Question

The tenant in my rental house plans to buy a water bed. He plans to put it upstairs and I’m concerned about the substantial damage that could occur should it leak. Can I prevent him from doing this?

Answer

A very few states have a statute that deal with water beds. However, in almost all states it will likely depend primarily upon the lease agreement. Unless regulated by your agreement you may have difficulty prohibiting it or otherwise controlling use.

A few states do allow a higher maximum security deposit when water beds are present. However, unless your state has such a law and the law provides for an automatic increase, you may have difficulty collecting the increase if not discussed in your lease agreement unless the tenant is willing to voluntarily comply. Absent a law that allows such a higher maximum security deposit, you do not want to exceed the maximum even if the tenant agrees because that can have significant penalties under the laws of many states.

Another approach if a higher deposit is not allowed by your state’s laws is to require renter insurance policy with liability coverage that covers a water bed. Again, if not covered in your lease agreement, you may have difficulty requiring the insurance unless the tenant is willing to voluntarily comply. You should require that the policy name you as an additional insured so that you will be notified if the policy is cancelled for any reason.

Lease agreements should include a clause that discusses the issue and your requirements for allowing water beds, aquariums, or other items that could discharge a lot of water upon a failure. Furthermore, it is a good idea to have a question in the application form that asks whether the applicant intends to have such items.

All the above being stated, your landlord business insurance should cover damages, so your maximum loss should be limited to your deductible amount plus any extra resulting vacancy not covered by your policy. You should read your policy and/or talk with your insurance agent regarding the matter. A tenant would likely be found liable for any and all damages (net of insurance proceeds) resulting from a failed water bed or aquarium. However, as for any tenant damage beyond the amount of the security deposit, the landlord may need to file a lawsuit and collect on a judgment in order to receive compensation.

Question

Is it customary for landlords to pay for spraying for spiders outside the house?

Answer

Since you use the term “house,” I’ll assume you are truly speaking of a single-family-residence (SFR) rather than a multi-unit building (even only 2 units). What is customary, even what may be legal can, in some states, be different for a SFR than for a multi-unit property.

In general, for many states responsibility for certain things related to repairs or maintenance must remain the responsibility of the landlord by law. Trying to transfer responsibility for these things to the tenant, even when specified in the lease agreement, could result in a court decision in favor of the tenant if a tenant objected.  Other things can be made the responsibility of the tenant under terms of the lease agreement.

In most states, responsibility for pest control and many other maintenance items can be transferred to the tenant of a SFR as long as covered by the lease agreement. However, the landlord must be sure that anything transferred to the tenant was in good working order when the tenant moved in. In the case of pest control, this can be difficult to determine, as existing pests may not be obvious at the beginning of a tenancy. Furthermore, pest problems can depend on the season and
even specific weather conditions. The landlord would gain some defense against tenant claims that they were there from the beginning by having a reputable pest control company check the property and perform necessary extermination
and/or preventive treatments before a new tenant moves in.

You should consider researching the laws of your particular state regarding what repair and maintenance responsibilities can and cannot be transferred to tenants.

Attempting to specify that the tenant is responsible for pest control without the lease agreement having so specified adequately could be a problem. If a tenant took the matter to court claiming that a spider infestation is a habitability issue, the tenant might easily win. For multiple-unit properties, it is usually best to not try to make tenants responsible for pest control, even if allowed by law, because controlling pests usually requires simultaneous actions related to all units of
the property, as pests can otherwise simply move from one unit to another.

Regarding the specific issue of spiders outside the house, it is impossible to prevent wildlife of any kind from being outside and the majority of tenants would likely understand this.  However, the landlord should make sure there are not attractive habitats available for such animals to be in areas routinely frequented by the tenants, e.g., in common areas or around doorways. For example, spiders often lurk in wood piles and it is best to keep such habitats well away from the building itself. It would, of course, be important that the house is adequately protected from spiders entering through bad fitting doors or windows and screens of same or any other openings.

If your lease agreement adequately assigns pest control to the tenant you could consider simply point out the appropriate lease clause to the tenant and see if they continue to complain. If it does not, you could try to meet them halfway, perhaps providing them with a supply of anti-spider spray. However, if this is a good tenant, you could consider having the immediate area around the house treated by professionals, as this provides some assurance of adequate treatment. Remember,
the cost of a vacancy is usually significantly higher than the cost of a pest treatment.

Question 1

What is the maximum number of people in the 2-bedroom duplex buildings I own in Michigan?

Answer 1

That might depend on a number of factors including the city or county of location, the square footage size of the unit, the sizes of rooms, the floor plan of the unit, and, if you end up fighting the issue in court, the opinion of a judge.

Occupancy limits are potentially a problem.  Landlords may set their own reasonable occupancy standards for their rental properties and there are a number of reasons why landlords may want to restrict the number of occupants in the dwelling unit, including health and safety considerations or property component issues that might create a physical limitation (e.g., water supply or septic tank capacities).

However, unreasonable or overly restrictive occupancy standards may be in violation of federal, state, and/or local fair housing laws. Unfortunately, there is no universal rule covering all rental properties.

Federal fair housing law covers 7 protected classes, of which the most obvious issue related to occupancy limits is “familial status.” The familial status protected class is to prevent unfairly limiting housing options because of children in any “family group.” Some states or local jurisdictions have even more restrictive laws regarding children. A landlord’s occupancy policy that directly or indirectly excludes or even restricts children could be a violation of fair housing laws.
A better occupancy policy limits the number of people per unit rather than the number of children per unit.

However, in all cases, anything that is applied to one unit of a property must be applied to all similar units and to all occupants. For example, a landlord can’t limit a two-bedroom unit to a couple and one child rather than allow two children, no matter what the ages and sexes of the children. Also, you can’t charge more rent for an adult and one child than for two adults who are applying to rent a similar unit at about the same time.

