Landlords that use consumer credit reports as their primary tenant screening tool for rental qualification may have noticed a difference in the public reporting data section of the credit report.

The three national credit reporting agencies (NCRAs), Equifax, Experian, and TransUnion have implemented enhanced standards for the collection and timely updating of public records data in consumer credit reports. The enhanced standards are part of the National Consumer Assistance Plan (NCAP) to improve credit report accuracy and the dispute resolution process.

The enhanced standards require public records data to show personal identifying information (PII) for inclusion in a consumer credit report. To be reported, public records data must now contain the consumer’s identifying information – his/her name, address, and Social Security number and/or date of birth. Additionally, public records data must be updated from the data sources on a timely basis, i.e., at the courthouse at least every 90 days.

The NCRAs analyzed their public records databases and found the majority of civil judgment data and approximately half of tax lien data shown on credit reports did not meet NCAP standards. That data was excluded from consumer credit reports during 2017. In compliance with NCAP requirements, civil judgment data records that do not meet the enhanced standards will no longer appear on consumer credit reports.

After further review and monitoring of tax lien data, in April 2018 the NCRAs removed all remaining tax lien data from their respective public records databases. Tax lien data will no longer be reported on consumer credit reports.

Bankruptcy Records

Bankruptcy records already meet the NCAP enhanced standards of minimum personal identifying information. Therefore bankruptcy public record data will continue to be reported on consumer credit reports.

Additional changes to credit reporting

To enhance accuracy of information shown on credit reports, NCAP standards:

• Require all data furnishers to use the most current reporting format.
• Eliminate the reporting of debts that did not arise from a contract or agreement by the consumer to pay, such as traffic tickets or fines.
• Prohibit medical debts from being reported on credit reports until after a 180 day waiting period to allow insurance payments to be applied.
• Remove from credit reports any previously reported medical collections that have been paid or are being paid by insurance.
• Require debt collectors to include original creditor information with each account being reported for collection.
• Require debt collectors to regularly update the status of unpaid debts and remove debts no longer being pursued for collection.
• Monitor data furnishers for adherence to the announced reporting requirements and take corrective actions against data furnishers for noncompliance.

NCAP Standards and Landlords

Landlords should always conduct due diligence in qualifying an applicant for tenancy. Due diligence should be a comprehensive tenant screening process utilizing various types of screenings to develop a full assessment of applicant risk. Since a consumer credit report does not show prior non-standard civil judgments, a landlord must be sure to utilize tenant screenings that can provide eviction history and/or history of property damage either incorporated into a full screening report or supplied as a stand-alone screening.

Landlords have long relied upon the consumer credit report and credit score to alert them of red flag issues that could present a financial risk. Credit reports and credit scores will still serve as critical tenant screening tools and red flag issues from all tenant screenings will still require investigation. Landlords have the responsibility of duty of care to conduct all due diligence to protect the safety and rights of tenants. The collection of data from applicable screening sources and adequate evaluation of applicant data help make an informed decision for selection for tenancy.

There has been a concern that the removal of non-standard public records data from credit reports could improve an applicant’s credit score, although most industry analysts point out that to date the NCAP changes have had only a modest impact on credit scoring. However even a modest positive change to a credit score could cause some applicants to appear more credit worthy and therefore qualify for selection even though the potential credit risk has not changed.

Consumer credit data analysis has shown that historically consumers with civil judgment and lien records are more likely to default on other debt obligations than would consumers without civil judgment or lien records. The new NCAP standards do not change consumer behaviors. Consumers that are more likely to default on debt obligations may do so regardless of data reporting rules. There may be other derogatory items on the credit report that will keep the consumer’s credit score low and make removal of judgments and liens a non-factor in tenant decisioning. Landlords should keep in mind that even prior to the NCAP implementation of enhanced standards; the absence of public records data in a consumer credit report was not a guarantee that the applicant had no public records.

Contacting previous landlords has always been recommended as a best practice for landlords to discover if tenants at a previous rental property “left early” and under what circumstances. Landlords should give higher priority to contacting landlord references and verifying rental history to document reported behaviors and assess potential risk. Interviews with previous landlords or property managers may be the only source of relevant information regarding a former tenant’s property damage and unpaid rents.

