Archive for the ‘Uncategorized’ Category

Why shouldn’t property inspections be done more frequently?

August, 2020

Regular property inspections are important to protect your business. Proper maintenance extends the useful life of structures, systems, and equipment and can reduce the long-term expense of maintenance. A proactive policy for property management with regularly scheduled inspections for exterior and interior conditions and corrective action for identified problems reduces landlord exposure to potential liabilities for health and safety issues. An annual safety and maintenance inspection is generally considered an acceptable standard particularly when a move-out inspection by a departing tenant and a move-in inspection by a new tenant are conducted within a relatively short period of time. A landlord should always have a documented baseline of property conditions at the beginning of a new tenancy.

However it is not uncommon, depending upon the type and age of the property, for landlords to conduct property inspections on a semi-annual basis. A shorter interval between inspections does have value in early identification of a variety of maintenance issues that may not be reported to the landlord by the tenant who either does not regard the issue as important or is simply not aware of the issue.

Your lease agreement should specify the types of inspections, schedules, and notifications that are required for property maintenance and repair. If there are other types of inspections that must conducted during the tenancy (other than scheduled landlord inspections) the lease agreement should provide specifics on the type of inspection, the regulating agency, and the notification and inspection process required. These inspections may be required for reasons of health, safety, fire protection, building/occupancy codes, municipal rental property registration, business insurance coverages, or housing assistance programs.

Most states address by statute landlord entry to rental property including landlord entry to inspect the premises and to make repairs, alterations, or improvements. You will need to research your state law regarding the specific circumstances for landlord entry and the amount of notice required for non-emergency situations.

Frequent property inspections or improper use of property inspections may lead to claims by the tenant of landlord harassment and result in legal action by the tenant against the landlord for violation of the tenant’s rights. The tenant has a legal right of the covenant of quiet enjoyment of the rental premises.

Courts have upheld the right of the tenant to quiet enjoyment of leased premises regardless of whether the lease agreement contains such a covenant. This covenant ensures the tenant that during his tenancy, the tenant’s use and enjoyment of the dwelling unit will not be disturbed by someone with a superior legal title to the land including the landlord. The covenant between landlord and tenant provides the tenant with the right to exclude others from the premises, the right to peace and quiet, the right to a clean and habitable environment, and the right to basic services. If the tenant is deprived in whole or in part of the beneficial use and enjoyment of the leased premises due to actual or constructive action by the landlord, the landlord is in breach of the covenant.

Rental Agreements

August, 2020

A landlord-tenant agreement can be a rental agreement for a periodic tenancy (typically a month-to-month term) or a lease agreement for a tenancy for years (typically a fixed term for one year or more).

The terms and conditions of a landlord-tenant agreement have a significant impact on a landlord’s business. The rental agreement or lease agreement signed by the landlord and tenant is the legal contract for their obligations and responsibilities for the specified term. The decision of whether to use a rental agreement or a lease agreement should be based on analysis and evaluation of certain business factors. Whether one type of agreement is better for the business is an individual landlord’s decision as a business preference or as a response to business conditions.

The business decision should consider a number of factors, including: (1) advantages or disadvantage of a periodic tenancy under applicable state and local laws, (2) the current condition of the local rental market including vacancy rates, (3) the type and size of the applicant pool related to the particular property type and location (4) market rents in the local area, and (5) forecasted future local rental market conditions as affected by general economic trends, population growth, and projected supply and demand of rental units. In the last few months there has been another consideration for the landlord in his decision making process. Due to the COVID-19 pandemic regulations and guidelines, tenant defaults on rents, and eviction moratoriums by state and local governments, some landlords are using month-to-month rental agreements for business protections and flexibility in changing conditions.

A rental agreement between landlord and tenant for a periodic tenancy is a legal contract setting out landlord and tenant responsibilities and obligations in the same manner as a lease agreement between landlord and tenant for a fixed-term tenancy. The landlord is obligated to offer and maintain housing in a safe and sanitary condition under the implied warranty of habitability and to protect the tenant’s rights to quiet enjoyment of the rental premises. The tenant is responsible to keep the rental unit in good condition and to pay rent as set out in the agreement terms and conditions.

As due diligence, a landlord should understand applicable state and local laws for periodic tenancy, particularly notice requirements to change or terminate a month-to-month tenancy. While some states do not have a state statute for the amount of notice required to change rent or other terms, in general, the amount of notice that a landlord must give to increase rent or change another term of the rental agreement in a month-to-month tenancy is the same as that required to terminate a month-to-month tenancy. If the rental unit is governed by state and local rent control laws, there may be different notice requirements.

