SMARTERLANDLORDING

ADVICE FROM EXPERIENCE

Landlord Law

No Fault Evictions Rise Ahead Of Rent Controls

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The new law, championed by Democratic Gov. Gavin Newsom as the strongest statewide renter protection in the country, caps annual rent increases at 5% plus inflation, while also forcing landlords to specify a legitimate reason for evicting tenants and to offer relocation assistance for no-fault evictions.

But in the interim months until the law kicks in, tenant rights groups are scrambling to combat what they say is a wave of landlords exploiting a temporary loophole that allows them to get rid of tenants now. That way they can raise rents beyond the rent cap, avoid having to pay any relocation help to displaced tenants, and simply remove tenants they view as problems without going through additional legal hurdles introduced by the new law. 

Read the rest here.

The Self Defeating Effects Of Rent Control

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When New York State’s legislature passed a bill strengthening rent controls on apartments in June, New York City mayor Bill de Blasio crowed that the legislation “will halt displacement . . . and keep working families in the homes they love.” Yet one of the biggest eras of displacement in Gotham’s history happened decades ago because of rent control. Enacted during World War II, controls squeezed landlords unable to increase rents for maintenance, repairs, and fuel prices until owners began abandoning buildings by the thousands during the late 1960s, driving out middle-class residents, stranding the poor in deteriorating apartments, and creating immense tracts of poverty in formerly stable blue-collar neighborhoods.

Billed as tenant-protection legislation, New York’s latest rent regulations, which make it more difficult for landlords to raise prices on apartments that they upgrade or that become vacant, mark a return to the disastrous policies of the displacement era. But because New York’s progressive legislators can’t repeal the laws of the marketplace, the effects have already begun to show.

Read the rest here.

Can You Call The Cops On Your Tenant?

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Can you call the cops on your tenant?  Yes you can.  But the real question is whether or not the cops will do anything when you call.  It is likely they will not.  Not because they do not want to or do not sympathize with you, but because the landlord-tenant relationship is treated differently under the law.  Here is how.

Criminal vs. Civil

Cops get called to all sorts of situations.  From the murderous to the mundane, they see the darker, stranger side of life and will often take action if a criminal offense has occurred.  The occurrence of a criminal offense is the key.

So what is a criminal offense?

Shoplifting bread from Wal-Mart constitutes theft, passing a counterfeit $20 bill is fraud, breaking a window is destruction of property and someone sitting on your front porch that refuses to leave is trespassing.  All of these scenarios are types of criminal acts that the cops can and often will take someone to jail for.

But what about the tenant that does not pay their rent?  Is that not theft?  Does punching holes in your walls equal destruction of property? When the boyfriend who is not on the lease moves in is that trespassing?  Is it not fraud to knowingly write a rent check that will bounce?

Many would answer yes to the above questions.  Theft is theft and trespassing is trespassing.  However, the powers that be do not quite see it this way.  In most states (Arkansas being an example of the opposite) these issues have been deemed civil matters as opposed to criminal.

In effect, legislating most landlord-tenant issues as civil matters means calling the cops will do the landlord no good. The cops will not likely be able to do anything because the various state legislatures have prohibited them from doing so.  The cops may respond to your call, but unless there has been violence the responding officer is likely to tell you there is nothing they can do.

Your Remedy Is With The Courts, Not The Cops

Instead, the police will tell you that the matter is a civil one.   They will tell you that your remedy is to be found in the courts, not with them.  To reverse a wrong and reclaim your rights as a landlord you have to file a lawsuit.  These lawsuits can range from the eviction we are all familiar with, to a request to garner wages due to damages above and beyond a security deposit.  Even that boyfriend who has moved in and is trespassing will likely not result in any action.

As I said, only in the most extreme cases will calling the cops result in any action.  In all my years as a landlord, and in taking to hundreds of landlords, I can count the number of times the police have taken action against a tenant on one hand.

Screening Is The Key

So yes, you can call the police on your tenants but it is likely that nothing will come of it.  In most cases, the police are legally barred from taking action.  A better idea is to screen tenants thoroughly so that you will not need the services of the police in the first place.  Of course, people can and will do things that no screening method will uncover, so if you need to, call 911.  Most of the time however, screening is the best protection.

Kevin Perk is the founder and publisher of Smarterlandlording.com.  He is the author of Advice From Experience To New Real Estate Investors.  Subscribe to Smarterlandlording here.  Contact Kevin here.

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The Effects of Rent Controls

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I wrote about rent controls here a few months ago.  I closed that post with a quote from economist Assar Lindbeck.  “Next to bombing, rent control seems in many cases to be the most efficient technique so far known for destroying cities.”

