If you haven’t already done so, you need to research state and local laws regarding real property management in general and those specific to the issue of resident managers.  In some states and cities a landlord may be required to hire a manager for rental properties having a specified number of units. Most states require that a property manager be licensed as a real estate broker or as a salesperson working for a broker who has legal responsibility for the management. However, most states allow use of a non-licensed person who legally resides on a rental property to manage that particular property, but only the property on which the person is a resident. In other words, the person cannot manage a legally separate property even if the property owned by the same owner is nearby.

A resident manager is generally considered an employee, not an independent contractor. Therefore you will be the employer of the resident manager. You will have many of the same obligations for federal, state, and local new hire reporting; fair labor standards and wage and hour laws (including minimum wage and overtime requirements); income tax reporting; payroll reporting including withholdings for Social Security, Medicare, and Unemployment taxes; Workers’ Compensation insurance; employee sick leave or other benefits; general business recordkeeping and reporting; and any other legally required employer obligations as does any other employer. Since some of these items might vary by the state, county, or municipality in which the property is located, you must know the rules for that location.

While hiring a manager can free you from many time consuming aspects of property management, it may also create work of its own. Transferring tasks to your manager does not necessarily reduce your own work load. Your work load changes from performing landlord tasks to supervising the tasks of your resident manager and deal with employment and tax law issues.

That being said, many landlords can benefit from hiring a resident manager to handle routine day to day rental operations. You set the responsibilities and duties of the resident manager according to your business needs and per applicable laws.

You should recognize that business liability risks increase as more responsibility and authority is transferred to the manager. Owners are potentially liable for violations of landlord-tenant statutes, fair housing laws, and health & safety laws and for any injury or damages that their employees cause. You must ensure that your resident manager fully understands applicable laws and performs according to compliance standards.

Employers can be held liable for negligent hiring or tortuous acts of their employees if the acts occur when the employee is acting within the course and scope of employment. Therefore you should have risk management measures in place to help protect against potential liabilities of your manager’s acts.

A frequent comment from landlords is how much documentation is needed for legal compliances, general business matters, landlord-tenant issues, and tax reporting. Common advice given to new landlords regarding paperwork is to “document everything” closely followed by “just in case.” This is good advice but taken literally can prove to be too much of a good thing. The landlords that suggest documenting everything may be speaking from personal experience – thinking of the time they needed a document and either didn’t have it or couldn’t find it.

How does a landlord know what documents to keep, for how long, and how to dispose of a document when it is no longer needed? Common sense and business necessity provide guidance regarding document management, while due diligence provides compliance requirements for document storage and retention.

Information content, storage, retention and disposal can vary according to the type of business, the type of document, and what relationship the document has to the business. A document management policy identifies the requisite documents for legal compliances and business reporting. Once you have determined what you must have, you can begin to identify and classify your documents to determine the required retention period, and the appropriate disposal method for each class of document.

A reasoned, practical approach to document management is to record relevant business information and to organize those documents into a file management system that provides for storage, retrieval, backup, and security of business records, tax records, tenant records, and property records. The file management system can be as complex as required for business necessity, for type and number of properties, or for specific to landlord preferences.

When properly developed and implemented a document management plan becomes a time management tool for efficiency in property operations. More importantly it becomes a risk management tool to protect the business. A document management system helps provide a paper trail to aid in defense of an audit, legal dispute, or fair housing claim. At the very least, a document management system should make it easier to find and retrieve information when needed.

File Organization

Organization of information is critical to successful search and retrieval of documents, paper or electronic. Good file management organizes information in a consistent protocol using descriptive file names that clearly identify the document and its content. The naming convention, generally from broad to specific, applies whether documents are hard copy paper files stored at a physical location, electronic files saved to a computer or other media devices, and/or data stored in a cloud-based system. Document management protocol should also provide for electronic communications such as email regarding storage, retention and disposal.

A landlord will set up his files to his business and personal preference. An important point to remember is to ensure others with permissible purpose will be able to search and retrieve documents in case of an emergency or for legal compliance. For that reason once business documents have been identified and classified, an index should be created that provides a data map to the named files, document content, date created, retention date, access permissions, storage location, and document format. It may be helpful to create a hard copy document that outlines your document filing policy, provides instructions for creation of new documents, naming protocols, file location, and retrieval. Similarly a readme computer file will aid others in creation, storage, and retrieval of electronic documents.

