A Future Tenant Made A Deposit On A Unit, But…
We provide here a few questions that have been posted in the Community Forums and our answers to them.
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Q1
A future tenant made a deposit on a unit, but now says she will not move in because the schools aren’t good enough for her kid. I have waited over a week for her to come up with the rent before she finally told me. Can we keep the deposit?
A1
You can likely keep some of the deposit, but not necessarily all of it. What you can do will depend on a number of factors not mentioned in your question. Although I’ll mention a few issues, I can better answer your question after you answer the following questions:
Had the applicant and you signed the lease agreement? If not, you probably can’t keep any of it if she took you to court unless the deposit was actually a holding deposit for which you had a written agreement or could otherwise prove the terms of the deal.
If it was a holding deposit without a signed lease, is there a signed agreement that specifies what happens to the funds in the event of default by the applicant?
Has the applicant been given possession of the unit (been given a key) or been allowed to put any belongings there?
What date was the lease term to commence?
By what date was the rent to have been paid?
What date did the applicant tell you she didn’t want to move in?
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Q2
How many people can live in a studio?
A2
That might depend on a number of factors including the city and state of location, the size of the unit, 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, or local fair housing laws.
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 limit housing options because of children in any “family group” with potential groups not related to marital status or biological children. Even pregnancy or pending adoption can qualify the person as being of the protected classes. Some 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.
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 www.hud.gov.
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.
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.
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.
I realize that for the specific case of your question, a studio apartment, it might be impossible to apply any standards that mention number of bedrooms. For a studio, the main considerations other than any explicit laws at each level of government and absent any service limitation (e.g., water or sewer) will usually revolve around the size and layout of the unit.
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 the property.
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Q3
If I am managing a rental property for someone else, what do I do about the property tax statement or deed showing ownership of the rental property not being in my name?
A3
I will assume that you or your firm is licensed to do property management in accordance with the laws of your state. If not, there would be additional issues to discuss.
The issues you mention should never be a problem. Most, perhaps all states require that property management firms have a written management agreement executed by the owner and the management firm. Most states specify what issues must be covered in the agreement and/or what cannot be in it.
With such a document, a property manager should be able to do anything on behalf of the owner that is allowed by the agreement. Obviously, the agreement would not allow the manager to sell or encumber the property, but it would usually allow the manager to execute contracts for utilities and all vendors (e.g., repair and maintenance services) and to appear in court on behalf of the owner for evictions or lawsuits (not all states will allow court representation by other than an attorney for all forms of vesting or for all matters). As a practical matter, few if any vendors will ever ask for such proof of contracting authority because the management firm will be liable for any bills in the firm’s name anyway.
Regarding property tax statements, the owner, if he chooses, can have the tax assessment notices and tax bills mailed to the property management firm. However, for numerous reasons it is usually of benefit to both the owner and the management firm to not do so. For example, the assessment notices going to the management firm might make the firm liable for failing to notify the owner of suspicious assessment increases and/or the firm failing to file an appeal of valuation in a timely manner. As an owner, I would prefer to have all tax information sent to me to make sure that I was aware of issues and to eliminate the extra work and potential problems if I wanted to change management firms.
For similar reasons, it is usually best for both parties that insurance policy documentation and billings go to the owner. A failure of the management firm to note important changes in coverages or to pay a bill could result in substantial claims against the firm if a major loss occurred after an important coverage had been eliminated by the insurer or after the policy had been cancelled due to non-payment of premiums.
Finally, for reasons similar to those for property taxes and insurance, it is usually best that the mortgage company mail all correspondence to the owner.
If the owner prefers that the management firm pay the three items – often of importance to the owner because it will then appear on financial statements provided by the management firm – the owner can provide copies of the relevant documentation to the firm. Providing the necessary billing documentation to the management company for its payments in a timely manner should never be a cause for problems if the owner is reasonably organized.
The firm can also keep track of due dates for payment and remind the owner of the issues. It is not unusual that, because cash flow from operations does not cover one or more of the three items, the owner would have to provide additional funds in order for the firm to make such payments.
A deed is an ownership document, so, unless the property manager had an actual ownership interest in the property, the manager’s name should not be on the deed. Creating a new deed with the manager’s name on it would open up all kinds of legal issues, many potentially serious.
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Additional Information
Most of the issues discussed in these Q&A’s are covered in considerably more detail in our eCourses and/or in our Mini Training Guides.