Archive for December, 2013

Landlords Preparing To Move Tenants Out.

December, 2013

Moving Tenants Out

In previous articles we have discussed the topics of moving tenants in and what should be done in preparation for an ending tenancy. In this article we will discuss some of the issues related to moving tenants out.

As is true when moving tenants in and during the period of their occupancy, a good ending also requires that the rights and obligations of both parties are understood and observed when the tenant leaves. Moving tenants out can potentially be more complicated and troublesome than moving them in because of the fact the tenants have possession of the property at the end of tenancy and more rights than when they were the selected applicants but had not yet been given possession of the rental unit.

Regaining Possession

The issue of when the landlord has regained possession of a rental unit can have significant legal implications. Entering the unit without proper notice before the tenant intended to terminate occupancy can lead to claims against the landlord including theft of the tenant’s property.

Even if the tenant was occupying the unit beyond the expiration of the lease term stated in the lease agreement, the tenant may be intending to ”hold over” for a period due to unexpected issues including events beyond control of the tenant – for example, related to delayed availability of the tenant’s next rental home. An eviction can be necessary if the tenant fails to leave as scheduled. Detailed discussions of eviction can be found in our course “9 Steps to Eviction.”

Including move-out procedures within the lease agreement can greatly reduce uncertainty and problems related to the tenant’s right to possession.

There are things a landlord should do and can do to make things go more smoothly when tenants move out. There are important legal issues that must be considered when a tenancy is terminated including what notification should be given, legal options if tenant doesn’t leave upon expiration of a fixed-term lease or after giving or receiving a termination notice and what happens if the tenant leaves without giving required notice. This article will only address some of the issues associated with (1) reaching the end of a fixed-term lease or (2) a month-to-month rental agreement being terminated.

The keys to minimizing the hassle related to moving tenants out are (1) the degree of preparation and detail that went into moving the tenant in – discussed in our previous article titled “Moving People In”- and (2) following proper procedures prior to the move-out date – discussed in our previous article titled “Preparing For a Vacancy.” Just as an investor purchases an investment property with an exit strategy in place, the smart landlord places his tenant in the rental unit with clear, agreed-to, and documented move-out procedures.

Move-Out Procedures

Possession is often returned to the landlord by the tenant simply leaving the keys on the counter without having communicated in any way beyond a phoned-in message that the tenant was giving notice of termination or in conformance with the lease agreement without any specific notice. However, a more formal way of transferring possession, though requiring more time for both landlord and tenant, has significant advantages in reducing risks of problems between parties.

A good procedure is to:

  • Meet the tenants, preferably all those who executed the lease agreement, at the property for a final walk-thru inspection, preferably with water and electric services still on.
  • Complete the move-out checklist & inventory of appliances and any other furnishings (discussed below) with signatures of all parties.
  • Ask if there are any unreported maintenance problems that weren’t previously discussed during the inspection.
  • If there are items of personal property that are purposely being left by the tenants, have them sign a statement that they relinquish ownership of the property and the landlord may dispose of the items as desired, with any costs of disposal (including labor, transportation, and fees) being deducted from the security deposit. A future article will discuss the subject of abandoned tenant property.
  • Get the keys and any garage door remotes back from the tenants.

It is best that your desired procedure is required by clauses in the lease agreement, as this puts the landlord in a better legal position if the failure of the tenants to follow the procedure results in disputes.

Move-In/Out Checklists

Although this is an article about moving out, we will discuss both move-in and move-out checklists because they are interrelated. Many state laws require a move-in checklist to be completed when possession is given to the new tenants. The checklist is a written statement of condition of the rental unit at the time of move-in signed by the landlord and the tenants, preferably all who signed or will sign the lease agreement. The move-in inspection should be done before the tenant(s) moves in any of his boxes or furnishings so that defects are not hidden by those items. Some states also require that tenants have the right to be present during a final walk thru inspection, possibly with various specific requirements regarding notification and scheduling of the inspection. Failure to follow the law related to the move-out inspection could result in the landlord losing his right to deduct from the deposit.