For many landlords, a paper file system is simple, familiar to use, and provides ready access to files. Other landlords prefer the convenience of their computer files and the portability of information. Most often property management operations use both hard copy documents and electronic files.

Permanent Files

There are many documents that must be retained in permanent files for indefinite storage for business, tax, and legal matters. Permanent files may include the following:

Ownership Property Records

For real property, documents for the purchase of the property and its capital improvements must be kept throughout the ownership period and thereafter for tax record retention periods. Documents may include the purchase offer and contract; closing documents including buyer inspections, appraisal, and title policy; loan documents, tax bills and assessments; insurance policies; seller furnished original landlord-tenant documents including lease agreements, security deposit receipts, repair and maintenance records, and fire, health, and safety inspection records during seller ownership of the property.

Tenant Records

Maintaining complete, detailed, and current tenant records is essential to document the individual’s tenancy, the landlord’s compliance with legal obligations, and more likely to prove a defense against a tenant’s claim of discrimination or show cause in a landlord’s court action for tenant eviction.

Landlords need to keep a variety of records for all applicants, current tenants, and past tenants. All documentation related to filling a vacancy including rental inquiries, property showings, applications (withdrawn, rejected, and accepted), tenant screenings, selection, and tenancy records should be retained according to the appropriate retention period. Records should be kept that show calendar periods when vacant properties were available and when vacancies were filled.

Property Records

Records should be maintained on each separate rental property, detailing income and expenses for the property. Property records for an individual property may be cross-referenced to the permanent file for ownership records. Information contained in property files is used for business analysis, financial reports, and tax reporting.

Tax Records

Document management for tax reporting must prove the paper trail that supports rental income and expenses as shown on Schedule E of the landlord’s tax return. As a general rule documents maintained and secured for tax reporting purposes include rental property related expenses as detailed by receipts and business records and all income from rents, fees, or services received instead of money.

Storage

The business documents that a landlord creates, manages, and secures are the business’s information assets. As such, a landlord must take responsibility to ensure the records are properly maintained and stored to ensure the safety and security of the data and protect the business interest. Appropriate to the business model a document storage system may be as simple as a locking file cabinet in a physical location not accessible to the general public. Computer files should always be protected with an administrative login and strong passwords to prevent data theft or misuse of information. Access to records that contain personally identifying information about individuals (applicant and tenant), such as consumer reports should be limited to only those with a “need to know.”

Backup System

Document management requires records and supporting documentation be kept secure yet accessible. A good business practice is to have a backup system for document management in the event of a business disruption. Regularly backing up computer files to a portable device or to cloud storage, or securing a hard copy of relevant business and ownership documents to a secure off-site location can provide needed data to re-establish your business, prove ownership records, banking access, or other assistance in the event of an emergency such as a computer failure, burglary, fire, or natural disaster.

Document Management System

The focus of document management is organization and storage of relevant business documents in such a manner that document information can be created, shared, stored, and retrieved through an efficient process. The process can be paper files secured in a file cabinet, a computer application with security enabled access, or a full document management platform provided by an organization’s information technology department.

The best way to get paid on your judgment is to have the tenant voluntarily pay the judgment and get it over with. That usually does not happen without some landlord encouragement.

The judgment gives you the legal right to collect the money owed to you. The court does not have a collection duty. It is your decision regarding how to collect the judgment and when to collect it.

All collection efforts must be legally compliant. Each state has its own system regarding the collection of judgments. It is your responsibility to research your state’s laws and your particular court’s procedures. Additionally you need to comply with applicable federal and state laws for credit, collection, and protection of consumer personal financial information.

You can collect the judgment yourself, hire an attorney to collect it, or turn the debt over to a collection agency. As a judgment creditor you have more rights and more ways to collect on a debt than does a collection agency. For instance, if your former tenant is employed, you could garnish his/her wages, file liens against the tenant’s property, and seize any tenant bank accounts.

