Legal Missteps That Can Tank Your Landlord Business – Part I

Today, federal and state laws closely regulate practically all elements of a landlord’s business. So, not familiarizing yourself with the standard rules and regulations can result in unwanted legal trouble. Below are some easily avoidable legal missteps that can land you in hot water.

1. Using Outdated or Standardized Lease Forms

Landlords know it's vital to have a formal written lease or rental agreement, but using the wrong form can get you into trouble with your tenants. If you’re using a generic form that you purchased or found online, you most likely are not complying with local state laws. Know your forms inside and out, and personalize them to meet state laws and the terms you wish for your specific property.

2. Asking the Wrong Questions During Tenant Screenings

Screening tenants is very important, but many landlords don't realize that asking well-meaning questions (such as inquiring about a disabled person’s disability or asking if a couple is married) can be considered forms of discrimination during the application process. Even if your rejection had nothing to do with the offending question, the disappointed potential renter may have the ability to file a fair housing complaint.

3. Making Promises That You Don't Keep

It's great to be passionate about your property, but know that your promises will become binding if potential renters rely on them when deciding to rent from you. If you promise a parking space, cable service, or a new paint in the family, and don’t deliver, a tenant may feel ripped off, and try to break the lease or file a lawsuit to assure that you’ll follow through.

4. Charging Exorbitant Late Fees

Late fees can serve as a motivational tool to get slacking tenants to pay their rent on time. However, while a higher fee may get them to more promptly, some landlords to too far by requiring fees that are not a fair reflection of the lateness. Keep in mind, courts are increasingly invalidating outlandish late fees that cannot be supported with evidence.

Check back next week for more legal missteps that can easily be avoided!

When A Landlord Should Hire A Property Manager

As a landlord one of the most important decisions you can make is whether to hire a property management company or not. If you have more work than you can handle, then it may be time to look into a property management company to lighten your work load.

If you’re thinking about bringing in a property management company to help manage and run your community, consider the following:

What a Property Management Company Offers: Property management companies interact directly with prospective tenants as well as current tenants. This can save you valuable time and keep you from worrying about advertising your rentals, collecting monthly rent, handling maintenance and repair, responding to tenant inquiries and complaints, and even issuing evictions. The right management company will bring much-appreciated know-how and experience to your community, which will, in-turn, offer you peace of mind.

You should consider hiring a property management company if:

• You have many of properties or several rental units.
• You don't live close to your rental property and commuting is a wasteful hassle.
• You're not interested in hands-on management of your property.
• Your time is limited and you feel you’re not managing your community as best as you could.
• You’ve looked over your finances, and can afford the cost.
• You're business is growing, and you’re overwhelmed with management tasks.
• You don't want to be an employer (property management companies function as independent contractors).

Find a Good Property Management Company: If you decide to bring a property management company into the equation, use these tips to find the best one for you and your property.

• Get recommendations from fellow landlords, as well as from your local apartment association.
• Search directories on the web.
• Thoroughly interview companies before handing over the reins.

How To Advertise Your Rental Property

If you’re looking to advertise your rental property, the first step is to identify all of the terms of the rental so that you can accurately advertise the unit that’s available.

First you must make a number of decisions — like the amount of monthly rent to charge, whether to offer a lease or a month-to-month rental agreement, how many residents can occupy the unit, how much security deposit to request, and whether or not pets are allowed.

Rent – When it comes to rent, you should charge ‘market rent’, or slightly below. It doesn’t really matter what your carrying costs are, or the return you'd like to see, if you don’t have a resident in the unit. Be fair – potential tenants know the market, and you'll simply prolong the time until you get a new tenant if you ask for above-market rent.

Month-to-Month or Lease – Before you meet with anyone or spread the word about the unit, decide whether you’ll require a fixed-term lease (typically one year), or a month-to-month rental agreement. If the market is slow, you may want the guarantee of knowing your residents will be staying for a full year. However, if you want to be able to raise the rent (with proper notice, of course), you may want to offer a simple month-to-month agreement.

Number of Tenants – Figure out how many people you will allow to live in the unit. Consider the floor plan, number of bedrooms, number of bathrooms, and square footage. Generally, you can allow for two persons per bedroom.

Security Deposit – Security deposits cover damages beyond normal wear and tear, and also can be applied towards any unpaid rent. The amount you can require is limited by state, but generally, twice the monthly rent is common.

Pets – If you choose, you may instate and enforce a no-pets policy – but, not if the animal is a service or comfort animal needed by a disabled person. Keep in mind that allowing pets can give your property a competitive edge in a tight market. Also, pet owners are often extra considerate when they know that there are limited rentals that will take them with their pets.