A commonly utilized standard for rental occupancy limits is the Department of Housing and Urban Development (HUD) guideline that “an occupancy policy of two persons in a bedroom, as a general rule, is reasonable under the Fair Housing Act.” However, landlords should note this was intended as a guideline, not as the rule, for maximum occupancy of the dwelling unit. In fact, HUD directives for investigating discrimination complaints regarding occupancy limits, take into account other limiting factors such as the size of bedrooms, size of the dwelling unit, the capacity of sewer, septic, and other building systems, and any state or local occupancy requirements.  Additional information can be found at ww.hud.gov.

There may be local zoning or building occupancy limitations that apply to rental units. Some localities have based guidelines on the Uniform Housing Code (UHC) model code standards. The UHC standard provides occupancy guidelines based upon square footage rather than the number of bedrooms.

Another standard sometimes mentioned in landlording articles references the BOCA codes for occupancy standards. Building Officials and Administrators (BOCA), a national nonprofit member service organization publishes a series of model local building and construction codes. A maintenance code established by BOCA for guidance to municipalities for health and safety issues on existing properties has sometimes been referenced as a safe harbor standard for setting occupancy
limitations. The code provided guidance on the maximum number of persons who could safely occupy a building without overcrowding, however the code was not created to use for habitability purposes and its recommendations could be found to be in violation of fair housing laws.

Consideration must also be given to state and local laws regarding occupancy standards. Some states have more lenient occupancy standards than federal guidelines. For example, California statutes allow two persons per bedroom plus one more. When there is a conflict between federal, state, and local laws, landlords are safest by utilizing the least restrictive standards – in the California example, the state law would prevail over federal.

Landlords are advised to perform their own research on applicable occupancy laws and formulate policies according to law and local court interpretations, business necessity, and without discriminating against members of any protected class. Failure to do so will result in defending against a discrimination claim under fair housing laws.

To be safe, you need to first verify that there are no state or local laws that are more restrictive than HUD occupancy guidelines and federal fair housing laws. You should also consider discussing the matter with any local rental housing agency having jurisdiction regarding the location of the property.

Lease agreements usually have and should always have a clause that deals with visitors. Long term visitors could result in overcrowding as well as additional expense for the landlord, particularly when the landlord pays for certain utilities. Such clauses usually state that visitors may not remain longer than some number of days during a defined period – for example, a maximum of 2 weeks during a 6-month period. Such clauses sometimes require registration of visitors when staying longer than a specified time and often add an additional rent amount when the stay lasts longer.  However, imposing such restrictions on children of a tenant could risk discrimination claims.

In summary, in many jurisdictions there are no hard and fast rules, so a landlord must consider the issues mentioned above, consider potential fair housing issues at all jurisdictional levels, and apply the same rules to all tenants and applicants.

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Question 2

I had prospective tenants (a couple) apply for one of my 4-plex units. I looked him up on the state web for his record and found it was long with felonies even though he is only 30. The other tenants are elderly and there are children in one of the units. I would not want this guy in my building. They are short on the gross income for my units. Can I legally deny on criminal past?

Answer 2

If the applicant does not meet your screening criteria, with such criteria being related to financial qualifications (e.g., income or employment stability) or past rental history (e.g., evictions or past landlord info) and as long as you apply the same criteria to every applicant, then for your current matter you should be able to safely refuse tenancy based on the financial issue and not consider the criminal record information.

However, if you need to deny an applicant based only on a criminal record, as for many landlord issues, the answer can be complicated. For example, it may depend on the number of convictions, the age at which the last conviction occurred, the types crimes for which convicted, and other factors. It is, of course, most important that the applicant and the person whose criminal record you found are one and the same.

One of the more important factors is, unfortunately, probably the most difficult factor for the landlord. Does the applicant pose a credible risk to your property or to the other tenants?

I’ll leave a more detailed discussion regarding applicant criminal records to when you have an applicant who is well qualified except for the criminal record issue.

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Question 3

I went to the magistrate, filed a complaint to remove a tenant, and had the hearing, at which time I received possession of the property. The tenant then filed an appeal at the court house. At that time she owed us $126.50 for the cost incurred on me by the judgment and on the day of her appeal the rent was due in the amount of $500. She only paid for the appeal of $68.50 and nothing else.

It has been 10 days since she filed and she has no money to pay anything until July. I claim she is in default I and should be able to get possession without filing another appeal. The Prothonatary’s office will not speak to me and I think they screwed up by not getting any money from the tenant. I have only 9 days to an appeal according to the Notice. This is in Pennsylvania.  Can you give me some guidance on this?

Answer 3

An appeal usually prevents the tenant from being evicted as long as all rules governing the appeal process are followed.  One of the most important rules in most jurisdictions, unless the judge grants a waiver, is that the tenant begin depositing all monthly rent into an escrow with the court at the time the appeal is filed. Failure to open the escrow account or deposit the money in full and on time can lead to an eviction of the tenant and the eventual dismissal of the appeal.

You didn’t say whether this was a requirement for your case or, if so, whether the tenant deposited the funds into the escrow account. Different jurisdictions within PA and even different judges within a particular court may have different interpretations of the statutes and procedures.

Because failure to properly follow the court’s rules related to eviction can significantly extend the eviction period, it is often more cost effective to hire an attorney who specializes in evictions on behalf of landlords, preferably one with intimate knowledge regarding the particular court of jurisdiction. A competent attorney can also help maximize the amount of any judgment obtained against the tenant.

It is often best to obtain a money judgment even if the tenant leaves before completion of the eviction process because (1) judgments are good for 5 years or more in most states, (2) interest is added to a money judgment, (3) the judgment can be collected in any other state that the defendant might move to, and (4) judgments are sometimes unexpectedly paid off because the debtor needs to remove the item from his credit record in order to obtain a home loan.