Note that the amount of notice may also depend upon which party, landlord or tenant, gives notice to end the tenancy. There may be different notice requirements if the tenant has violated terms of the rental agreement, as example, tenant failure to pay rent.

A month-to-month tenancy is automatically renewed each month unless the landlord or tenant gives the other party the proper amount of written notice, typically 30 days, to terminate the agreement.

The most frequently mentioned advantage of a month-to-month agreement is the flexibility and control that it offers landlords. The flexibility of a month-to-month agreement allows a landlord to quickly adjust to market conditions, notably if rents are rising, the landlord does not have to wait until the end of a tenant’s fixed-term lease to increase his rents. In many states the landlord can notify a tenant of an upcoming rent increase with only 30 days’ notice. Terms and conditions of the rental agreement can also be changed for business necessity (subject to any restrictions of state or local rent control) as long as the required notice is given to the tenant.

A landlord has the flexibility to set his rents at a higher than market rent to compensate for a perceived higher risk of vacancy in the near future. Tenants looking for month-to-month rentals often have a specific reason for wanting a short term rental. The ability of a landlord to provide rentals of a short-term nature could be attractive to more rental prospects. A potential renter may want the benefit of a month-to-month rental for a variety of purposes, such as a vacation stay, job assignment, family considerations, being new to the area, waiting to close escrow on residential housing, temporary housing due to new home construction, completion of major renovations to existing residence, military temporary duty station, seasonal work, change in financial situation, or for many other and varied reasons. A tenant with possible changes in his future living arrangements may feel that a month-to-month agreement offers a greater benefit to him by the fact he will not have to break a fixed-term lease when his circumstances change and he moves out.

A landlord has more immediate control of his property if a tenant fails to comply with rental month-to-month terms and conditions. A landlord can initiate termination of a month-to-month tenancy by giving the required legal notice to end an unsatisfactory landlord-tenant relationship before it becomes a more costly legal action for eviction. The eviction process through the court system for a material violation of a fixed-term lease condition can take months. During this pandemic period, eviction moratoriums have prevented landlords from filing and completing the legal process of eviction in a timely manner. Utilizing a month-to-month rental agreement and complying with required notification procedures, a tenant in material violation of rental terms and conditions could be terminated and possession of the rental unit returned to the landlord within a relatively short time and without the need for a court filing.

However, there can be other considerations in offering a month-to-month rental agreement that may be seen as a disadvantage by some landlords. Many times a landlord will hesitate to offer a month-to-month rental agreement because of the perceived risk of constant tenant turnover. However, even with a tenant on a fixed-term lease, a landlord has no guarantee against tenant turnover. Not only can a landlord terminate the rental agreement on fairly short notice, the tenant is also free to terminate his tenancy with adequate notice. The rental unit could be turned over several times a year. A landlord will need to be prepared to handle a vacancy quickly and efficiently once notice by either party is given to terminate the tenancy. The amount of preparation needed to restore the unit to good condition and time to market the unit will be dependent upon the circumstances.

Some landlords believe that a tenant with a fixed-term lease agreement will take better care of a rental unit than would a tenant with a shorter term rental agreement. However, if the landlord conducts adequate tenant screenings and selects a qualified tenant each time to fill a vacancy, no matter what the time period of the rental term, the landlord will be better prepared to help protect his property from damage and his current tenants from risks.

I haven’t had to advertise a vacancy in a long time, what is the best way to list a vacancy?

August, 2020

There are many different approaches to advertising rental vacancies, many of which are greatly influenced by local market conditions, property location, property conditions, and rental policies. Budgetary considerations and the need to fill a vacancy quickly may also influence what types of advertising are used. Social media and online rental postings are some of the most commonly used advertising methods. Word of mouth advertising from existing tenants or referrals from friends and family can also be quite effective in finding potential tenants. You could also consider asking your fellow landlords in the area how they advertise/market their properties and see if they will share any tips. What works for one landlord may not work for another. You may have to try several different methods and track your responses to determine what method best attracts rental prospects to your properties.

You want to make sure that your advertising complies with fair housing requirements at federal, state, and local levels. At the federal level, Title VIII of the Civil Rights Act of 1968 (Fair Housing Act), as amended in 1988, prohibits discrimination in the sale, rental, and financing of dwellings, and in other housing-related transactions, based on race, color, national origin, religion, sex, familial status, and handicap. State and local fair housing laws may provide greater anti-discriminations protections to additional protected classes or characteristics.

