Lease Agreements – Part 5

In Part 4 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.

Criminal History Records Search

A landlord has a general duty to exercise reasonable care to protect the safety and welfare of his tenants from foreseeable harm. Due care must be exercised in the use, maintenance, and management of rental premises. While a landlord may not be able to eliminate all risk from his business, he can certainly take measures to reduce his exposure to unnecessary risk.

A landlord does not want a tenant using the rental unit as a base for criminal activity, posing a direct threat to the safety of others, and willfully damaging rental property or the property of others. Screening rental applicants for history of criminal conduct and rejecting those applicants with a history of violent crime or property damage may help protect persons and property against possible harm. There may even be an implied duty of care to ensure that tenants and property are protected from foreseeable harm. Landlords of multi-family housing units have a legal duty to warn and protect tenants about known dangers that would pose a current, direct threat to safety.

Many landlords consider their application process including the application form itself, the applicant interview, and strong rental policies that are consistently enforced will be sufficient to help identify high risk individuals whose behaviors would pose a potential threat to persons and property. Interviewing previous landlords and personal references; searching public records for court ordered evictions, bankruptcy, liens, and judgments; and contacting current employers may also provide clues to potential risks. A credit report, while containing a wealth of personal and financial information, does not provide information on criminal records. If the landlord feels the need for additional screening, he may consider a criminal history search as part of his due diligence. Whether the landlord can legally do so has undergone significant changes in many states and municipalities.  Societal concerns and expansion of protections from discrimination have begun
to shape rental policies regarding acceptance or rejection of applicants with criminal records.

As background, a criminal history records search conducted by a third party vendor is considered an investigative consumer report under the Fair Credit Reporting Act (FCRA).  The FCRA sets out specific rights and responsibilities regarding consumer notification, privacy, and accuracy of information requirements. In addition, states and local municipalities may have specific consumer protection requirements as well. Landlords have always understood that they have a legal
obligation to comply with all applicable requirements.

Landlords have the ability to set their own rental policies and practices as long as those policies and practices are legal and non-discriminatory. Federal fair housing laws prohibit discrimination in rental housing against members of a protected
class. As of this writing, federal law does not give protected status to persons with criminal convictions, with one important exception. Landlords can deny housing to applicants with criminal records as part of their stated rental policies unless the conviction was for drug use. Under federal fair housing law, past drug use is considered a disability. Persons with disabilities are members of a protected class. This protection does not apply to those persons currently using drugs or those who have been convicted of drug manufacturing or dealing.

In addition, state and local fair housing laws may be more restrictive than federal fair housing law and take precedence over federal law. Landlords should be aware that state or local fair housing laws may prohibit arbitrary discrimination on the basis of personal characteristics. It may be up to the court to rule whether a criminal record is a personal characteristic if an applicant files a discrimination complaint for denial of housing.

However there are a growing number of municipalities and states seeking to extend fair housing and employment protection to persons convicted of crimes. Legislation in some states limits the ability of employers to determine whether job applicants have criminal records. Specifically government and private sector employers are prohibited from asking applicants whether they have been convicted of a crime until an initial assessment of the applicant’s qualification has been
conducted. Some legislation extends the protection by requiring the employer to establish a direct relationship between the conviction and the potential job as just cause for the rejection of the applicant.

Now landlords may be facing similar challenges to screening applicants for criminal history. Some municipalities and states already have taken the position that denying housing to persons with criminal records is discriminatory and creates an unfair burden on those individuals. These states and municipalities specifically forbid landlords from checking criminal records of applicants or place requirements on the landlords that background searches may not be conducted until after determining the applicant’s suitability for housing. Even then, landlords will be required to determine whether any reported prior criminal conviction is substantially related to the housing in question before making a final determination.

Adding to the complexity is that some other states and municipalities require landlords to run a criminal background check on all prospective tenants before a rental dwelling unit may be occupied. Background checks are said to be required
in an effort to “lower crime and ensure landlords get quality tenants” or as to “reduce, control, and prevent criminal and nuisance activities.”

It may be such requirements are going too far in either direction.  Landlords have always had to weigh possible advantages and disadvantages of screening applicants for criminal activity. By the nature of the records reporting process, there are some inherent areas of concern to keep in mind when using criminal history checks. A primary concern is the accuracy and completeness of criminal records information. As an example the state criminal depository receives data from participating jurisdictions compiled from information obtained from law enforcement arrest records, criminal court records, and state department of corrections files.  If a jurisdiction does not report information or fails to report information in a timely manner, the state index will not be accurate. A related concern is the frequency of new information reporting. If the required frequency is yearly, there could be a long period of time in which a criminal record may escape discovery. The volume of records and numerous jurisdictions make up-to-the-minute screening almost impossible.

There are also a number of issues in the screening process related to privacy, accuracy, and consumer rights that must be considered when including criminal history records searches in the evaluation of applicants.

First, a landlord must be sure that the applicant is really the person in the criminal record report. Adequate identity verification must have been conducted upfront in the applicant interview and acceptance of the rental application. The personal identity information as verified will be used to order criminal history searches. Common surnames or aliases may cause confusion or doubt and will require additional research to ensure the proper party is identified.

Second, the rental qualifying criteria related to criminal records must be reasonable and related to the safety of others. Generally this is understood to mean that the applicant represents a current, direct threat to the safety and welfare of others or has a demonstrated history of property damage.  Consideration should also be given to factors such as the type of crime, how long ago the crime occurred, and the person’s behaviors since that event.

Third, rental criteria must be applied fairly, equally, in a non-discriminatory manner to all applicants. Landlords cannot do criminal checks on some applicants and not on others. There cannot be different criteria because of the applicant’s appearance or other characteristic.