Vesting

The vesting of a property is the form of ownership of that property. It is what person(s) or other legal entity hold title, that is, will be shown as grantee on a deed. The decision regarding vesting is always an issue when buying or financing real
estate and is often an issue that is revisited for reasons of estate planning.

Vesting is an important decision that should be made after careful study and often requires consultation with an attorney and/or a CPA.

In practice, it may be important to make this decision prior to writing a purchase offer or applying for financing, as the vesting can sometimes affect the seller’s or lender’s decision. If you expect the seller to carry any financing, he will want to know the vesting in order to judge his risks as a lender. Even if no seller financing is involved, the seller is tying up his property for a period of time (sometimes several months) and the vesting can affect his decision.  While you may get away with using “John Doe and/or nominee” in your offer, a knowledgeable seller (or his agent) should not allow you to do so.

Conventional lenders may also have restrictions related to vesting. As examples, they (1) often require that title be taken as individuals rather than as a Revocable Living Trust, but allow transfer to the Trust after closing the loan escrow and (2)
will almost certainly require that principals guarantee loans of limited liability entities that are not of substantial financial standing.

It is very important that the correct vesting name(s) be provided to escrow. Even a relatively minor error, for example, a missing initial or Jr. can either cause a delay in closing escrow because all documentation must be replaced or can cause a problem when refinancing or selling the property years later.

There are many choices for vesting, including the following or similar in most states:

• Sole Ownership
• Joint tenancy with right of survivorship
• Community property
• Community property with right of survivorship
• Tenancy by the entireties
• Tenancy in common
• Multiple persons, as joint tenants, with right of survivorship.
• Married couples, as joint tenants, with right of survivorship or, in community property states, as community property, or as community property with right of survivorship.
• Legal entity ownership

Vesting as community property is available in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.  In Alaska, couples can opt in for community property. The rest of the states and the District of Columbia are governed by common law.

Sole Ownership

Sole ownership means that one person has complete ownership of, and control over, the property, including how to dispose of it. As the sole owner, you may sell it, divide it, gift it, or bequeath it to your heirs in accordance with your desires. Upon your death the property would pass in accordance with your wishes pursuant to your will or, if there is no will, in accordance with state law. Sole ownership can be either as an person who has not been married, a person who has been married but is divorced, or as a married person as sole and separate property (spouse must consent).

Examples are:

• John Doe, a single man
• John Doe, an unmarried man
• John Doe, a married man, as his sole and separate property

Joint Tenancy

Joint tenancy with right of survivorship is the concurrent ownership by two or more persons of a parcel of property which the ownership and control would be shared equally among all the joint owners during their lifetimes. The entire property may only be sold or transferred with the written consent of all joint owners. Upon the death of one of the joint owners the interest passes to the remaining joint owners rather than to heirs of the deceased.

Example: John Doe and Mary Doe, husband and wife, as joint tenants

Community Property

Property acquired by husband and wife, or either during marriage, other than by gift, bequest, devise, descent, or as the separate property of either is presumed community property. Property acquired by him/her prior to the marriage or during the marriage by gift or devise is his/her separate property and the one who owns it can deal with it alone without the consent of the spouse.

Example: John Doe and Mary Doe, husband and wife, as community property.

Community Property with Right of Survivorship

Acquisition is the same as joint tenants, but the acquisition document must specifically state “with right of survivorship.” Terminating the interest of the deceased spouse is the same as joint tenancy. The main difference between “joint tenancy” and “community property with right of survivorship” is potential tax advantages/disadvantages upon death.

Example: John Doe and Mary Doe, husband and wife, as community property with right of survivorship

Tenancy by the Entireties

Tenancy by the entireties is basically a joint tenancy with right of survivorship between a husband and wife. Only a husband and wife may hold property as tenants by the entireties. As in joint tenancy, both spouses must consent in writing for the transfer or sale of the property and the surviving spouse would receive the entire property upon the death of his or her spouse.

Tenancy in Common

Tenancy in common is a type of concurrent ownership in which each tenant owns and controls an undivided interest (not necessarily equal or arising concurrently) in the property. Co-owners can be individuals and/or any type of legal entity. The entire property however, can only be transferred or sold with the written consent of all owners. However, a co-owner can sell or otherwise transfer or dispose of their interest in the property at any time, including bequeathing it
to heirs by will or otherwise. There is no right of survivorship; each tenant’s interest, upon death, vests in his or her heirs.

Example: John Doe, a single man, as to an undivided one-fourth interest, and George Smith, a single man as to an undivided three-fourths interest, as tenants in common.

Multi-Owner Differences

Each manner of vesting for multiple individuals has advantages and disadvantages. Differences include (1) whether or not probate is required upon death of a co-owner and (2) in the case of married couples, whether or not a co-owner receives a stepped up basis upon death of the other co-owner.

Legal Entity

There are a variety of legal entities available for real estate ownership. With a few exceptions, any entity that can operate a business can be the titled owner of real estate.

Partnership – In a general partnership, all partners are jointly and severally liable for the acts of other partners that are performed on behalf of the partnership. In a limited partnership, the general partners have the same liabilities as above,
while limited partners are usually liable only to the amount of their investment. In both cases tax benefits flow through to the partners, with the allocations not necessary based upon share of capital contribution.

Corporation – A “person” created by state law, a corporation has shareholders (owners), a board of directors, and officers. Shareholders are liable only to the amount of their investment. Directors and officers are also protected from
corporate liabilities, but can incur liability if they commit acts that allow piercing of the “Corporate Veil. For a regular “C” corporation tax benefits are not passed through to shareholders, the corporation is taxed on profits, and shareholders are taxed on dividends (double taxation). By electing to be an “S” corporation, certain tax benefits can be passed through to shareholders and double-taxation can be avoided.