Advertising of any type and any media should be honest and truthful regarding rental terms, conditions, and policies and descriptions of property features and amenities. When advertising a rental vacancy, the listing should clearly state in a non-discriminatory manner the basic rent details that a person would need to know in order to determine an interest in the property. Basic details commonly include property location, size (e.g., number of bedrooms, baths), rent amount, deposit/fees, availability date, lease term, and important policies (e.g., pets allowed, credit check required). Bait and switch advertising is illegal under consumer fraud laws.

If the rental unit is governed by an HOA be sure that you are familiar with your HOA’s Bylaws, Covenants, Conditions and Restrictions (CC&Rs), and Rules and Regulations regarding tenant occupants. If there are specific restrictions or regulations regarding advertising rentals of units, as long as those requirements are legal, you are obligated to comply with your HOA’s requirements.

Lease Concessions

August, 2020

Lease Concessions

Lease concessions are the financial incentives, lease terms, and conditions that a landlord may use as incentives to move a prospective or existing tenant forward at rent-up or renewal to initiate or renew a lease agreement.

Lease concessions may also be called rent concessions, landlord concessions, or tenant inducements. A lease concession is any benefit a landlord offers as part of lease negotiations to accommodate a tenant in making a rental decision, as example, a rent discount.

Should a landlord offer a lease concession? The reason most cited by landlords in offering a lease concession is simply that a concession is a business decision that allows a vacancy to be filled as quickly as possible, as vacancies also cost money.

Local market conditions often drive a landlord to offer lease concessions to remain competitive with other housing providers in the area. For landlords with rental property in less desirable neighborhoods, a lease concession could attract renters who may not otherwise consider the property.

Property location cannot be changed but property condition can be. If a landlord is in the process of renovating his property, a lease concession may be offered to tenants to offset any inconvenience until construction has been completed. Or, if the condition of the rental property cannot be effectively changed, as example, the property is in escrow to a new buyer, a lease concession of flexible lease terms may fill an unexpected vacancy until escrow is closed and planned updates completed.

Understanding the rental market supply and demand conditions and the local demographics aids a landlord in his business decisions for lease concessions. A change in rental policy should be a strategic business decision that makes good business sense. Lease concessions should not be offered routinely or without regard to the business bottom line. Small changes in the market do not necessarily call for automatic across the board policy changes by housing providers.

Landlords should consider lease concessions as a tool to help manage their properties. A lease concession to the tenant is an expectation of value returned to the landlord. Without mutual benefit, the landlord has exposed his business to potential loss or liability. Concessions should not be wasted on installing a tenant who is not fully qualified to usual rental standards. The tenant will fill a vacancy but there is likelihood the tenant may default once the benefit of concession has been expended.

Rental surveys in many markets show housing affordability is the most important criteria to renters when considering a move. A lease concession that allows the tenant to better manage his rental expenses will generate more interest than any other type of rental incentive.

Types of Incentives

The following types of incentives are some of the most common lease concessions. A landlord can choose to offer the type of concession that is most effective for his business and the market served.

Rent discount

A tenant may request a lower monthly rate as a discount for signing a multi-year lease. If the tenant defaults on the lease, moving out before lease expiration date, a landlord has lost rent by having offered a lease concession and has an unexpected vacancy. A landlord may want to consider including a clause in the lease regarding tenant default on concession terms stating what remedies will be taken to cure the default.

Free month of rent

For some tenants a lease concession of one month of free rent is very attractive, particularly if they have problems coming up with required deposits, fees, and rents at move-in. However a landlord should make sure his lease terms and conditions clearly state how this concession will be applied and what the renter must do to earn the concession. For example, the free month of rent may be earned after the tenant has paid full and timely rent for the previous 11 months. Tenant screening of the renter’s financial ability to pay should always be conducted.

Flexible lease terms

Many landlords offer fixed-term leases, usually for a term of one year. A landlord could be willing to offer a shorter term lease or to consider a month-to-month agreement.

Security Deposit

A lesser amount of a security deposit amount or a waiver of security deposit may be a concession for larger rental complexes but is not a good business practice for an independent landlord. A security deposit is the landlord’s protection against a tenant’s property damage or unpaid rent. Waiving the deposit or allowing the tenant to pay less than one month rent is risky business. If a new tenant is unable to pay required fees, deposits, and rents at time of move-in, it could be a red flag to the landlord of potential rent default after move-in.

A landlord might consider a tenant’s request to pay the security deposit amount in monthly installments. This could indicate a cash flow problem and usually is not a good business practice. Be aware however that some states do address this issue by statute and the tenant is allowed to pay the security deposit in installments in compliance with statute provisions.

Property upgrades

Improvements to the rental property can be attractive to many tenants particularly so for tenants renewing their lease or considering a renewal. Property upgrades benefit both the landlords and tenants and can contribute value to the rental property. Upgrades can be a landlord’s choice or a tenant may be able to choose from a list of landlord offered upgrades.

