Section 8 Basics – Part 2

This article continues the discussion provided in “Section 8 Basics – Part 1.”

Annual quality inspections are also required for continuation in the voucher program. The landlord and the participant family receive written notification of the scheduled inspection date. The participant family is required by the local housing agency to be present during the annual inspection. It is considered a violation of the family’s obligations under the housing subsidy program if the family fails to keep a scheduled inspection appointment. If the housing agency was not properly notified of the need to reschedule an appointment, the agency could terminate the family from the subsidy program.

The participant family can for reasons of health and safety request an inspection of the rental unit during the lease term to ensure the unit still meets the Housing Quality Standards.

Termination of the voucher program participation can occur at the end of the lease agreement term or as family eligibility changes occur. Per local housing rules and regulations the participant family is required to give 30 days prior notification of the intent to move from the current rental unit. If this advance notice requirement is not given, the participant family is in violation of the lease agreement terms and also with the family obligations of the housing voucher program.

If the participant family fails to pay their portion of the rental amount in a timely manner per their lease agreement, the family is in violation of the lease terms. This failure to comply with terms and conditions of the lease and housing program requirements may jeopardize current and future assistance for rental housing voucher subsidies.

The participant family per their lease agreement and voucher program obligations must maintain the rental property in good condition to provide decent, safe, and sanitary living conditions. Damage to the rental unit such as torn window screens, wall damage, broken doors, ceiling damage, etc. are not normal wear and tear items and are the responsibility of the participant family to repair and restore to good condition. If damage violations are found during quality inspection visits, the local housing agency will determine proper course of action and liability for damage repair.

The lease agreement with the landlord and the documentation submitted for program eligibility and approval must list all residents of the rental unit. The participant family is responsible to notify the local housing agency of any and all changes to family household status, composition, etc. Failure to include all adult family members on the lease agreement is a violation of terms of the lease agreement. This could result in action being taken against the participant family or a termination of housing assistance.

Serious violations of the lease agreement may lead to eviction proceedings against the participant family. While the housing agency provides the rental subsidy for the family, the agency is not responsible for the family’s behavior. Non-compliance of lease terms and conditions may necessitate landlord actions to correct deficiencies. The landlord in any action taken to remedy a situation would be advised to send copies of any tenant correspondence, notices, summons, etc. to the appropriate contact in the local housing agency. The housing agency must be kept informed of any issues regarding family compliance to rules, regulations, and lease terms.

The local PHA has no legal authority to act for either the landlord or tenant in remedy actions. The agency does not have the authority or the ability to remove a tenant. The landlord selected the tenant per the landlord’s selection criteria, policies, and procedures. The landlord must be the party to take action if the situation must be remedied with an eviction proceeding. Eviction is the only legal remedy to remove a tenant who is non-compliant with the terms of the lease agreement and refuses to leave the rental property on a voluntary basis.

At the end of the lease, the landlord may renew the lease for a new one year term or offer a lease for a different specified time period. The participant family is required to give appropriate, timely written notice to the landlord and the housing agency if they choose to vacant the rental unit after the initial lease term expires.

If the participant family chooses to remain in the rental unit under the new lease terms, the family is recertified for program eligibility and the rental unit will again be inspected for housing quality standards. The landlord may at a date sixty days prior to the renewal date submit a written request to the local housing agency for an annual adjustment to the rental amount. The housing agency must approve any change in the rental amount before a change can become effective.

Section 8 has both advantages and disadvantages for a landlord. The main theoretical advantage is that the government guarantees the rent. However, in practice there are many ways in which this can become untrue. For example, if the tenant originally qualifies for 100 percent subsidy and a couple of months later the tenant qualifies for only 20 percent subsidy due to a change in financial circumstances (e.g., found a job), the landlord must depend upon the tenant for 80 percent. Furthermore, rent increases are limited and require permission of the housing agency and if the fair market rent (FMR) goes down, the rent the landlord receives is reduced. There are circumstances where the landlord may not receive payments for certain periods of time.

You also have the same problems regarding unpaid rent and damages that you have with any other tenant because the government is not responsible for the tenant’s share of rent or what the tenant does to your property. In fact, you are less likely to collect for unpaid rent and damages beyond the amount of the security deposit than for non-Section 8 tenants because the typical Section 8 tenant has less to go after.

