Should Landlords Require Tenants To Have Renters Insurance?

Renters Insurance Benefits

Renters insurance can be of benefit to landlords.  Accordingly, landlords should encourage tenants to have renters insurance and, if allowed by their state’s law, should consider making renters insurance mandatory for all their units.

One estimate is that less than a quarter of renters have renters insurance. Many mistakenly think that the landlord’s insurance will protect them regarding various risks.

They do not realize that they must purchase their own insurance to cover damage to their personal property resulting from risks such as fire, vandalism, and theft. Tenants must clearly understand that a landlord’s insurance does not
extend to the tenant’s personal property. Neither does the landlord’s policy cover the tenant’s liability for damages to property of others or to injuries or death occurring on their leased premises.

Many also do not understand that they may be held responsible for injury to another person or damage to another person’s property, whether the incident occurred within their rented premises or, under some circumstances, elsewhere.
Without liability coverage, their assets and their current and future earnings could be at risk.

Accordingly, landlords and property managers should (1) explicitly inform new and existing tenants who have not been previously informed that the owner’s insurance does not (a) cover their own personal property, (b) cover damages to the landlord’s property resulting from their actions or inactions, or (c) protect them against judgments from lawsuits related to their occupancy of the property and (2) make every effort to be sure that tenants realize the importance of purchasing their own renters insurance. Landlords benefit when including this information within the lease agreement.

Many fires in rental units are caused by tenants while cooking, by use of faulty appliances or extension cords supplied by tenants, or by improper use of those items. Accordingly, tenants should also be made aware that the landlord will have the legal right to collect from the tenant for any damages to the landlord’s property caused by the tenant’s negligence and that the tenant may be held liable by the landlord’s insurer for any amounts related to such damages paid to the landlord by the landlord’s own insurer.

A tenant’s casualty coverage will reduce potential landlord-tenant disputes after tenant’s losses, including from fire, water damage, and theft. A tenant’s liability coverage may also provide additional liability protection for the landlord.

Many tenants have limited assets and are somewhat “judgment proof.” Accordingly, landlords should usually expect to be named in any lawsuit when someone is injured on a rental property, no matter that the landlord was in no way at fault. A tenant’s insurance policy that includes liability coverage may eliminate the need for the landlord’s insurance policies to pay claims.

It is the insured’s responsibility to immediately notify his/her insurance company or agent as soon as he/she learns about a claim or a probable claim. In fact, the policy will have a requirement to “immediately tender” any claim. Failure
to do so in a timely manner may jeopardize the coverage. For most liability policies, you are required to notify the insurer immediately after an incident on your property that might cause a future claim no matter how unimportant the
incident may seem at the time it occurs.

Therefore, no matter how good the coverages provided by the tenant’s policy and whether or not the landlord is named in a claim related to a rental property, landlords should report any event that could lead to potential claims against the landlord even when it seems obvious the claim will ultimately be against the tenant’s policy. It will be up to the landlord’s insurance company and the tenant’s insurance company to determine which of them is liable for payment of claims.

In most states tenants can be required to carry renters insurance by the lease agreement. Many landlord insurers for commercial properties require that the landlord make specified insurance a lease requirement, with the landlord being responsible for making certain that such insurance remains in effect during the tenant’s tenancy. However, landlords should verify that their state does not prohibit or otherwise regulate such a requirement for residential rental properties. When requiring the tenant to carry insurance, the lease should also require that the policy include the rental property as an additional insured and a vested party for reimbursement in the case of any damages.

If an event insured against (e.g., a fire) makes the rental home uninhabitable, the tenant’s insurer may also cover the increased costs of a place to live until the tenant can move back in.

As with homeowner policies, renters insurance is usually a package of several types of coverage designed to cover more than one risk.

A typical renters insurance includes the following protections:

Damage to or loss of tenant’s personal property – Available coverage limits are usually $15,000 to $100,000. Replacement cost protection is usually available as an option to value at time of loss. Tenant policies usually offer deductibles from $250 to $2,500. Endorsements for property such as personal computer equipment, business property, jewelry, bicycles, and cameras are often available as an option.

