The landlord is under no obligation to accept anyone this service finds, so this startup guarantees an outcome they cannot control. It might be a way to build awareness and goodwill, but they are burning VC capital to offer a service that is either fundamentally unsustainable or mispriced.
Aren't people obliged to minimize their own and the other part's loss in contracts in the US?
In my country, me moving out and saying I won't continue to pay, while the contract end date is still far in the future would of course be a breach of the contract. But that doesn't mean the landlord then can let the house sit empty for the rest of the contract time and force me to cover their loss. Landlord would instead have to try and minimize their losses by finding a new tenant, and what I would owe the landlord would be their costs to do so and the time the apartment stood empty.
Edit: "mitigation of damage" might be the US term for it. From Cornell: The mitigation of damages doctrine, also known as the doctrine of avoidable consequences, prevents an injured party from recovering damages that could have been avoided through reasonable efforts. The duty to mitigate damages is most traditionally employed in the areas of tort and contract law. To me that reads like if you want to void the contract, and the landlord doesn't accept a reasonable tenant to take over, the landlord might have to carry their losses themselves. My guess (given laws about renting being very in favor of tenants) is that there most places even might be explicit laws allowing the tenant to do this.
USA is a big place, but OP is talking about NYC specifically before COVID. At that time you were liable for the full amount until the end of the lease. Landlords could sit on empty boxes and sue you for the entire amount. Whether they want the hassle is up to them, but you couldn't compel them to do anything.
And doing so would be illegal, and you could sue them for it (and win). It's pretty easy to determine if a landlord is actually trying to rent out a given apartment -- just have your friends apply.
Your “pretty easy” sounds extremely onerous to me. If my friend said, “hey, apply for my old apartment so I can prove in court that my landlord is fielding/dodging applications.” I think I’d tell them, unkindly, to go F themself. (Yes, That’s how I talk to my friends, but also because I think it’s preposterous that that even asked.)
Going into court you have no/low knowledge of what your landlord has actually done. If they pull out their ads they posted on the internet or on some zero readership newspaper. The judge will see they have made an effort and you probably are grasping at straws because you have nothing in the way of proof. If you’re lucky, judge would hear some expert testimony (realtor) that says the apartment/market/etc should have been filled within 1-2 months and they feel it’s highly unusual the unit would remain unfilled for 6 months. But even still, if the law says the landlord is required to market the property it might not imply they have to be good at marketing the property. So there’s a grey area where it could go either way, and he can proof that you can’t match.
Obviously you're not going to use it if your landlord doesn't allow subleases, and landlords are also usually pretty upfront about approval requirements for a sublease.
I've never heard of a landlord not allowing a subletter to convert to a full lease upon original lease expiration.
I mean, the alternative is to forego a month or two of rent while you find a new tenant. Unless there's a horrible problem with the existing subletter's credit, but then they probably wouldn't have gotten the sublease in the first place.
I'm not saying it's never happened, but it's going to be rare. I don't really see anything unsustainable or mispriced about this at all. There are already other companies doing it as well in NYC, e.g.:
Subleasing is kind of a red herring. There are particular reasons landlords might want to avoid letting that happen willy-nilly. But if the company finds a tenant that conforms to the landlord's requirements, the landlord can agree to a transfer of the lease, or just agree to break the lease and start a new one with the new tenant.
In NYC, it's usually required for a subletter to take over the remainder of a lease and then have the option of signing a new lease. The option to simply immediately break the old lease and start a new one usually doesn't exist. (Or if it does, it's only with a penalty for the lease-breaker.)
I don't know why this is, however -- if it's for administrative convenience, legal reasons, or financial reasons. But your idea that "the landlord can agree to the transfer of a lease", well it's true they can, but as a general rule they won't.
The difference from Doorkee, or any matchmaking service, is that they do not guarantee to pay your rent for six months if a) they can't find someone within a month or b) your landlord doesn't like them. This bet is highly asymmetric - they can win 1 month fee (if you sublease tomorrow) but lose 6x that. I'm also in NYC, and wouldn't underwrite this gamble two years ago, and absolutely not today.
> We were able to prove that we could make the financials work so long as we were able to fill the apartment within around 45 days of taking it over.
They're prescreening apartments/leases so they're not going to take on an apartment they can't turn around in a month. And honestly, modeling NYC rental supply and demand according to a number of factors (neighborhood, price, condition, amenities, etc.) is pretty straightforward. It's a relatively liquid market.