Keep in mind that not all judgments are collectible right away. Your former tenant may find ways to delay or avoid collection. However, sometimes the debtor must pay the judgment, along with the accrued interest calculated at the state’s specified rate, when needing to obtain a loan some years after the judgment was obtained.

If your former tenant is uncooperative or difficult to locate it could take quite some time to collect the judgment. Placing the debt for collection with an outside agency or attorney for an extended time period may be costly particularly in light of the judgment amount and associated collection fees.

If you want to consider collecting the debt yourself, you should take into account the dollar amount of the judgment, the costs in pursuing collection, the value of your time and your willingness to put your energy into collection efforts for possibly a long time, with no certainty of success.

Regardless of whether you decide to collect the debt yourself, hire an attorney or use a collection agency, you should document the information you already know about the former tenant. Any information you can list about the debtor – e.g., a former or current residence, contact information, employment status, real estate property, personal property, vehicles, bank accounts, etc. – can help you or the collection agent take action to locate the debtor, the debtor’s assets, and collect the judgment.

You have the legal right to collect your full judgment, but you also have the right to propose a negotiated settlement for less than the full amount or to offer the debtor a scheduled payment plan. If you decide to offer a plan of any kind, make sure your plan is written in clear and understandable terms and conditions. You and the debtor will be bound to the new agreement by your signatures. You may need to file the signed stipulated agreement with the court.

You should research your state’s landlord-tenant statute regarding eviction to determine what you can do and cannot do regarding accepting rent payments after the eviction process has been started.

As a general rule, if you accept a tenant’s full or partial rent payment during the notice period, the pay or quit notice will be cancelled and you have waived your rights to proceed in evicting the tenant for non-payment of rent. The eviction action will be dismissed by the court. If there is a future rent default, you will need to start the process over by serving the tenant a new pay or quit notice.

If you do not accept a tenant’s rent payment, either in full payment or partial payment during the notice period, the eviction process continues according to legal requirements.

There are many reasons that a landlord may bring legal action to remove a tenant from the rental property. The two most common reasons for eviction are non-payment of rent and chronic late payment of rent.

A landlord should always include specific language in his lease agreement regarding all rent issues – e.g. amount, due date, grace period, and late fees, tenant obligations for rent, and landlord remedies for tenant noncompliance of rent terms. Landlord enforcement of rent obligations is necessary to protect the landlord’s business and help defend against potential claims of discrimination or favoritism of one tenant over another.

You should research your state’s landlord-tenant statues that address the issues of rents to make sure your lease is compliant with the statute. If there is indeed a chronic history of past due rents and you can establish such a history, you should follow the statute and your lease terms regarding giving legal notice to the tenant of rent default. Before you can file a legal action for eviction, you must first terminate the tenancy. To do that, in most states, a pay or quit notice must be sent to the tenant giving the tenant a certain number of days (e.g., 3 – 5 days) to pay rent or quit the rental property. After the notice period expires, if the tenant has not paid, the tenant is in violation of his lease. You can now begin the legal action for eviction.

In some states a tenant’s repeated lease violation allows a landlord to notice the tenant with an unconditional quit notice which does not allow the tenant to pay past due rent but gives notice that the tenancy is effectively terminated at the end of the notice period. The tenant must quit the rental property with no second chance to pay and stay.

Similar to property inspections to ensure the physical property is kept in good condition, business policy reviews are essential to ensure legal compliances, business protection insurances, risk reduction measures, and property management standards provide best practices coverages to protect the landlord’s business entity and rental operations.

Legal Compliances

Landlords conduct business under multiple levels of governmental agencies’ regulations. Federal, state, and local laws, statutes, and ordinances regulate business ownership and business operations. Legal compliance requires timely attention to new and pending legislation at all levels of governance for ownership and operations.

Business Entity

The type of business entity that the landlord chooses for his business model – e.g., sole owner, partnership, corporation, or limited liability company, regulates his business reporting requirements for federal, state, and local agencies. While the focus of attention is often given to the property management compliances, the landlord is first a business owner with requisite responsibility for entity, tax reporting, registrations, licensure, employment and labor, and code compliances.