The original signed move-in checklist should be retained by the landlord in the tenant’s file and a copy given to the tenant(s). The same checklist, or a copy thereof, should be used to document the condition of the rental unit upon the tenant’s move-out and helps serve as evidence why deductions were taken from the security deposit.

If the landlord prepares such a move-in checklist without the assistance of the new tenants, the tenant in those states where the checklist is mandated, has the right to inspect the premises himself to verify the landlord’s accuracy and detail in completing the checklist. If there is no law on this subject, the lease agreement should contain a clause requiring that the tenants report any discrepancies within a specified few days of possession.

Free-standing appliances and any other property not physically attached to the real estate should be listed on the checklist or on a separate inventory list. Any other furnishings provided by the landlord (e.g. shower curtain, welcome mat, window coverings) should be inspected and their existence and condition noted.

Failure to follow good procedures can have important implications regarding the landlord’s right to withhold any part of the security deposit when the tenant moves out. Landlords should be sure that good checklists are utilized whether or not required by law in their state. It is better to have more detail than needed rather than not enough. Other than the fact that the more information included, the longer it takes to complete the sheet, one cannot really include too much information on the sheet.

There is no set format for checklists except for issues that might be required by the laws of a few states. Formats in use vary from a single page to multi-page documents having a separate page that covers each room or other area in detail. This writer highly recommends the latter approach, as the more detail in the checklist, the fewer the potential for disputes. Without significant detail it can be impossible for the landlord and departing tenants – and potentially a judge – to agree on the difference between move-in and move-out conditions. Deductions from deposits or claims of damages that are disputed by the tenant must be adequately covered in the move-in/move-out checklists.

Whichever format you decide to use, it is recommended that the list include at least the following:

  • Appliances & furniture – cleanliness, with notes of any damage
  • Cabinets – cleanliness, with notes of any damage
  • Paint – cleanliness, with notes of any damage including that due to tobacco and cooking smoke
  • Carpets & other floor coverings – condition, with detailed description of any stains, tears, excessive wear, or other damage
  • Closets – cleanliness, with notes of any damage
  • Windows – cleanliness and no cracks (fix any before marketing)
  • Window coverings – cleanliness, with notes of any damage
  • Window screens – cleanliness, with notes of any damage
  • Doors – cleanliness and operation, with notes of any damage
  • Sinks, showers, tubs, toilets – cleanliness, leaks, operation
  • Light fixtures – cleanliness, with notes of any damage
  • Landscaping, if tenant responsibility – condition, with notes of any damage
  • Parking areas and garage floor – clean and oil free

Upon completion of both move-in and move-out inspections all tenants should be required to sign the last page of the inspection checklist and to initial each other page of a multiple-page checklist.

It is recommended that the condition at move-in and again at move-out be well documented with photos and that the tenant(s) know of the documentation. It can be helpful to take some photos during the walk-thru and to include the new tenant(s) in some of the photos to avoid future claims that he was not aware of the condition of the unit at one of the inspections and to make the tenant expect that there will be equally extensive documentation of the condition of the property following move-out.

Check with the HOA

As has been discussed in previous related articles, if the property has a Home Owner Association (HOA), the lease agreement should have had clauses related to it, including that the tenant reviewed HOA documentation prior to signing the agreement that the tenant accepts responsibility for any penalties resulting from his violation of Bylaws and of Rules & Regulations. A landlord should check with the HOA near the end of the tenancy regarding any possible violations for which the landlord has not yet received notice.

Utilities

Even though the tenant will be responsible for starting certain utility services, paying those bills during tenancy, and terminating services upon vacating, some states have statutes that allow certain utility providers to collect from the property owner, refuse to turn on service for the owner or a new tenant, and/or lien the property if the tenants did not pay the bills. This is more likely to be so for services that are provided by the city or a related government entity and is most often so for water services. For properties in such locations, it may be possible to gain some protection from finding out that the tenant left without paying the current month’s bill, perhaps even being delinquent a month or more. It will be more difficult if the tenant has left the area without providing a forwarding address.

