Question

The applicant I had selected for my vacant rental house just told me, prior to our final walk-though inspection in two days, that he has had unexpected problems coming up with the full amount of security deposit and first month’s rent that we had agreed on in the already executed lease agreement. What are my options?

Answer

Occasionally, the selected applicant informs a landlord at the time when security deposit and rent are to be paid that he/she is short some of the funds due. In such a case, a landlord has basically two choices, assuming that the lease agreement included adequate clauses and the selected applicant has not been given legal possession.

If the lease agreement has words that make its commencement contingent upon receipt of all funds due, you can tell him/her that you will have to select another applicant unless he/she can come up with the funds before the agreed deadline. Many times the potential tenant will miraculously find the required funds after all. If that doesn’t work and you prefer, for some reason (e.g., he/she was the only qualified applicant), to allow possession upon payment of less than the total funds due, there are certain ways to minimize the risks.

First, be sure that you require execution of an addendum to the lease that clearly states the agreed schedule of payment of the deficiency and that failure to perform is a material default of the lease resulting in its termination.

Second, be sure that the addendum clearly states that the unpaid portion is rent rather than part of the security deposit. The reason why this is important is that it is usually easier and faster to obtain an eviction for non-payment of rent than for most other defaults.

Possession should never be given until all funds have been received (either cash or bank check). If the selected applicants have been given legal possession (e.g., by giving them a key or allowing them to store personal property on the rental property) the landlord might have to proceed with eviction if the parties cannot come to agreement regarding resolution of the problem.

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Question

I am concerned about how many keys a tenant who is currently being evicted may have made and passed out to others during his tenancy. Would I have liability related to this issue?

Answer

It is highly recommended that locks be re-keyed between each tenant. When a tenant departs, the landlord has no way to know how many keys are in existence or who might have one. Accordingly, the best policy is to re-key every lock each time there is a change in tenants. The cost of re-keying is almost negligible if a landlord invests in moderately priced re-keying kits. There are also now lock designs which allow owners to easily rekey a lock without such a kit. Owners of
multiple properties can avoid the labor involved in that approach by keeping a few extra locks on hand and rotating locks among properties. Even the single-unit landlord can re-key his locks for $5.00 per lock plus about $1.50 per new key or less if he takes them into a home improvement store himself. A landlord’s expenditure of $25 or less to re-key a unit is an important investment in the safety of his new tenants and a major reduction in exposure to costly lawsuits. If locks are not re-keyed and future tenants are victims of any crimes, the landlord will likely be subject to litigation and it is quite possible that a Jury or Judge would assign some liability to the landlord in view of how easy and inexpensive it is to re-key.

Since deadbolts located near windows are often accessible to someone who is willing to break the window, some experts advise that inside-keyed deadbolts be used. However, as a missing key can result in inability to get out in an emergency, one should always provide for a place to hang the key that is easily accessible to the tenant while beyond reach of a potential intruder. Furthermore, the matter should be covered by adequate lease clauses wherein tenants understand the
issue and accept responsibility for maintaining the key’s availability to all occupants. However, landlords must conform to the laws and regulations of all levels of government, including building and fire codes regarding the issue.

Basically, landlords should provide as much security related to door and window security as is reasonably practical. At a minimum, they should secure the premises with latches or locks on all windows, good deadbolts on all exterior doors, sliding door handle latches or, better yet, sliding door security bars, and door viewers. Chain locks are, in general, worthless. All external doors in each rental unit should be solid rather than hollow core doors that can be easily
broken through within seconds. As with most things, landlords need to be aware of any special requirements related to these issues in their state and local areas. For example, California has very specific requirements for door and window locks, both as to what needs locks and specification of what locks are acceptable. Other states may also have specific requirements related to the issue of tenant security.

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Question

I own a property that I suspect might have contamination problems. Are there any issues related to willing this property to my son?

Answer

Landlords who own property that may have risks of environmental contamination should use care when passing the property to a beneficiary of his/her will or trust. Not only does the recipient of the property have potential liability, but also the executor or administrator under a will or intestate probate or the trustee of a trust could face liability under certain circumstances. Failure to adequately consider contamination can result in costly future problems for your executor/administrator or successor trustee or to a beneficiary.

Owners of contaminated real property are exposed to possible liability lawsuits from those of the public who have been adversely affected by the contamination. This can include adjacent property owners or from users of water underlying or flowing through the property. Additionally, there can be pollution liability under federal and/or state statutes and owners of contaminated properties can be held liable for the costs of cleaning up the contamination. Cleanup of contamination sites can be extremely costly, usually not just thousands of dollars. Costs often vary from tens to hundreds of thousands, sometimes even millions of dollars. Contamination on a property can also expose an owner to lawsuits from adjacent property owners or from users of water underlying or flowing through the property.

