What is Rent Differential and Why Is It Such An Important Part of My Tenant Rights Case?

Of all the legal concepts in landlord-tenant law, one that often goes overlooked is the measure of damages known as “rent differential.” For renters living in units covered by rent control who have a long history in their homes, rent differential can end up accounting for most if not almost all of the damages they may be awarded as part of a court judgment or settlement agreement. In this article, we will explain rent differential, its importance to a potential case, and how it can help hold landlords accountable for failing to meet their responsibilities under the law. 

What is Rent Differential? 
Rent differential is a way of measuring how much a landlord’s failure to provide a safe and healthy home or protect a tenant from harassment harms the tenant, and the amount of money that the landlord might owe as a result. To calculate rent differential, take the amount a tenant in a rent-controlled unit is paying in monthly rent at the time they are forced from their home as a result of an illegal eviction (whether a wrongful eviction or constructive eviction), and subtract it from what the landlord could receive in monthly rent if the unit were not rent controlled (fair market rental value), then multiply that number by the number of months the tenant would have stayed in the unit had the landlord not illegally evicted the tenant. This idea is easiest to understand with some examples of how this works in the real world. 

John and Mary have lived in a rent-controlled apartment for fifteen years, and are currently paying $1,500.00 a month in rent. 

In that time, the landlord has performed basic maintenance but allowed things like plumbing leaks and electrical issues to go unfixed, to the point where turning the lights on can lead to electrical shocks and there is visible mold growth in their bathroom. These problems have led John to start emailing the landlord a little more than six months ago about issues, providing pictures and requests for specific repairs. In the meantime, several new businesses have moved into their neighborhood and driven rents up to $4,500.00 a month for a similarly-sized unit in a building with the same amenities that is also covered by rent control. The fair market rental value for John and Mary’s unit is estimated to be $4,500.00. John and Mary had planned to stay in their unit for another ten years, until they would have saved up enough to retire overseas. In this case, the rent differential would be $360,000.00 [($4,500.00 – $1,500.00) × 12 months × 10 years].

Amir and Barron have lived in a rent-controlled unit for six years and now pay $2,500.00 per month in rent, while the fair market rental value has risen to $3,000.00 per month.

From the beginning of the tenancy, there has been a lack of heat in the unit and the water heater has been broken. Amir has emailed the property manager about these problems every few months but no real progress was ever made. When the couple had raised enough money to buy a condo, they move out after telling their landlord they have been constructively evicted. The difference between current rent and market rate is $500.00 but how long should we say Amir and Barron would have stayed otherwise when the facts say they may have moved anyway? This is the sort of situation where having a persuasive case backed up with substantive evidence can make all the difference, and why hiring an experienced landlord-tenant attorney matters. That attorney might argue, for example, that it was irrelevant where Amir and Barron went because the proper question is where they would have gone if not for the poor conditions in the unit. In this case, if Amir and Barron purchased a condo only because they needed to move out, but would have otherwise remained in the unit for six more years, the rent differential would be $36,000.00 [($3,000.00 – $2,500.00) × 12 months × 6 years].

Why Is Rent Differential Important? 
When a landlord harasses a tenant living in a rent-controlled unit, or fails to perform needed repairs to ensure their home is safe to live in, one of the hardest realities to deal with is the lack of nearby affordable housing. After all, one of the main reasons local governments in places like Los Angeles and San Francisco established rent control in the 1970s was to make sure housing did not become so expensive as to force their residents to choose between becoming homeless or leaving the cities entirely. But when rent control is the only thing keeping housing costs manageable and a tenant has to choose between putting up with terrible conditions or being unable to pay for proper housing it can seem like a no-win situation. In fact, the longer someone stays in a rent-controlled unit, the more it can feel like there is no real choice at all: as fair market rents rise higher and higher, it puts moving somewhere else in the same neighborhood or even the same zip code out of reach. At the same time, the idea of holding a landlord accountable by suing them for failing to keep the promises to provide a habitable rental unit is less of a threat to a landlord who may think that repaying the low rent might not be too high a price to pay if it causes the tenant to move out.

Rent differential compensates tenants for the loss of a future benefit (i.e., the future value of below market rent). Rent refund is a separate measure of damages that compensates tenants for the loss of a past benefit. In the two examples, a rent refund of 50% to each tenant, just to keep things simple, would mean that John and Mary would be entitled to half of their $1,500.00 rent back, or $4,500.00 ($1,500.00 × 0.5 × 6 months) to compensate them for the harm they suffered for not getting repairs for the six months after the landlord had reasonable notice. Meanwhile, Amir and Barron would get $60,000.00 ($2,500.00 × 0.5 × 12 months × 4 years) because they had gone through a longer period without repairs, had given notice sooner, and can only recover damages going back four years. But who has lost more from having their rent-controlled unit taken away?

Rent differential acknowledges the reality that a rent-controlled tenancy becomes a valuable asset for someone who has lived in the same unit for a long time. It protects the connections and contributions they make to their community and prevents them having to give up living in the place they have thought of as home simply because their landlord has failed to live up to their side of the bargain. Some might say that this is not always true, as the tenant who receives the damages award, often with additional statutory damages, has already moved on or may choose not to remain and will take that money elsewhere. However, unscrupulous landlords must learn that there are consequences to not honoring their duties under the law.  If your landlord won’t address your repair requests or trying to force you out of a rent-controlled unit illegally, talk to a tenant rights attorney.