Is there not a compensating differential for having a naked landlord?

The New Zealand Herald reported earlier this week:

A landlord sunbathing naked in the courtyard of his building was no reason for one of his tenants to withhold its rental payments, a German court has ruled.

The case involved a building in an upmarket district of Frankfurt, which included an office floor, rented by a human resources company. The company withheld rent because it objected, among other things, to the landlord’s naked sunbathing. In response, the landlord sued.

The Frankfurt state court rejected the company’s reasoning, finding that “the usability of the rented property was not impaired by the plaintiff sunning himself naked in the courtyard”.

It said in a statement that it could not see an “inadmissible, deliberately improper effect on the property”.

In labour markets, economists refer to the idea of a compensating differential. This recognises that jobs with different non-monetary characteristics will have different equilibrium wages. Jobs with desirable characteristics will attract more workers (higher labour supply) and have lower wages. Jobs with undesirable characteristics will attract fewer workers (lower labour supply) and have higher wages. The difference in wages between otherwise identical jobs, based on their non-monetary characteristics, is a compensating differential.

Should there be a compensating differential for having a naked landlord? Unless your landlord is Henry Cavill, it is likely that having your landlord sunbathing naked around your building is likely to be an undesirable characteristic of your apartment. [*] The rent should be lower for the tenants of a naked-sunbathing landlord, to compensate them for that negative non-monetary characteristic.

However, having said that, it shouldn't be up to the courts to enforce a lower rent (by allowing a tenant to withhold rent payments). A landlord with a penchant for naked sunbathing would probably find that they have to find new tenants more often than other landlords, necessitating a costly search process (and an empty apartment in the meantime). That would lead the average rent from the apartment to reduce. So, unfortunately, unless a tenant can negotiate with the landlord about the rent (and given the experience of the tenant noted in the article, that seems unlikely), the compensating differential likely only affects the landlord, and not the tenants.

If the landlord is willing to receive a lower rent on average, then it appears that they can sunbathe naked with impunity.

*****

[*] For the tenants of a naked-sunbathing Henry Cavill, this would probably be a desirable characteristic. Their rent would likely be higher as a result.