Since writing that post, New York has enacted more rent controls and the destroying effects of rent controls are now beginning to appear.

From The Wall Street Journal:

Barely a month has gone since New York passed its new rent-control law, and the predictable problems are fast emerging. Blackstone Group , which owns the Manhattan developments of Stuyvesant Town and Peter Cooper Village, is putting renovations on hold, reports Crain’s New York Business.

“In light of the recent legislation, we are in the process of evaluating capital investments at Stuy Town,” a Blackstone spokeswoman said. Maintenance, such as fixing leaks, must legally continue. But Crain’s, citing an unnamed source, says “renovations to vacant units would stop, as would potentially larger construction projects.”

Together the two properties cover roughly 24 city blocks. They include more than 11,000 apartments, some of which fall under the state’s rent regulations. Because the complex was originally built in the 1940s, sprucing up is necessary.

The old rules at least gave landlords some leeway to recoup costs. When an apartment became vacant, rent could rise 20%. If rent passed $2,774, the regulation ended, and the market rate could be applied. The new law axed those provisions, lowering the incentive to invest and update properties.

Stuy Town and Blackstone are making the news because they’re enormous, but the same logic applies to every building owner. Economists are more or less unanimous in calling rent control destructive. The only short-term winners are people who’ve already locked in.

The Stuy Town tenants association favored the new rent law. No wonder: Its president told another newspaper in 2016 that she moved in 35 years ago and was still paying less than $1,400 for a one-bedroom. You might call that the low price of stagnation, but wait until neighboring apartments deteriorate around her.

In Oregon, which implemented statewide rent controls recently, Karen Sale notes in a comment at this post that the law “dramatically affects Oregon landlords. Many are putting their long term rentals on the market for sale.”

H/T to economicpolicyjournal.com 

Florida Landlord Law

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Here is a decent overview of Florida Landlord Law for my readers who do business in that state.

Always remember that landlord/tenant laws can vary widely from state to state.  Be sure you know your local laws.

Arkansas Looking At Landlord/Tenant Law

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Just a quick shout out to my neighbors in Arkansas or anyone who might own rental property in that state.  It is that time of year again, the time when laws are made and changed.  The legislature is looking at Arkansas landlord tenant law.  Y0u can read the proposed bill here, and listen to a local news report on the proposed bill here.  Landlords have to stay on top of what their local legislative bodies are doing that may affect their businesses.

What Is Rent Control?

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When I looked ahead to 2019 to see what was perhaps in store for the real estate investing business, one of the things I saw was misguided calls for rent control and other restrictions upon landlords.  I did not have to wait long.  Oregon seems set on passing SB608 which will enact rent controls state wide.  In this post I want to examine what is rent control to provide landlords a basic understanding of rent control and its repercussions.

Rent Control Defined

Black’s Law Dictionary defines rent control as “Laws or ordinances that set price controls on the renting of residential housing.”  What is meant by price controls?  Price controls in this context set the maximum amount of rent that may be charged on a rental property.  Rent control laws set a price ceiling.  In effect, the government tells the landlord how much they can charge the tenant in rent.  Rent control laws can go by an assortment of names, including rent stabilization, rent regulation and rent freezes among others.

There are many jurisdictions across the United States that have some form of rent control laws on the books.  New York City and San Francisco are two of the more well known examples.  But other locations in California, Maryland, New Jersey and Washington D.C. have rent controls.

Rent controls are enacted by local governments because an increase in the demand for housing drives up the price (rent).  In New York City for example, rent control laws were enacted just after World War II because so many people were returning home or looking to restart their lives after the war that demand for housing far outstripped supply.  Thus the price for housing rose and the government enacted a rent control price ceiling to make housing “more affordable.”  While a few may reap that benefit, the effects rent controls have on landlords, tenants and the housing stock are counter-productive and substantial.

What Rent Control Does

Landlords under rent control are prohibited from charging market rate rents.   They can only charge the controlled, “more affordable” price.  Most rent control laws also prohibit landlords from raising the rent above a certain amount every year, allowing only perhaps a two or three percent increase every year.  What is more, many rent control laws, including the proposal in Oregon, prohibit landlords from using a no fault eviction.  Since most ordinances allow a landlord to raise rent to a market level once a tenant moves, this ban on no fault evictions is done to prevent landlords from evicting existing tenants in order to do just that.

Rent control also has effects on tenants and the housing supply.  These laws distort and change economic incentives.  By legislating a price ceiling or maximum price, these laws dissuade landlords and other entrepreneurs from investing in housing.  This lack of investment actually compounds the problem the rent control laws were trying to fix.  The incentive to create new housing (increase supply) and maintain existing housing is removed.  Supply is thus often further restricted which in turn further drives up market prices (as long as demand remains steady).