LLC, Limited Liability Company – A LLC is a separate legal entity formed by filing articles of organization with the secretary of state. LLCs and similar entities combine certain features of partnerships with certain features of corporations, most notably, limited liability for its owners and managers. LLCs are more like a partnership, providing management flexibility and the benefit of pass-through taxation. In certain circumstances, a limited liability limited partnership or a limited liability partnership might be appropriate.

Trust – Title to real property may be held in Trust. The Trustee of The trust holds title pursuant to the terms of the Trust for the benefit of the Trustor/Beneficiary. Trusts are usually utilized for reasons related to estate planning.

Limited Liability Entities

Life is full of risks to one’s health, safety, security, and finances. When it comes to financial risk, operating any business is risky. However, being a landlord can be more risky than average.  Landlords are sued more often than any other group of business owners in America.

How well you survive a major lawsuit related to one of your properties can depend entirely on how ownerships of your properties are vested.

Landlords must understand that having liability insurance policies, no matter how high the coverage limits, doesn’t necessarily provide adequate protection in the event of a judgment in an amount significantly above the policy’s limit or for
an incident not covered by the policy. All assets held in the name of an individual are at risk in the event of a judgment resulting from an event related to any one property owned by the individual. Assets at risk include other rental properties, personal residences, stocks & bonds, bank accounts, and all other personal property of value (jewelry, furnishings, antiques, art, autos, boats, etc.). Not only are all assets at risk, but so is future income.

The outcome for such an event will be substantially different if the rental properties are vested in limited liability entities.

Furthermore, it is absolutely best to have a separate LLC for each property. The reason for this is that a large judgment against an LLC resulting from a claim against one property of multiple properties owned by the LLC would result in all other properties owned by that LLC being available for satisfaction of the judgment.

Estate Planning

Many think that estate planning consists of putting property into a joint tenancy, community property (with or without right of survivorship), or tenants in common form of vesting. There are several problems and risks in inherent in owning or attempting to transfer your property to your heirs or others by one of these types of concurrent ownership. Some of the potential problems include those discussed in the following paragraphs.

Transferring property can in itself cause problems related to gift tax or income tax. Transfer of title is also a violation of the alienation clause found in most real estate loan documents and can result in acceleration of the loan – that is, making the balance of the loan immediately due and payable.

Having property vested in a Revocable Living Trust is an estate planning tool that is often used these days. However, a Revocable Living Trust provides no liability protection during the life of the Trustor.

The bottom line is that estate planning is complicated and should usually be done in consultation with competent attorneys who specialize in the issues.

Do You Have Possession?

Whether the tenant left at the end of his lease term, terminated his lease early upon mutual agreement, or left in the midst of his lease term without even telling you, the fact is you have a vacancy. However, what you can or should do next can depend on how the vacancy occurred as well as what might have been left behind.

There are a number of potential issues regarding landlord possession of a rental unit and landlords do not always consider the ramifications of assuming that the tenant has returned possession when that was not the tenant’s intent.

There are also issues regarding tenant personal property still on the premises after it appears that the tenant has moved out.

What a landlord can do or must do when there is any question regarding the tenant’s intent to vacate varies significantly among states. Accordingly, while we will in this article provide discussions about some of the issues, landlords must research and understand the laws of their particular states.

Who Is In Possession?

The landlord should consider the issue of possession whenever there is any question as to whether or not the tenant has truly vacated the premises, that is, he intended to relinquish possession back to the landlord.

This is especially a problem when a tenant appears to have abandoned the unit without any notice, but has left some belongings behind. The problem is knowing whether the tenant has permanently left and intended to leave the belongings for
disposal by the landlord or, instead, plans to return at a later date to retrieve the belongings, even to re-occupy the unit because the tenant did not intend to relinquish possession of the premises. This can still be an issue
even though the tenant is not current with rent because the right of possession exists independent of paying rent unless a court ordered eviction has been completed.

Accordingly, a landlord should not take possession of the leased premises unless and until he/she is sure that the tenant intended to relinquish possession of the premises.  Doing so otherwise can expose the landlord to various potential problems.

Following proper procedures causes delays of a few days, even a couple of weeks, and delays in collecting rent from a new tenant means lost income. However, failure to follow the laws of your state can result in problems, even result in being sued by the departing tenant. Accordingly, before worrying about what to do regarding filling a vacancy, you need to be sure that you have legal possession of the unit. That is, you need to be sure that the
old tenants have no possession rights. In some states, one must even use care in entering the unit when not certain as to the tenant’s intent and plans.

The question of whether the tenant has actually given up possession usually becomes an issue when the tenant appears to either (1) be holding over after the expiration or termination of a lease or (2) to have abandoned the premises in the midst of the lease term.

In the first case, extra caution is warranted if the tenant has not (1) turned in keys, (2) written or at least phoned to confirm vacating or a planned immediate departure, (3) given any other indication of certain vacating, or (4) removed all
belongings from the property without mentioning that he intended to leave the items for disposal by the landlord.

In the second case, the tenant appears to be no longer living at the property even though time remains on the lease, perhaps even time for which rent has been paid, and some of his/her personal property may remain on the premises.

Statutory Possession

When a landlord is considering whether or not he/she has gained legal possession of a rental unit, he/she must be aware of any specific requirements in the statutes of his state. Such possible requirements vary significantly among those states which have them.

For example, a state may specify that the landlord does not have possession absent a specific action such as the keys being turned in. Absent such an action, state law may require that the landlord perform “abandonment” procedures or commence a forcible detainer action (eviction).

An “abandonment” procedure typically requires that rent has not been paid for at least some period after it was due (e.g., 10 days) and the landlord had been unable to contact the tenant for some period (e.g., 7 days). The landlord can then (and only then) post an abandonment notice on the door stating that he/she will be taking possession of the unit at some date (e.g., 5 days later). All periods must be as specified by the statute of the particular state. Although such a
statute significantly delays getting the unit ready for a new tenant, failure to follow the statute can put a landlord at risk.