Medical payments – This coverage covers medical expenses up to the limits in the policy for people who are on the premises of the rental property with the tenant’s permission and are accidentally injured and also extends to people accidentally
injured by the tenant’s activities. The limit is typically $1,000 per person but higher limits of $3,000 or $5,000 can often be purchased.

Liability exposure of tenant – This coverage protects the tenant against certain risks per accident for bodily injury or property damage. Available liability limits are typically $100,000, $300,000, or $500,000. If sued, the policy will cover
court judgments made against the insured and any legal expenses up to the limits of coverage.

Renter insurance also usually covers temporary living expenses if their rental unit becomes unlivable because of water or fire damage or any other covered peril.

A renters insurance policy is usually a “named perils” policy. If the tenants’ property is lost or damaged as a result of a covered peril, the insurance company will compensate them for their loss. Covered perils usually include the following:

• Fire or Lightning
• Windstorm or Hail
• Explosion
• Riot or Civil Commotion
• Damage by aircraft
• Damage by vehicle (not your own)
• Damage from smoke
• Vandalism or Malicious Mischief
• Theft
• Burglary
• Falling Objects
• Weight of Ice, Snow, or Sleet
• Sudden and Accidental Tearing Apart,  Cracking, or Bulging
• Freezing
• Sudden and Accidental Damage from  Artificially Generated Electrical Current
• Volcanic Eruption
• Damage from  steam-heating/water-heating appliances/systems
• Leakage or overflow of water or  steam
• Freezing of plumbing, heating, air  conditioning
• Short-circuit damage caused by electrical appliances

Tenants need to know that renters insurance is relatively affordable.  For just pocket change a day, a policy can provide significant basic protection. The renters policy is relatively inexpensive compared to a homeowner policy because both policy limits and risks will be much less than for a homeowner. Almost all tenants have insurance on their motor vehicles and tenants may be able to cover an auto and get basic renters coverage for only a few dollars per month more than for just auto coverage alone because most insurers offer multi-line discounts.

As with all issues regarding management, landlords must apply the insurance requirement to all tenants in order to avoid fair housing violation claims. To be safe, this would mean applying the requirement to leases executed, renewed, or extended after the decision is made to institute the requirement. For month-to-month tenancies this would mean as soon as allowed by state law.

Disclosure Issues – Part 2

We continue our series about disclosure issues with a discussion that is related to a specific question recently posted to our “1-on-1 Help Center.” The posted question concerned an issue which should be important to all landlords.

The question was as follows: “I own a 4-plex on which various improvements have been made during the 8 years I have owned it. Some of these improvements were done without permits. What problems might this cause me when I sell?”

The basic answer is that a seller should always be concerned about doing improvements that are (1) not according to zoning, (2) without building permits, (3) not done according to code, and (4), for some tasks, not done by licensed
contractors. Furthermore, it is best to deal with the issues before putting the property on the market.

I will further answer the question with a more comprehensive discussion than provided to the person who posted the question.

Almost all states no longer allow a seller to escape liability for known defects by selling the property “as is” except for certain transactions such as foreclosures or sales by government agencies. Many states now require that a seller fill out a disclosure form that discloses various issues that might be a material factor in deciding whether to purchase a property and how much to pay for it. In some of those states, the requirement is limited regarding property type – for example, residential properties of four or fewer units.

California, for example, is a state that has a statute that specifies its requirements for disclosure upon sale of a property. The disclosure forms required by law in the State of California as provided by the Department of Real Estate and as provided by the California Association of Realtors can be found at www.dre.ca.gov and www.car.org, respectively. Note that cities and counties are allowed by the relevant California statute to require additional disclosure items.

Even when the form isn’t specifically required, most, perhaps all states by statute or court decisions make disclosure by the seller a legal responsibility. Failure to disclose material facts that were known or, in some cases, should have been known, can result in time-consuming and costly problems.

Knowledgeable buyers will insist on certain disclosures even if not required by law and not represented by an agent. If the buyer is represented by a licensed real estate agent, such certain disclosures will likely be required by the broker even when not required by law. The disclosure statement will usually cover such items as known (1) zoning, building code, or permit violations, (2) utility services (including whether or not on city water and sewer), (3) soil stability problems, and (4) environmental issues such as lead, mold, and/or asbestos. Regarding the subject question, we will in this article be primarily interested in the items listed in the first category.

