This is a college town, we can handle the complexities
An article in the Sun, “Locked in leases, students cry foul“, details the plight of tenants, largely students, who are still being forced to pay rent when they have been told to go home by UF or are otherwise economic victims of the pandemic. I feel for them, but oversimplifying the story does them no favors. Let me try to explain. Tenants voluntarily sign leases, and they are binding legal instruments; landlords, in turn, provide space. Landlords borrow millions of dollars to acquire the land; they build and outfit the buildings; and they run the economic risk of the buildings not being rented out and having insufficient cash flow from those leases, those pesky little binding contracts, to pay their debts, generally evidenced by a mortgage and secured by those leases, to their lenders.
Clearly, if the tenants stop paying their obligations, the landlords will not be able to pay theirs (the mortgages), and the property, like a home, will be foreclosed upon by the lenders. The landlords, who built and outfitted the buildings, will have their equity wiped out, and their outstanding obligations to the banks will be enforced against them. Okay, the Sun may not care, or may even fear the facts being known, but the readers should, at least, have the ability to weigh the facts and the equities. Just a question: if a student signs an NFL contract or gets a great job and makes a pile of money, both not foreseen by the landlord, does the landlord have the right to raise the rent proportionately, or otherwise, during the lease term? What do you think?
Edward B. Harmon
Retired Mergers & Acquisitions Attorney and Law School Professor