Rent controls also restrict the housing supply in another way.  By prohibiting market increases in units that are already rented (rent stabilized), these laws incentivize existing tenants to stay put.  Why move if it will cause your rent to drastically increase?  These laws therefore remove housing stock from the market that might have otherwise been made available.

Finally, rent control laws can take what is often already a potentially adversarial landlord-tenant relationship and make it worse.  Just as there is no incentive for the tenant to move, there is no incentive for the landlord to maintain or fix-up the property.  Thus disrepair, blight and antagonism become the norm rather than the exception.

Long Tern Effects

Rent control once enacted, tends to never go away.  It also tends to increase the size and scope of both government and government regulation.  New Your City for example is using rent control laws enacted to protect returning soldiers over 70 years ago.  Since rent control laws create new incentives and distort others, landlords tend to get creative in order to make up for lost rent.  They do so by charging for “furnished” units or large key deposits.

These creative endeavors by landlords then create a ratcheting up effect of laws to prevent such things.  This in turn places enormous burdens on the courts, city budgets, landlords and tenants as they all try to enforce or grapple with ever escalating rules.  New York City, again for example, has had to set up a specific court just for housing related complaints.  This housing court has 30 judges which handle over 300,000 cases per year!

Going Forward

We landlords must constantly remind people that we are not just sitting around enjoying the income that higher rents bring.  Landlords also have increased costs in the forms of more expensive materials, taxes, insurance, utilities and everything else.  We also need to make sure that the understanding of the effects of rent control is clear.  Rent control, while sounding good and holding much appeal is simply devastating.  Rent Control reduces total housing stock.  It reduces the quality of existing housing stock.  It creates perverse incentives.  Rent control also increases both the size of government and the amount of government regulation thus increasing costs on the whole of society.   To demonstrate these points, I end this post with a quote from economist Assar Lindbeck.  “Next to bombing, rent control seems in many cases to be the most efficient technique so far known for destroying cities.”

Ensuring You Have Legal Possession

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Possession is one of those legal concepts that landlords should understand.  Because legal possession, once granted, is not something that can easily be regained.  To regain possession a landlord must either get a court order through eviction or have their tenant voluntarily return it.  Obviously, having your tenant voluntarily return possession to you is the best way to go, but ensuring you have legal possession requires you to take a little action.

What Is Possession?

First, let me explain what legal possession is.  Landlords grant their tenants possession of their property through their lease, which can be written or unwritten (Yes, a handshake in the eyes of the law is a lease and a granting of possession.).  Possession gives your tenant the exclusive right to occupy your property.  This is often done in exchange for some form of compensation, usually money.  That is why we often substitute the more common term “rent” for the legal term possession.  We say that “I rented to John” rather than “I gave possession to John” for example.  Possession is different from ownership.  You can own and possess a property at the same time.  As the owner you can also grant some of your rights, such as possession, to someone else

Once possession is granted to a tenant, they have legal rights.  Some of those rights will depend on the clauses in your lease.  Others will depend on state and local laws.  It is because of these rights that you cannot disturb your tenant, enter unannounced or just change the locks.  It is because of these rights that you may have to evict if they do not want to leave.

Possession always resides with someone, either you or your tenant.  There is never a time that your property is legally not in someone’s possession.  Usually, tenants intend to return possession to you when they move out.  However, the thing landlords need to understand is that intending to do something and actually doing it are two very different things.   You cannot assume a tenant’s intent or actions actually will return possession to you.  Instead you need to ensure that possession is actually and formally returned to you.

How To Get Possession Back

To ensure you regain possession use a form called the Release of Rights of Possession.  This is a simple and short, one page form that will ensure you get legal possession back.  It contains the address of the property, the date the tenant is releasing possession back to you, a statement that they are abandoning anything left in the property and a place for their signature.  We have every tenant that we do not evict or abandon us sign this form.  No matter what the circumstances are.

Is the tenant simply moving out on the best of terms?  We get a signed form.

Is the tenant moving because we asked them to?  We get a signed form.

Is the tenant moving on a cash for keys deal?  We definitely get a signed form.

Using this form will give you a measure of legal protection.  If you have a completed and singed form, your tenant cannot at a later date say you locked them out.  They cannot later claim that you stole their stuff.  In fact, any claim they may think they have later on will be limited.

I have a copy of our Release Form here in Smarter Resources   Download it and use it.  Protect yourself, every time.

What Does Normal Wear and Tear Mean?

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Most landlords collect security deposits as a part of their lease to ensure that tenants do not harm their property.  When a tenant moves out, deductions can be made from a security deposit to repair harm that is above normal wear and tear.   But what does normal wear and tear mean?  How is it different from damage?