Online Tenant Services

Online tenant services make it easy for tenants to pay rent, schedule maintenance, report items needing repair, and communicate with a landlord. Rather than a lease concession, online tenant services are incentives to conduct business efficiently and effectively over a variety of devices. For some tenants a tenant portal is a requirement for their lifestyle.

Documentation

A landlord who provides a lease concession as a tenant incentive should make sure that documentation is kept of relevant information, acknowledgement, and delivery of the concession. An offer must be provided to eligible tenants in a fair and consistent manner to avoid claims of discrimination. Additionally it can be a best practice to keep records by date and detail of offers made, responses received and confirmed acceptances. The records should include a copy of the offer as published or communicated in any media, including dates advertised, beginning and ending date of the offer and terms and conditions of the offer.

The lease agreement should include clear language regarding a concession, details of the terms and conditions to earn the concessions, and the available remedies if the terms and conditions are not met by the tenant.

Notification and Disclosure

A landlord should conduct due diligence to determine if his property is covered by state and local laws regarding requirements for notification and disclosure of tenant incentives or lease concessions.

As an example, in the state of Illinois, the Illinois Landlord Tenant Act includes a Rent Concession Act (765 ILCS 730/).

Sec. 1. That the purpose of this Act is to regulate the prevalent practice of making or using written leases of real estate, which, because of concessions to the lessees, do not truly state the real net rent being paid, it being recognized that such practice can be, and frequently is, used to mislead prospective purchasers and lessees, and lenders of money on the security of such real estate, into a belief that the rental value or market value thereof is greater than it really is.

Sec. 2. A rent concession is made within the meaning of this Act, when, in case of a written lease of real estate or a part thereof, the lessor before or at the time the lease or any agreement therefor is entered into, and in consideration of such lease or agreement therefor, directly or indirectly, gives, or agrees or promises to give, to the lessee, without express mention thereof in the lease, any of the following: (1) any credit upon the rent reserved by the lease between the parties, or rebate of such rent or any part thereof after payment thereof by the lessee, or (2) the right, privilege or license to occupy the leased premises for a period other than the term created by the lease, rent free or for a rent less than the average rent fixed by the lease for the entire term, or (3) any other valuable thing, right or privilege.

Sec. 3. When a rent concession shall be made in the case of any lease hereafter entered into, it shall be the duty of the lessor, at the time or immediately after the lease is made, to cause such lease to bear a legend across the face and text thereof plainly legible and in letters not less than one-half inch in height consisting of the words “Concession Granted,” and to bear a memorandum on the margin or across the face of such lease stating the amount or extent and nature of each such concession, and any failure on the part of a lessor so to do shall be unlawful and a violation of this Act.

At-Will Employment

August, 2020

An employer’s practice of at-will employment is an employment agreement between employer and employee that may be terminated by either employer or employee at any time without notice and without any reason (cause). Unless there is specific company documentation, oral or written, that the company policy is employee termination for cause, the law presumes that most employment is at-will employment.

However the employer does not have carte blanche regarding employee terminations. The employer cannot terminate an employee for illegal reasons. At-will employees have rights and protections by statutory exemptions and common-law exceptions to an employer’s at-will employment practice. An employee can choose to accept at-will employment and is free to voluntarily terminate his employment at any time without notice, for his own reasons.

Statutory Exceptions

Federal, state and local anti-discrimination statutes are statutory exceptions to the employment at-will doctrine. Title VII of the Civil Rights Act of 1964 prohibits employers of 15 or more employees from basing employment decisions on an employee’s race, color, religion, sex, or national origin. The Fair Housing Amendments Act (FHAA) provides further protection against discrimination based on disability and familial status. Other federal statutes such as the Age Discrimination in Employment Act (ADEA) and the Americans with Disabilities Act (ADA) also provide anti-discrimination protection for at-will employees.

State statutes and local ordinances in many jurisdictions provide greater anti-discrimination protections than federal laws. Federal, state, and local laws protect at-will employees from termination, suspension, or other work reduction as employer retaliation against an employee for exercising rights under employment or labor law, reporting employer discrimination, reporting health and safety violations, or other issues in the workplace.

Common-law Exceptions

Common-law exceptions to at-will employment are in addition to statutory exceptions. The three major common-law exceptions are public policy, implied contract, and implied covenant of good faith and fair dealing.

Public Policy Exception

The public policy common-law exception is recognized by most states but criteria for violations of public policy can vary significantly among states depending upon how broadly the exception is construed.

