Underrenting

Underrenting refers to the practice of leasing a property for a sum that is less than its current market rental value. This situation can arise for various reasons, often stemming from the timing of a lease agreement. For instance, a tenant might have secured a lease several years ago when rental prices were lower, and the lease is still in effect even though comparable properties in the area now command higher rents.

Another scenario is when a landlord agrees to a below-market rent as an incentive to secure a long-term tenant, perhaps to avoid the costs and uncertainties of frequent turnovers, or to accommodate a tenant with a specific need. It can also occur in situations where a property requires significant renovations or is in an undesirable location, leading the landlord to accept a lower rent to attract or retain a tenant.

From a tenant's perspective, underrenting represents a financial advantage, allowing them to occupy a property at a cost below what they would typically expect to pay. For the landlord, it means receiving less income than they could potentially achieve in the open market. However, the stability and predictability of income from a long-term tenant at a fixed rate can sometimes outweigh the potential for higher, but more variable, rental income. Underrenting is not inherently illegal, but it is a contractual arrangement between a landlord and tenant.