New Scholarship: Leases as Forms

David Hoffman (left) and Anton Strezhnev (below, right) have posted Leases as Forms on SSRN.  The Article makes use of a database of 170,000 residential leases filed in connection with 200,000 eviction proceedings in Philadelphia between 2005 and 2019.  Unsurprisingly, the leases include unenforceable terms and have gotten more pro-landlord recently.  Black tenants are more likely to be subject to eviction for crime or drug use on the premises.  Surprisingly, unlawful terms are more likely to appear in leases for more expensive rental properties in the richer, Whiter parts of the city.  

The authors provide a highly credible explanation for their surprising findings.  Leases have gotten worse, especially in affluent neighborhoods, because landlords are availing themselves of form lease agreements that include one-sided and even unenforceable terms.  For the most part, apparently with the exception of the special no drugs/no crime addendum for Black tenants, the landlords use the same leases regardless of the tenants.  They don’t negotiate.  Because the authors find strong evidence that landlords prefer to use the same lease form in all of their transactions, the authors are cautiously optimistic that their sample is representative of all leases in the city, even though they only have access to leases that have been filed in connection with eviction proceedings.  It seems unlikely that landlords would have one lease form for tenants they might evict and another form for those they wouldn’t.  

The authors’ analysis of “bad” lease terms focuses on three terms they consider unenforceable in most cases and one term that is enforceable but oppressive.  The unenforceable terms are: liability waivers, “as is” clauses that purport to waive the implied warranty of habitability, and penalty clauses for holdovers.  The oppressive clause waives the standard 15-30 day notice period prior to eviction.  Exculpatory clauses and notice waivers are found in the majority of leases.  The authors largely attribute the increased prevalence of these “bad” lease terms to the use of shared lease forms, and they note that the lease forms with the most oppressive terms are growing more popular among landlords.  

The authors find some significant race-based distinctions.  While overall, Black tenants are less likely to be subjected to the types of shared leases that contain oppressive terms, they are nonetheless more likely to be subjected to oppressive terms.  The authors think this outcome is likely a result of two factors.  First, the shared leases entered into with Black tenants are often the most oppressive.  Second, the proprietary leases into which Black tenants enter also include oppressive terms  One way to read the narrative is to observe that the oppressive terms once found mostly in proprietary leases used in Black neighborhoods have now found their way into the form contracts now used more heavily in predominantly White neighborhoods.  In addition, landlords in majority-White neighborhoods require that their Black tenants agree to lease terms that permit eviction based on crime or drug use on the premises.  Here too, a clause that was common in proprietary leases in poorer neighborhoods may have migrated into the form contracts now favored in majority-White districts.

Because landlords rely on a few standard leases that share a limited number of oppressive or unenforceable terms, the authors suggest that a regulatory fix might be relatively easy here.  The regulation need not come in the form of legal prohibitions on certain lease provisions.  Rather, public pressure on the non-profit organizations that make shared leases available to landlords might suffice.

The paper nicely illustrates how form contracting creates gross inequalities of bargaining power regardless of the wealth or sophistication of the consumer/renter.  We might be inclined to think that at least more-well resourced people can negotiate for better terms than form contracts provide: that we might be able to pay more to avoid mandatory arbitration, class-action waivers, disclaimers of liability, limitations on warranties, or even terms less clearly salient provisions such as choice or law or choice of forum clauses.  At least in the residential leasing context, the authors’ work suggests that the people and entities who stand behind form contracts are not open to negotiation on the terms of those contracts.  The playing field has been leveled, but only by decreasing the bargaining power of anyone subjected to boilerplate terms. 

And if you can’t even negotiate the terms of your lease, often the item that accounts for the largest chunk of your monthly expenditures, what chance do you have to negotiate on smaller contracts?  There, the stakes are much smaller for you, but  your counter-party is doing a volume business and will not take the time to dicker over the terms of individual contracts.  Indeed the person you deal with will often lack authority to change the terms, even if they were willing to do so.