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Tabarrok, DeLong, and Contract Law

Brad DeLong overlooks the fact Alex Tabarrok, in his original post on whether or not tenants benefit from government-mandated minimum quality for rental housing, alludes to the implied warranty of habitability.

Contract law is beautiful in its subtlety. This law typically examines questions from the point of view of the “reasonable person” – that is, when a contract dispute finds its way into court, the law asks about the question before it: “what would the reasonable person have expected (or said, or done) in the circumstances at issue?” In modern America, the reasonable person reasonably expects that the rental unit has running water 24/7, that the ceiling doesn’t leak, and that other basic features of the apartment are in order.

Here’s how one lawyer, in an on-line Q&A, defines the implied warranty of habitability:

A landlord warrants to the tenant that the leased property is habitable. This is known as the implied warrant of habitability. This warranty is not against all inconveniences or discomforts. A claimed defect must be on the premises and must directly affect the tenant’s ability to occupy the demised (rented) premises. Transitory failures generally do not constitute a breach of this warranty. Courts have found that the breach must be so substantial as to amount to a constructive eviction. This means that the problem must be so bad that the tenant cannot continue to occupy the space and would have to leave unless the repairs were made.

Therefore, DeLong’s argument that government-mandated minimum-quality standards are helpful in reducing bargaining and search costs is weak. No such legislation is necessary to save apartment hunters the time they might otherwise spend ensuring that each apartment they visit, in DeLong’s words, “has a working toilet, has hot water, has a working and safe electrical and heating system, and a whole set of characteristics which are roughly what we consider to be the basic necessities of modern life.” Such minimum standards, consistent with the expectations of the reasonable person, are already implied by common contract law.

One advantage, though, of relying upon contract-law’s implied warranty of habitability (rather than upon government-imposed minimum-quality regulations) is that common-law rules generally can be waived – “contracted around.” A government mandate, in contrast, typically must be obeyed even if both parties to the contract wish to avoid the mandate.

A second advantage of relying upon common contract law is that it is far less politicized than are legislatures and regulatory agencies.