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Landlord2Landlord LLC is a company that provides information and services to property managers including a monthly newsletter. Their website is here. The May newsletter included the “Top Ten Legal Mistakes” made by property managers and is reproduced below (with some minor editing) for the benefit of owners that manage their own rentals. At the end are some additional comments based upon our experience.
1. Using generic or outdated rental forms: Most landlords know it’s important to have a written lease or rental agreement. But, using the wrong form can get you into trouble. So-called “standard” forms that are sold everywhere may not be compliant with the laws in your state. If you use a stationary store lease that short-cuts tenants’ rights, you could find yourself at the losing end of a lawsuit because of an unenforceable lease clause.
2. Asking the wrong questions during applicant screening: Proper tenant screening is extremely important. If you choose poorly, you may have continual headaches, with tenants who don’t pay the rent, trash your place, etc. But, there are limits to what you can ask. Many landlords don’t realize that even well meaning questions (such as asking a disabled person about their disability or asking if a couple is married) can be illegal forms of discrimination. If the applicant doesn’t get the rental, even though your rejection had nothing to do with the offending question, the disappointed tenant has ammunition for a fair housing complaint.
3. Setting policies that discriminate against families: Although it’s been illegal to discriminate against families for years, the practices of some owners are far from family-friendly. Excluding families because you feel children cause more wear and tear and you prefer a “mature, quiet” environment is illegal. And while you’re permitted to limit the number of residents in a unit (in most situations, two occupants per bedroom), you may not apply that standard differently when dealing with families. The cost of this mistake may be a fair housing complaint.
4. Making promises that you don’t deliver on: It’s fine to be enthusiastic about the benefits of your property and it may be necessary to do that in competitive markets, but understand that your enthusiastic promises will become binding if the applicants rely on them when deciding to rent. For example, you may have to deliver the goods if you assure an applicant of a parking space, satellite service, or a new paint job. A tenant who feels ripped-off may legally break the lease or sue you for the difference in value between what they were promised and what you delivered. Whether the tenant will win is not the point, you’ll have to respond, which will cost time and money.
5. Charging excessive late fees: Late fees can be useful to get tenants to pay their rent on time. While high fees can be a more powerful motivator, some landlords cross the line by setting fees that bear little resemblance to the actual damages they suffer when tenants pay late. Courts are increasingly invalidating excessive late fees that can’t be justified with hard evidence. You’re better off setting a modest fee that reflects your true damages and dealing with chronic late-payers with pay-or-quit notices.
6. Violating tenants’ rights to privacy: Most states have detailed rules on when, for what reasons, and with how much notice you may enter a tenant’s home. Many landlords stop by their rental properties unannounced asking to check things over, or to perform on-the-spot repairs, or to show the place to prospective tenants. Repeated violations of a tenant’s privacy (or even one outrageous violation) can excuse a tenant from any further obligations under the lease and may also result in court-ordered, monetary damages to the landlord.
7. Using security deposits for the wrong projects: The most frequent types of cases heard in small claims court are arguments over security deposit retentions. The basic rule that deposits should be used only to cover damage beyond wear and tear, needed cleaning, and unpaid rent isn’t hard to understand. Still, landlords routinely use the deposit to cover appliance upgrades, cosmetic improvements and other refurbishing. Not surprisingly, many of these landlords lose these cases in small claims court.
8. Ignoring dangerous conditions in and around the rental: Landlords in virtually every state are required to offer and maintain housing that meets basic health and safety standards, such as those set by state and local building codes, health ordinances, and landlord-tenant laws. If you fail to take care of important repairs, or maintain existing environmental hazards, or fail to respond in a timely manner to crimes involving your property, tenants may break the lease and, in many states, withhold the rent or make repairs themselves and deduct the expense from the rent. Landlords who have failed to make their properties reasonably secure in the face of repeated on-site crimes are often ordered to compensate the tenant-victim when another criminal intrudes.