Unfortunately, it may be difficult to obtain account status from the utility service because the account is that of the tenant.

Summary

Utilizing good procedures when moving tenants in and out can minimize arguments about deductions being made from the security deposit.

How Does a Landlord Prepare for The Cost Of a Tenants Vacancy?

December, 2013

Preparing For a Vacancy

Sooner or later, ready or not, a landlord will need to deal with a vacancy. Filling rental vacancies with minimum stress requires some pre-planning on the part of the landlord to anticipate and prepare for this eventuality.

Timing of vacancies is not always controllable by the landlord; however, planning on how to handle vacancies, including having adequate related clauses in the lease agreement, is always under the landlord’s control. Accordingly, by having a plan, the landlord may ease some of the stress and minimize downtime and expense in filling vacancies.

In a previous article we covered the subject of moving tenants in and stated that “a good beginning for a new tenancy starts with clear understanding of the legal rights and obligations of both parties.”  As might be expected, a good ending also requires that the rights and obligations of both parties are understood and observed when the tenant is nearing the end of occupancy.

Tenant’s Notice of Intent to Vacate

Written notice to vacate is a requirement by law in some states. However, lease agreements should always include a clause that requires the tenant to give written, specific notice of intent to vacate at the end of the lease term. Such notice minimizes the chances of misunderstanding or misremembering the important details by either party.

Telephone calls, brief notes from the tenants or passing conversation between landlord and tenant can serve as informal notices of intent to move-out. However, the landlord should follow up with a request to the tenant for formal written notice, preferably a “Notice of Intent to Vacate” form that is best provided to the tenant at lease signing, during move-in orientation, or at some later date well in advance of the lease expiration date. Providing the form greatly reduces the chance for ambiguity or assumed flexibility. Neither landlord nor tenant want any surprises or delays during the final days of the lease term when stress levels are usually already at a higher level. The landlord will want to start as soon as possible to begin clean-up and repair and the tenant is under pressure to coordinate his move and perform according to his ending lease and a new lease or home purchase elsewhere.

An adequately written notice is of great benefit to the landlord should the tenant not move-out as planned. The tenant, perhaps through no fault of his own, may be held up at the last minute because his new residence is not ready as scheduled and want/need to stay over a few days. The landlord having anticipated the move-out date may have, in spite of the risk, signed a lease with a new tenant and promised a set move-in date for the new tenant that he cannot now deliver. The new tenant may choose to sue the landlord for default of possession date and the landlord can then in turn file suit against the holdover tenant for failing to move-out as noticed. The written notice will be of significant value in proving the landlord’s case in court.

It is best to provide lease clauses that provide for penalties upon holding over, usually significant increases in rent for any holdover period. If a replacement tenant has not signed a lease before the holdover became known and the tenant was previously satisfactory, it may be possible to simply extend the lease period somewhat with a reasonable significant rent increase.

The written notice signed by the departing tenant will also help convince the tenant that he/she should make other temporary arrangements regarding housing so as not to delay any pre-lease replacement tenant’s move-in. When there is not a waiting replacement tenant, the departing tenant will probably be less likely to argue about whatever rent the landlord demands for a holdover period.

Landlord’s Notice to Tenant of Non-Renewal of Lease

In most jurisdictions, a landlord has the option, with proper notice to the tenant, not to renew or extend the lease. Except for very few jurisdictions, the landlord does not usually need to provide the tenant any reason for non-renewal. When a reason is not required by law, it is almost always better to not provide a reason, as an improperly stated reason could give rise to a claim of a fair housing violation.

The lease agreement should have clearly stated the length of the lease term and specifically the actual end date. The agreement should also have stated the procedures related to vacating the property – for example, the tenant’s notice as discussed above, a walk-thru inspection, not leaving personal property, and turning in keys.