Landlord-Tenant

The landlord provides a business service of rental housing regulated under federal, state, and local laws regarding fair housing rights, landlord-tenant rights and responsibilities, and consumer protections.

The location of the rental property determines the governing landlord-tenant statutes and local ordinances.

State landlord-tenant statutes address multiple issues of the landlord-tenant relationship including landlord and tenant obligations and duties. In the last several years, local city and county governments have taken a more active interest in rental housing issues which has added another level of due diligence requirements.

The influences of state laws and local ordinances have directly impacted rental operations in many rental markets. In some regions the rental market has become more favorable to tenants by placing restrictions on tenant screening and selection policies.

It is imperative that a landlord fully understands legal requirements and how his rental policies and procedures must be developed to the appropriate level of compliance for rental policy enforcement and business protection. A landlord is required to comply with the legal standard that provides the greatest level of protection, i.e. most stringent, for fair housing rights and consumer protections.

Insurance Coverages

Landlord Business Insurance

Business insurance coverages help protect a landlord from financial losses resulting from unexpected events – e.g., accidents, natural disasters, and liability claims.  While landlords are obligated to take reasonable measures to protect tenants and tenant property against known risks or potential threats to health and safety, there are events, natural and manmade, that cannot be directly controlled by a landlord. Business insurance policies for buildings, contents, and liability issues are important measures to reduce loss from damage or to reimburse the landlord for loss of rental income from unexpected events.

Renters Insurance

As permissible by landlord-tenant statutes, landlords can further protect themselves by requiring tenants to purchase renters insurance as a condition for tenancy.

A landlord’s insurance coverage does not protect a tenant against liability claims related to a rental or cover the tenant’s personal possessions. It is the tenant’s responsibility to obtain his own insurance coverage for financial protection against loss or destruction of personal possessions and as protection against liability claims of injury to other persons or property damage.

Risk Reduction Policies

Managing risks related to income property can be complex and time consuming, involving multiple levels of regulatory requirements in addition to business operation requirements. Some risks may be found at both regulatory and operational levels, while certain other risks may be more significant at one level than the other. A unique characteristic of the business of landlording is the interrelationship of landlord-tenant rights and obligations during tenancy. The landlord retains ownership of the property but the tenant has the right of occupancy of the property. The potential for conflict creates potential risk.

While every business should be prepared for some risk, e.g., a natural disaster recovery plan, a risk management policy can provide better long-term protections in safeguarding business assets by incorporating proactive defenses into routine operations.

A risk management policy is more than a theoretical analysis of hypothetical events. If risk cannot be avoided, then risk reduction policies must be in place. Risk reduction is developing legal, reasonable, sound business policies, rental qualification standards, and non-discriminatory practices to limit business exposure to known risks. Adequate risk reduction policies can help protect the business from high risk tenant behaviors such as non-payment of rent, nuisance disturbances, property damage, or direct threats to the safety and welfare of others.

Risk management measures can include:

Avoiding Risks

Certain types of risks may be avoided completely by eliminating potential sources of a particular risk. As an example, landlords must avoid the unnecessary risk of filling a vacancy with an unqualified tenant.

Controlling Risks

Many risks, while not always avoidable, can be minimized by taking preventative actions. If exposure to risk cannot be completely avoided, landlords will need to find ways to minimize the risk. As an example, landlords can control some of the business risks by making sure they are in compliance with all applicable business and landlord-tenant laws.

Transferring Risks

Managing exposure to loss can include transferring risk to others. Transferring risk is most commonly done through the purchase of insurance which transfers some or all of the risk to the insurance company. As an example, landlords purchase liability insurance coverage to help protect against lawsuits, settlements, and judgments and casualty insurance to help protect the property from physical losses or damage from a number of potential sources.

Retaining Risk

If a landlord cannot avoid risk, cannot effectively minimize risk, and/or does not transfer risk, the landlord may choose to retain risk. As an example, a landlord may decide he can afford to absorb some loss, either because the frequency and probability of those losses are very low and/or because the maximum dollar value of the potential loss is manageable.

Property Management

Property management requires significantly different knowledge and skills than investing in income property. Good property management is active property management with a hands-on involvement in all phases of the rental operations for people, property, and policies.