The most basic disadvantage of the program is that the government gets more control of your business. There is an initial inspection, annual inspections, and inspections if the tenant complains about something. Section 8 standards are sometimes higher than habitability laws and/or what the landlord must usually do in order to attract good tenants for the particular property.

If the tenant must be evicted it is the landlord’s problem and there will be little or no help from the agency that administers Section 8. In fact, they may terminate payments upon commencement of the eviction.

Before signing up for the program, you should read the manual and other documents for the program and be sure that you understand both the advantages and disadvantages of being in the program. You should also contact the PHA for your area to determine if (1) there is funding for new vouchers, (2) there are any local program specifics, and (3) they offer landlord briefing seminars.

There are several documents that the landlord should read thoroughly, they are:

• Voucher form issued to the eligible family,
• Request for Tenancy Approval,
• Tenancy Addendum,
• Housing Assistance Payments Contract, and
• Inspection Form Housing Choice Voucher Program.

It is important that the landlord understand the program before getting involved with Section 8 and, if he does, be sure to select tenants using the same screening and selection standards as would be utilized for an applicant who is not Section 8, only taking into account that Section 8 will initially be paying part of the rent.

Pre-Purchase Due Diligence – Part 1

It is extremely important that adequate due diligence be performed when considering the purchase of real property. Real estate tends to be the most costly purchase that most people make in their lifetimes. Buying a “bad” property can result in serious problems and many problems can be extremely costly. Most of the issues that will be discussed in this series will apply to purchasing a property for investment or for personal use.

There are a number of important categories of concern regarding adequate due diligence. The more important ones include (1) property location, (2) legal issues, (3) physical condition, (4) design issues, (5) natural hazards, (6) environmental issues, and (7) financial issues.

Property Location

We’ve all heard many times that the most important thing governing value is “location, location, location.” We’re sure that almost everyone who would have any interest in buying real estate has a good understanding of this issue and won’t discuss it further in this first article of the series.

Legal Issues

There are a variety of potential legal issues that should be investigated. Included are zoning laws, building permits, possible code violations, and liens or other matters that might affect title. For a property currently occupied by tenants, the terms of the existing lease agreements are also of concern. Investors who are considering a property that has been extensively rehabbed or remodeled must be particularly concerned about whether all work was properly done in accordance with zoning laws and building codes and that work requiring permits was done with the proper permits. Zoning laws and building codes are of particular concern to an investor who plans to rehab or remodel a property in order to ensure that the planned work can be legally done.

A buyer should not rely upon assertions that meeting building code requirements is proof that no deficiencies exist in the property. Building code inspections and property inspections are entirely different types of inspections. Courts have routinely held that the building department inspectors are not liable for construction defects even for items that have been specifically “signed off” as passing inspection.

Physical Condition

Physical condition often includes (1) mechanical issues such as structural, electrical, plumbing, roof, and other components; (2) primarily cosmetic issues of various components such as paint and landscaping; (3) environmental issues related to the property including asbestos, carbon monoxide, groundwater/soil contamination, lead-based paint, mold, and radon; and (4) physical characteristics related to legal issues such as zoning and building codes. The physical condition of a property, from a buyer’s perspective, is determined by observation, research, and testing.

While we will provide in future parts of this series brief general discussions regarding some inspection issues concerning certain specific property components, this series is intended to provide a general overview of various issues related to the purchase of properties rather than a “how-to-do-an-inspection” course.

Seldom is there only one single inspection regarding the physical condition of a candidate property. There are usually multiple inspections, including (1) an initial drive-by and walk-around view of a candidate property; (2) a visit and walk-thru accompanied by the owner or agent; (3) whatever due diligence can be performed before writing an offer, particularly regarding those issues that most impact value; (4) formal inspections during the escrow period, usually including those by one or more professionals; and (5) a final walk-through a day or so before closing escrow.

Although floor plan, window and floor coverings, appliances, and various amenities (e.g., pool) are also important in the buying decision, the focus of physical inspections must be on the conditions of structural, mechanical, and other components of the property.

The physical condition of a candidate property is important in making a prudent buying decision. The condition of the property directly affects both its current value and its potential future value. Current value determines the cost-effectiveness of repairs and upgrades necessary to maximize both near-term and long-term future value. Accordingly, investors should always conduct careful inspections regarding the physical condition of a candidate property to the greatest degree practical and as early as possible before committing additional time and resources to pursuing a deal.