Of course, any personal property left on the premises must be dealt with as required by the state’s abandoned property laws, as discussed later.

Minimizing Possession Issues

Minimizing questionable vacancy issues begins with the lease agreement. Absent any statute prohibiting it, the lease agreement should contain a clause(s) that specifies the length of time that the tenant may leave the property without prior notice to the landlord (e.g., 7 or 10 days ) and provides that the unit may be considered abandoned if such notice was not provided. The clause should meet any statute requirements that might exist.

One must, of course, take great care when utilizing such a clause because there could be a lot of reasons why a tenant failed to give the required notice. For example, the tenant is in the hospital ICU following a heart attack or an auto accident.
Accordingly, a landlord must make some effort to track down the tenant or information regarding the tenant. Efforts might include calling the tenant at his place of employment and/or the emergency contact and/or any personal
references that should have been provided with his application.

The lease should also contain a clause(s) regarding procedures for vacating and what actions might be taken by the landlord if procedures are not followed, including any required by statute. That is, words as to what the tenant must do
when vacating and what will happen if the tenant fails to act as agreed.

For example, in order to provide definitive knowledge of when possession has transferred, a clause could state that all belongings must be removed and keys must be returned when the tenant has fully vacated and that
failure to do both will result in (1) continued accrual of rent and any relevant late charges, (2) charges for the costs of disposing of the abandoned belongings, and (3) a locksmith charge.

Some states have statutes that define how a landlord may proceed to recover possession when the tenant appears to have abandoned the premises. When your state defines such procedures, the lease agreement should include the
procedures as defined in the statute.

Certainty about vacancy can also be enhanced by regularly monitoring the property beginning a short time before the tenant is expected to be vacating. It can be useful to stop in when it appears that the tenant has nearly finished loading the truck. At this time, you can confirm intent, mention the need to return the keys, and remind the tenant of the lease clauses and the penalties for failing to follow the procedures. If possible, have the tenant’s lease agreement with you when doing this. Furthermore, if possible, a signed written agreement listing what is being left behind and stating that the tenant understands that he will be charged for disposal would be very useful. At a minimum the landlord should
write a memorandum regarding the visit and the discussions.

Sometimes a landlord has information to indicate that tenants are leaving well before the end of a lease – i.e., breaking the lease.  Either the landlord has been monitoring the property and has noticed evidence of a planned move or another tenant or an adjacent property owner or tenant has voiced suspicions or actual knowledge of the possible departure to the landlord.

In this case, immediately talk with the tenants and make sure that they understand the implications of breaking the lease and the potential impact on their ability to rent or buy a home in the future. Consider negotiating mutually acceptable terms of lease termination. It is better to obtain quick and clean possession rather than have disputes after the fact even if you must give up some rent. If the tenant is leaving before the end of the period for which rent has been paid, doing this can provide a head start on preparing the unit for a new tenant. The negotiated terms should be in writing and include clauses regarding paid rent, possible forfeiture of some or all of the security deposit, and abandoned items.

Question

In the state of PA, is it permitted to make some apartment units non-smoking?

Answer

Obviously, I’m not familiar with every law at every level of government in the country, so I can’t state that a particular rental property location is not subject to some weird local ordinance related to prohibition of non-smoking rules. However, I’d probably bet a lot of money against there being one.

Nationwide the trend has for many years been to limit smoking. Many states have passed laws and many local governments have passed even more restrictive ordinances against smoking in public places. Some jurisdictions even prohibit smoking in bars. In a recent report the CDC estimated that roughly 47.8 per cent of residents are now covered by comprehensive state or local indoor smoking bans.

There has in recent years been increasing action against smoking by owners and managers of properties. Management companies that manage tens of thousands of apartments and condos have gone smoke-free in the past five years, including those managed by the owners and those managed by management companies. Some municipalities are passing ordinances related to smoking prohibitions, not only in public places, but also in multi-unit housing.

Most basically, there is no federal law that prevents landlords and property managers from regulating smoking on the premises, whether inside individual units or outside in common and private use areas. I doubt that there is any state law regarding the issue. This is because (1) there is no constitutional right to smoke and (2) smoking is not protected by Fair Housing laws – e.g., HUD does not prohibit non-smoking policies in affordable housing. In fact, in 2009 HUD released a memo that encourages public housing authorities (PHAs) to implement non-smoking policies. A number of PHAs around the country have adopted non-smoking policies.

It is my opinion that landlords should specifically prohibit smoking in their units and within common areas rather than discriminate against smokers per se because it is the act of smoking in the unit that is important to the owner and the secondhand smoke in common areas that is important to other tenants rather than the fact that a tenant is a smoker. Most, perhaps all experts feel that owners have the right to protect their properties against damages from smoking and to protect other occupants from secondhand smoke.

However, now the problem becomes one of detecting violators without running afoul of privacy rights. The solution is to both prohibit smoking inside of units; for multi-family properties,  on associated patios and balconies and within any common areas; and to make tenants responsible for damages resulting from failing to adhere to the prohibition.

This requires that applicants first be made aware that the unit is a non-smoking one in order to avoid wasted time and money in processing applications for those who might be unwilling to sign a lease that includes non-smoking provisions. Upfront notice can be accomplished in advertising, in an information sheet attached to the application form, and/or within the application form itself (the more places, the better).

The lease agreement should, of course, contain very specific clauses related to the non-smoking issue. In addition to a clear statement of the prohibition, acknowledged by the tenants upon signing the agreement, the lease should also
set out in some detail a list of damages resulting from smoking for which a violator will be responsible. The list would include items such as burns or stains on any component of the unit, odors, smoke residue on any surface, and
potential other liabilities such as damages resulting from smoking related fires. It should also include wording to the effect that these are examples of damages and not the only possible damages for which they will be liable.

