SMARTERLANDLORDING

ADVICE FROM EXPERIENCE

Lease

Landlords! Use House Rules

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Every landlord, well almost every landlord, knows they need a written lease.  What they may not be aware of is that they need a set of house rules as well.  House rules do just what their title suggests.  They set out the rules for living in my house and every landlord should have a set of their own house rules.

We have our house rules set up so they are an addendum to our lease.  In that way, they have full legal force and effect, just like the lease proper.  Break my house rules and you are breaking the terms of our lease, which could very well result in eviction.

Our house rules are usually about a page long and contain all manner of things.  Some you would think need not be explained, such as taking your trash out every week or paying your rent on time.  Other rules are set by our own design and experiences, like our no smoking inside rule because of that time a tenant caught our house on fire by smoking.  Still others are general “catch alls” such as telling everyone to be quiet after 10 PM.

You can design your house rules however you like them (within legal bounds of course), because after all, it is your house.

Three Reasons To Use A Set Of House Rules

You could of course put everything in your lease, but we like to use a separate set house rules for three main reasons.

First, because the house rules are listed in a separate document, the stand out and can be emphasized.  It is easier to specifically point to the document and say, “These are the rules that you must follow to live here.”  Your prospective tenants will have an easier time focusing on and understanding the rules because they are a separate document.

Second, house rules can be tailored to each house or property.  This aspect is helpful since each property is different and thus has different rules.  Some have balconies (do not grill on them), some do not.  Others have yards to keep up with (cut the grass) while others do not.  Some have common areas (don’t put your stuff here), some have shared parking and on and on and on.  Could you have a lease for each property?  I guess so, but I find that using a tailored house rule document attached to our standard lease is just easier.

Third, a house rules document is easier for everyone to understand.  A lease often has to contain legal words and phrases.  These words and phrases may not always have a clear meaning to someone who is not familiar with them.  House rules however can get right to the point, in clear language.  For example, here are a few rules we use.

  • You will not disconnect the smoke detector and you will replace the batteries in the smoke detector as needed.
  • Do not light candles or fires in the rental unit.
  • Don’t wait until Friday at 6pm to tell us your need a repair, because it won’t be done until the next week.

These rules are simply stated and straightforward.  They are not full of legalese and everyone can understand what they mean.

Make Sure Your Tenant Understands The House Rules

During the lease signing process, we read every word of our lease and house rules to the tenant.  Every word!  Sometimes that goes quickly.  Sometimes it takes a while as questions are raised and stories are told.  I cannot tell you how many times someone will say “You really had a tenant do that?”  Yes, that is why it is in the rules that I am reading to you now.

Then, upon signing, documents are scanned and copies e-mailed to the tenants.  In this way, when they break the rules (and they will), they cannot say they were not aware of the rules or did not have a copy.  You can point towards the lease signing process along with the e-mail and when it was delivered.

Most Tenants Follow The House Rules

Most of your tenants will follow your house rules.  They understand the need for them and why they are there.  Some will push the limits for sure, but you need to decide how much of a cop you want to be.  How much time you want to spend playing cop, judge and jury is up to you and your particular situation.  In any event, having a set of house rules will make your landlording life a bit easier.

What are in your house rules?  Got an interesting story about why that rule is there?  Please share with your comments.

 

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Inheriting Tenants? Protect Yourself

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When you buy an investment property, sometimes it will come with tenants already in place. These tenants can be a good thing as your new purchase will be immediately generating income. But, these tenants can also be a bad thing because you really have no idea how they were screened, how they have been as tenants or even what the details of their lease are. You can of course review existing written lease agreements, but there are landlords and tenants out there who have nothing more than a verbal agreement. There is no written lease to review.

So what you might ask.

Well, here is the thing with inherited tenants, you are stuck with them. The existing lease, even if verbal, cannot be changed by you just because you have bought the building. Your purchase does not in any way, shape or form alter the lease agreements the tenants currently have in place. You can’t raise the rent. You can’t just evict them. You can’t add rules. You can ask them to sign a new lease. You can offer to pay them to do so, but they do not have to. As I said, you are stuck with them. Stuck with them until the term of their lease is up.