And like I said, landlords generally have explicit rules about tenant qualifications. They're not going to reject tenants on a whim. Why would they ever say no to a qualified tenant? That's like McDonald's refusing to sell you a quarter pounder.
There's nothing about this that seems obviously unsustainable at all.
"Why would they ever say no to a qualified tenant?"
I agree with the rest of your comment, but in my experience landlords in hot markets can be pretty capricious. If they know they'll have a steady stream of applicants, many will definitely reject qualified tenants based on personal whims or to hold out for someone they see as "more" qualified or more likely to stay long term. That said, as long as the apartment still gets turned around quickly then it's not really a threat to this business model.
That's not rejecting (all) qualified tenants though so much as they are merely using some kind of algorithm to pick one of the many prospective qualified tenants. They can only choose one anyway, and FIFO is not necessarily the best strategy.
So a better way to phrase the question would be "Why would they ever say no to all qualified prospective tenants?"
In California my understanding is they are required to accept the first qualified tenant due to anti-discrimination laws. I thought NY was similar in that regard (and hence the income=3*rent or whatever the popular advertised rules are there).
That's been my experience as well, in practice (I don't if there's a legal reason).
Yes they'll sometimes pick the most qualified applicant, but only if you submit your application the same day or same weekend, which is often the case with open houses. It really depends on the landlord however -- for a lot, it's literally the first qualified person to apply, which is why you want to be the first person to the open house and have all your documents ready to apply on the spot, since it might be gone 30 minutes later.
As a small ll I absolutely do not want this in my building. I negotiate lease break fees into my leases; if a tenant is unhappy, I'd rather charge them an appropriate amount rather than have them hire a broker whose sole goal is to find a tenant that can pay the first month of rent
They are "guaranteeing" in that they are putting themselves in high but limited liability in case they can't fulfill that "guarantee".
As long as they can find tenants for at least 6/7 (~85%) of their apartments, they're breaking even. Clearly, they think that's an easy target to hit.
(Another way to think of it: one service they provide is amortization of the risk of not filling the apartment over their entire catalog of apartments.)
In San Francisco at least I'm not sure this is a true statement at ALL.
San Francisco law is that tenants may sublet / add roommates etc. Landlord has 14 days to object. Objection has to be for a good reason. At least that's how I've always understood it.
Can you cite the rule in San Francisco that landlords are under no obligation to allow subletting?
This probably depends on local laws / lease details, but doesn't the landlord generally have an obligation to make a fair effort of filling the vacancy?
At least with the leases I've signed, if they didn't intentionally fill a vacancy with a decent candidate they would be opening themselves up to some contractual legal exposure
Are you sure about that?
It looks to me like they check the current lease for subletting stipulations.
It’s literally the first step under “Sublet your place” on the website.
This is not correct for the current context. You are thinking about subleasing today. Yes, this is now friendly. The scenario for OP was handing over the entire lease in NYC in 2019. At the time, this was entirely up to the landlord's discretion, and you were legally on the hook for the full amount. Landlords were not required to find a new tenant. See explanations here -> https://www.nolo.com/legal-encyclopedia/tenants-right-break-...
That is not what this link says. The landlord is legally required to mitigate damages - it says so clearly in the text. That means that they must try to find another tenant. If you hand the landlord applications from several qualified tenants, and they don’t rent to them, then you can successfully win in court if the landlord tries to sue you for unpaid rent. New York housing court is known to be very tenant-friendly as well.
Now, in the midst of a COVID-fueled exodus and wave of unemployment, you might legit be screwed…
I don't agree. The startup is guaranteeing that the customer won't pay more than one month's rent, which they very much can control. The company is on the hook in cases where they can't find a replacement, but that's not the customer's problem.
It's very possible that the service is priced too low in order to get traction, but there's nothing inherently unsustainable about taking on risk (with a reasonable cap no less); it just comes down to what the company's placement rate ends up being.
It might be a way to build awareness and goodwill, but they are burning VC capital to offer a service that is either fundamentally unsustainable or mispriced.
I'm clutching my pearls so hard after reading this, I may have uttered a "I do declare..." and wiped sweat from my brow as well. :)
If the service is finding reasonable tenants as defined by a credit check/ maybe a reference check then the landlord may not be interested in turning down the new tenant and in some locales may not be able to.
