The Ethics of Landlords

A few years back I wrote in this space about a relatively high-rent part of Los Angeles, and how the owners of the retail properties located there were letting the storefronts stand fallow in order to write off the losses on their taxes. I’m not generally in favor of rent control – the system is too easily exploited by the wrong people – but I have to ask if destroying an area’s commercial life for your own benefit isn’t also perverting the tax codes. Recently, however, a different variation on the same question has been called to my attention: do landlords have any responsibility to keep the rent down on their retail spaces so that small businesses can afford them? It’s one of those cases where charging whatever the market will bear isn’t necessarily the best answer, and I thought we should take a closer look at it…

First off, there’s nothing wrong with selling something for the highest price people are willing to pay for it, and that certainly applies to renting and leasing services (and properties) as well. It’s also true that you can’t be expected to rent anything for free, given that there are recurring costs involved in ownership. Any piece of property is going to have a floor level below which you can’t rent it without losing money – add together the property tax, the cost of the bank loans (if you have any), maintenance on the building (if applicable), county or state fees, and so on. And since any funds you spend owning a piece of property are funds you can’t invest in other things, it’s only reasonable to expect to bring in the same amount of income that you could realize if you’d put the funds in the bank, instead…

On the other hand, commercial operations aren’t just customers who are giving you money in return for using your real estate. Any business will have to spend money on supplies, utilities, salaries, and services that will remain in your community; they may also do business with suppliers or resellers in the community, all of which makes the city, county and state more prosperous and raises the amount of money people will have available to spend on things like rent. Most businesses will have to pay fees or even taxes to the local governments, as well, which means that your county and state will have more money to spend on roads, schools, police and fire protection, and other things that benefit you, directly and indirectly. So I think we can say that having a thriving commercial community in your town benefits you as the landlord, as well as you the citizen/taxpayer…

Where we wander into an ethical gray area is in the middle of the spectrum. Clearly there’s an enlightened self-interest in promoting commercial operations in your community, just as there is a basic self-interest in making as much money as possible from your rental properties. Just as clearly, there’s a minimum level you will have to charge for rent to avoid bankruptcy, and a maximum level you can charge beyond which no one can afford to pay you. But assuming that you are meeting all of your own expenses and making a living, do you have any responsibilities to your tenants, to the other members of your community, or to the local or state governments to keep your rent as low as possible? If you have backers, partners or stockholders you may be responsible to them for maximizing profit on their investments, but assuming it’s just property you own, do you have any ethical obligation to avoid bleeding your tenants for your own personal enrichment?

It’s worth thinking about…