Not a good place to be, especially if you have no idea what unwritten agreements might be hiding out there.

So how do you, as a landlord who wants to add the property to your portfolio, protect yourself? How do you determine what the current lease terms and conditions are?

One way is to ask to review the current leases. But what if there is no written lease? Or, what if the selling landlord is just making stuff up? It happens!

One of the best ways to protect your interests is to use an estoppel agreement. This agreement, which spells out the existing lease terms, is filled out and signed by both the tenant and the selling landlord. An estoppel agreement is a simple one page form that asks some very basic questions regarding a tenant’s living arrangements. Questions such as:

  • What is the term of your lease?
  • Who is listed on the lease?
  • How much is the monthly rent?
  • Do you pay any utilities?
  • How much is your security deposit?
  • Do you own any appliances in the apartment?
  • Are you current on your rent payments?
  • Are there any repairs that need to be made?
  • Do you have any other arrangements with your current landlord?

By getting this form filled out by the tenants you are about to inherit and the landlord you are buying the property from, you will have a legal piece of paper that will offer you some protection going forward.

How?

If a tenant later claims that his verbal lease was for a year and that you can’t ask him to leave you can point to the estoppel agreement that he signed stating that he was on a month to month term.

Or,

If when the tenant moves he claims that his security deposit was $5,000 and that he owns the appliances, you can again refer back to the estoppel agreement to determine if that is indeed the case (If it is the case when you review the agreement before closing you may want to renegotiate the purchase price.)

The estoppel agreement is a very important piece of paper to get completed when buying any property that has existing tenants. Use it every time and make the completion of this agreement a part of your purchase and sale contract. In fact, I think this document is so important I want to make it easy for you to use. So please follow this link to my Smarter Resources Page to download the estoppel agreement form that I use and protect your future buying interests.

 

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Familial Status and Quiet Enjoyment

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This article directed towards tenants with children should be interesting to landlords for a couple of reasons.

First, it provides a pretty nice overview of how otherwise well meaning landlords can end up running afoul of fair housing laws when dealing with children. Landlords need to always remember that familial status is a federally protected class. So what does that mean?

It means you cannot deny an applicant a property because they have children. Most landlords get this one.

But it also means that you cannot steer applicants to certain apartments or properties, say with more bedrooms or on the first floor. And here is where many landlords get tripped up. Not because they are trying to discriminate but because they are trying to be helpful. They think that another bedroom or more space might be needed and only discuss certain apartments. Or they believe, like the article states, that they are helping other tenants by only showing first floor apartments so there are less feet tromping around.

To avoid discrimination issues, landlords should tell applicants about all available properties and let THEM decide what is best for their needs. Do not do any thinking for them, no matter how helpful you may think it might be.

Secondly, the article discusses a clause that is in almost all of our leases, the right to quiet enjoyment. Perhaps you assumed, like many others, what that clause means. Quiet enjoyment means that there is no outside interference with an activity. An activity could be something such as renting an apartment. Thus, that term outside interference applies to you, the landlord. It does not, as the article points out, mean tenants have the right to absolute quiet. Rather, they have the right to be left alone in their home without interference from the landlord. Thus as the article again points out, kids playing in the courtyard in the afternoon, while perhaps loud, is a normal activity and does not violate the rights of other tenants.. Could get tricky I know, but understanding the term and being able to explain it to your tenants could help.

Why Landlords Should Inspect Their Properties

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This is why landlords should inspect their properties. You cannot completely trust the screening process. Some people can look perfectly normal on the outside and in public, but their home life is a complete mess as the linked article demonstrates.

Just because you never hear anything from a particular tenant does not mean that all is perfectly well. Most times it is, but it is best to verify. Do you think the tenant in the story above would have ever called their landlord? It is highly doubtful. They are too embarrassed by their home life to let you in and will likely just vanish one night when no one is watching.

So don’t let this happen to you. Put a clause in your lease like the following that allows you to periodically inspect your property.

Tenant shall be entitled to quiet enjoyment of the use of the property so long as Tenant is not in default of the terms of the Lease. However, upon one day’s notice to Tenant, Manager shall be entitled to access to the Property for the purpose of inspection, repairs or marketing the Property.