Some landlords may think it unnecessary to provide additional notice to the tenant that the lease term is expiring on a certain date and such notice is not required by law in most jurisdictions. However it is of value to the landlord to do so because it eliminates the tenant assuming he/she can remain as a month-to-month tenancy, provides proof that the tenant did not simply forget, and will serve as a record that the landlord does not wish to renew the lease.

At the end of the lease term (expiration) the tenant usually has no legal right to occupy the rental premises unless prior arrangements have been made. If the tenant stays on without the landlord’s permission after the expiration of the lease, the tenant becomes a holdover tenant. Despite the expiration of the lease, in order to remove the holdover tenant from the property, the landlord in most states must serve the holdover tenant with a notice to vacate the property, stating the date upon which the tenancy ended. If the tenant does not vacate by the end of the required notice period where the property is located, the landlord can file an eviction lawsuit. Some states do not require a notice to a holdover tenant and allow the landlord to immediately file an eviction lawsuit upon expiration of the lease.

Most month-to-month tenancies can be terminated with 30 days written notice to the tenant. However, as a state may require a longer notice period for certain tenants – e.g., those who have been occupants for at least a specified period – landlords are advised to consult their state’s landlord-tenant law for actual specifics. More information regarding month-to-month leases can be found in our “Managing Income Properties” eCourse and in various Mini Training Guides.

Market Surveys

Once a landlord is fairly certain a tenant will be vacating, it is time to update information regarding the current rental market. Real estate leasing is subject to market forces of supply and demand. Changing conditions in the economy, changing conditions in tenants’ needs and wants, and effects of life events will have significant impact on the landlord’s ability to fill vacancies.

Setting the asking rent, security deposit, and other terms that will be asked of new tenants is crucial for minimizing the vacancy period and for obtaining well qualified tenants.

A market survey is the first line of defense against the costs of filling vacancies. Supply and demand for rental units and in particular, for your specific type of property, its condition, and its location will have a significant impact upon your ability to attract qualified applicants and to command market rents.

Periodic research and analysis of general rental market conditions in your area is required to adequately assess the impact of supply and demand, affordability, and competition on your income properties now and for the near future. As conditions change, the landlord can adjust his rents and, if necessary, his qualification criteria, in order to stay competitive with similar properties in his market area.

Summary

Utilizing good procedures related to the end of a tenancy can eliminate or at least minimize problems when the existing tenant is expected to leave and can minimize the cost of the vacancy.

Can a Landlord Deny a Potental Tenant Because He Got A Bad Vibe?

December, 2013

Question

I own a duplex and I live in one of the units. Because I share the building with someone as well as renting to them I want to be more selective. If someone applies, their credit is good, but I just get a bad personal vibe from them, what are my options? Do I have to give a reason in writing?

Also, more than one other landlord has warned me about renting to lawyers. Sure enough, the first person to answer my ad was a lawyer, who’s stopping by to see it this weekend.

Answer

Because you have only one duplex rental property and live in one of the units you have some freedom under federal fair housing laws not enjoyed by most landlords. However, there are very strict rules regarding the exemption. For example, you cannot discriminate in advertising the vacancy – i.e., you cannot include any words in your advertising that implies even discrimination that might be legal under federal law. For discussion of various fair housing issues (per federal law), including the “small landlord” exemption, see the LandlordOnline.com “Managing Income Property” eCourse.

Keep in mind that some states and some municipalities have more stringent laws regarding certain aspects of both screening procedures and fair housing issues. These more stringent laws usually take precedence over less stringent federal laws. Thus, you may not benefit from the federal “small landlord” exemption and it is imperative that you become familiar with both federal law and any more stringent state or local laws.

Regarding renting to lawyers, lawyers are not a protected class under current federal fair housing laws so it is probably perfectly legal under federal law to refuse to rent to lawyers because they are lawyers, as long as you treat all lawyers the same. However, some jurisdictions may have fair housing laws with additional protected classes, including the applicants’ employment or profession. Accordingly, although I’d be surprised if any state has added the class of “lawyers” as a protected class to their fair housing statutes, you should carefully check the statutes or consult a competent landlord-tenant law attorney regarding this particular discrimination.