The most common form of pollution liability is the federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), 42 U.S.C. §§9601-9675. Individuals, estates, and trusts and even managers of estates may also be liable under state environmental statutes and the growing body of state common law environmental liability for nuisance and trespass. However, CERCLA liability is currently probably most prevalent. Although the Act doesn’t
single out estates and trusts, neither does it afford them special treatment.

Under CERCLA, “responsible parties” can be held liable for the costs of cleaning up contaminated land. Responsible parties include past owners and current owners of the property. It matters not whether anyone in the chain of ownership knew of the contamination or contributed to it.  Lenders receive protection as long as adequate due diligence is performed prior to financing a property. The only one who is personally fully protected from liability is the one who died.

There are possible defenses related to inherited contaminated property, adequate discussion of which is beyond the scope of this response. For the executors or administrators who manage the estate and the trustees who manage trust estate assets, personal liability usually depends on the degree of their control over the use of the contaminated property. However, with the numerous court statements about the breadth of CERCLA liability, and the recognition by courts of the powers that these offices wield over property operations, liability is becoming more common.

Therefore, if you own property that you know or have any reason to suspect might be contaminated, do not leave that property to anyone under your will or living trust without adequate consideration of the issue. You should consult an attorney who is experienced in dealing with problems of contaminated property including the issue related to estates. Real estate which is known or suspected to being contaminated should not even be transferred into a trust.

You should also consider discussing the issue with those who might have to deal with the property following your demise. This would include likely executors or administrators of your estate and successor trustees of your living trust.

Finally, you might consider determining whether or not there actually is a serious risk of contamination liability. If contamination of a property is suspected rather than being a certainty, you might want to consider obtaining a Phase 1 Environmental Site Assessment (ESA) on the subject property. A Phase 1 ESA on the subject land includes examination of potential soil contamination, groundwater quality, surface water quality, and sometimes other items.

When the site includes improvements, the assessment may include: identification of possible asbestos containing building materials; inventory of hazardous substances stored or used on site; assessment of mold and mildew; and
evaluation of other indoor air quality parameters.

If the results of the Assessment show no problems, the risk of future problems is greatly reduced. If the results indicate a potential problem, a Phase 2 Assessment might also be required. A Phase 2 ESA is a more “intrusive” investigation wherein samples of soil, groundwater, or building materials are collected and tested for quantitative values of various contaminants.

Beyond a Phase 2 ESA there is potential Phase 3 ESA wherein remediation of a site is investigated.

Checking References

As a best business practice, checking applicant references should be considered one of the essential tenant screenings. Interviewing previous landlords and personal references are screenings that can be performed fairly easily and with minimal expense by a landlord.  The information obtained through reference checking complements the information obtained from identity verification, employment verification, credit reports, public reports, and other background screenings. Contacting the current landlord may reveal an impending eviction or serious lease violations that could spell trouble for you.

Before conducting an interview it is helpful to prepare a worksheet listing questions to be asked. Being prepared with a script is professional, courteous, and efficient. It also helps to ensure all questions are asked and asked in the same manner with each reference. Answers to the questions can be recorded on the worksheet and serve as written documentation to be placed in the applicant’s file.

Rental History

A landlord wants stable, responsible tenants, ready and willing to pay rent as agreed, maintain property to acceptable standards, and conduct themselves as good neighbors. Do the applicant’s rental references characterize the applicant as meeting these qualities? It is generally held that past behaviors give indications of expected future behaviors. Rental behaviors are key to risk assessment. A current or former landlord can provide the type of information needed to assess
the risk. A brief interview with an applicant may indicate a good match between the housing needs of the applicant and the rental property of the landlord.  Details of a year-long rental relationship with a prior landlord may tell a
different story.

Keep in mind that the landlord-tenant relationship is a contractual, business relationship. A lease agreement is legally enforceable with rights and obligations clearly defined for each party.  Calling a prior landlord to determine whether the applicant fulfilled his lease obligations is a business safeguard, not an invasion of applicant privacy. During the application process, the applicant acknowledged and authorized permission to conduct verifications and screenings for consideration as a tenant. If the tenant has been a problem tenant there will likely be red flags that show up in other screenings. Due diligence will help uncover false or misleading information.

Some landlords are reluctant to contact former landlords thinking perhaps the landlord might give a glowing recommendation just to move a problem tenant out. The willingness and extent of a former landlord’s cooperation may be dependent upon the approach the inquiring landlord takes during the interview. Most landlords will extend the courtesy of honest answers to the questions being asked and appreciate the same consideration if they were to make a similar call in the future. It is a matter of good business.