While real estate investors will often need or want to involve professionals in inspecting the physical condition of a property, it is important that investors be able to adequately perform basic inspections themselves. This is particularly true for pre-offer consideration of properties, for which it is usually not cost-effective to hire professionals because of the number of properties that must usually be considered in the process of finding a candidate property worthy of a purchase offer.

The necessity of property inspections holds true not just for older properties obviously suffering from a bad case of deferred maintenance.  Even new construction must be of concern. In fact, it can actually be more important to be concerned about some issues for new construction, partly because a property that hasn’t been used hasn’t been tested.

Design Issues

Design issues such as number of levels, the floor plan itself (including number of bedrooms and baths) and whether there is a carport or a garage can significantly affect value, although buyers of a personal residence may accept certain design defects because they do not bother them enough to overcome their desire for certain features or amenities. For a rental, such items affect the rent obtainable and ease of filling vacancies. Although some design deficiencies can be corrected, most cannot. Accordingly, investors should consider the wants and needs of their likely target pool of tenants.

Natural Hazards

Natural hazards such as wildfires, soil stability, and extreme weather affect the value of the property, the availability/cost of financing the property and the availability/cost of insurance. For a property that is to be rented, natural hazards can also affect the level of rents and the vacancy factor.

Environmental Issues

Environmental issues related to the property can relate to either the location – e.g., radon, groundwater/ soil contamination – or to the structure and its components – e.g., asbestos, carbon monoxide sources, lead-based paint, mold, or, due to construction methods, susceptibility to radon.

Financial Issues

Money is a primary concern whether purchasing for a personal residence or a rental property. Whether considering the purchase price, obtaining a loan, necessary fix-up costs, potential market rents, operating expenses, or future sale price, as well as income tax benefits at end and during the period of ownership, financing is critical. Accordingly, buyers must understand and adequately utilize the various analysis procedures.

Interaction Among Categories

Items in the various categories often interact with one another. As examples, (1) natural hazards and a variety of potential environmental issues (e.g., radon and soil/groundwater contamination) are physical issues that are usually related to location; (2) legal issues of zoning, building codes, permits, and existing leases are related to physical issues because they affect the current value of the property improvements and what can and cannot be done to increase the value; and (3) the condition of the property and costs of correcting problems directly affects the financial viability of the property as an investment and to the availability and costs of a loan.

Initial Look

The first viewing is usually a drive-by for a “look-see” to evaluate the neighborhood and the candidate property. A lot of information can be gained in a short time during the first viewing of the property. First impressions do count and an investor will quickly learn to spot both favorable and unfavorable conditions.

Even though buyers don’t usually have access to the property, especially the interiors of the structures during the initial look, a visual inspection of the exterior of the structure and its grounds from outside the property line can often yield valuable information and clues as to rehab costs and maintenance expenses. Walking around the property exterior can help spot problems with the foundation, the main structure, porches and decks, roofs, detached garage or other out-buildings, drive-ways and walks, drainage, and fences or walls.

Pre-Offer Inspections

Many investors don’t think about inspections until they already have a fully executed contract. Unfortunately, this can result in a lot of wasted time for all parties concerned when it becomes obvious that there are problems with the property that are not obvious without significant investigation and cannot be resolved. Those problems may have been obvious if more effort had been put into evaluating the property prior to writing the offer. In such a case, a lot of time would have been wasted in analysis that was based on incomplete or erroneous information.

It is important to obtain as much information as possible about the physical condition before submitting a purchase offer because the value of any property is dependent the various issues previously listed. This means that you should go beyond the “initial look” inspection to the greatest degree possible.

Buyers should push as hard as is reasonable to obtain access prior to writing the offer. Even a short inspection of interiors can be valuable in deciding whether to make an offer and, if so, how much to offer and what contingencies are important. Access is often not easily available for tenant occupied properties, but even compromising by accessing only a few or just one unit of a multi-unit property is worth insisting on.

Question

Many apartment building owners in my area have converted their apartment properties to condos and I am interested in perhaps doing so for my 24-unit property. How do I do it?

Answer

You will have to subdivide the property. Whether a particular property qualifies for subdivision and the procedure for obtaining approval depends on state and local laws where the property is located.

Among the dozens of factors that may be relevant are zoning, building codes, floor plans, sizes of units and rooms, separate metering for all utilities, sound proofing between units, parking, and in-unit laundry. All units will almost certainly have to meet all current building codes and all improvements having been done with required permits. Additional expense may result from needing to meet certain building code requirements for new construction that were not in effect when the property was originally built. As examples, fire sprinklers and/or handicap construction items may be required when converting.