Remember, your properties are a huge asset to you, don’t let someone trash them.

 

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When Tenants Overstay Their Lease

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Tenants move.  It’s just a fact of a landlord’s life.  As much as we might like them to stay (well most of them), they rarely do.

When they move, vacancies become a major concern.  The cashflow stops but the bills remain.  So, getting the unit re-rented as quickly as possible becomes a priority.

The best case scenario is to have a tenant move out one day and another move in immediately the next day.  Think about how great that is.  It is almost perfect as there will be little if any interrupted cash flow.  We have had the good fortune to have this happen a few times over the years.

But wait a minute.  No matter how well you might think you have things lined up, Murphy and his darned law is always right around the corner.  Things can go wrong and can go wrong pretty quickly.  The movers might be a day late to move your tenant out.  A new job may be eliminated meaning the tenant no longer wants to move.   A car can break down and a whole host of other things can go wrong.  Other times the tenant just does not get it together and actually move out.

What happens then?  What happens if you have scheduled someone to move in the next day?  Things can get sticky real quick.

Imagine for a moment that you are your new tenant.  You are moving from out of state and have all of your belongings in a truck, a truck that has to be returned the next day.  You have scheduled movers, utility connections, satellite TV installation.  Are you supposed to rearrange all of this?  Are you supposed to sleep in the truck?  What about all of the added expenses, not to mention the aggravation.

Your new tenant is going to be looking right at you for answers.  After all, you are the one breaking a contract by not having a place for them to live.  They will want to be reimbursed and accommodated for their hassle.  They will have a strong case and they know it.

Here is what to do.

First, try to leave a day or so wiggle room from move out to move in.  A loss of one day’s cash flow is not that bad and it may just give you the time you need for when Murphy shows up and starts making things go wrong.

Secondly, place a clause in your lease that charges the tenant $100 per day for any time they (or their stuff) stays in the property past their move out date.  In this way you are somewhat protected if you incur expenses due to someone not moving when they said they would.  Plus it really provides incentive for them to get out when they said they would.

The key is to be very clear about this provision when they move in.  Let them know you will charge it.  Get that motivation started the first day they move in.

Finally, apply the pressure to your old tenant.  Let them know they cannot stay and keep on them.  You may have to literally push them out the door.

Honestly, this scenario is hardly ever a problem, but it can and has come up.  So be a smarter landlord and be prepared for it.

 

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The Fire Clause

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On the latest episode of the Smarter Landlording Podcast, my guest Bucky Philip and I discussed clauses that were required in residential leases here in Tennessee.  One of those clauses is a statement demonstrating that you as the landlord are not responsible for the tenant’s personal items in case of a fire, break in or some other emergency.  I call it the fire clause.

We have such a clause in our lease.  In fact, we go one step further.  We highly recommend that tenant’s get their own renter’s insurance and then have then initial next to the clause.  That way if there is ever a problem in the future (let’s hope there is not), the tenant cannot claim they were not informed.

Here is the fire clause we use in our lease.  Feel free to modify to fit your needs.

Tenant’s Personal Property: Manager shall not be responsible for loss of, theft, or damage to, Tenant’s personal property.  Manager shall not provide fire and casualty insurance for Tenant’s personal property. IT IS THE TENANT’S RESPONSIBILITY TO OBTAIN RENTER’S INSURANCE.     

         I/we understand the rental insurance policy:___________ Tenants Initials.

Check out the Smarter Landlording Podcast with Bucky for other information you need to know. 

Also stay tuned for the next episode coming up in a few weeks.

No Candles Allowed

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This is why there are no candles allowed in our apartments.

“An apartment tenant told firefighters that he was burning candles in his bedroom and then went to another area of his apartment. The candle was sitting on a table and caught nearby combustibles on fire.

The estimated damage to the building is about $75,000, according to the battalion chief.”

We place the restriction in our “House Rules” which is attached to, and thus a part of, the lease.

Yeah, I know, it can be hard to police but we have to try to protect our property and tenants.