Consider the length of the applicant’s rental history. If the applicant has been a renter for several years, try contacting the landlord previous to his current landlord. The renter has already moved on but his records and/or his reputation may be recalled and prove helpful. There is always the possibility that the applicant’s current situation is at the opposite extreme of the recent rental past. Changing markets, employment shifts, health considerations, or family matters can
drastically affect the ability of a tenant to meet his lease obligations. Make sure there is no rush to judgment without sufficient information and analysis of the current situation. Be equally sure that there is no unintentional
violation of fair housing laws by extending preference, privileges, or waivers of rental policies to certain individuals in certain circumstances. A policy of non-discrimination must apply to each and every applicant so that tenant
screenings are conducted in the same manner, in the same way for all applicants.

Some landlords may be reluctant to provide information even with the assurance that there is the applicant’s signed release of information. It may be personal reluctance or stated policy. At the least, a landlord or property manager should be able to confirm dates of tenancy, rental amounts, and security deposit amount. An important question that should be asked: “Would this tenant be welcomed back?” The answer or the manner in which the answer is given may say it all.

Applicants wanting to withhold rental history may try to use friends as landlord references or use false or misleading street addresses. Make sure that you are speaking with a valid and appropriate party to verify past rental history. Verifying the name of the owner and property address can usually be done using searchable online County records. Public directories can also be used to verify address information and phone numbers. Legitimate landlords will have knowledge of rental information that a “fake” landlord will not have.

Some applicants hope that a landlord will be too busy to check rental references and the applicant can slide by, avoiding a negative reference or notice of coming eviction. Since the references are an important source of information, make it a policy to always check.

There may be a request from an applicant that the current landlord not be contacted. Possibly the applicant has not yet given notice or doesn’t want the landlord to know he is looking. The applicant may think that the current landlord will give unfavorable information, which may or may not be justified. While the request is understandable, the landlord should adhere to his stated policies. If one exception is made, other exceptions might follow. However, the timing of the
decision to contact the current landlord could depend upon whether the applicant meets other qualification criteria. If the applicant fails to meet minimum criteria there is no need to continue the process. If the applicant meets criteria, the current landlord should be contacted. Any information obtained from the landlord interview would be analyzed with information obtained from other screening reports for final evaluation.
If your rental policies allow pets, ask the landlord about his pet policies. Did the tenant comply with pet policies? Were any complaints received regarding the pet? If the tenant had a dog, can the landlord confirm the breed of dog?

A customized rental references worksheet might ask questions such as:

• Who were the signers on the lease?
• Were there additional occupants? How many?
• What were the basic lease terms?
• What was the amount of monthly rent?
• What was the security deposit amount?
• Did the tenant lease other facilities such as parking, storage, or garage?
• What were move-in move-out dates?
• What reason did the tenant give for leaving?
• Was notice given per the lease agreement?
• Was a walk-thru checklist used for move-in and move-out?
• Were there other deposits or fees collected?
• Was there satisfactory history regarding maintenance that was responsibility of the tenant?
• Was the full security deposit refunded?
• Were any legal notices served?
• Was it necessary to issue any warnings? Was situation cured satisfactorily?
• What was the rent payment history –number of times late, most days overdue, was resolution satisfactory?
• If pets allowed, was landlord satisfied with pet behavior, with no significant pet problems?
• If smoking allowed, were there any related damages or other problems?
• Would the landlord re-rent to the tenant?
• What types of screening does this landlord use?

Personal References

Personal references generally include friends, relatives, co-workers, or other individuals the applicant regards as being able to give favorable character recommendations. Most applicants would not list a reference who might give a negative opinion. This should be taken into account when contacting personal references.

However, while some landlords may consider personal references to be self-serving for the applicant, personal references should not be overlooked as a good source of information.  Particularly in a tight rental market, or for first time renters, students, and former homeowners returning to the rental market, the information provided by personal references can make a difference when customary sources are not available or insufficient.

Some questions to ask personal references may be:

• How does the reference know the applicant?
• How long has the reference known the applicant?
• How frequently does the reference keep in contact with the applicant?
• Is the reference a former roommate or co-tenant?
• Has the reference served as a reference before? If yes, for what purpose?
• Is there a business relationship with the applicant?
• Does the reference think that the applicant would be a good tenant? Why? (Can the reference provide examples of behaviors that demonstrate the applicant’s good qualities?)

Due diligence in all phases of property management is key to reducing risk and avoiding unnecessary stress and expense in tenant selection. Without sufficient information obtained from a variety of sources, an informed business decision cannot be made. Reference checking is an essential part of risk management for landlords.