9. Keeping security deposits when tenants break a lease: When tenants break a lease and leave early, landlords often keep the entire deposit, reasoning that the tenant’s bad behavior justifies doing so, and that they’ll ultimately need it anyway to cover rent. In many states, this is illegal. You must take reasonably prompt steps to re-rent and credit any new rent toward the tenant’s obligation for the rest of the lease. Keeping a two months’ rent deposit and re-renting within a month is not legal.
10. Failing to return security deposits according to law: This list wouldn’t be complete without another reference to security deposits. Not only are they used improperly, they’re often not returned according to state law, either. Many states have deadlines by which landlords must itemize their use of the deposit and return any balance. It’s not uncommon for tenants to have to wait many weeks or months for this accounting. In some states, the deliberate or “bad faith” retention of the deposit will result in harsh penalties against the landlord, such as an order that the landlord pay two or three times the deposit to the tenant.
Additional Comments: Stott Property Management manages over 400 rental properties on Oahu. Many are homes that were formally managed by the owner. The most common problem we encounter with such accounts, other than unpaid rent by the tenant, is our inability to take action against the tenant for damages to the home. If an Inventory & Condition Form was not completed at the time of tenant check-in, Hawaii law states that the condition of the property when the tenant vacates is the same that existed when the tenant moved-in.
Hawaii law also states that an absentee owner must have a local representative on the island where the rental property is located. It doesn’t need to be a real estate agent; i.e., it can be a friend or relative providing that individual does not represent more than one owner. Your tenant needs to know how to contact your representative if problems arise. I recommend you put the representative’s name and phone number on the rental agreement, so you can document that your tenant was informed. Otherwise, you’re likely to be in a position of weakness if a dispute arises and your tenant threatens taking you to Small Claims Court.
Stott Property Management provides various services to owner-managers. At no cost, we’ll provide you an analysis of the fair market rent for your property. For a fee, we’ll provide three other services: (1) conduct a physical inspection of the home and provide you photographs; (2) advertise the property for rent and show it to prospective tenants; and (3), maintain a key, meet contractors at the home and/or install a lockbox for access. We offer these services because some owner-managers will eventually decide to use us as their Property Manager.
Back to Useful Newsletter Articles
Ten Mistakes Made by Owner-Managers
Click here to view the entire newsletter.
Landlord2Landlord LLC is a company that provides information and services to property managers including a monthly newsletter. Their website is here. The May newsletter included the “Top Ten Legal Mistakes” made by property managers and is reproduced below (with some minor editing) for the benefit of owners that manage their own rentals. At the end are some additional comments based upon our experience.
1. Using generic or outdated rental forms: Most landlords know it’s important to have a written lease or rental agreement. But, using the wrong form can get you into trouble. So-called “standard” forms that are sold everywhere may not be compliant with the laws in your state. If you use a stationary store lease that short-cuts tenants’ rights, you could find yourself at the losing end of a lawsuit because of an unenforceable lease clause.
2. Asking the wrong questions during applicant screening: Proper tenant screening is extremely important. If you choose poorly, you may have continual headaches, with tenants who don’t pay the rent, trash your place, etc. But, there are limits to what you can ask. Many landlords don’t realize that even well meaning questions (such as asking a disabled person about their disability or asking if a couple is married) can be illegal forms of discrimination. If the applicant doesn’t get the rental, even though your rejection had nothing to do with the offending question, the disappointed tenant has ammunition for a fair housing complaint.
3. Setting policies that discriminate against families: Although it’s been illegal to discriminate against families for years, the practices of some owners are far from family-friendly. Excluding families because you feel children cause more wear and tear and you prefer a “mature, quiet” environment is illegal. And while you’re permitted to limit the number of residents in a unit (in most situations, two occupants per bedroom), you may not apply that standard differently when dealing with families. The cost of this mistake may be a fair housing complaint.
4. Making promises that you don’t deliver on: It’s fine to be enthusiastic about the benefits of your property and it may be necessary to do that in competitive markets, but understand that your enthusiastic promises will become binding if the applicants rely on them when deciding to rent. For example, you may have to deliver the goods if you assure an applicant of a parking space, satellite service, or a new paint job. A tenant who feels ripped-off may legally break the lease or sue you for the difference in value between what they were promised and what you delivered. Whether the tenant will win is not the point, you’ll have to respond, which will cost time and money.