However, you would need to be certain that he is not covered under some protected class – e.g., race, religion, or national origin – something which may not be apparent to you. Finally, some jurisdictions may also prohibit arbitrary discrimination – e.g., obesity, occupation, or other characteristics or traits. Furthermore, a judge could determine that you discriminated in this way even if there is no specific written law regarding arbitrary discrimination.

No matter what the law says, you do need to keep in mind that getting into a legal battle with an attorney, particularly one who is not busy with other cases, can be very expensive and time-consuming even if you eventually win. You would certainly want to be represented by competent legal counsel for such a matter.

The bottom line is that I would not put myself in the position of discriminating against an attorney applicant who otherwise meets your qualifying criteria without consulting a competent attorney that is experienced regarding landlord-tenant law in the jurisdiction of your duplex.

If you do not accept an applicant due to results of screening by third-party screening service providers (e.g., credit reports) you are required by the federal Fair Credit Reporting Act (FCRA) to give them an “adverse action” report that provides certain information regarding the screening service. In theory, absent any different state or local law, you would not have to provide such a report if you are rejecting an applicant because he/she is an attorney and did so without performing screening on the applicant. However, you need to determine whether or not your state or local government has any different laws that require different reporting than does the federal FCRA.

The Landlord lost the Tenants Money Order for Rent, Who is At Fault?

December, 2013

Question

One of my tenants mailed her money order for this month’s rent two weeks ago, but it was lost after it reached our office. I immediately called the tenant and explained to her what had happened and asked her to cancel the money order and have a new money order issued minus any fees she might incur. The tenant said that she would do that, but as of this post she hasn’t sent a replacement money order and she is not returning any of our calls. What should/can I do?

Answer

For reasons discussed below, since you acknowledged receipt of the money order and the money order being lost is your fault you may have to take a loss.

Consider what would have happened if she had paid in cash and you had given her a receipt or otherwise acknowledged payment. If the cash disappeared you would almost certainly have no recourse except against whoever made it disappear.

If she had paid by personal check, you might have a better chance of getting her to stop payment on the check and writing a new one. However, even then there might be a problem because banks do not usually guarantee that a stop payment order will be effective, as it can depend on timing. If the check writer doesn’t maintain enough of a balance to cover both the original check and the replacement check he/she would suffer a large bank fee if both hit the bank. Another of the problems with “stop payments” is that, even if the issuing entity catches it before paying, it may have passed through a number of “holders-in-due-course” before reaching the issuing entity. Accordingly, each of these holders will be impacted, creating expense and potentially other problems for a number of innocent parties.

A bank cashier’s check might actually be easier to deal with, but, in my experience, a refund might still likely require weeks. This may not be an issue for a tenant with sufficient cash reserves to able to cover an extra month’s rent for the time required to receive a refund. However, the tenant would still have a risk of not ever receiving the refund.

You must understand from her point of view that she would be foolish to replace the money order until after a long period of time, probably months.

Money orders (MOs) can be the worst type of funds to deal with. This is because there are a very large number of companies of all sizes who issue MOs and they are sold in all types of locations including supermarkets, drugstores, etc. There are also Postal MOs which will have their own procedures. Many MO issuers will strongly resist agreeing to any “stop payment” and those who will do so will usually not provide a refund for a long time, sometimes many months. The seller (e.g., supermarket) will likely not itself ever refund money, but may either help file a claim with the issuer or provide information required for the buyer to do so on her own.

The bottom line is that if I were the tenant or if I were a judge deciding a dispute regarding the matter, I would consider that you must absorb the loss unless the refund is actually eventually received by the tenant. You would likely have to depend on the honesty of the tenant regarding receipt and if the tenant proved that a refund would not be given, based on written policy information or correspondence from the issuer or the seller of the MO, you would almost certainly have no recourse.

Had you not received her money order it would have probably been an entirely different matter because she would not have paid her rent.