Employees are protected against adverse employment actions that violate a public interest. Most states consider only public policy expressed by statute or state constitution, while a few states allow public policy to include administrative rules and regulations, professional codes of ethics, or civic duty.

Public policy exceptions may include reporting a violation of the law, exercising a statutory right, refusing to perform an act that state law prohibits, and engaging in acts that are not in the public interest. As examples, public policy violations could be termination of an employee for filing a workman’s compensation claim, filing a safety (OSHA) complaint, serving on a jury, or being called for military duty.

Implied Contract Exception

The exception of implied contract of employment is recognized by most states, but even where recognized may not be easily proved by a dismissed employee. However implied contracts can be created by oral assurances by an agent of the employer, by employee documents such as handbooks, policies, or practices or other written assurances by the employer. The employment relationship may have begun as an at-will employment with no express written agreement, but the employee may have gained an expectation of a fixed term employment based upon oral statements by supervisors, employer actions, or written employer policies adopted during the employee’s term of employment.

Implied Covenant of Good Faith and Fair Dealing

Some states recognize an implied covenant of good faith and fair dealing in employment relationships. The exception noted in this implied covenant is the understanding that the parties in the employment relationship will not treat each other in an unfair manner or act in bad faith toward each other. Thus an employee’s termination should be for cause and not for arbitrary reasons.

Courts have found employers in violation of this covenant of good faith when employees are terminated to avoid employer responsibilities in paying for employee healthcare, retirement benefits, or commissions.

Terminated employees could use this exception when filing suit against the employer for wrongful termination with no other evidence to the contrary of an implied oral or written contract.

Wrongful termination or wrongful dismissal is commonly understood to be an unfair employment termination. As noted above, wrongful termination could result from employer discrimination against a member of a protected class, as retaliation for an employee action, or from an employee’s refusal to commit an illegal act for the employer. In addition, wrongful termination could be as a result of the employer failing to follow his own stated termination policy and procedures.

However not every termination is unfair and not every unfair termination constitutes wrongful dismissal. The employer must have illegally terminated the employee for the dismissal to be considered wrongful termination. If the termination is not deemed illegal, then, it is not wrongful termination no matter how unfair it might seem. Wrongful termination can be claimed in the employment at-will relationship and under contractual employment agreements.

Filing a claim of wrongful termination can involve a variety and complexity of issues, including filing claims with government agencies or filing private lawsuits. If the claim of wrongful termination is upheld, the employee could be entitled to compensatory damages, injunctive relief, punitive damages, attorney fees, and/or reinstatement.

The presumption of at-will employment can be changed through contractual agreement between employer and employee by specific terms of employment or by allowing termination for cause only.

Just Cause Termination

Just cause termination is dismissal of an employee for a legally specific reason referred to as good cause, lawful clause or sufficient cause, to prove the employer’s right to discipline or terminate an employee.

An employment contract may specifically outline the situations or employee actions that would lead to termination for cause. Cause generally includes reasons such as unsatisfactory employee performance, employee misconduct, or employee negligence.

Employment Contract

The presumption of at-will employment can be modified by an employment contract that provides for a specific term of employment or allows termination of an employee for cause only.

An employment contract is a negotiated agreement between an employer and prospective employee that recites the obligations of each party, employment terms and conditions, and details of the employment such as employee start date, wage/salary information, and benefits. When the employment contract is signed, it becomes a legal document binding the parties to the employment terms.

An employment contract should specifically address the employment terms and conditions of employee termination. A prospective employee can negotiate language in the employment contract that provides protection for employee from termination without cause. Employment contracts may specifically address situations or actions that constitute employee termination for cause.

An employment contract can include various agreements that more fully define employer and employee obligations. As examples, an employer may require the employer to sign acknowledgement of:

  • A confidentiality agreement
  • A non-compete agreement
  • An assignment of intellectual property agreement
  • An exclusive employment agreement
  • Agreement to use arbitration or mediation for dispute resolution

If an employment contract is terminated by the employer before contracted end date, the employer has breached the employment contract. The employee may be able to bring a claim for wrongful termination due to breach of contract.

Best Practices

Employers that utilize at-will employment practices should ensure that such practices are clearly detailed in all company documents and articulated by company personnel in clear understandable language so that employees are knowledgeable about the employment arrangement before consenting to at-will employment.

Best practices for an employer include legal consultation in general regarding employment policies and termination policies in particular and have procedures in place to accurately and thoroughly document employee records for performance and disciplinary issues. Employee termination as an appropriate course of action by the employer should be documented following thorough investigation of facts. All employee disciplinary actions including termination should be conducted in a fair, consistent, non-discriminatory manner as applicable to every employee.