Lack of laws will not eliminate problems when selling a property absent adequate to zoning, building permits, and codes, whether the items are mentioned specifically or are included within a general contingency clause. Therefore, failure of the seller to disclose problems up front will likely mean a renegotiation of the purchase price or withdrawal of the offer when problems are discovered by the buyer or the buyer’s agents, meaning wasted time for a number of people.

Even if a sale escrow closes without discovery of a problem, failure to disclose any of the three issues can result in serious future problems in a number of ways.

Discovery of a zoning problem following close of escrow can result in litigation because the value of property with the actual zoning is significantly below the price paid for it. As a minimum, the buyer may require the seller to pay for the cost
of “fixing” the problem in order to avoid litigation and, quite likely litigation will occur if the problem is not “fixable.”

Even for jurisdictions where pre-closing inspections are not required, the buyer’s inspector did not notice any out-of-code work, and escrow closes without a hitch, unpermitted or non-code work can cause problems when discrepancies related to unpermitted improvements are discovered by a contractor doing work for the buyer after closing. For example, the owner calls in a plumber to repair a leaking pipe joint related to the gas water heater and the plumber discovers code violations related to installation of the water heater. As he should, the contractor states that the faulty installation is a safety hazard and that he can’t repair the leaking joint without correcting the out-of-code installation.

Such a scenario can result in a claim by the buyer to the seller for compensation, particularly if the cost of bringing the installation up to code is considerable. Even worse would be if an improvement that was improperly done results in injury or death months, even years following the close of escrow.  The seller would almost certainly be sued in such a case, and the buyer would win. The seller might possibly even be criminally charged.

More importantly and potentially most costly, if non-permitted work someday contributes to damages, injury, or even death, the owner may be open to lawsuits, even possible criminal liability in extreme cases, and will almost certainly be at more risk than if the same work had been done with a permit.

Tasks that might require a permit can vary significantly among jurisdictions. In some jurisdictions one can construct an entire house without a single permit or inspection. In others, a permit is required to replace a leaking water heater
or even to add an electrical circuit.

Some local governments have formalized the subject disclosure issues by requiring an examination by the city or county building department of zoning issues and of building permit records for the property and then a physical inspection by qualified building department personnel.

The results of physical inspections are compared to original building plans and modifications done with permits. Escrow cannot close unless and until the city is happy with their investigations.

Non-permitted work may have to be redone if not per building codes or may have to be undone if not allowed by zoning regulations. Even if non-permitted work was performed per building codes, owners can be forced to obtain approvals and permits. This will be a time-consuming process and the fines and/or other financial penalties for violations will usually make correcting the problems quite costly.

In general, codes can require that all problems must be “fixed” if significant rehab is undertaken. That is, an owner who wishes to do improvements with permits can be forced to do a lot more work at a significantly greater cost than originally planned. Furthermore, inspectors may also flag other problems when inspecting work allowed under a permit.

Depending on the specific jurisdiction, the result may require getting the improvements permitted at a cost that will include the current permit fees and may include penalties, the penalties sometimes accruing from the year when the improvements were made. Simply deciding to not sell may not be a solution as, now that the building department has knowledge of the problem, the owner may be required to correct it anyway.

In addition to improvements done without permits, code violations are often found during the inspections. These violations must usually also be corrected and some must be corrected by licensed contractors. Accordingly, failure to take care of the problem before signing a contract can create significant problems when escrow is scheduled to close. At a minimum it will result in a significant delay while getting permits, even a longer delay if the inspection discloses numerous code
violations that must be corrected.

Some cities have had such procedures in place for decades and such requirements will likely be implemented in evermore jurisdictions in the future. In such jurisdictions, owners who think that can save money by ignoring the rules can be in for expensive surprises when they attempt to sell their properties.

If an owner decides to market the property without correcting known or suspected problems, he should disclose the issues up front, at least before signing a contract, even if in a jurisdiction that does not require building permits, in order to reduce ramifications of any issues occurring at some future date. Not making a deal is far better than defending against a lawsuit for failure to do so when (probably not if) the buyer discovers the issue, particularly if discovered after closing
escrow rather than in the course of performing due diligence.

