Imagine, if you will, a story about someone like you. Meet Jane and John Doe and their two toddlers.
They live in Seattle, Washington, where they rent a two-bedroom apartment. It’s a story about one day, just one day in their life, a day that would change everything. However, to them, that day seems like just any ordinary day. On this day, John never made it to work. But how could one auto accident on one ordinary day produce so many unintended consequences?
Jane, a stay-at-home mom, now has to deal with her Wall Street Landlord. Our research found that in Seattle, like most metro areas across America, over 82% of all rental units are managed by national conglomerates whose only agenda is to maximize profits for their Wall Street investors. Janes’ problem now is that they signed a two-year lease at $3,200 per month two months ago. She is now on the hook for the remainder of the 22 months’ rent of over $70,000.
Here is what Jane will face from her Wall Street Landlord; all the while, her life is in shambles. And she can no longer afford her rent.
In Washington State:
According to the Landlord-Tenant Act code RCW §§ 59.18.310, the landlord must make a reasonable effort to rerent units instead of charging tenants for the remaining rent due under the lease. If the landlord rerents the property quickly, the tenants would only be responsible for the amount of time the unit was vacant.
(i) The entire rent due for the remainder of the term; or
(ii) All rent accrued during the period reasonably necessary to rerent the premises at a fair rental, plus the difference between such fair rental and the rent agreed to in the prior agreement, plus actual costs incurred by the landlord in rerenting the premises together with statutory court costs and reasonable attorneys’ fees.1
Therefore, the question becomes, what is a reasonable effort?
The RealPage Platform uses the Economic Occupancy Pricing-Program
They use economic occupancy, which is the effective or real rate of rent, the total revenue generated on a property regardless of whether or not it is occupied. They manipulate the market by balancing supply (housing)— by holding rental units off the market; with demand (tenants)—they limit the number of tenants allowed into the renter pool. They claim that they can increase rents indefinitely when the market is in balance.
To understand the process of balancing supply, we turned to the Airline Industry [ the originator of the technology]. In 2018 the DOJ settled a price-fixing claim against them. The suit alleges that the defendants illegally signaled to each other how quickly they would add new flights, routes, and extra seats.2
The New Landlord identified seven primary databases used to establish the highest income possible. For example, Database 7 contains every rule and regulation by location. In other words, the information from the seven databases combined with their legion of lawyers and every rule and regulation results in the algorithm engineering the fee mixture to ensure the most profitable method is created to maximize revenue, including holding rental units off the market.
Bryan Pierce, Revenue Management, Holland Residential, further explains the process when he stated, “We are making significantly more revenue.” He continued, “That’s true even though Holland Residential now has more vacant apartments. Since Holland began its revenue management program in 2010, the occupancy rate for the firm’s portfolio has fallen from around 95% to 94%, a decrease representing more than 100 empty units. But by allowing LRO [now RealPage] to analyze information fed to it from Yardi and set rents based on a wide range of parameters, rents grew by about 5% last year across Holland’s portfolio, which more than made up for the increased vacancy.” 3
Point 1) what is reasonable?
The landlord’s use of economic occupancy, which intentionally holds property off the market, appears to violate the Washington Landlord-Tenant Act. Therefore, the Act and the Economic Occupancy Program are at odds with each other, and the use of this program on its face reveals that landlords are not making reasonable efforts to rerent properties. So Jane remains responsible for that $70,000.
But is the practice illegal?
To better understand the term ‘reasonable,’ we turn to the State of Minnesota, where we find that rental tenants sought to establish a class-action suit over massive abusive fees. In this court case, the judge ruled that the law did not specify the definition of ‘reasonable.’ Therefore, the judge ruled that the law does not prohibit a landlord from billing tenants for fees and does not require that those fees be equitable.4
Point 2) How Landlords Circumvent– ‘Reasonable’
Most lease contracts today prohibit the subleasing or re-leasing of the rental unit. Therefore, to lock renters into the contract, the new lease contains an overly high early termination fee; usually two months’ rent, in Janes’s case $6,400. There is also a fee of $2,050 for drawing up the new lease documents. Additionally—if Jane isn’t careful to follow all the rules hidden within the lease contract, she might be required to pay all remaining months of the contract, as well. Hence, to get out of the lease agreement, Jane Doe would still have to pay nearly $8,500. With the early termination fees, landlords use the Act against the tenant who becomes locked into higher rents and for extended periods.
Unfortunately for tenants, most fees, including Early Termination Fees, are not addressed in the Washington Landlord-Tenant Act. Furthermore, the lease interpretation is primarily left up to the landlord unless the tenant is willing and able to pay for a lengthy court case that could cost hundreds of thousands of dollars. Unfortunately, the Act doesn’t address reasonable costs, and the landlords know it.
One of the primary problems facing Jane Doe is that the landlords have been left to self-regulate. Additionally, the use of AI-powered technology remains variably unchallenged or unregulated by any governing body. In the end, the landlord will collect the maximum allowed by the contract regardless of their implied agreement within the Washington Landlord-Tenant Act—its designed to circumvent the intent of the laws.
In the end, the pricing algorithm is designed to increase the effective rate of rent over the advertised rate by up to 35%. The abuse of market power in the rental markets has led to a massive wealth transfer.
What can I do?
Unfortunately, this problem isn’t going to fix itself; the property owners are making too much money. It will take work to fix this. We as community citizens must push our legislators to fix this problem; this is a legislative issue.
We need to contact our local, state, and national congressional representatives and let them know that these types of deceptive programs need to be regulated and fixed. As the saying goes, the squeaky wheel gets the grease.
So, Start Squeaking!!!!
Please, like, and share my blog. Visit my website at www.jamesmartinnelson.com
This Blog is from the forthcoming book, The New Landlord, Powered by Big Data, and Artificial Intelligence
- The website for the Washington State Legislature, “ RCW 59.18.310, Default in rent—Abandonment—Liability of tenant—Landlord’s remedies—Sale of tenant’s property by landlord, deceased tenant exception,” apps.leg.wa.gov, accessed October, 2019, https://apps.leg.wa.gov/RCW/default.aspx?cite=59.18.310
- David Lee, “American Airlines Fined $45 Million in Antitrust Case,” courthousenews.com, June, 2018, https://www.courthousenews.com/american-airlines-fined-45-million-in-antitrust-case/
- Bendix Anderson, Multifamily Executive, “Multi-Tasking,” multifamilyexecutive.com, March 20, 2012, https://www.multifamilyexecutive.com/technology/multi-tasking_o
- The Website for Justia US Law, Jeff Persigehl and Samone Bodley, individually and on behalf of the putative classes, Respondents (A14-0027), Appellants (A14-0123), vs. American Utility Management, Inc., ETAL No. 27-CV-13-13415., https://cases.justia.com/minnesota/court-of-appeals/2015-a14-27.pdf?ts=1422904069