At-will employment offers an employer flexibility to manage his workface. An employer can change the terms of the employment without notice in response to market conditions and business necessity.

As necessary, when needing to terminate an employee, at-will employment offers a more efficient release process without the need for lengthy legal resolution. If the employee clearly understands the at-will employment arrangement and consents to the employment agreement, both employer and employer have a mutual working relationship until either employer or employee exercises the right to terminate without notice.

If I buy tenant occupied property what are the critical issues that must be covered in the purchase offer?

August, 2020

A purchase offer contract should protect the interests of a buyer by including adequate contingency clauses for seller disclosures and property inspections. The seller should be required to provide copies of all relevant documentation related to all issues that are material factors in a buyer’s decision of whether to own the property for the price that will be offered. The buyer theoretically would have legal recourse against the seller if the seller provides false or misleading information or does not provide information material to the sale.

Contingency clauses for inspections should include a physical inspection of the exterior building and related structural and mechanical systems. Inspection of the interior of rental unit(s) should be scheduled early in the due diligence period to determine the general physical condition of the unit(s). Existing conditions should be noted for damage, repair, or replacement. A copy of the tenant’s move-in checklist can confirm the condition of the unit at time of move-in. You will want to determine that the condition of the rental unit, if damaged, will be covered by the tenant’s security deposit upon the tenant’s move-out.

The offer should require that the seller confirm that there are no lawsuits, regulatory agency actions, or other claims pending against the property related to previous or current tenants not previously disclosed in writing and require a warranty that the seller has complied with federal and state lead laws and other potential contaminants. It should require that the seller provide copies of required disclosure documents for existing tenants under federal, state, and local laws and copies of all inspection reports conducted by state and local agencies for health and safety requirements. You should also request copies of current fire safety and building code inspections as well as other inspections or requirements by subsidized housing assistance programs such as Section 8. The purchase offer contract should require that the seller provide copies of documentation related to complaints by other tenants, neighbors, and government agencies regarding any tenant.

The most important documentation in buying tenant occupied property is to request copies of all rental documents, including lease agreements; security deposits accounting, rental rules and regulations; other policy statements issued by the seller to tenants; rent payment histories; application forms, screening reports, and move-in checklists. If the property currently has a resident manager, the employment contract and associated lease agreement as well as instructions and policy statements related to management should be requested.

To further reduce risk of potential problems after-closing, you should consider execution of Estoppel Certificates by all tenants as a contingency in the purchase offer. An Estoppel Certificate is a document signed by a tenant that (1) affirms the lease documents (attached to Certificate) and the deposit/rent amounts; (2) confirms that there are no agreements outside of the attached documents; and (3) confirms the amount of security deposit, the current rent, and the date to which rent has been paid. In addition to verifying information provided by the seller, the Estoppel Certificate stops the tenant from making claims regarding the included issues after close of escrow.

Since you will be responsible for the accounting and return of tenant security deposits upon existing tenant move-out, the purchase offer contract and any subsequent escrow instructions should explicitly state that you, as the buyer, must be credited with the tenants’ security deposits at close of escrow. The seller should also be required to provide a signed letter at close of escrow notifying the tenants that the property has been sold to you as the named buyer.

What document do I use to inform my tenants of a change in ownership? I just sold my rental units and need to give them information regarding the new owner.

August, 2020

The most common way to provide tenants with notice of a change of ownership is for the seller to confirm in writing at close of escrow that a transfer of ownership has been completed. The notice should provide the buyer’s name or entity, contact information, and any other information that the buyer wishes to provide. Tenants will understandably be anxious about the new ownership, whether their lease is still in place, and the possibility of potential rent increase. The notice of sale can be helpful to reassure tenants with fixed term leases that their current lease is in effect through the contracted lease expiration date and that their security deposits have been transferred to the new buyer. Tenants should be advised to contact the new owner directly with any questions or concerns.

In some localities, a landlord is required to provide written notice to the tenants of a change in ownership and/or management. There may be a requirement that the notice be provided within a specified number of days following close of escrow. You would need to research applicable laws for the location of your rental property to determine legal compliance.

If I decide to sell my rental house, do I need to offer my tenant a right of first refusal?

August, 2020

In real estate, a right of first refusal agreement allows a buyer and seller to enter into an arrangement by which the potential buyer is given first opportunity to purchase a property before the seller considers any other offers. The right of first refusal can be a complex matter with contingency issues, such as deadlines, limitations, obligations, and purchase price. All parties to a potential agreement should consult with an attorney to understand all issues before entering into an agreement.