It is important for landlords to be able to distinguish between normal wear and tear and damage because it is often a point of contention.  Tenants and landlords often differ as to the amount of damage that has been caused.  Tenants will assert that damage is just normal wear and tear while landlords assert the opposite.  The line between the two however is not often clear, nor is it easily defined.

Do State Or Local Laws Provide The Answer?

Many landlord/tenant relationships are governed by state or local laws.  Here in Memphis, Tennessee, we use The Uniform Residential Landlord and Tenant Act.  But, this Act does not provide a definition of “normal wear and tear” and I suspect most other state statutes do not either.  It is just too hard to nail down.  The Act does not even use the term “wear and tear” anymore.   Instead it discusses “damage” caused by the tenant.  Does the Act define “damage” then?   Nope.  Again, it is too hard to nail down.   So, how does a landlord know what the difference is?

Getting To A Meaning

Black’s Law Dictionary provides some guidance.   It defines the terms “normal,” “wear and tear” and “damage.”   I use a law dictionary because word meanings in a court of law can be different from their common, everyday meaning.  And a court of law is where landlords have to think things (not just wear and tear cases, but everything they do) may end up someday.

Normal is defined by Black’s as:

According to, constituting, or not deviating from an established norm, rule or principle; conformed to a type, standard or regular form; performing the proper functions; regular, average, natural.

It defines “wear and tear” in part as:

…deterioration or depreciation in value by ordinary and reasonable use of the subject matter.

Damage (as opposed to damages) is defined in part as:

Loss, injury or deterioration, caused by the negligence, design or accident of one person to another, in respect of the latter’s person or property.

So What Is Normal?

With these legal definitions we get closer to an answer.  There are two types of wear and tear,  one type caused by reasonable use and another type above and beyond reasonable use somehow caused by the tenant.

How does this then translate into real life?  What is normal?  Every situation can’t be spelled out, but here are some examples.

  • Paint fading or chipping from furniture being pushed against it. It is normal for people to have their furniture against the walls.
  • Flooring showing a trail from the paths folks use every day. It is normal for carpet to wear out after constant use.
  • Older appliances and fixtures eventually quitting. It is normal for the refrigerator to just stop working one day.
  • Plumbing starting to drip or leak. Fittings and washers wear out.  It is normal for things to leak occasionally.

You cannot charge the tenant for this type of wear and tear.  It is not their fault.  The stuff would have worn out anyway no matter who the tenant was or what they did.  However,

  • Crayon drawings all over the walls are not normal.
  • Painting the walls black is not normal.
  • Wine stains on carpet, iron burns on hardwood and cracked ceramic tiles are not normal.
  • AC coils covered in dog hair and ceiling fans pulled from the receptacle are not normal.
  • Cracked toilet tanks are not normal.
  • Doors pulled from their hinges and broken windows are not normal.

You can charge the tenant for these types of wear and tear because it is above and beyond normal.  It is damage that is the tenant’s fault.

See the difference?

Ultimately a judge or jury can define what normal wear and tear means in your particular case, but you do not want to let it get that far.  It is much easier and better for everyone to understand on the front end what normal wear and tear generally means.  Smarter landlords set the expectation with their tenants on how they expect their property to be returned to them and how tenants can expect to get their security deposit refunded at the very beginning.

Setting up those expectations is a the topic I will discuss in the near future.

Have you ever had a dispute with your tenant (or landlord) over “normal wear and tear?  Please share with your comments below.

 

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The SmarterLandlording Podcast – Landlords and Lawsuits

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Episode 9 of the Smarter Landlording Podcast focuses on something every landlord fears, lawsuits.  In this episode, I sit down again with attorney Joe Kirkland to delve into this interesting and sometimes troubling aspect of the landlording business.   Want to understand what getting sued can mean?  Then this episode is for you.

Links We Mentioned

The Self Directed IRA Handbook – Also see below.

21 Tenant Red Flags – Scroll down to the end of these show notes and subscribe to get the free report.

Memphis Investors Group – The Memphis Investors Group (MIG) is the local REIA club here in Memphis.  MIG has been very valuable to Joe and I over the years and we are both past presidents.  It is where I met people like Joe and where I am able to learn, share ideas, make deals and commiserate with other investors.  If you are here in Memphis, look us up.  If not, check for a club in your area.

Joe’s contact info – Closetrak Title – 901-333-1260  Joe@Closetrak.com

 

 

Like the Intro Music?  Check out my good friends in the band Kitchens and Bathrooms (Kind of fits right!).  They write and play some awesome, original music from right here in Memphis, TN.