An attorney experienced in conversions and licensed engineers and architects will almost certainly have to be involved. Before incurring the high costs of engaging these necessary professionals you should talk with those agencies who will have jurisdiction for approving condo conversion plans in order to reduce the risk of spending a lot of money and finding conversion is not possible or not economically feasible.

Conversion of existing apartment complexes is often not economically feasible. Larger properties are more likely to make sense than smaller properties, partly because cost per unit for many items becomes cheaper the more units involved. For example, the costs of legal work won’t be much higher whether there are 10 units or 100 or more units.

Unless you are doing the project with cash, you also need to discuss the project with potential lenders. This is important both to determine if conversion financing is even available and the total costs of the financing.

Finally, it is always possible that you will need to rent up some or all of the condo units even though immediate sale of all units was planned because the market changed during the time it took to do the conversion. Accordingly, you should determine ahead of time how conversion will affect cash flow of the property as rentals because loan interest, property taxes, and insurance may be higher than currently being paid.

Question

Can you provide advice regarding the type of carpet to use in an apartment unit? I need something durable that hides spills. Thanks.

Answer

When I managed rental units I usually used about the lowest priced carpet (maybe second up from bottom) I could get from a reputable company. I did this because there was no way to know when it might become damaged to the extent of again needing replacement whatever its price. For serious problems, the highest priced carpet doesn’t survive any better than the lowest.

I always preferred to use lower grade carpet and re-carpet a year or two earlier (lower grade carpeting doesn’t usually wear as long) because the cost per year of $15 per yard that lasts 6 years is the same as $20 per yard that lasts 8 years and having new carpet more often between tenants has at least two advantages. First, it is a selling point, usually with higher rent, to the new tenant coming into the new carpet. Second, there is no question as to the initial condition of that carpet for purposes of assessing damage when that tenant leaves. As to color, there are not usually as many choices for the lower priced carpet, so pick one that is closest in color to coffee and/or the dirt around the premises.

Moving Tenants Out

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

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

Regaining Possession

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

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

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

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

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

Move-Out Procedures

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

A good procedure is to:

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

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

Move-In/Out Checklists

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

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

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

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

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

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

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

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

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

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

Check with the HOA

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

Utilities

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

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

Summary

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

Preparing For a Vacancy

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

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

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

Tenant’s Notice of Intent to Vacate

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

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

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

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

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

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

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

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

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

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

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

Market Surveys

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

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

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

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

Summary

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

Question

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

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

Answer

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

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

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

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

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

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

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

Question

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

Answer

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

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

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

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

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

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

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

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

Tree Troubles

What should you do if a neighbor’s tree or a limb of a tree falls on your property or if your tree or a limb of the tree falls on a neighbor’s property? Before we discuss what to do after the fact, we’ll consider what should be done to avoid the problem

If you’re paying any attention to your property you may know in advance that there are trees or limbs of trees on a neighboring property that represent a potential risk to your property or vice versa. If you notice a tree on your property that represents a potential risk of damage to a neighboring property, you should take the necessary steps to eliminate or at least minimize the risk.

If you wish to avoid the cost of hiring a professional to remove or trim a tree on your property consider carefully whether location of the tree related to items on the neighboring property represents a risk in view of your talents and experience regarding such work. If you hire someone to remove or trim the tree, be sure that the person is properly licensed and adequately insured in case the work results in damage or injury related to the work, both regarding the neighboring property and your own.

If you recognize a potential risk of a neighbor’s tree falling or dropping a limb on your property that might result in damage to your property you might consider taking preventive action before his dead, diseased or listing tree falls through your roof or over your property line.

If you and the neighboring property owner are on friendly terms you can simply discuss the matter with him and possibly arrive at a mutually acceptable resolution. If you and the neighbor are not on friendly terms or if your casual approach is not successful you can prepare for possible legal actions by writing a letter to the owner of the neighboring property.

The letter should include (1) a detailed description of the problem, including the listing of potential structures on your property that might be damaged in the event of an event involving his tree; (2) photographs that clearly show the problems with his trees, and (3) a request for the neighboring owner to take action to protect your property. You can consider having an attorney put your information on his letterhead. Although the letter being on an attorney’s letterhead does indicate that you mean business, it can also create unnecessary animosity from a previously friendly neighbor.