It is beyond the scope of this forum to provide adequate detail for a right of first refusal agreement. Information provided in this article should not be construed as legal advice. Readers are advised to conduct their own research on the issue. However it may be necessary to conduct research depending upon the location of your rental property. In researching this issue as a general matter, we found that in Maryland, Baltimore City has a law granting tenants the right of first refusal. The law provides that before the owner of a single-family residential rental property sells or transfers the property to another, the current tenant has the opportunity to purchase the property on commercially reasonable terms (Subtitle 6 of Article 13 of the Baltimore City Code).There may be other localities that have similar laws.

In general, as a landlord-tenant consideration, a right of first refusal clause would be written into the lease agreement between landlord and tenant. In simplest terms the landlord, in compliance with the agreement, must offer the tenant the opportunity to purchase the rental property before he, the landlord, can negotiate with other potential buyers. If your lease agreement does not specifically address the right of first refusal, you have no obligation to offer special considerations to the tenant. If the tenant is interested in purchasing the rental once the listing has been placed with your real estate agent, the tenant can make an offer as would any interested potential buyer.

Landlord Liability for Dog Bites

July, 2020

Is a landlord liable when a tenant’s dog bites someone? The concern about landlord liability for injury to persons caused by a tenant’s dog often underlies a landlord’s decision whether to allow pets on the rental property. A landlord does have a valid concern about dog bite liability. The number of dog bite claims increases each year and, correspondingly, increased costs for victims’ medical care and awarded settlements.

Data has shown that more than half of dog bite injuries occur at the home. More than two-thirds of U.S. households have pets, with the majority of those pets being dogs. Many of these households are renter households. Pet-friendly rental properties are priority when these households move within the rental markets. A landlord must weigh the potential risks of a pets welcome rental policy against a potential extended vacancy of pets not allowed rental policy.

A dog bite victim’s medical costs are usually reimbursed through the dog owner’s homeowner insurance policy. When the dog owner is a renter and does not have adequate renter insurance coverage, the dog bite victim may choose to include the landlord as a defendant in a personal injury lawsuit. A landlord is perceived as having deeper pockets, i.e., more assets and better insurance coverages than the typical tenant dog owner.

Generally, landlords are not automatically held liable for dog bites. However, landlords have a duty of care responsibility to take reasonable measures to ensure their tenants’ safety and security on the rental property. An incident of a dog bite injury requires investigation of the facts to determine whether the landlord performed to his duties and responsibilities for tenant safety.

Landlords can be held liable when their actions or their failure to act increases the risk for injury or damage from an aggressive or dangerous dog attack. A landlord could be held liable if the landlord had actual knowledge that the dog was dangerous or that the landlord should have known that the dog was a threat to others. As example, if the landlord was aware that the dog had a history of aggression (previously bitten or attacked someone) yet the landlord allowed the dog to remain on the rental property, knowing that the dog could endanger the safety of other tenants, visitors, or general public, the landlord could be held partially liable for future incidents of dog bit injuries or damage.

A landlord could be held liable if he failed to warn all tenants and visitors that there was a dangerous dog on the rental premises. If the landlord knew that the dog posed a threat to others but the landlord did not have legal authority to remove the dog from the rental premises, the landlord must take appropriate actions for warnings of danger, as an example, by posting Beware of Dog signs on the rental premises.

In situations where the landlord had actual knowledge that the dog was dangerous and posed a threat to others but the landlord did not exercise his authority to remove the dog from the rental premises, the landlord could be held liable for injury and damage caused by the dog. For landlords that offer pet friendly rentals, the tenant should be required to acknowledge in a signed pet addendum that if the dog displays vicious, aggressive behavior towards others that constitutes a threat, or becomes a nuisance, the tenant must remove the dog from the rental premises. If the tenant failed to remedy the situation, the tenant breached the lease and is subject to legal action as detailed in the lease terms and conditions. If the landlord’s failed to enforce his lease terms and conditions for landlord removal of the dangerous dog, the landlord is negligent and could be held liable for any injury and damages.

 

 

A landlord could also be held liable if the landlord assumes responsibility to care for the tenant’s dog in the same manner as if the dog belonged to the landlord. By the landlord’s actions, such as feeding the dog, walking the dog, etc., or exercising any control over the dog, the landlord inherits the same liability as the dog owner’s actual liability for the dog’s behavior.

If the landlord fails to maintain the rental premises to a safe condition, which allows the tenant’s dog to escape the rental unit or rental property, and the dog bites someone, a landlord could be held liable for negligence if the landlord knew or should have known about a property defect or item needing repair. The landlord’s failure to maintain the property incurred liability for the injury even if the injury did not take place on property owned by the landlord.

