyond the law and rests on people skills and the ability to think outside the box. Paramount in your mind might be long term equity in the unit and the possibility of losing it because paying the mortgage depends on the tenant paying the rent. So you may want to rethink and readdress components within the rental agreement, hopefully with the end result of continuing rental income, staying out of Court, and addressing the needs of the tenants.