Screening options for eviction/damage history might include manual civil records searches with the local courthouse records or networking with other landlords through a regional landlord association. A landlord may want to contact his tenant screening provider to determine what services/searches the provider can provide for eviction records history.

Medical Debt

The changes in reporting of medical debt may benefit some applicants by allowing them time to resolve medical insurance and billing issues, The NCAP mandates a 180-day waiting period before a creditor may report medical debt. The grace period in reporting medical debt could have a positive effect on the applicant’s credit score and potentially help an applicant qualify for rental housing. Whether a credit score would actually change significantly due to new requirements for medical debt reporting would be dependent upon the applicant’s credit history and the credit reporting model used for scoring. Some credit scoring models do not weigh medical collections as heavily as other types of collection accounts. If a tenant screening service is used to obtain consumer credit reports, it may be beneficial for a landlord to understand which credit reporting agency is used to prepare the credit reports and obtain a sample report that and scoring formula that the reporting agency uses. Some landlords may have rental standards that address the issue of medical debt when qualifying an applicant for tenancy. It may be advisable to review any such policy and ensure the policy is aligned with current reporting requirements.

Why Screening Contingent Workers Should Be a Best Practice

Every individual who performs work for an organization introduces a certain measure of risk into that organization regardless of the individual’s work classification. Background screening is an essential risk mitigation tool to help protect the organization from direct and indirect business liabilities. Background screening of all workers helps to defend against claims of negligent hiring.

The composition of the workforce has changed significantly within the past decade or so. There is a marked shift away from a traditional employer-employee relationship to non-traditional non-employee alternative work arrangements. Non-employee alternative work arrangements through the use of contingent workers offer many benefits to employers including reduced labor costs and administrative expenses, flexible work scheduling, and shortened time to productivity intervals. Utilizing contingent workers allows the employer the opportunity to access “on demand” talent from a broad pool of experienced, skilled, and specialized workers with subject matter expertise for special projects and assignments.

Contingent workers can be independent contractors, part-time workers, temporary workers, freelancers, seasonal workers, leased workers, contract workers, on-call workers, interns, consultants, or other types of non-employees performing work for an organization.

The size of today’s contingent workforce varies by definition of the term “contingent worker” and the data source used for collection of information. Using the broadest category of contingent work as those workers engaged in temporary employment, it is estimated that contingent workers make up one-third of the total U. S. employed labor force. Within the next decade the number of contingent workers is expected to significantly increase as more employers turn to alternative workforce solutions for their work needs. The growth of this segment of the workforce and the complexity of issues in managing a contingent workforce requires all due diligence by the organization.

Organizations conduct employment screenings for permanent new hires as a risk management best business practice. However many organizations do not extend that best business practice to background screening their contingent workforce. These organizations fail to recognize the business risk posed by contingent workers as they perform work for the organization. Contingent workers may have the same access to an organization’s facilities, systems privileges, proprietary information, and customer data as does a direct employee of the organization. If contingent workers are not screened to the same standards as direct employees there can be significant potential liability risks for the organization.

An employer may be as equally liable for the harmful acts of a contingent worker against a member of the public or another worker as the employer would be if a direct employee committed the harmful acts.

Negligent hiring doctrine holds a business liable if, in the exercise of reasonable care, the business knew or should have known that the vendor, temporary worker, independent contractor, or other contingent worker was unqualified, posed a danger, or was otherwise unfit for employment or engagement.

An organization has the responsibility to provide a safe and secure work environment and to protect the safety of direct employees and the indirect workforce. Due diligence for workforce and workplace safety and protections extends beyond direct employee responsibilities to encompass all contingent workers. Background screenings serve to protect both work populations.

Employers should also understand their responsibilities when utilizing a staffing agency to provide contingent workers. While the staffing agency is typically considered the primary employer of the worker, under certain circumstances the employer (as the client of the staffing agency) can be held liable under the legal doctrine of “co-employment,” for any misconduct by the contingent worker. In other words, even though the worker is on someone else’s payroll, the business that uses and supervises the worker can still be legally liable for any harm caused by the worker.