While there can be some amount of risk of liability lawsuits against landlords whose tenants are pet owners, particularly dog owners, there are some risk management measures that can mitigate landlord liability for dog bite incidents.

Due Diligence

A landlord should know the applicable laws regarding landlord liability for the location of the rental property. This includes knowing whether local ordinances prohibit certain breeds of dogs considered dangerous, vicious, and aggressive.

Landlord Liability Insurance

It is always a best practice to periodically review landlord insurance coverages particularly liability coverages. A landlord must maintain the proper amount of insurance coverage to protect his business. Understanding what is covered by insurance and what is not covered by insurance such as policy exclusions and limitations, is a business necessity to adequately protect business interests, defend against claims, and formulate rental policies and practices. The type of coverage and amounts of coverage should include liability coverage for dog bite injuries and other animal liability coverage. It is a good idea to review policy exclusions on dangerous dog breeds to make sure rental pet policies are set accordingly. If a landlord knowingly allows a tenant to have a dog on the rental property that is one of the dangerous dog breeds excluded by his insurance company, a landlord risks being financially responsible for injury and damage caused by the dog.

Tenant screening

A landlord can help protect his business by conducting adequate tenant screening through previous rental history screenings, landlord references, and applicant interviews. Prospective applicants should be advised of the rental policies regarding pets. Pet ownership and the type, breed, size, and weight of a pet can be requested on the application form. As applicable, a landlord may want to meet with the pet and review the pet’s health records, licensure, and/or registration before approving the application. A pet addendum attached to the lease agreement should detail the rules and regulations for having an approved pet on the rental premises.

Renters insurance

As applicable by statute, a landlord should always require as a condition for tenancy that the new tenant purchase renters insurance to protect the tenant’s personal property and provide liability protection for the tenant. It should be made clear that the landlord’s insurance coverages will not provide coverage for the tenant’s personal property from loss or damage or provide liability coverage for injury to others. When the tenant is also a dog owner, the renters insurance should include canine liability coverage. If the tenant’s dog causes property damage or injury to someone, the tenant must look to his renters insurance for coverage.

Lease agreement

The lease agreement is the governing document for landlord-tenant duties and responsibilities. When approved pets are allowed on the rental premises, rules and regulations regarding pet ownership and conduct should be detailed in a pet addendum. Additionally the pet agreement should detail what is considered a lease violation and what remedies will be taken to cure a violation.

As noted above, a lease agreement should specify the type, species of animal, size, and weight limit of a pet, as well as restrict the number of pets per tenant household. Landlords should always prohibit any animals that are excluded from liability coverage under the landlord’s insurance policy, for example, dog breeds that are considered dangerous and aggressive. Before completing new tenant orientation a landlord should review pet owner duties and responsibilities with the tenant and have the tenant acknowledge his understanding of the terms and conditions of the lease including his pet responsibilities.

Property Inspections and Maintenance

Regular property inspections for maintenance and repairs and safety inspections as required by state and local agencies provide a means to discover property damage caused by pets before the damage becomes a larger problem requiring repair or replacement. Additionally regular inspections could uncover a health hazard regarding pet ownership and care that should be addressed promptly for safety and health reasons of the tenant and neighboring tenants.

Are warning notices effective?

July, 2020

A warning notice, oral or written, may be appropriate for a tenant’s first time violation of a lease term or condition that is not a material default of the lease or a potential threat to neighbors or property. A tenant whose previous behaviors have never been a problem may be responsive to an oral request by a landlord to remedy the situation. A landlord should document in writing the details of the landlord-tenant conversation regarding the lease violation and what the tenant must do to correct the violation. A copy of the writing should be placed in the tenant’s file.

A landlord could instead send a written warning letter to the tenant that provides details of the problem behavior including date and time of the violation; the expected corrective action to be taken by the tenant to remedy the problem; citation of the specific lease term or condition that has been violated; and the consequences if the tenant fails to take corrective action for compliance.

A warning letter can be effective in some problem situations but in many other situations, it only serves to delay serving the inevitable notice of termination of tenancy. A warning letter as an informal writing does not qualify as a formal termination notice. Property management experience may serve to guide the landlord toward the most appropriate and/or effective type of notice for the tenant problem behavior.

If a tenant has repeatedly violated terms and conditions of the lease, it is very likely a warning letter will not produce the desired change in the tenant’s behavior. If the problem situation involves dangerous behaviors such as criminal activity, drugs, or threats of violence, a landlord should immediately begin the termination process to end the tenancy.

Tenants who choose to ignore a warning letter or refuse to comply with lease terms and conditions will need to be served with a formal notice for termination of tenancy.