Fourth – and most importantly – a landlord must understand that the criminal record check does not guarantee an applicant is or is not a criminal, as there are numerous reasons why the report could be erroneous, such as a false
positive or an absence of record.

There are many measures a landlord can take to help protect his business. The measures that a landlord should take will be modeled on legal requirements and sound business practices. The above issues point out the need to stay current with landlord-tenant statues at any level of government.  Business conditions may also necessitate modifications in policies and practices. The question of whether a landlord can conduct criminal history searches is based on legal requirements. The question of whether a landlord should conduct criminal history searches is based upon business requirements.

Question

A tenant that has lived in my rental house for nearly 5 years is requesting that I install new carpeting as a condition of her renewing her lease for another year. She claims that the law requires carpet be changed out every 5 years.

Answer

I know of no jurisdiction that specifies when a carpet must be replaced. An exception would be if the carpet condition raised a habitability issue, particularly one of health or safety – as examples, bug infested or torn to the degree tenants
could be injured from tripping. Well-cared-for carpeting can last for 10 years or more. Manufacturers typically guarantee their carpeting for 10, 15, or more years I once managed a property where the tenant had lived in the unit since
its construction and the original cheap builder’s special carpet was still very serviceable after 17 years of their occupancy.

Unfortunately, I’ve also managed properties that had to have 1-year-old carpet replaced because it was badly damaged by the tenants or their pets.

Policies regarding carpet replacement must take into account how important it is to retain a tenant that is complaining about the existing carpet and how the condition of existing carpet will affect the rent you can get from a new tenant. Sometimes a tenant may be willing to pay a higher rent in order to obtain new carpeting.  The landlord must evaluate such a deal based on the amount of rent increase possible and the history of the requesting tenant related to his/her care of the rental unit. Each case must be considered on an individual basis.

Question 2

The previous tenants vacated my rental property several months ago. After cleaning the unit, fixing things, and making numerous upgrades, I am nearly ready to lease it again, but have a question.  The windows do not have blinds or curtains. I’m considering giving the future new tenants a $100 allowance to purchase window blinds as they deem necessary. Has anyone done this or something similar? If so, do you ask for receipts and then reimburse?

Answer 2

My experience is that one should not let tenants decorate regarding items that have the potential for being unwisely chosen. This applies particularly to window coverings and anything else that involve installation using screws or nails. One can end up with horrible decorating choices, improperly installed items and/or damage to the rental unit, with the cost of fixing the problems being higher than the cost of having paid a professional to install those designs and materials chosen by the landlord. Furthermore, the tenant may decide he/she has the right to take items he/she installed, resulting in both loss of the items and possible damage from the removal.

As examples, you may get damaged drywall or plaster or badly misaligned brackets/rods, requiring costly repairs. There is also the issue of possible injury to the tenant while installing them himself that could result in claims against you. Although you may win the case, it will be a lot of hassle and expense.

You will be safer regarding the choice of materials, the quality of work and the safety of the tenant if you require them to use a professional vendor. You may still need to worry about the vendor’s qualifications, so should specify the vendor the tenant must use. You should also pay for labor and materials directly yourself to avoid the possibility of an unpaid vendor suing you or putting a mechanic’s lien on your property because the tenant failed to pay even though you gave him/her an allowance for the matter. However, you can avoid all such potential problems by getting the work done before marketing the unit and doing so might make it easier to rent the unit and/or obtain a little higher rent for it.

Question

Can I require both additional pet rent and a pet deposit?

Answer

Some landlords charge not only pet rent, but also a separate pet deposit. This is legal in most states, however, in many (perhaps most states) the total of all deposits, whether called security deposit, pet deposit, cleaning deposit, or any other
name, must not be greater than the legal maximum security deposit allowed in that state. Although the majority of states do have a statutory limit, some states do not. In practice, however, the higher the total amount of all deposits, the
smaller the pool of qualified applicants. Furthermore, if the matter goes to court the judge could decide that it was an unreasonable amount.

From a practical point of view, it’s a bad idea to segregate the deposits into categories. When specifying that a portion of total deposits will cover damage caused by the pet, the landlord may not be able to use that money for anything else,
including unpaid rent, damages, or cleaning. Thus, the landlord could end up having to refund the entire pet deposit because the pet caused no damage, even though the remaining deposit won’t cover the cost of repairing damages caused
by a careless human tenant or back rents for a non-paying tenant. Accordingly, it’s far better to charge the legal maximum (or as close to that as the market will bear) as a security deposit and have the entire pot of money available for
cleaning and repairs, no matter who soiled the carpet.

Landlords must be careful when marketing a rental for which a pet deposit and/or extra rent is required. It’s risky business to advertise a rental as pet-friendly, state the rent in the ad, and then inform inquiring applicants that the rent will be more than the ad indicated if they have a pet. Doing so may constitute false and deceptive advertising. It’s best to state from the beginning in all ads and conversations that the rent will be a certain amount more if the tenant has a pet. The landlord must know which, if any animals (usually certain breeds of dogs) will not be covered by his insurance policy and refuse to allow those types. Landlords must retain the right to explicitly approve of the pet. It’s very dangerous to imply that any tenant who’s willing to pay the extra rent can bring any pet he chooses. Careful landlords adequately screen the applicants’ pets.

If and when the tenant speaks the words “service animal” it can become a totally new ballgame. It’s against federal law to charge more rent or deposit when an applicant has a service animal than would have been charged an applicant who doesn’t have one. A service animal is basically a specially trained to assist a person with a disability. How to confirm that the animal is indeed a “service animal” is another question entirely and is beyond the scope of this answer.