Good management can often make a bad property tolerable while bad management is almost certain to bring down a good property. Bad management can result in loss of rents, increased operating expenses, legal actions, and devaluation of the rental investment.

No property will manage itself. Different types of properties may require different investment of resources, but all types of income property require some management. No manager ever knows everything there is to know. Smart managers understand there is always more to learn. The key to efficiently and profitably managing properties with a minimum of stress is to develop procedures and to consistently follow them.

Employing a property management company does not eliminate owner liabilities for rental operations. The property management company becomes the owner’s legal agent who essentially controls the rental investment through their representation with tenants and governmental agencies, enforcement of rental policies, and handling of rents and deposits. The owner remains liable for all acts performed by the owner’s agent in exercise of the authority given the agent by the owner.

The lease agreement is a legal contract between landlord and tenant that sets out the terms and conditions of the landlord-tenant relationship. The lease agreement must be compliant with landlord-tenant statutes and applicable laws of all relevant jurisdictions and sufficiently detailed regarding landlord and tenant rights, obligations, duties and responsibilities.

A lease agreement should incorporate the important rental policies and procedures that are required for tenant compliance. By incorporating the policies into the lease a landlord has the authority to evict a tenant for material lease defaults. The amount of detailed required for full understanding of the lease contract usually makes an adequate lease a lengthy document.

Typically rules and regulations cover day to day rental issues and the list of items can be quite lengthy.  A landlord can choose to use a separate attachment to the lease for rental rules and regulations. The separate attachment may make it easier for the tenant to understand his duties and obligations and for the landlord to revise rules and regulations as needed. However, important issues are best covered within the lease agreement.

If the rules and regulations are covered in a separate document, whether attached to the lease agreement or not, the separate document should be referenced within the lease agreement document and should itself be signed and dated by landlord and tenant.

A traditional rental policy of collecting a security deposit in the amount as allowed by statute may help protect the landlord’s business to a great degree. The tenant has an obligation to take good care of the rental unit and pay rent as agreed in the lease contract. The tenant has a vested interest to uphold that obligation. The deposit is regarded as an incentive to the tenant to perform to his contract.

While the tenant is protected by statute regarding his right to a refund of that deposit upon his meeting the terms and condition of his lease, with the landlord having the right to deduct his financial losses in accordance with the state’s law if the tenant defaults.

The handling, accounting, and return of the tenant’s security deposit can be a source of conflict between landlord and tenant when the tenant moves out. The tenant is concerned with how soon he can get his money back while the landlord must be concerned that there is no property damage or unpaid rent by tenant before the landlord can prepare the accounting and return of unused funds.

All states allow a landlord to collect a security deposit when the tenant moves in and to hold the deposit until the tenant moves out. State landlord-tenant statutes regulate security deposit limits, deadlines for itemization and return of security deposits, and disclosure requirements. Since the security deposit is generally limited to an amount equal to one or two months’ rent, the landlord could suffer loss that cannot be fully covered by the deposit. It is then up to the landlord to pursue collection of funds or to initiate legal action against the tenant for the balance due.

Few landlords would argue against the value of tenant screenings to protect their business. Selecting a tenant may be the most important business decision a landlord makes. Tenant screening is the assessment of the applicant’s potential future risk of financial or material default of lease terms and conditions. A landlord’s number one concern is late rent. A primary screening therefore is evaluating the financial ability of an applicant.

Financial Ability

An applicant’s financial situation can be the critical decision point in making tenant selection. A landlord evaluates financial data such as a credit report, credit score, income, income to rent ratio, debt obligations, public reports for bankruptcy, judgments, liens, and other financial documents as required.

Credit Report

Knowing how to read a credit report and properly analyzing the data is a landlord’s defense against a bad risk. A consumer credit report allows a landlord to review the applicant’s credit history, open and closed accounts, and payment history. If the payment history shows slow pays or missed payments it may be an indication that the applicant could have difficulty in making future rent payments.

The trade lines summary on the credit report can provide details of the applicant’s debt load and payment history. A landlord will want to determine if an applicant has sufficient income to cover that debt plus pay rent and other living expenses.