Some employers may mistakenly assume that staffing agencies conduct background screenings on contingent workers and therefore the organization is protected against potential liability. However staffing agencies may not have a firm policy for screening contingent workers. The staffing agency may selectively conduct screenings on some workers or for some positions. Additionally the screenings standards used by the staffing agencies may not provide adequate protections that some organizations require or are required to provide. Employers will need to be aware of potential issues and conduct due diligence with staffing agencies to provide the appropriate screening standards that must be used.

Within an organization the nature of the work and the required access to company resources (systems and data) to properly perform the work will need to be evaluated by the employer for potential risk and monitored accordingly. A contingent worker performing such work should meet the same standards and screened appropriately as would a direct employee assigned that work.

Enforcing background screening practices for contingent workers can potentially reduce the risks of negligent hiring lawsuits, workplace violence, theft, fraud, embezzlement, data security breaches, malicious property damage, and negative public perception of an organization, its products or services.

Legal Requirements

Employers should be sure that they understand all legal requirements when utilizing alternative work arrangements. Due diligence may require consultation with legal professionals specializing in labor and employment related issues.

Background screenings may be a requirement by federal or state law for certain jobs, in certain industries, and for security clearances.

Specific industries related to national security, government contracts, security clearances or other security sensitive work generally require employers to conduct background screening on all individuals who will perform work for the employer including contingent workers.

There may be federal or state screening requirements for certain industries such as financial services, insurance services, and healthcare services to provide protections for the safety and security of consumer private and personal information. There may be specific requirements by law for workers employed in services to sensitive populations such as minors, the elderly, or the disabled.

Some states have more stringent requirements on certain issues than do federal laws. Additionally some states or local municipalities have passed legislation that may prohibit or restrict certain background screenings when used for employment purposes. Employers are held responsible to comply with all applicable statutes.

The employer’s due diligence extends to legal compliance with a number of requirements under federal, state, and local laws applicable to employment, consumer protections, anti-discrimination protections, taxes, workers’ compensation, unemployment insurance, and other labor-related issues. Employers should understand their obligations and responsibilities for engagement of a contingent workforce under applicable federal and state statutes. These laws and statutes may include the Fair Credit Reporting Act, the Equal Employment Opportunity Act, The Fair Labor Standards Act, the Internal Revenue Codes, The Occupational Safety and Health Act, The Family and Medical Leave Act, The Americans with Disabilities Act, the Age Discrimination in Employment Act, the Employee Retirement Income Security Act and various federal and state government agencies’ contract requirements. Of particular importance for understanding employers’ use of background screenings for employment purposes are the Fair Credit Reporting Act and the Equal Employment Opportunity Commission guidances.

Key Considerations

Employers conducting background screenings for workers – direct employees, independent contractors, consultants, and other contingent workers – should ensure that the screenings are consistent with business necessity, are job-related to the work in question, and are non-discriminatory and consistently applied per the employer’s background screening policy in order to ensure compliance with applicable laws and to defend against potential claims of discrimination and unfair practices.

Contingent workers with access to facilities, computer networks and systems, company or customer’s records, or have direct contact with employees or customers are in a position to harm the organization’s performance and reputation. Screenings of all workers whether a direct employee or contingent worker will help reduce the threat of potential business liabilities while protecting the company, employees, workers, clients, customers, and the general public from foreseeable harm.

Due diligence in background screening practices is a priority task for the employer’s duty of care obligations. Employers cannot afford liabilities of negligent hiring, workplace violence, employee theft, fraud, harassment, injury or other cause for action that could arise from the employer’s failure to adequately screen workers.

Background screenings of all workers are best business practices within the organization’s risk management model.

Landlords can protect themselves against a variety of hazard and liability losses by purchasing adequate types and amounts of insurance coverages. Having adequate insurance coverage is an important business decision by the landlord to help protect his rental investment.

Tenants should protect themselves in a similar manner by purchasing renters insurance to provide 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.

Renters insurance covers the value of the tenant’s personal property, not the rental property.

An adequate renters insurance policy helps to reduce the financial loss from damages from a covered risk. However, insurance does not eliminate all risk nor eliminate all financial loss. In event of a claim related to personal property, the tenant will be responsible for the deductible.

Personal Possessions

Tenants purchase renters insurance to help with expenses of repairing or replacing personal belongings as a result of loss or damage from covered risks from a named peril such as fire, smoke, lightning, vandalism, theft, explosion, windstorm and certain types of water damage.