Once you’ve established all the terms you’ll require, outline the basic details, including:

• monthly rent
• square footage
• location (nearby attractions are a plus!)
• lease length or month-to-month rental agreement
• special features or upgrades
• number of residents allowed
• pets-policy
• email, phone number, or website for more details
• dates and times of any open houses that you’ll be hosting
• pictures!!!

Be sure to describe your unit accurately – your ad should be straightforward, easy to understand, and honest. Remember: the more truthful and precise you are, the better the tenant you’ll find!

Adding and Enforcing a No-Pets Clause

Instating a No-Pets Clause

As a landlord, you may refuse to rent to someone with a pet, however, it becomes more difficult to object and change the rules if a tenant currently has a pet. A landlord's right to modify the terms depends upon whether or not the tenant has a signed rental agreement or lease currently in place.

• Since a lease lasts for a specific amount of time, neither the landlord nor tenant can modify its terms while it is still in effect. However, when it comes time for renewal, usually a landlord is able to alter or modify its terms.
• On the other hand, a rental agreement is open-ended, and often runs month-to-month. With this type of agreement, the landlord can alter the terms with just 30 days' notice to the current tenant.

Enforcing a No-Pets Clause After Allowing a Pet

A landlord who doesn't object to a resident’s pet for a significant period of time (several months or years) may then forgo the right to instate and enforce a no-pets clause. As a landlord, it’s important to act promptly, otherwise you may find that your right has been waived and you can no longer object to the pet. If this concerns you, some landlords get around this rule by including an additional clause stating that a landlord who does not enforce a clause when it's first violated by the tenant can still enforce it later without any negative repercussions.

As a landlord, waiting a few days to address a pet issue is fine, but if you let the tenant keep their pet in their unit for several months, you may find that they then have a strong legal argument to keep it. Generally each state or city has a defined period of time, after finding out about a tenant’s pet, to enforce the no-pets clause. However, if the clause isn't enforced during that window of time, the landlord then loses his or her right to enforce it — unless the pet is a nuisance.  

If you’re hoping to maintain a pet-free environment, be diligent about communicating that with tenants. The more upfront and honest you can be, the fewer hassles you with have enforcing your no-pets clause.

How To Handle Evictions

If you have an eviction on your hands, the first step you must take is to terminate the tenancy. To end the tenancy you must provide the tenant with written notice, as outlined in your state's termination statute. If, after you present the notice, the tenant does not move (or modify their behavior — for example, by paying late rent or locating a new home for their pet), you are then allowed to file an eviction lawsuit.

Keep in mind, each state has many laws that delineate comprehensive requirements to terminate a tenancy, and different termination notices are needed for varying situations. In addition, there are specific procedures as to how termination notices and eviction papers must be formatted, written, and served (or delivered).

Termination With Cause – There are generally three types of termination notices used to terminate leases due to tenant misbehavior(s).

1. Pay Rent or Quit Notices are used when the resident has not paid the rent that is due. These notices provide the tenant a few days (generally 3-5 days) to pay the delinquent rent or move out and thus terminate the lease.
2. Cure or Quit Notices are served after a tenant breaches a condition of the lease or rental agreement, like the requirement to refrain from making excessive noise or a no-pets clause. In this case, the resident generally has an established amount of time in which to remedy, or "cure," the violation. If he or she fails to do so, he/she must move out or face the prospect of an eviction lawsuit.
3. Unconditional Quit Notices are the harshest form of notice. These require that the tenant vacate their unit with no opportunity to pay the rent or remedy a lease or rental agreement problem. In general, unconditional quit notices are allowable only when the resident has:
   1. repeatedly violated a significant term or the lease or important clause
   2. been late with the rental payment several times
   3. seriously harmed the property
   4. been involved in dangerous or severe illegal activity, such as drug dealing on the premises

As you might expect, even after receiving a notice, some residents do not leave or remedy the issue. If they refuse to leave, you must file an eviction lawsuit by serving them with a summons and complaint for eviction to begin the legal process.

Termination Without Cause – If you wish to end a month-to-month tenancy, you generally may use a 30-Day or 60-Day Notice to Vacate to terminate a tenancy when the resident has not done anything wrong. Keep in mind that many rent-control areas, do not allow this – instead, they require the landlord to provide “just cause” for the eviction.

Removal of the Tenant – If you win the eviction lawsuit, you will get a judgment for control of the property and/or for unpaid rent. But, keep in mind, you cannot just move the resident and his belongings out of the unit. Trying to remove the resident yourself can create a lot of additional problems.

If you’re dealing with an eviction or potential eviction, be sure you’re very clear on the formal processes. If you do not abide by the delineated regulations, you can find yourself in an even stickier situation than before. No one likes the idea of evicting a tenant, but remember that you’re looking out for the best interest of all your residents, as well the reputation of your property.