A credit report provides the details of the applicant’s current financial situation some of which may not be disclosed by an applicant during the application process. As examples, if the applicant has recently applied for new credit which could affect his current ability to pay existing debts, has had a recent charge-off on a credit card, or an account sent to collections, the applicant may not have disclosed this information to the landlord for fear that it would jeopardize the applicant’s chance for tenancy.

Credit Score

There are a number of credit scoring models and each model may use different factors to calculate a credit score. A credit score is a general indicator of financial responsibility. It should not be used as an absolute measurement of credit risk.

Income

The ability to make rent is largely dependent upon an income or other funds sufficient to pay rent and other living expenses. The income-to-rent ratio of 3:1 is generally accepted as an industry standard for qualification.

Bankruptcy and Judgments

An applicant may have filed for bankruptcy due to financial difficulties. If the bankruptcy has been fully discharged, an applicant may now be in a better financial position to manage his credit affairs. A review of the applicant’s credit and payment history since the date of the discharge may provide a basis to determine the amount of future credit risk. However, if the applicant’s previous debts have been eliminated in a recent bankruptcy, the applicant may be a better risk than others who have problems with their debt because another bankruptcy can’t be filed for a number year following the prior finalized one, the number of years depending on Bankruptcy Chapter under which completed.

A judgment filed against an applicant for money damages, such unpaid rent or property damage, can be troublesome. A judgment is awarded to a creditor because of debtor default. The money judgment is a financial obligation that the debtor owes until the debt has been satisfied and released. That obligation may have an effect on the debtor’s financial condition and accordingly an effect on qualification for tenancy.

Background Checks

To protect the rental property and provide duty of care to his tenants a landlord conducts criminal background screening. Landlords must comply with federal, state and local laws that regulate or, in some jurisdictions, prohibit the use of criminal history background for tenant screenings. The Department of Housing and Development (HUD) has issued guidelines regarding the use of criminal background checks to make housing decisions. A landlord’s blanket policy that excludes any person who has been convicted of any offense is discriminatory and violates provisions of the Fair Housing Act. Consideration must be given to relevant factors such as the type of the crime and the length of the time since conviction.

Eviction History

An eviction search should always be conducted to determine if the applicant has a history of eviction. A landlord should check with previous landlords to determine if notice was served on the applicant for lease default and/or a judgment for possession was awarded by the court.

References

References from past landlords can provide information regarding the former tenant’s rental behaviors and payment history.

Evaluating business risk and implementing best practices to control business risk underlies the selection of a new tenant. The beginning of a new calendar year gives opportunity to review your business rental policies and practices and to determine whether those policies and practices have been good for your business. Your best practices for the coming year may require modifications or additions due to outside market influences – e.g., new and proposed legislation – or revision to deal with current conditions in the local market.  However, there is a universal business practice that remains a landlord constant which should be the core function of your business risk management practice – Tenant Screening.

Tenant screening is the assessment of the applicant’s potential future risk of material default of lease terms and conditions if the applicant were to be offered tenancy and the tenancy resulted in financial loss. Tenant screening may also disclose information that the applicant is currently a business risk who does not even qualify under your usual rental standards. Your business policies direct your business decision to accept or deny the rental application.

In every landlord help article, landlords are advised to conduct tenant screenings as THE best business practice to reduce known business risk. There is good reason that we repeat this advice.  Landlording is a risky business and you must take appropriate measures to help reduce your exposure to known risks. High risk tenant behaviors such as non-payment of rent, nuisance disturbances, property damage, and direct threats to the safety and welfare of others are liabilities that you cannot afford to take on. Such behaviors are costly, time consuming, and all around bad for business. You do not need bad business. If you cannot avoid risk you must have a risk reduction policy that helps you minimize your business risk. Legal and sound business rental qualification standards, aka your tenant screening policies, help you reduce known likely risks and avoid potential risks not even yet considered. With that in place, a strong lease agreement terms and active enforcement of rental policies will help protect your business against bad tenant outcomes.