Insurance carriers who provide renters insurance policies may offer either actual cash value policies or replacement cost coverage policies for purchase. An actual cash value policy pays to replace personal belongings less a deduction for depreciation up to the policy limit. A replacement cost policy may require a higher premium but pays the actual cost of replacing personal belongings up to the policy limit. The replacement cost policy does not have a deduction for depreciation.

To determine the value of personal possessions, a tenant should make a detailed list of all belongings with a notation of the estimated value for each item. Similarly, a landlord should maintain an inventory list of appliances, furniture, and other items owned by the landlord. The inventory should be a part of the lease agreement executed by the applicant.

A standard renters policy offers limited coverage amounts for personal items such as jewelry, furs, collectibles or other valuable items. If the tenant has personal property that should be covered to a higher limit, the tenant should consider purchasing a supplement to the renters policy. This supplement, called a floater, provides additional insurance coverage for valuables and may include additional protections such as accidental loss.

Liability Protections

Renters insurance can provide the tenant with liability protection by coverage against lawsuits for bodily injury or damage to property cause by the tenant actions or failure to act. It should also cover the tenant’s family members who reside in the rental unit and the tenant’s pet(s).

The financial protections offered by liability coverage can pay for legal defense costs if the tenant is taken to court as a consequence of injury to other persons or damage to the property. Renters insurance can also help pay for damages if a tenant accidentally breaks or damages someone else’s property.

The policy limit for liability protections should be set to an amount of coverage that is sufficient to protect the tenant’s assets. Renters insurance may also help cover medical expenses of visitors if they are injured on or in the rental property. The amount of medical coverage protection will be set according to the limits of the renters insurance policy coverage.

Additional Living Expenses

If the tenant’s rental unit is destroyed by an insured disaster or damaged to the extent that the tenant cannot stay in the unit while the unit is being repaired or rebuilt, a renters insurance policy can provide help with living expenses during the tenant’s temporary relocation. The additional living expenses (ALE) coverage in a renters insurance policy can pay for hotel bills, temporary rentals, restaurant meals, and other expenses incurred as a result of a covered loss according to policy limits.

As a business matter, the cause of the fire will usually determine liability for damages. If the fire was a result of faulty equipment or a structural element essential to the property, you would generally be considered the liable party and responsible for restoring the property to habitable condition. If the fire was determined to be as a result of tenant negligence, even though unintentional, the tenant will generally be held liable for the damages.

It is the insured’s responsibility to immediately notify his insurance company as soon as possible about a claim or a probable claim. Failure to do so in a timely manner could jeopardize coverage of a claim. Once a claim has been filed, it will then be up to your insurance company and the tenant’s insurance company to determine which of them is liable for payment of claims. If your tenant does not have renters insurance, the tenant may be held liable by your insurer for any amounts related to the damages paid to you by your insurer.

You should check your state’s landlord-tenant statutes to determine whether you can legally require your tenants to purchase renters insurance. In many states, unless expressly prohibited by state statute, a landlord can require renters insurance as a rental term and condition of the landlord’s lease agreement. A tenant can be required to purchase renters insurance and provide proof of insurance coverage prior to lease signing and move-in. A landlord may also require a tenant to purchase a specified dollar amount of policy coverage. A rental applicant should be made aware of the landlord’s rental policies for renters insurance before the applicant executes the lease contract, preferably when the applicant completes an application.

Lease agreements should clearly state that the owner’s insurance policy does not insure a tenant’s personal property, protect the tenant against liability claims, or cover damages to the landlord’s property caused by the tenant’s negligence. Detailed information regarding insurance issues should be included in the lease agreement.

Collecting rent can be a challenge for some landlords despite strong lease agreements and thorough tenant screenings for applicant/tenant demonstrated willingness and ability to pay as agreed. Full and timely rent payment by the tenant may be a matter of how easy it is to pay rent.

If the rent payment procedures are easily understandable to tenants and relatively simple in manner of operation, there is greater likelihood that tenants will pay as agreed.

In developing rental policies a landlord takes into consideration his business needs, legal obligations, and factors such as his properties’ locations, type, market conditions of supply and demand, demographics, market share, and competitive ranking. The right rental policy governing any number of property management issues is the one that is legally compliant and helps protect business interests by establishing best practices that are non-discriminatory in nature and application.