Even if discovered by the potential buyer’s due diligence and he/she invokes a contingency to cancel the offer, you may have a couple of angry real estate agents whose time you’ve wasted. Many of those jurisdiction that require inspections
by their building departments will not allow an escrow to close without fixing the discovered problems even if a buyer is willing to buy the property as is.

Yet another potential problem involves having used unlicensed contractors for certain tasks. While most states allow owners to perform most repairs and improvements, even perform most tasks related to construction of a building – with required permits and all required inspections, of course – many states require the use of appropriate licensed contractors for certain tasks. As examples, some states require that electrical work beyond plugging a corded appliance into an existing outlet be performed by a licensed electrician and some states require that a licensed plumber install any gas appliances such as a gas water heater. Some jurisdictions even require building permits for relatively minor tasks. Many states aggressively search out and prosecute unlicensed contractors. Failure to utilize licensed contractors when required by law can impact both the unlicensed contractor and the property owner.

Knowledgeable owners will be sure that permits are pulled for any work that requires a permit and that work is completed in accordance with building codes. They will also be somewhat knowledgeable about contractor licensing laws of their states to be sure licensed contractors perform tasks when so required by law.

Dogs & Insurance

Everyone is probably aware that they can be held liable for injuries caused by their dogs. All landlords should be aware that they can also be held liable for injuries caused by their tenants’ dogs.

These days, dogs can also be the cause of insurance problems, whether your homeowner policy or policies for your rental properties. In other words, man’s best friend may be your insurance policy’s worst enemy. Dogs or those of your tenants can make it more difficult,  more costly, maybe even impossible to obtain insurance coverage for your property.

Many insurance companies now refuse to write or renew policies for homeowners who have certain breeds of dogs or for landlords who allow tenants to keep those breeds. It’s basically a case of canine profiling.

Large dogs that can easily inflict serious damage concern insurance companies the most. Dog breeds usually found on an insurance company’s “forbidden list” include Akita, Alaskan Malamute, Chow Chow, Doberman Pinscher, German Shepard, Pit Bull, Presa Canario, Rottweiler, Siberian Husky, Strattfordshire Bull Terrier, and Wolf Hybrid.

Insurance companies explain that they’re only trying to reduce risks and costs so that they can keep premiums down. They claim that they’re eliminating coverage for breeds known to have high bite rates. High-profile dog mauling cases, including those resulting in death for children, have increased concerns.

Dog lovers answer that any dog can be aggressive and bite and that many breeds on the dangerous list are as kind, gentle and no more apt to bite than the average dog. Accordingly, they say that the uninsurable breed system is neither scientific nor fair. Some insurance companies agree that it’s difficult to make blanket judgments about breeds, but insurance decisions are basics on statistics and statistics show that certain breeds are riskier.

Insurance companies report that the cost of dog liability has been rising steadily for years. Insurers argue that it’s necessary to apply their standards because they can’t determine the disposition of an individual dog. Combined with the overall increase in costly claims and lawsuits for everything from toxic mold to natural disasters, it shouldn’t be surprising that insurance companies are looking for ways to increase profits.

Insurance companies are dealing with the dog problem in various ways. One is to refuse coverage for “dangerous” breeds based on a company’s’ list of breeds based on frequency of dog bites, the reputation of the breed, the insurance company’s own research, and information from the CDC. In many cases, the owner can get a policy, but the insurer simply will not pay any claims related to the listed dogs.

This may be tolerable for homeowner policies because the homeowner has control over his own dogs and, just as importantly, knows his specific animals and can therefore judge the risk with some confidence. Landlords and property managers do not have this option. Their only options are to find a company without a list of dangerous dogs or with list that doesn’t include the critical breeds – with no certainly that things won’t change by the time of next policy renewal.

Many companies refuse to provide dog coverage in rental insurance policies period because they know that landlords cannot really fully control the breed of dog brought in by tenants. Some companies deal with the issue by charging higher premiums for landlords who allow listed breeds and for homeowners who have those breeds.