Tax Tips for Landlords

With tax day almost upon us, it’s important to understand and capitalize on tax deductions available to landlords. Each year, countless landlords pay more taxes on their rental income than is necessary, and that need not be the case. Rental real estate offers more tax perks than almost any other investment out there!

1. Interest – Interest that landlords can deduct are items such as mortgage interest payments on loans used to improve the property and interest on credit cards for goods or services used to maintain or improve the rental property.
2. Depreciation – The cost of the rental property is not fully deductible in the year in which you buy it, however landlords can get back the cost of their real estate through depreciation. Depreciation is deducting a portion of the cost of the property over many years.
3. Repairs – The cost of repairs to the property are deductible in the year in which they are completed. Strong examples of deductible items include repainting, replacing floors, fixing leaks, and putting in new windows.
4. Local Travel – Landlords are able to take a tax deduction whenever they drive anywhere for their rental, such as when you visit your property to address a tenant complaint, or when you make a trip to the home improvement store to buy a part necessary for a repair.
5. Long Distance Travel – If you travel a distance for your rental, you can also deduct your airfare, hotel bills, meals, and other expenses incurred during your prolonged travel. Keep in mind that IRS auditors often scrutinize deductions for overnight travel — and many are found to be taking these deductions without the records to back them up. Make sure you keep all forms, receipts, etc. from your travel to back-up your claims.
6. Home Office – As long as they meet certain requirements, landlords can also deduct their home office expenses from their taxable income.
7. Independent Contractors – Whenever you employ someone to perform services for your rental property, you can deduct their pay as a business expense.
8. Insurance – As a landlord, you can deduct the premiums you pay for insurance for your rental property, such as for fire, theft, landlord liability, and flood insurance. If you have employees, you can also deduct what you pay for their health and workers' compensation insurance.
9. Professional Services – Lastly, you can deduct any money that you pay to attorneys, accountants, property management companies, real estate investment advisors, and other professionals. As a landlord, you can deduct these payments as operating expenses, as long as they were hired for reasons related to your rental property.

Tenant Associations: A Landlord’s Course of Action

Rarely is a property manager or landlord happy to discover that tenants have started a tenants' association. This news often brings up some fears, such as the thought that running your property as you see fit will now bring about a barrage of complaints and petty disagreements over rent, maintenance, and other issues. But this situation need not bring about an "us vs. them" attitude, as that’s never good for tenant relations.

Don’t despair – there are ways to harness the situation, and guide it to your advantage. Below are some guidelines about what you should — and should not — do to make the most of what could be a complicated situation, if handled improperly.

What You Should Do:

• Ask around and find out what prompted your tenants to form a union. Be open to talking with the association leaders and other residents and ask about their thoughts, concerns, and complaints.
• After you discover what led your tenants to begin the association, make it your goal to remedy (or at least improve) the issue as soon as possible. Take quick action and address any outstanding issues that were brought to light.
• Continue to make improvements so that all can see that you are willing to make a change moving forward. Remember, this does not mean you have to give into every unreasonable request that comes your way.
• If you find out that your staff has been a little lax about responding to requests, instate a stricter policy of regarding all complaints as serious and important, and responding to them promptly – even if it's just to let the tenant know why the issue can't be remedied immediately.

• To keep the peace, offer to sit-in on a few association meetings or send an employee on your behalf. This is beneficial for both you and your tenants, as it will keep you informed of what's happening, help relieve any tension, and also will show tenants that you care about the property and want to be a part of the solution. (Remember – tenants do not have to let you attend their meetings. If they choose against it, respect their decision but let them know that you would like to sit down with association leaders at a later time to talk through any issues the association may have discussed.)

What You Should NOT Do:

• Do not “strike back” – in most states, it is illegal to retaliate against residents for banding together, and, of course, it's also bad business.
• On the other hand, don't reward tenants who choose not to join, and do not entice prospects. For instance, do not offer discounted rent to a prospective tenant in return for his or her promise not to join the tenants’ union. 
• No matter what happens, always treat tenants' associations like any other group at your property. If you typically allow groups to pass out brochures, post flyers in common spaces, or make use of common rooms for meetings, allow the association to do so too, as long as they continue to follow property rules.

If your tenants have decided there’s a need for an association, do not take it as a personal attack. Instead, use it as an opportunity to encourage open conversations so that both you and they can reach a mutual agreement about how to move forward in a way that reflects the best interest of all parties involved.

How To Avoid Disputes With Your Tenants

No one wants to find themselves in the middle of a dispute with their tenants, yet despite your best efforts to avoid confrontational issues, unfortunately they do arise from time to time. Whether your disagreement is over a rent increase, accountability for repairs, or the return of a security deposit, lawyers and lawsuits should rarely be your first choice for handling a landlord-tenant dispute.