Online rent payments may offer a best practice solution to timely rent payment that benefit both landlord and tenant by a more efficient processing of rent payments.

An online rent payment processing system can benefit landlords by:

• Providing for business needs of property operations
• Reducing administrative time associated with processing in-house payments (paper checks or equivalents), and collection duties for late, missed, or partial payments
• Allowing a more efficient rent collection process
• Improving property cash flow by moving money more quickly into the landlord’s account
• Increasing likelihood of full and timely rent payments
• Reducing risk of fraud and theft including identity theft
• Providing tenants with options for electronic rent payments that are acceptable to the landlord
• Reducing time and effort for both landlord and tenant in the rent payment process and therefore helping reduce stress

Implementing an online rent payment system is not without landlord due diligence and some amount of time and effort. While many large multi-family complexes offer online rent payment portals, some independent landlords have been hesitant to explore online payment services due to resource concerns such as cost, implementation time, training, and potential integration into existing property management operations. Current technologies now enable a landlord to fully implement online rent payments including other property management functions at low cost.

Types of Electronic Rent Collection Tools

Electronic rent collection can be accomplished through an integrated property management online portal or by a separate stand-alone processing model. Any type of collection tool should be a secure offering with bank level security features including user identity verification. Convenience and ease of use are important features to tenants while both landlord and tenants want tracking and report capabilities.

An important decision for landlords is whether to use an integrated portal (all-in-one) or a separate processing module. An all-in-one system can integrate core property management functions such as applicant processing, tenant screenings, deposits and fees, rent collection, payments history, maintenance requests, and landlord-tenant communications into a full service package that benefits landlords and tenants. Generally a stand-alone payment processing module is a more basic accounting/reporting system that may or may not provide a landlord with the level of full detail required for adequate property management.

It will be part of the landlord’s due diligence to determine the applicability and functionality of systems that support his particular type of properties and his business needs. From a potential applicant’s or the new tenant’s perspective, a system/module that offers multiple payment channels such as online, mobile app, or smartphone and multiple payment options such as credit card, debit card, or recurring automatic payments provide the greatest benefits and potential incentives for full and timely rent payments.

Fees

Cost effectiveness is always a consideration in property management operations. Transaction fees and/or processing charges can increase the landlord’s costs of doing business. It is a due diligence task for a landlord to adequately research and evaluate potential online payment processing services and offerings to determine their fee structure and payment requirements. A fee based upon a percentage of the transaction (e.g., rent amount) will generally be more expensive than a fixed monthly fee.

There are several major online companies that offer online rent payment processing at low-cost or potentially no cost to the landlord depending upon the types of services requested, the volume of transactions, and systems integration.

When transaction and/or processing fees are incurred, it will be the landlord’s business decision regarding who pays (landlord or tenant).

Some landlords will require the tenant to be responsible for rent processing fees. Fees can be included in the total rent amount due or shown as a separate fee from the rent amount. The lease agreement should clearly detail rent payment procedures and tenant responsibilities for rent and processing fees.

However since payment of extra fees could cause problems with the tenant’s ability to pay timely rents, some landlords choose to pay processing fees themselves as a cost of doing business. The cost of processing fees may be worth it to the landlord for the convenience of electronic processing of payments and the benefits of a timelier, secure receipt of rents.

A few landlords may attempt to force tenants to use online rent payment by assessing a penalty fee if the tenants continue to pay rent with a check or money order. In some states by forcing a tenant to use a single option for rent payment, a landlord can be in violation of state landlord-tenant statutes. Many states have enacted laws that require landlords to provide another non-electronic payment alternative to online payments. A landlord should consult with his legal professional regarding statutes governing rent payment options.

Fees and Material Change to Lease

A landlord cannot change terms and conditions of the lease agreement during tenancy. If during the tenant’s occupancy of the rental premises, a landlord implements online rent payment processing and assigns the responsibility of payment of transaction fees to the tenant, the assignment of fees to the tenant would constitute a material change to the landlord- tenant lease agreement. This means that the landlord cannot suddenly or arbitrarily add payment of transaction fees to the tenant’s lease responsibilities.

