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Beit Midrash Series P'ninat Mishpat

Chapter 368

Preventing Unfair Rent Hikes – part I

The defendant (=def) is a community yishuv which for decades has been renting out commercial buildings, including a 220 sq. meter structure rented by pl. In recent years, def started raising the rent per meter of these buildings and last year they removed the longstanding 50% discount on half the area. Pl complains that def may not take advantage of pl’s lack of alternatives to raise the price in a manner that is not true to market values, and against the standard practice that rental agreements for commercial property are for 5-10 years. The 50% discount was done to encourage businesses to come to the area and once this was agreed upon decades ago, def is committed to keep to this arrangement. Def was also required to negotiate the matter with pl and not present the changes as a fact, and warning time needed to find a new location is 6 months. Therefore, pl demands that the rent should be linked to the inflation rate. Def responds that by a vote of its board, they may change prices like any landlord in a free economy and that they did allow pl to plead his case before the board, who rejected it. Regarding the reason for the change in policy, market forces no longer make it necessary to encourage rentals and the deficit in def’s budget makes it necessary to raise revenues. They delayed the end of the discount, and they gave ample notice for relocation if pl is unhappy with the new conditions.
Various RabbisIyar 24 5776
102
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(ruling 74091 of the Eretz Hemdah-Gazit Rabbinical Courts)
P'ninat Mishpat (576)
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367 - Damages from Water Pressure
368 - Preventing Unfair Rent Hikes – part I
369 - Preventing Unfair Rent Hikes – part II
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Case: The defendant (=def) is a community yishuv which for decades has been renting out commercial buildings, including a 220 sq. meter structure rented by pl. In recent years, def started raising the rent per meter of these buildings and last year they removed the longstanding 50% discount on half the area. Pl complains that def may not take advantage of pl’s lack of alternatives to raise the price in a manner that is not true to market values, and against the standard practice that rental agreements for commercial property are for 5-10 years. The 50% discount was done to encourage businesses to come to the area and once this was agreed upon decades ago, def is committed to keep to this arrangement. Def was also required to negotiate the matter with pland not present the changes as a fact, and warning time needed to find a new location is 6 months. Therefore, pl demands that the rent should be linked to the inflation rate. Def responds that by a vote of its board, they may change prices like any landlord in a free economy and that they did allow pl to plead his case before the board, who rejected it. Regarding the reason for the change in policy, market forces no longer make it necessary to encourage rentals and the deficit in def’s budget makes it necessary to raise revenues. They delayed the end of the discount, and they gave ample notice for relocation if pl is unhappy with the new conditions.

Ruling: The main question is whether beit din has a right to monitor market rates when a price seems unfair or whether the free market system can be relied upon. There are two opinions in the gemara (Bava Batra 89a) on this basic matter, and the Rambam (Geneiva 8:20) and the Shulchan Aruch (Choshen Mishpat 231:20) rule that in some cases,beit din can intervene. However, the Shulchan Aruch limits this intervention to the sale of basic foods and says that it applies only whenbeit din is capable of monitoring the entire local market and only when the price control will leave the seller in a reasonable financial situation as well. In this case, all three reasons to avoid intervention apply, as real estate is not covered, because neither this beit din or (presently) any government authorities are able to set prices, and because defneeds extra revenue. It has not been proven that the new prices are unreasonable compared to other places, but in any case, the rules ofona’ah (mispricing more than a sixth) do not apply to real estate (Shulchan Aruch, CM 227:1-2).
Regarding the discount, there is nothing that prevents a landlord from giving discounts when he needs to encourage rental and to remove them when there is enough demand. On the other hand, beit din rejectsdef’s claim to undo the discount retroactively since it was not approved by the broader decision makers. [Ed. note – There is a discussion about the decision making process used in the yishuv, but we will not get into those details.]
Next time we will discuss the matter of advance warning for changing the rental conditions.




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