How do you determine if your current policies are adequate for your business? There should be no doubt that your policies are legally compliant to all applicable levels of governance. That you have the proper compliance level is always going to be an item on your due diligence list. The regulations, restrictions, and prohibitions for and against a variety of legal issues and landlord-tenant matters that involve federal, state, and local government agencies can be overwhelming and cumbersome in determining the compliance level. In general you are required to set your compliance to those laws, statutes, and ordinances that provide the most stringent protection for fair housing rights, tenant rights, and consumer privacy protections.

You must always conduct routine due diligence for new and proposed legislation that can impact your rental business. The number of states that have passed or have pending legislation regarding use of consumer credit reports and criminal background checks has increased substantially during the last several years. For landlords in some market areas, the business of landlording has become more complex with many cities setting ordinances that highly regulate tenant screening practices. As a business owner you must know what your regulatory climate dictates and determine whether your business is in full compliance. Not all rules and regulations are bad for business. Protections for business can work for both landlord and tenant.

There is a greater responsibility for landlords under their obligation of duty of care to tenants to protect them from known risks to persons and property. That duty too falls under the landlord’s due diligence to actively manage his properties according to legal requirements for habitability and tenants’ rights by statute.

The adequacy of your rental policies and practices in meeting your business performance goals require yet another level of due diligence. Business accounting and owner reports provide financial data to determine if your business policies generate your required level of profitability. Accounting procedures and retention of past operational records also affect how a landlord will weather an IRS, state, or municipal audit of tax returns or other aspects of your rental operations.

While your business policies and practices may be legally compliant, they may still fall short of your required level of profit and loss. You may need to assess your rental standards to determine if your standards produce a qualified applicant who has the required ability to pay market rent and perform according to your lease terms and conditions.

Due diligence conducted to evaluate business policies can contribute to a better bottom line. Inefficient practices may be costing your business more than you realize. While your tenant screening can produce a good tenant, your policies and practices may determine if the tenant stays for the lease term and whether a good tenant choses to renew the lease. Tenant retention can be an additional benefit derived from tenant screenings. Screenings that show good financial management by the applicant, a history of stable employment, and satisfactory references from previous housing providers can be positive indications to pursue offering  the tenant a long-term lease. If a good tenant encounters difficulty in your procedures for rent payment or experiences a lengthy delay in requested services or needed repairs, a tenant may decide to move elsewhere for better customer service and less hassle.

You should routinely review your rental forms and update them to current requirements and conditions to better protect your investment. Lease clauses in particular should be kept current to legal requirements and specific in landlord and tenant duties and responsibilities. Keep in mind that if a landlord-tenant matter is not addressed in a state landlord-tenant statute and you have not addressed that same issue in your lease agreement, you have little to no defense against a tenant claim of discrimination, unfair treatment, or subsequent award of legal remedy for any number of liability issues.

Any changes or modifications to your standards should be adequately documented as to dates of the changes, vacancy periods, and business reasons for the changes. Do not leave yourself open to charges of discrimination by changing standards or offering different terms on a selective basis. Be well versed in fair housing laws on all government levels to ensure you do not discriminate against any prospect, applicant, or tenant. Even well-intentioned or inadvertent behavior that unfairly targets or favors certain individuals can become a violation of fair housing laws.

A business policy is a policy established for a reason. Deviating from your standard policies and practices in a rush to fill a vacancy can create potentially troublesome situations. Despite your good intention to help an applicant in need, your actions could become grounds for claim of discrimination in a fair housing complaint.

Due diligence in screening applicants extends to the landlord performing to his responsibilities in analysis and evaluation of applicant furnished information. The landlord’s application form, the applicant personal interview, verifications, and references disclose applicant personally identifying data that must be kept secure, confidential, and used only for permissible business purposes. A landlord should not ask for more information than he needs for business purposes.

Your business is a local business that is directly impacted by local market conditions. Due diligence is required at the local business level to keep current with market conditions, changes in supply and demand, renter demographics, and comparable properties and amenities in your neighboring area. You can better manage your business when you know your current market status and plan accordingly if you want or need to make market adjustments.

Due diligence in itself does not run your business. Due diligence is a business tool that can protect your business. Knowledge gained from adequate due diligence enables you to act responsibly and decisively in a timely manner.