 

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Another Handy Lease Clause

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Ever have a tenant think their security deposit equals their last monthly rental payment?

We have.

We put a stop to it with this clause in our lease.

“It is understood that the security deposit is NOT an advance payment of monthly rent.  If Tenant tries to use security deposit as last months rent, an eviction will be immediately filed.”

This simple clause seems to work well for us. 

Use it in your lease today!

Want to learn more about what needs to be in your lease?  Stay tuned for Episode 3 of the Smarterlandlording Podcast.  Coming soon!

A Simple Lease Clause To Help You Get Properties Rented

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When we receive notice that a tenant is moving out, our goal becomes getting that property re-rented as quickly as possible.  After all, no tenant means no cashflow.

Our lease requires our tenants provide us with at least a month’s notice of their intent to move.  Most have been very good with that request, giving us plenty of time to market the property and hopefully get it re-rented.  Of course re-renting the property means showings.  After all, how many people do you know that will rent a property sight unseen? 

Showing the property can cause some difficulty.  Your tenant still has possession.  It is their home.  They do not have to let you in to show the property.  They could potentially make you wait until they have fully moved out.

How do we handle this?  As simply as possible.

We have the following clause in our lease which the tenant reviews and signs upon move in.

            “Tenant will allow Manager access to show their apartment with 24 hours notice.”

Problem solved.

Whenever a prospective tenant lets us know they wish to see the apartment, we let them know that we have to give 24 hours notice and that we will get back with them to set up a time.  After contacting the current tenant and providing the notice, we then set up a time to show the property.

This process may seem a bit cumbersome, but it really is for the best.  It protects everyone’s rights and generally leaves everyone happy.

Most of our tenants understand the need to re-rent the property and really appreciate the notice.  Yes, there are a few that grumble every once in a while but we just remind them of the clause in their lease.

Remember your tenants have possession until they move out.   Use this simple clause in your lease to avoid any problems and help you get your units re-rented as soon as possible

Is Your Rent Increase Legal?

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Rents seem to be on the rise in most areas of the country right now.  Some are predicting this trend to continue for a few more years.  As landlords we obviously want to maximize our rental income to increase our cash flow and increase the value of our real estate holdings. But you can’t just go and increase rents across the board at any time.  There are certain steps and rules one must follow for it to be legal.

First, you have to remember that your lease is a contract between you and your tenant.  This contract spells out, among other things, the amount of rent to be paid, when the rent is due and the term of the contract.  If your lease is like most residential leases out there it has a specified term, often for one year.  That term generally sets the clauses of the lease in stone meaning that you cannot raise the rent without the consent of the tenant during term of the lease.

So unless you have specifically put some type of language in your lease allowing you to increase the rent during the term of the lease, you cannot raise the rent until the end of the lease term.  Can you put special conditions in your lease to allow an increase in rent?  Sure, if local laws allow it.  You could for example state that the rent will increase if property taxes are increased.  Your tenant would have to agree to it beforehand however and that is not likely.

Once the term of the lease is completed or just before completion, you can begin to renegotiate new terms for the lease.  Now you can increase the amount of rent.  To do so however you usually have to send notice to the tenant stating that the terms of the lease will be changing and what those changes will be.  This notice usually has to be sent at least 30 days prior to the time the rental increase is to go into effect.

For example, if you want a rent increase to be effective on May 1, 2014 you need to send a notice to your tenant no later than April 1, 2014.  This notice is nothing more than a letter from you to your tenant spelling out the terms of the rent increase.  At least that is how it works here in Memphis, Tennessee.  Local laws can differ greatly.  The City of Seattle for example makes things much more complicated.  So be sure and know your local laws to make any rent increase legal.

A word of caution is necessary however.  I would not go hog wild raising rents unless you are in a particularly hot market.  Raising rents to much might cause many of your tenants to leave creating lots of tenant turnover.  And tenant turnover is the biggest cashflow killer out there.  Think about all of that new paint and carpet along with all of the other repairs that will need to be done once a tenant leaves.

So don’t shoot yourself in the foot by raising your rents to high or too fast.  Give careful consideration to rent increases.  Perhaps gradually and gently is a better way to go.

 

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