The lease agreement should clearly make the tenant responsible for the cost of repairing, cleaning, painting, or replacing any items so damaged. Of course, the tenant must be initially provided with a unit that has no evidence of previous
smoking-related damage or such previous damage must be noted in the move-in checklist.

A landlord cannot introduce a non-smoking policy within units during the term of an existing lease, but can include it as a clause in any extension or renewal of an existing lease agreement. It would be best to give all tenants in a multi-unit
property advance notice that such will be the case. I won’t guarantee that prohibiting smoking within common areas or in other places (balconies & patios) where other tenants could be exposed to secondhand smoke would withstand a challenge by a smoker whose lease agreement does not prohibit it, but I wouldn’t be surprised if such a prohibition would be allowed because it protects the health of other tenants.

For multi-unit properties, prohibiting smoking inside units and in common area hallways and within some distance of residents’ patios, balconies, doors, etc, can actually reduce the risk of problems. Because tobacco smoke is often considered a nuisance in the same way that loud noise would be considered a nuisance, if tenants complain about drifting tobacco smoke landlords must take action to protect them.

In fact, landlords and property managers who fail to accommodate non-smoking tenants who complain about secondhand smoke may be exposing themselves to lawsuits. If a resident or prospective resident has a disability or chronic illness which is made worse by exposure to tobacco smoke, Fair Housing Laws will require a ”reasonable accommodation.”

Question

I went to the magistrate, filed a Landlord/Tenant complaint to remove a tenant, and had the hearing at which time I received possession of the property. The tenant filed an appeal at the court house. At that time she owed $126.50 for the cost
incurred for the judgment and on the day of her appeal the rent was due in the amount of $500. She only paid for the appeal of $68.50 and nothing else. It has been 10 days since she filed and she has no money to pay anything until July. I
claim she is in default I and should be able to get possession without filing another appeal. The Prothonatary’s office will not speak to me and I think they screwed up by not getting any money from the tenant. I have only 9 days to an appeal
according to the Notice. This is in Pennsylvania.  Can you give me some guidance on this?

Answer

An appeal usually prevents the tenant from being evicted as long as all rules governing the appeal process are followed.  One of the most important rules in most jurisdictions, unless the judge grants a waiver, is that the tenant begin depositing all monthly rent into an escrow with the court at the time the appeal is filed. Failure to open the escrow account or deposit the money in full and on time can lead to dismissal of the appeal and eviction of the tenant.

You didn’t say whether this was a requirement for your case or, if so, whether the tenant deposited the funds into the escrow account. Different jurisdictions within PA and even different judges within a particular court may have different interpretations of the statutes and procedures. Furthermore, judges sometimes let their emotions interfere with enforcing the law.

Because failure to properly follow the court’s rules related to eviction can significantly extend the eviction period, it is often more cost effective to hire an attorney who specializes in evictions on behalf of landlords, preferably with intimate knowledge regarding the particular court of jurisdiction. A competent attorney can also help maximize the amount of any judgment obtained against the tenant.

It is often best to obtain a money judgment even if the tenant leaves before completion of the eviction process because (1) judgments are good for 5 years or more in most states, (2) judgments can be
renewed for addition periods, (3) interest is added to a money judgment – often at a higher rate than available from most other investments, (4) the judgment can be collected in any other state that the defendant might move to, and (5)
judgments are sometimes paid off because the debtor needs to remove the item from their credit record in order to obtain a loan or rent another property.

Question

If an unmarried couple wants to rent our home can we asked that only the man who has a job sign the lease agreement. We don’t want the unemployed lady friend to have her name on the lease in case the boyfriend leaves as she has no income. If her name isn’t on the lease and he leaves her we could then ask her to leave, but if her name is on the lease then it would be difficult to ask her to leave and she has no means to pay the rent. Also can we refuse to rent to unmarried couples?

Answer

In my opinion, there is almost never a reason to not have every adult occupant sign a lease. However, there are numerous reasons why every adult should be required to sign, some of which are discussed herein.

Federal, state, and local fair housing laws protect against housing discrimination. Some states do allow a landlord to use unmarried status as criteria for refusing an application. You will need to research your state and local fair housing laws to determine if there is an applicable law protecting unmarried couples from housing discrimination. If allowed by law and your rental standards you must be sure to apply your standards to all applicants. Each and every applicant must be screened using the same rental criteria, in the same manner, every time.

At a minimum, landlords should require that each applicant (who can be held liable on a lease agreement) should:

• Be of legal age (18, 19, or 21, depending on state) or an emancipated minor,
• Complete and sign a rental application,
• Sign an authorization of release of personal information form for credit reports, employment, rental history, eviction report, and criminal history, and
• Present at least two forms of personal identification, with at least one being a government-issued photo ID

Every occupant, age of maturity or emancipated (including spouses), should be named on the lease agreement. In the event one occupant defaults, you have recourse against the other tenant. The fact that one tenant has no income at the time of application does not mean he/she cannot be collected from in the future – even if completely penniless at the time of application, he/she may later be employed, win the lottery, inherit a fortune, or marry someone of significant financial status. Judgments against a person who had no income or assets at the time the judgment was obtained can be collectable for many years later and in other states. Furthermore, if the person seeks credit at a later date (including when applying to rent elsewhere) provides leverage for payment because credit grantors sometimes require payment of judgments as a condition of granting credit.

If you do not have her sign the lease and the boyfriend leaves you can certainly “ask” the lady to leave, but if she refuses you will have to legally evict her or any other person who has moved in, potentially costing you the same time, money, and stress as if she had been a wife. This is one reason why eviction complaints should usually include “John Does” as defendants. Having the unemployed person(s) sign the lease assures the ability to obtain a judgment against that person.