Some landlords attempt to deal with the issue by requiring tenants to provide their own insurance for their dogs. Dog liability coverage is usually available with a renter policy, likely with the same breed restrictions as for a landlord policy. Landlords who allow dogs based on their tenants obtaining liability coverage for the dogs should make proof of insurance a condition of possession. Lease agreements should contain adequate clauses to properly deal with the issue.

However, although proof of insurance can be required as a condition of initial possession, it is difficult to be certain that the policy remains in effect. The issue of continuing insurance coverage problem may be considered solved by requiring that the landlord be named an additional insured on the tenant’s policy, as this will theoretically provide the landlord with 10 days written notice from the insurance company if the policy is cancelled.

However, this isn’t entirely satisfactory because, taking into account mail delivery delays, the landlord may only have a few days to attempt to deal with a cancellation. Then, if the tenant fails to cooperate in keeping his insurance in place, there is little the landlord can do except give notice and commence eviction. This eviction will take significant time and will result in extra cost and hassle. Furthermore, success may depend on adequacy of the subject lease clauses and the whims of a Judge. Then, if the tenant is evicted, significant losses may result due to down time of the unit. Although any losses can theoretically be recovered from the tenant because he breached his lease, in practice, it may be another matter.

The bottom line is that landlords must be careful about allowing dogs on their properties, particularly if the landlords’ own liability policies exclude the breeds owned by the tenants. Remember, anyone who sues the tenant for anything related to occupancy of the landlord’s property will almost certainly name the landlord in the suit and the landlord will have to spend the time and money to defend against the suit even if ultimately successful in his defense.

Another way in which insurers are attempting to limit dog-related losses from homeowners is to consider policies on an individual basis. They look on a case-by-case basis at each home that has a dog. If they decide that the dog might be a problem, they write an endorsement that excludes  the dog from the policy. This approach is also not practical for landlord rental policies because the landlord has little knowledge about or control of tenants’ dogs.

Homeowners have a defense against rising rates or an outright cancellation of their homeowner’s policy. That is, to have their dog properly trained and to provide their insurance company with documentation for that training. Homeowners can also reduce their insurance costs by neutering or spaying their dogs because this can often minimize behavioral problems. Securing the dog on the homeowner’s property also reduces problems. Again, these methods are of little use to the landlord.

For homeowners, if these moves won’t convince their insurer to cover their dogs, they should try to find a more liberal insurer. One final solution for the homeowner might be to obtain home insurance having  no dog coverage from one company and add dog liability coverage, at additional cost, from a firm that specializes in that type of insurance. While it can be expensive, it is available.

Although homeowners have possible options for keeping their dogs even when they are on the insurer’s list of dangerous breeds, landlords don’t have the same options. If landlords wish to minimize the risk of significant financial losses resulting from dog-related injuries or deaths, their only choice is to fully prohibit blacklisted dogs in their properties, rigorously monitor the ban, and aggressively enforce it with zero tolerance. To do otherwise is to risk significant financial loss, even to loss of their property. If the landlord is not adequately insured and if all real estate is not properly vested, there is a risk of the loss of other assets as well.

Landlords should inform all potential applicants about their animal policies at the first point of contact.  Landlords should be sure to include adequate enforceable clauses in their lease documents. These clauses should include detailed statements regarding (1) the restrictions and (2) the penalties for violating them. Landlords should monitor their properties regularly and vigorously enforce their animal policies, as this will both minimize time of exposure to risk and may provide some improved level of defense in court. Finally, landlords should keep in mind that the risk is not only for the owner of an urban multi-unit apartment building but also for the owner of a country property.

Lease Agreements between Landlords and Tenants – Part 4

In Part 3 of this series related to Lease Agreements we provided some basic discussion regarding what should be and what should not be in lease agreements. In this article we continue our series with a discussion about State-Required Clauses.

Many states require by statute that certain clauses be included in residential leases or in a separate document attached thereto.  These can deal with a variety of issues, as states have different ideas about what is important. Some are related to disclosures regarding the rental unit premises, some related to location of the unit, some related to which bank the tenants’ security deposits are in, and yet others to a variety of other matters.  In some cases the exact wording and even type size and/or bolding of words are specified.