For the change to become effective during the current lease term (the tenant assumes responsibility to pay transaction fees), an amended lease agreement must be drawn and both parties must sign their agreement to the change. A month-to-month agreement would require the landlord to give the tenant a 30-day notice to implement the change. A tenant wishing to renew his lease will be subject to the new terms and conditions of the lease agreement (fee assessment to tenants) as required of new tenants.

Landlords are also advised to conduct due diligence with their state’s landlord-tenant statutes regarding required landlord disclosures to rental applicants prior to or at lease signing.

As a best practice a landlord should always review with the new tenant during orientation all terms and conditions of the lease agreement, relevant lease clauses for rental policies and procedures and all obligations and responsibilities of the tenant including applicable fees, deposits, and recurring charges.

Closing

Newer technologies now provide a number of online payment options, moving many landlords towards a paperless rent collection. Online rent payment systems can offer efficiencies and features that many traditional collection methods cannot.

By choosing an online payment processing system a landlord can help reduce his operating expenses and help increase his property cash flow. In addition, many online rent payment systems offer the convenience of expanded customer services with 24/7 access to system options. Many consumers already pay their bills online and many tenants would prefer to pay rent online. In some markets, particularly large apartment complexes and/or upscale rental communities, online payment options are expected by tenants as another desirable amenity.

The choice of an integrated all-in-one system can deliver management reports, rent receipts, monthly tenant statements, payment history, past due reports, and rent reminder alerts on demand, helping to reduce administrative costs and provide real-time data for analysis and projections.

The type of rent payment/collection system the landlord chooses for his business should deliver collection of rents in the most efficient and effective manner that supports his business needs.

Having the tenant do repairs and maintenance in exchange for reduced rent can lead to future problems with both the tenancy and satisfaction of work performance. It may be a better business practice to separate work and tenancy issues. You could pay the tenant for repair work as documented in a written work agreement, taking into account the employee vs. independent contractor issues, insurance issues, and the tenant having the skills to complete the work with acceptable results. The tenant’s lease agreement would stay in place as with all other tenant leases. If the tenant failed to perform satisfactory work, the work agreement could be cancelled and the tenant released from duties. The lease agreement in effect would continue the tenant’s obligation for full rent.

It is generally held that the responsibility for major maintenance of essential services, structural items, and common areas should be retained by the landlord. In some jurisdictions, courts have held that responsibility for major repairs and maintenance cannot be delegated to tenants due to concerns of tenants’ means and abilities to perform required repairs and maintenance. Many states and local governments require that certain tasks be performed by licensed contractors. There is greater potential liability to the landlord regarding claims of injuries or damage to people and property for careless or faulty repair work. While in some states a landlord has a legal right to delegate major repairs, a landlord still retains the responsibility for providing habitable housing.

First, I would consider it unusual that every lease for one year is never renewed and an annual inspection. When tenants are reasonably happy with their current rental unit, they usually remain a tenant for longer than the one year of the original lease agreement. It’s costly and inconvenient for a tenant to move except for reasons such as a job change, a desire for less or more living space, or some particular amenity that wasn’t consider important when the lease was signed.

An annual safety and maintenance inspection is generally considered an acceptable standard, but semi-annual inspections may have more value to help reduce risk and/or contain costs by identifying a problem early on.

In almost all states, a landlord is required to provide housing that meets basic structural, health, and safety standards. Under the legal doctrine of implied warranty of habitability, landlords are responsible to maintain and repair the rental property throughout the tenancy term.

If the property is not kept in good repair, the tenant may have the right to withhold rent, sue for any injuries caused by defective conditions, or unilaterally terminate the lease.

Periodic inspections will allow the landlord to inspect the property for a variety of maintenance issues, including those that may not be reported by the tenant, but could be costly for the landlord if not taken care of. Inspection items usually include plumbing (e.g. leaky under-sink turn-off valves), furnace and air conditioning problems, cracks in window panes, roof or gutter repair and housekeeping items that need attention to maintain health and safety conditions, such as trash and garbage accumulating on the property.

If an inspection is scheduled for about 6 months into the existing tenancy a landlord will gain better knowledge of needed repairs and maintenance. The end of term walk-through and move-out inspection will provide another chance to inspect and correct issues before they become a problem.