In general, the more people who can potentially be held liable for rent and damages the better the chance the landlord will eventually collect what’s owed. Furthermore, assuming that the lease agreement is correctly written to make each signer jointly and severally liable, the landlord need not try to collect from each one who signed the lease, but may pick the one who has the deepest pocket at that time or the one who is easiest to find.

Again, landlords must understand that an applicant’s current financial status is not always his/her status at some later date. Those long employed at high salaries may be unemployed next month. And, as previously stated, those who are currently unemployed and have no assets may be wealthy next month.

Question  1

One of my units has been rented to two unrelated tenants.  Due to change in employment for one of them, One is moving out and the remaining says she will assume responsibility for the apartment.  Is there a certain form that needs to be used here or is a verbal agreement enough?

Answer 1

Oral agreements are often worth the paper they are written on — nothing. Everything to do with landlording should be in writing.

If the remaining tenant financially qualifies to rent the unit, you can, if you wish, release the departing tenant from the lease. However, there is usually no reason to consider releasing the departing tenant from liability. Your lease should have and likely did make all signers jointly and severally liable and you are much better off to keep it that way. For example, if you release the one moving out and the remaining tenant never pays rent again, you will not be able to go after the other one. If the remaining tenant filed bankruptcy, you would have nothing.

The bottom line is that it is to your advantage to leave the departing tenant liable. If nothing else, he/she might pressure the remaining tenant to make good on damages or unpaid rents.

Similarly, you should not refund any security deposit to the departing tenant, but, for several reasons, should require the two tenants to take care of that between them, obtaining an assignment of the departing tenant’s share of the deposit to the remaining tenant or when the remaining tenant also leaves, make the check for any funds being returned payable to both parties.
Question 2

I’m taking over management of some property here in TX and was wondering how I should go about forcing a tenant to sign the new company lease. I know you can’t change the monthly rent they are paying, but I want to put the tenants on our lease with our policies. I would say 90 % of our tenants will not give a fuss, but a few just might. I would imagine that, since the old owner is no longer in the picture, technically they no longer have an actual lease and must sign with our company.

Answer 2

You don’t say whether you are taking over management as a licensed broker or as an employee of the owner or of a licensed broker. Most states require that a property manager be licensed real estate broker, however, most states allow an unlicensed person to be resident manager for the particular property in which he/she resides as long as the resident manager is a legal employee of the owner or a licensed management company.

You are absolutely wrong regarding what a sale means related to a lease agreement. Lease agreements go with the property, not the owner. This would be true even for an oral lease, such being valid and enforceable for a term of up to one year in most, maybe all states. Any lease in effect at the time of purchase of a property is valid until expiration and the new owner cannot force a tenant to execute a new lease and cannot unilaterally change its terms in any way except as allowed by terns of the existing lease. Obviously, however, if it is a month-to-month tenancy, a new lease or any other changes can be made upon providing proper advance notice as required by your state’s law. However, one still cannot force a tenant to sign, as the tenant could instead leave.

Question 3

I have an applicant that does not wish to give her social security number. She states that this is not needed to allow a person to obtain a place to live and is against the law to be denied based on bad credit. Is this true? If so, what can one use to verify if this person is who she says she is, plus what guideline can be used for a landlord to deny renting to an applicant?

Answer 3

The applicant is wrong. A landlord can refuse to rent to a person who does not qualify to rent a property under such financial criteria that the landlord applies to all applicants. If you normally perform screening procedures that require applicants to provide Social Security Numbers, you can refuse to even consider an application from someone who refuses to provide the information requested on your application form, so long as the requesting info does not violate federal, state, or local law. SSNs can be requested from each adult applicant. In fact, failure to apply all qualifying criteria to all applicants can put a landlord at risk of being subject to a fair housing law violation.

It is best to have a written screening policy that you give to each potential applicant, wherein, you state which information will be required and what screening reports will be performed, requiring written permission from the applicant to obtain reports. The policy should state that everyone who will be living at the residence who is 18 years and over must prove identity with two sources of ID, including at least one photo ID, and provide SSN, driver license, vehicle tags and registration information.  State that they must authorize you to obtain screening reports including a credit report, employment and income verification, criminal background check, eviction history, and previous landlord checks.

If they refuse to meet reasonable requirements that you apply to all potential applicants you need not consider their application. You must apply the same criteria to all potential applicants in order to withstand any claims of violating fair housing laws. Be sure to document the problem regarding the subject applicant in detail and retain the documentation. Potentially good tenants will cooperate. Beware of the ones who refuse to provide information or authorization.

Qustion 1

I am considering trading two month’s rent on a unit rented to a painting contractor for some painting on the property where he lives and for some painting on my personal residence. How do I handle this income tax-wise?

Answer 1

You actually need to be concerned about four different legal issues. One is the income tax ramifications that you ask about and this is by far the easiest one to fully address.  A second relates to state and federal employment laws. A third, for some states, relates to contractor licensing laws. A fourth issue is insurance coverages. The other three issues would each require a lot of discussion to cover adequately.

If you receive property or services, instead of money, as rent, include the fair market value of the property or services in your rental income. If the services are provided at an agreed upon or specified price, that price is the fair market value unless there is evidence to the contrary. If the services are related to operation of a rental property, the amount may be deducted or depreciated, depending on the nature of the services provided.

Include in your rental income the amount the tenant would have paid for 2 months’ rent.  You can deduct the portion of that amount that was for work on the rental property as a rental expense for painting your rental property. The portion of
the amount that was for work on your personal residence, although included in the 2 months’ rent, cannot be deducted as a rental expense for your rental property.

If instead your tenant is a carpenter who offers to construct a storage shed on your rental property for 2 months’ rent, include in your rental income the amount the tenant would have paid for 2 months’ rent. You can depreciate that same amount in accordance with the appropriate depreciation schedule.