Some examples of required clauses are as follows:

• California – a “Meagan’s Law” clause is required.
• Florida – a copy of the state’s security deposit law must be attached to the lease agreement.
• Michigan – a “forwarding address” clause (specified in great detail) and the name and address of the financial institution where security deposits are kept must be included.

Obviously, we can’t begin to cover every requirement of the above three example states in this article, let alone discuss requirements of all states.  However, in order to give readers an idea of how comprehensive the requirements can be, we will provide more detail regarding California requirements, California having more requirements than most other states.

This writer understands that the following disclosures must be provided in California, either within the lease agreement itself for some or optionally by an independent document or an addendum to the lease for others. Laws are continually changing, so landlords are advised to regularly research disclosures and other issues related to federal, state, and local laws.

Most issues must, by law, be disclosed to the applicants/tenants prior to executing the lease agreement and most must be disclosed in writing.  Even if not required by law, all disclosures should always be made prior to lease signing and be made in writing, preferably with signatures of all adult occupants – which should always be all occupants having legal capacity, i.e., all who are at least the legal age or are legally emancipated minors – so that the landlord can prove having made disclosure.

Lead hazard disclosures as have long been required.

• Prior to commencing lead paint renovations, certain other disclosures may be required – certain types of housing units are exempt.
• Every lease agreement must include a statutorily-defined notice regarding the existence of public access to database information regarding sex offenders.
• If any gas or electric service for which the tenant will be paying for and the lease premises also serves other areas – e.g., common areas or other rental premises. If so, the manner by which costs will be fairly allocated must be
  disclosed.
• If there are military ordnance locations within one mile of the property, the landlord must disclose in writing that these locations may contain potentially explosive munitions.
• Prior to lease execution, landlord must provide written disclosure when landlord knows or has reason to know that mold exceeds permissible exposure limits or poses a health threat and must provide a consumer handbook developed by the state department of health services that describes the potential health threats from mold.
• Landlord must give each tenant a copy of the notice provided by the registered structural pest control company if a contract for periodic pest control service has been signed.
• If landlord has applied to demolish the unit, landlord must provide written notice of the fact to prospective tenants before accepting any deposits or screening fees.
• For leases signed after January 1, 2012 by someone who has not previously occupied the unit, landlord must provide a lease clause describing the areas where smoking is limited or prohibited.
• For a rental property of 1 to 4 units, prior to signing a lease agreement the landlord must provide disclosure in writing the receipt of a notice of default.  This disclosure must be available in a number of languages.
• Contamination related to illegal drugs can require specific disclosures.
• Although only required for businesses that employ 10 or more persons, it is recommended that landlords post a Proposition 65 warning notice on the premises.

Although not disclosures, other issues of importance to CA landlords include the following:

• Smoke detector/alarm requirement – must provide battery operated or hard-wired smoke detectors as required by law (depends mostly on date of construction) in specified locations within the leased premises. City and/or county laws may be more stringent. Beginning in 2013 for multi-family buildings, owner is generally responsible for testing and maintaining smoke alarms, this being required for single-family rental beginning in 2014. Beginning in 2016
  landlords must generally install additional smoke alarms as needed to comply with current requirements.
• Carbon monoxide detector/alarm requirement – landlord must provide a CO detector in each rental unit that has a fossil fuel burning heater or other appliance, fireplace, or an attached garage.
• Beginning in 2019, plumbing fixtures must operate at manufacturers rated water consumption at the time the tenant takes possession.
• Owners of existing water heaters must brace, anchor, or strap water heaters so as to resist falling or horizontal displacement due to earthquake motion.
• A CA statute also has specific requirements regarding the locks on doors and windows of rental units.

There are other requirements specific to mobile home parks.

The above discussion summarizes California issues of which this writer is currently aware. It may not include all issues of importance to CA landlords and the brief summaries provided may not include everything that a landlord must know in order to comply with federal, state, and local laws.  More specifically, the law may require written disclosure even if the above summary does not so state.

Question 1

I’m considering buying a commercial property.  How can I look at the commercial info in the resource center along with my residential I have now?

Answer 1

The Mini Training Guides and eCourses linked from your member homepage include information related to both residential and commercial properties.