It is a good idea to include clauses in the lease agreement regarding maintenance and inspections. The clause regarding maintenance should include a list of the tenant’s responsibilities, including the duty to report problems requiring landlord action. The clause regarding inspections should state that there will be periodic inspections by the landlord or by his/her agent, the approximate frequency of inspections, and the manner (method of communication and amount of advance notice) in which the landlord will schedule a proposed inspection date.

The importance of regularly scheduled inspections is emphasized by including such language in the lease agreement and statement of rental policies. This helps to reinforce the tenant’s responsibility to take good care of the rental premises and to promptly report any items needing service. The tenant should be made aware that certain annual inspections may be required for compliance with state landlord-tenant statutes and/or municipal codes for fire, safety, health, environmental and/or other reasons such as local landlord/rental properties registration and licensing.

Inspections can result in discovering other problems which might require a violation notice to the tenant, a business decision to not renew the tenant’s lease, or a cause for an immediate eviction.

You should research state landlord-tenant statutes and local code requirements to determine what maintenance and repair responsibilities may be legally assigned to the tenant and what responsibilities can be assigned to the tenant as a practical matter.

Many landlords delegate custodial maintenance to the tenants. Custodial maintenance is routine upkeep of the rental property. Maintenance duties that are allowed by state statutes may vary from state to state. A landlord may be allowed to transfer more duties for a single-family home than for a multi-family building. Transfer of maintenance responsibility to the tenant does not relieve you of a duty to monitor the tenant’s work performance and quality standards and, as necessary, take control to ensure compliance with habitability standards.

The issue of property maintenance and repair should always be clearly defined in your lease agreement. Failure to adequately address these issues within the lease agreement can lead to erroneous assumptions as to which party is responsible for specific maintenance and repair tasks. This can result in landlord-tenant conflicts and/or damages to the landlord’s property due to failure of the tenant to adequately perform certain maintenance tasks.

Caution is advised when assigning maintenance duties that the tenant does not become an employee of the landlord unless that is the landlord’s desire and all requirements for having employees are followed. If the tenant is not going to be treated as an employee, whether for payment or in lieu of rent, adequate precautions must be taken to establish independent contractor status. A landlord should be sure that his insurance covers him against injury to the tenant or others and against damage liabilities resulting from the uninsured tenant’s actions.

If the rental property is within a planned unit development and governed by an HOA, there may be specific requirements for property upkeep, particularly landscaping. Failure to comply with HOA requirements could result in warnings and/or fines. Your lease agreement will need to detail the tenant responsibilities under the HOA regulations. Be sure as the owner of the property you receive all notifications regarding the property rather than allow them to be sent to the address of the rental.

Landlord rental policies that are firm, fair, legally compliant, and consistently applied help to protect the landlord’s business investment, rental property, and tenants. Screening standards are strong risk prevention measures to identify red flag issues in the application process. Applicants selected for tenancy are qualified to the landlord’s business standards and contracted to the lease agreement terms and conditions for tenancy. Neither landlord nor the newly installed tenant anticipates any problems during the lease term.

However, eventually, problems can surface. The tenants that qualified as good tenants, interviewed well, and caused no problems at move-in can suddenly change behaviors and become a problem for the landlord or neighboring tenants. The challenge in property management is to stay actively involved in day-to-day management in order to take appropriate and timely response to problems and issues that can negatively affect the property operations.

Problems can be many and varied but commonly include late rents, missed rents, violation of lease agreement terms and conditions such as policies for pets, smoking, parking, guests, trash/garbage removal; complaints from neighbors and tenants for noise, disturbances, suspicious or illegal activity; or concerns for safety of persons or damage to property. Material violations of lease agreement terms and conditions that pose a direct threat to others or damage to property are priority matters that must be dealt with immediately through appropriate actions and/or outside agencies.

Problem tenant behaviors can quickly threaten business operations and impact the bottom line if not addressed in a timely manner. A landlord must have a plan of action to deal with a problem tenant that details what steps should be taken to resolve problems and minimize the potential harm to the business.

Analyzing the Situation

Fact Finding

The first step in any problem solving process involves identification of the issues involved. A landlord must be clear in his understanding of the problem and aware that multiple parties and conflicting interests could be involved that might complicate the situation and impact possible outcomes.