If the shed is constructed on your personal residence property in exchange for 2 months’ rent, you would include the 2 months’ rent as rental income for the rental property. If this shed can be considered a capital improvement to your
personal residence property, you can add the amount to the basis of your personal residence property, meaning that the amount will not be subject to capital gain tax when the residence is sold in the future.

I’ll only discuss very briefly the other three issues. If you have questions regarding the following, feel free to post again.

Regarding employment laws, workers are classified by state and federal statutes as either employees or independent contractors. If employees, issues such as income tax withholding, social security taxes, unemployment insurance, and workers’ compensation insurance must be considered – and there are other possible issues.  These issues are not directly a concern when a worker is legally an independent contractor (IC). However, a worker cannot be classified as an IC because he says he is one or because the person paying him wants to avoid the burdens of classification as an employee. There are criteria that determine whether a worker is an employee or an IC and further discussion is beyond scope of this
answer, but the criteria is most basically related to the control each party has regarding the tasks being performed. For your case, if the tenant is truly a painting contractor, you might want to assume he can be treated as an IC, but such is not guaranteed and safety comes only from satisfying the state and federal government rules.

Regarding the licensing issue, many states limit the type of work and/or the cost of a project that can be legally performed by non-licensed contractors and there can be serious consequences related to breaking licensing laws. Type of work is often related to the risk of injury or damages related to work that is improperly done – e.g., many states prohibit electrical or plumbing work by unlicensed workers. For some states, the maximum cost can be as low as $500.

Regarding the insurance issue, you need to make sure that your insurance policy will cover you for liability that might result from injury or damage to property caused by the workers, whether licensed or not. If the contractor is licensed, the state will require him to carry liability insurance and, if he has employees, workers’ compensation insurance, but you still need know that your insurance policy provides secondary protection and you should require proof of the contractor’s insurances. Unlicensed contractors seldom carry required insurance.

Of the three issues other than income tax, the insurance issue can have the largest financial loss due to possible litigation related to injury (of workers or the public) or damages. These issues are discussed more fully in our Mini Training Guide titled “9 Steps to Avoiding Problems When Hiring a Contractor.”

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Question 2

A tenant in my 10-unit apartment building has complained about cigarette smoke drifting into his unit from another tenant who smokes on that other tenant’s patio. My leases prohibit smoking in units, but what about a tenant smoking on patios that bothers another tenant?

Answer 2

For multi-unit properties, prohibiting smoking inside units and in common area hallways and within some distance of residents’ patios, balconies, doors, etc, can actually reduce the risk of problems. Because tobacco smoke is often considered a nuisance in the same way that loud noise would be considered a nuisance, if tenants are complaining about drifting tobacco smoke, landlords must take action to protect them. Some states have specific laws regarding secondhand smoke issues.

Landlords and property managers who fail to accommodate non-smoking tenants who complain about secondhand smoke may be exposing themselves to lawsuits even if not in violation of laws. If a resident or prospective resident has a disability or chronic illness which is made worse by exposure to tobacco smoke, Fair Housing Laws will require a ”reasonable accommodation.”

The solution to avoiding problems is to both prohibit smoking inside of units and on associated patios and balconies and to make tenants responsible in the lease agreement for damages resulting from failing to adhere to the prohibition. For smaller properties, where smoke might drift to units or common areas from the farthest corner of the land, prohibition must apply to everywhere on the property.

Most basically, there is no law that prevents landlords and property managers from regulating smoking on the premises, whether inside individual units or outside in common and private use areas.  This is because (1) there is no constitutional right to smoke and (2) smoking is not protected by Fair Housing laws. HUD does not prohibit non-smoking policies in affordable housing.

Prohibitions against smoking require that applicants first be made aware that the unit is a non-smoking one and that smoking elsewhere on the property is strictly limited.  This is important in order to avoid wasted time and money in processing applications for those who might be unwilling to sign a lease that includes non-smoking provisions. Upfront notice can be accomplished in advertising, in an information sheet attached to the application form, or within the
application form itself.

The lease agreement should, of course, contain very specific clauses related to the non-smoking issue. In addition to a clear statement of the prohibition and the extent thereof, acknowledged by the tenant upon signing the agreement, the
lease should also set out in some detail a list of property damages resulting from smoking for which a violator will be responsible. The list would include items such as burns or stains on any component of the unit, odors, smoke residue on any surface, and potential other liabilities such as damages resulting from smoking related fires.

The lease agreement should clearly make the tenant responsible for the cost of repairing, cleaning, painting, or replacing any items so damaged. Of course, the tenant must be initially provided with a unit that has no evidence of previous smoking-related damage or such previous damage must be noted in the move-in checklist.

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Question 3

I am a relatively new landlord and am wondering how long must I keep documentation related to operation of my rental home?

Answer 3

Landlords need to keep records related to every vacancy for at least the length of time when they might be relevant to defending against an alleged fair housing violation or against a lawsuit from regarding any issue related to a current or former tenant.

They must keep all records related to all applicants, current tenants, and past tenants. This includes advertising copy, sign-in books for open houses, phone logs of inquiries, returned applications, all types of screening reports, lease greements, rent payment records, maintenance records, and letters and notices to and from applicants and tenants.

The required retention period varies because the time allowed for filing of fair housing claims or of a lawsuit varies among states as well as between federal and state agencies. It can depend on a  specific state statute or by the general statute of limitations laws applicable to the potential cause of action. The length of time typically varies from 2 to 5 years among the states.

Retaining the documentation will help ensure that the landlord is best able to defend against a lawsuit for any complaint charging housing discrimination or for any other disputed issue.

For property managers, who are regulated by a state licensing agency, the records which must retained and the period of time for which various records must be retained are defined by state statutes and/or regulatory agency regulations and the periods may be different than for unlicensed landlords managing their own properties.