In order to avoid legal problems, both landlords or managers and their tenants should be aware of the following:

1. Learn and understand your federal, state, and local laws and know your rights and responsibilities.
2. Be certain that the terms of your lease or rental agreement are clear and mutually understood.
3. Encourage open communication. If a problem arises (like a disagreement about the property manager’s right to enter a tenant's unit), see if you can handle the issue calmly, by talking it over, or using a local dispute resolution service if necessary.
4. Keep a paper trail. Make copies of any correspondence and make notes of conversations about any problems. Ask your tenants to request repairs in writing, and keep a copy of the letter. All managers or landlords should then keep a copy of the repair request and note when and how the problem was resolved.

If you remain mindful of your rights and responsibilities, and respectful of your tenant’s, you will foster a relationship of mutual trust and respect. And, the better your relationship with your tenants, the less likely you are to find yourself in the middle of a legal dispute.

Guidelines for Entering a Rental Property

In general, after giving proper notice to residents, you are permitted to enter rented units in order to make necessary repairs. In some states, you are allowed to enter the premises to pre-determine if repairs or maintenance is even necessary, or to show the property to prospective new residents. States normally require you to contact the resident at least 24 hours before entering a rental unit.

Without sufficient notice, a landlord or property manager may enter rented premises only in an emergency – such as a fire or serious water leak – or when the current resident gives explicit permission.

Many states also allow landlords or managers to check-in on rented units during a tenant's extended absence (often defined as seven days or more) in order to maintain the property or to inspect for possible damage or repairs. Keep in mind, a manager or landlord may not enter just to check-up on the resident or the rented unit.

If you’re unclear about the steps to take with regard to entering your rented units, review your state’s laws and requirements so that you maintain a healthy relationship with your tenants while also properly protecting your property.

Must-Have Terms in Any Rental Agreement

A lease or rental agreement is the most important document in any landlord-tenant relationship, as it sets out the rules both parties agree to follow. It is not only a legal contract, but also a practical document full of crucial business details. Whether the lease or rental agreement is as short as one page or longer than five, there are some basic terms of tenancy that need to be covered.

Names of all tenants. This makes each adult tenant responsible for all terms of the contract, including the full amount of the rent and the proper use of the property. This also means that you can legally seek the entire rent from any one of the tenants should the others skip out or be unable to pay. Or, if one resident violates an important aspect of the lease agreement, you can terminate the tenancy for all tenants on that agreement.

Limits on occupancy. Your agreement should specify that the unit is the residence of only the tenants who have signed the lease and their minor children, and guarantees your right to have only the people whom you have screened and approved living in the rental unit.

Rent. Your contract should specify the amount of rent, when it is due, and how it's to be paid, such as by mail or dropped at your office.

Term of the tenancy. Rental agreements usually run from month-to-month and self-renew unless terminated by the landlord or tenant, whereas leases typically last a year. Be sure to state which arrangement you and your tenant have agreed upon clearly in the contract.

Deposits and fees. Security deposits are often a source of friction between landlords and tenants. To avoid any issues, your lease or rental agreement should be clear on the amount of the security deposit, how you may use it, when you will return it (accounting for deductions), and any legal non-returnable charges, such as cleaning for pets.

Repairs and maintenance. Your best defense against rent-withholding hassles is to clearly outline your and the resident’s responsibilities for repair and maintenance in your agreement, such as the tenant’s responsibility to keep the premises clean and to pay for any damage caused by his/her abuse or neglect, a requirement that the resident alert you to defective or dangerous conditions with details on your recourse for handling repair requests, and restrictions on tenant repairs and alterations with your permission.

Entry to rental property. Your contract should explain your legal right of access to the property (for example, to make repairs), and outline how much advance notice you will give the tenant before entering their rental unit.

Restrictions on tenant illegal activity. To prevent problems among your tenants, you should include an explicit clause prohibiting disruptive behavior, such as excessive noise and illegal activity, such as drug dealing. It may seem over-the-top, but it can save you legal trouble should an issue arise.

Pets. Be sure your lease or rental agreement is clear on the subject of pets. If you do allow pets on your property, you should clearly state any restrictions – such as a size limit, the number of pets allowed, or a requirement that the tenant will keep the yard free of all animal waste.

Other Restrictions. Before you hand over your contract for signing, be sure it complies with all relevant laws including rent control ordinances, health and safety codes, occupancy rules, and anti-discrimination laws. Review your state laws which outline limits on security deposits, notice requirements for entering rental units, tenants' rights to sublet or add roommates, rules for changing or ending a lease agreement, and specific disclosure requirements such as past flooding in the unit. Also, make clear any other limits, such as restrictions on the type of business a tenant may run from home. Important rules and regulations covering garbage pick-up, parking, and use of common areas should also be mentioned.

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