If you were unable to resolve the matter via a casual approach or did not get a positive result from your letter, there may be another solution. If it is a matter of limbs hanging over your property rather than the tree as a whole being likely to fall on your property in a way that would cause damage there is another possible approach. In most jurisdictions, if the limbs of a tree hang over your property line you may trim the branches up to the property line without the owner’s permission.

However, do not hack off large limbs or branches at the property line without consulting the owners, no matter what the law says. The law should be your last resort. If a tree dies after your trimming, the neighbor could pursue a claim against you in civil or small claims court. Depending on the laws of your state, your neighbor may have to prove the damage was deliberate or caused by negligence, but may also be able to recover up to three times the value of the tree. Thus, it would be best to seek his participation in the trimming project, preferably in writing or in presence of a friendly witness. Telling your neighbor what you intend to do to protect your property before undertaking the trimming may result in him offering to trim the whole tree instead of risking your possibly amateurish job. Obviously, you may not cut down the entire tree without his permission.

If the base of the tree straddles the property line, it will be necessary to take the matter to court if a mutually agreeable solution cannot be reached between owners.

Now, we return to the original question – what to do if a neighbor’s tree or a limb of his tree falls on your property or if your tree or a limb of your tree falls on a neighbor’s property

The first thing you should do is check your insurance policy or call your agent regarding the matter.

Homeowner and landlord policies usually cover tree damage caused by perils like wind and winter storms. Most policies also cover the cost of hauling away tree debris if the mess is associated with house damage; some policies will cover cleanup even if no structures were harmed.

Although the laws can vary among states, falling limbs or falling trees, whether to wind or old age, are usually considered to be “acts of God.” It is not usually considered in any way a trespass. Usually, your neighbor is responsible when a tree or a part thereof falls over your shared property line and causes damage on your property only if you can prove he was aware that his tree was a hazard and refused to remedy the problem. Regardless, your insurance company restores your property first, and later decides whether or not to pursue reimbursement from the neighbor or his insurer if the neighbor was negligent in maintaining the tree.

Likewise, you are usually responsible for damages on your neighbor’s property only if he can prove you were aware that your tree was a hazard and you failed to remedy the problem. However, responsibility can occur in either case when the tree’s owner wasn’t aware of the problem, but the the risk was so apparent that the tree’s owner should have been aware.

If your tree falls over a neighbor’s property line, you will not usually need to have your insurance policy cover damages to the neighbor’s property. You may not be liable unless you knew or should have known the tree was in a dangerous condition. If you pruned a tree or shored up trunks to prevent problems in a reasonably adequate manner, gather receipts and any before and after photos related to the work to prove your diligence.

However, if you and your neighbor cannot soon come to agreement regarding the matter and you think that the neighbor or his insurer might be able to make a case that you were at fault for reasons previously discussed, you should consider notifying your insurance agent regarding the event and discussing the facts with the agent. This is because many insurance policies allow the insurer to avoid liability for covered risks if the insured did not notify the insurer about a potential claim in a timely manner, the definition of “timely” sometimes varying among insurers.

Finally, remember that the laws of your state may be different than the principles mentioned above. If you and your neighbor cannot settle the matter amicably, you should consult an attorney who is knowledgeable and experienced regarding this particular issue.

Trees can beautify a property; even significantly increase its value. However, when trees are located near property lines with neighboring properties, property owners must be aware of risks associated with their trees and take steps to minimize those risks.

Question

Yesterday an applicant dropped off an application on which he failed to include his social security number. Can I require him to provide the number? Can I simply just reject the application if he refuses?

Answer

Refusal to provide a valid SSN would usually be an acceptable reason for rejection as long as that is something that the landlord requires from all applicants. The Fair Credit Reporting Act (FCRA) requires notice of rejection for credit reasons (not necessarily only related to a formal credit report) in the form of an adverse action report, but the fact that an applicant refuses to provide a Social Security Number probably waives this requirement because he did not complete the application in the first place.

If it were me, I’d call the person and tell him that his application cannot be processed unless a valid social security number is provided in writing within some specific short period of time. Make a memorandum of all facts regarding the matter, including any reason why he refuses to provide the information, and attach it to the application form.

To be safer, if he refuses to provide his SSN, you could send him written notice that his application is incomplete and cannot be processed. Also, be sure that your processing of applicants includes proof of identity (at least two IDs, with at least one being a photo ID), as it can be much worse to rent to an applicant who used a phony ID for which a great credit report is obtained than to rent to an honest person who has bad credit.