Many commercial investing and management issues are identical or somewhat similar to residential and you may learn new things of interest to you regarding both types of properties in all of the above resources. However, I’d suggest that you start with Lesson 6 of the “Buying & Selling Income Properties” eCourse because it contains information about the differences between residential and commercial properties and about the different types of commercial properties.

The Training Guides that might be most of most benefit for you would include “9 Fundamentals of Real Property Valuation,”  “9 Issues When Writing a Purchase Offer,” and “9 Important Lease Agreement Issues.”

The eCourses that might be of most value other than the eCourse recommended in the second paragraph above will be “Valuing Income Properties” and “Managing Income Properties.”

You will find some information in one resource is similar to information in others, but some resources provide more discussion on a given issue than others.

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Question 2

My tenants moved out in December and I had to make repairs over and above wear and tear, and also repairs that are stipulated to be the tenants’ responsibility. I charged them a rate of $50/hour for my time actually performing the work on each task, since I do not typically hire contractors. Yesterday I received a letter from a lawyer they hired stating “there is no provision in the lease for reimbursement of your time at $50 an hour”. Does this need to be established in the rental agreement? I have searched but cannot find any answers. From the amounts demanded back by the tenants, it appears they are demanding back all the money for my time. Do I have any options?
Answer 2

I am unable to devote the time that would be required to research the statutes and court decisions of a particular state and possibly local ordinances. However, I will discuss a number of the issues related to your question that apply to most states.

As is often the case, the issues related to your question usually only matter if someone takes the matter to court. In court one cannot be certain of winning even when they feel certain that all the evidence is in their favor.

Regarding “repairs that are stipulated to be the tenant’s responsibility,” some states do not allow tenants to be held responsible for repairs and maintenance of certain items when the rental is part of a multi-family property (i.e., not a single-family home).

One of the benefits of utilizing outside vendors for repair and cleaning of vacant units is that it provides a more believable witness to the condition of a vacated unit and the work that was required to make it ready for the next tenant. There are a number of potential problems related to landlords charging tenants for their time when working on their own properties in addition to disagreements regarding before and after conditions of the unit. Most problems (besides the above mentioned veracity issue) related to a landlord or his relatives billing for the work can be avoided by (1) adequate disclosure in the lease agreement, (2) adequate record keeping, and (3) “fair” labor charges.

While likely not required by law in any state, the benefit of including the labor charges information within the lease document itself is quite obvious – the tenant cannot deny knowing what to expect. It is my long held firm belief that a long
lease agreement with non-ambiguous detailed clauses related to everything imaginable that might be an issue for the particularly type of property is far better than trying to keep it short so that it fits on one, two or three pages.
Tenants should be required to initial each page of the lease agreement at signing.

Although some landlords may worry that a prospective tenant will not want to read such a long document and might even refuse to sign the lease at the last moment, I never once had a tenant even mention this issue and if a tenant signs the lease, he is presumed to have read it and will almost certainly never be able to convince a judge that he has the defense of not knowing what the document said.

A landlord who plans to charge the tenant for labor – whether charging by the hour or by the task – should maintain detailed time logs for each category of labor. It is probably even beneficial to provide copies of the logs along with the required accounting for portions of the deposit not being returned.

By “fair” labor charges, I mean that the hourly rate or fixed task charge should be “reasonable” and comparable to amounts charged by outside vendors for the type of work being performed in the same market area. If a landlord ends up in court he may be able to justify charging $50/hour for serious plumbing work, at least if he can convince the judge that he has the expertise and experience to accomplish that work in comparable time as would the average outside vendor. I think most tenants would consider $50/hour totally unreasonable for general cleaning work, particularly if they only earn $15-20/hour before tax deductions, and I think most judges would also. It is likely that every judge would consider it unreasonable if the tenant or tenant’s attorney raised the issue. The landlord should be prepared to answer questions regarding competence to efficiently perform tasks and the fairness of charges when deducting from a deposit and, if defending the charges in court, provide the court with evidence related to both issues.

Finally, all potential problems become bigger problems when the landlord fails to provide an accounting of deductions from the security deposit and return of any remaining portion of the deposit within the period required by state law.