5. Charging excessive late fees: Late fees can be useful to get tenants to pay their rent on time. While high fees can be a more powerful motivator, some landlords cross the line by setting fees that bear little resemblance to the actual damages they suffer when tenants pay late. Courts are increasingly invalidating excessive late fees that can’t be justified with hard evidence. You’re better off setting a modest fee that reflects your true damages and dealing with chronic late-payers with pay-or-quit notices.
6. Violating tenants’ rights to privacy: Most states have detailed rules on when, for what reasons, and with how much notice you may enter a tenant’s home. Many landlords stop by their rental properties unannounced asking to check things over, or to perform on-the-spot repairs, or to show the place to prospective tenants. Repeated violations of a tenant’s privacy (or even one outrageous violation) can excuse a tenant from any further obligations under the lease and may also result in court-ordered, monetary damages to the landlord.
7. Using security deposits for the wrong projects: The most frequent types of cases heard in small claims court are arguments over security deposit retentions. The basic rule that deposits should be used only to cover damage beyond wear and tear, needed cleaning, and unpaid rent isn’t hard to understand. Still, landlords routinely use the deposit to cover appliance upgrades, cosmetic improvements and other refurbishing. Not surprisingly, many of these landlords lose these cases in small claims court.
8. Ignoring dangerous conditions in and around the rental: Landlords in virtually every state are required to offer and maintain housing that meets basic health and safety standards, such as those set by state and local building codes, health ordinances, and landlord-tenant laws. If you fail to take care of important repairs, or maintain existing environmental hazards, or fail to respond in a timely manner to crimes involving your property, tenants may break the lease and, in many states, withhold the rent or make repairs themselves and deduct the expense from the rent. Landlords who have failed to make their properties reasonably secure in the face of repeated on-site crimes are often ordered to compensate the tenant-victim when another criminal intrudes.
9. Keeping security deposits when tenants break a lease: When tenants break a lease and leave early, landlords often keep the entire deposit, reasoning that the tenant’s bad behavior justifies doing so, and that they’ll ultimately need it anyway to cover rent. In many states, this is illegal. You must take reasonably prompt steps to re-rent and credit any new rent toward the tenant’s obligation for the rest of the lease. Keeping a two months’ rent deposit and re-renting within a month is not legal.
10. Failing to return security deposits according to law: This list wouldn’t be complete without another reference to security deposits. Not only are they used improperly, they’re often not returned according to state law, either. Many states have deadlines by which landlords must itemize their use of the deposit and return any balance. It’s not uncommon for tenants to have to wait many weeks or months for this accounting. In some states, the deliberate or “bad faith” retention of the deposit will result in harsh penalties against the landlord, such as an order that the landlord pay two or three times the deposit to the tenant.
Additional Comments: Stott Property Management manages over 400 rental properties on Oahu. Many are homes that were formally managed by the owner. The most common problem we encounter with such accounts, other than unpaid rent by the tenant, is our inability to take action against the tenant for damages to the home. If an Inventory & Condition Form was not completed at the time of tenant check-in, Hawaii law states that the condition of the property when the tenant vacates is the same that existed when the tenant moved-in.
Hawaii law also states that an absentee owner must have a local representative on the island where the rental property is located. It doesn’t need to be a real estate agent; i.e., it can be a friend or relative providing that individual does not represent more than one owner. Your tenant needs to know how to contact your representative if problems arise. I recommend you put the representative’s name and phone number on the rental agreement, so you can document that your tenant was informed. Otherwise, you’re likely to be in a position of weakness if a dispute arises and your tenant threatens taking you to Small Claims Court.
Stott Property Management provides various services to owner-managers. At no cost, we’ll provide you an analysis of the fair market rent for your property. For a fee, we’ll provide three other services: (1) conduct a physical inspection of the home and provide you photographs; (2) advertise the property for rent and show it to prospective tenants; and (3), maintain a key, meet contractors at the home and/or install a lockbox for access. We offer these services because some owner-managers will eventually decide to use us as their Property Manager.
Back to Useful Newsletter Articles