In determining the underlying issues and extent of the problem, a landlord should be aware that his/her own behaviors can directly affect the situation and the solution. Keeping personal emotion in check is important in the initial assessment of the problem. By removing emotion from the situation and remaining calm and businesslike, a landlord can determine the facts of the matter and make an informed decision that is in the best interest of his business. Emotional responses lead to discussions of what is “right” which may only delay resolution. Landlords and tenants often want to stand on “principle” which can lead to confrontation not resolution. Standing on principle may not be the wise or prudent course of action in solving issues with problem tenants.

Fact finding must be conducted to determine the true nature of the problem. In matters of conflict between individuals, accusations can be made that upon investigation have no factual basis. A landlord must be careful in his investigations to respect the rights of others and not jump to conclusions.

Lease Terms and Conditions

A landlord’s lease agreement is a legal document that details the contractual agreement between landlord and tenant. The lease agreement sets out the terms and conditions of tenancy and the remedies for violations of the lease terms and conditions. The lease agreement is the landlord’s enforcer for the tenant’s expected behavior. When problems occur a landlord should refer to the appropriate lease agreement terms and conditions in determining the corrective action that will be taken.

Evaluation of Options

In considering possible options to resolve a problem, a primary determination is “can this problem be solved in a satisfactory yet cost effective manner?” If it is within the ability of the landlord to affect a solution, what option presents the better business decision? In the analysis of the problem a landlord must determine the severity of the problem and what remedies by statutes and lease agreement would cure the problem. What tenant notifications will be required to remedy the default? A landlord may issue a written warning as a reminder of tenant obligations and responsibilities under the lease agreement. A Cure or Quit notice may be sent for material violations of the lease agreement. Other options that may be considered depending on the circumstances may be an early release of the tenant from his lease agreement. Legal action for eviction proceedings may need to be started. When the problem/conflict cannot be satisfactorily resolved through correction or compromise, the final option may be to voluntarily or involuntarily end the tenancy.

Communication

Problem tenants or problems in general do not go away on their own. Without a timely response, problems can escalate into much bigger issues with possible legal actions. There is an inherent expectation of good faith and fair dealing in a landlord-tenant relationship that trusts each party to acknowledge and resolve issues. Communication with a problem tenant at an early stage of recognition of a problem can forestall serious issues at a future date. A problem may simply be a tenant misunderstanding or misremembering a rental policy which can be remedied with communication and instructions. However in the matter of late rents, as soon as the grace period (as applicable by statute) has expired, a landlord should enforce his lease terms and conditions by issuing the appropriate pay or quit notice. Allowing a tenant to continue rent defaults is bad business and when action is finally taken it will be more costly to the business than just the past due amounts.

Negotiation of problem issues should be a primary consideration before threatening a problem tenant with legal actions. There is little room left to maneuver if the first communication to the tenant by the landlord is a threat. That is not to say that legal action should not be considered. A landlord must protect his property and the other tenants. When necessary, as directed by the circumstances, a landlord should not hesitate to begin legal action to remove a problem tenant from the property and legally regain possession of his property. Consultation and/or engagement with a legal professional may be advisable or necessary in some circumstances.

Documentation

A landlord is best served by keeping written documentation of tenant records, tenant correspondence, and tenant warnings and notices. This is particularly important in problem tenant situations and tenant conflicts. Landlords should document everything including the time, date, the problem/issue, source of complaint, witness statement, or other relevant information regarding the tenant and his behaviors as well as landlord or other actions taken to date for resolution. A landlord will want a complete, detailed record of events and actions from the first notification of a problem or conflict through the final resolution of the issue. Keeping good records will help to defend against possible tenant claims of discrimination, landlord negligence, or other potential liability issues.

Ending

Problem tenants can create a hostile environment that will often drive away good tenants. Good tenants observe how problem tenants are handled and make renewal decisions accordingly.

While dealing with problem tenants can be stressful, the landlord has control over his actions in resolving the situation. Despite a tenant failing to uphold his responsibilities, a landlord must keep to his standards and meet his landlord obligations and responsibilities.

When handling problem tenants, a landlord should review the actions taken and the resultant outcome to evaluate his policies, rental standards, and his handling of the problem to determine what could be/should have been done to prevent problems or reduce risk.