CHAPTER SIX (Continued from II. Transplanting the Tenant.)
If you have done your best to eliminate irresponsible and unsuited tenants, future problems will be minimal. Unfortunately, at least one in ten tenants will develop financial or personal problems while living in your rental; therefore, you must take further precautions to protect yourself before accepting any tenant.
Choosing the best tenant for your rental is a matter of eliminating less responsible or unsuited applicants as covered in chapter four. Making a choice out of the remaining applicants will depend on your preference. Once you have made up your mind whom you will choose to occupy your investment, you must let them know as soon as possible. You do not want them continuing their search and choosing a competitor's rental. On the other hand, if you are not sure, don't fall into panic renting without giving your advertising a chance. Better to have your rental sitting empty a few days longer than to make a hasty decision.
Once you make a decision and contact the applicants, don't expect them to answer, yes, immediately. Good tenants are usually frustrated in their search for housing and have a tendency to believe no one will call; consequently, they are usually caught off guard. Don't use any high pressure tactics such as saying if they don't give you an answer right away you'll have to rent the unit to someone else. If the people seem hesitant, let them think it over, or talk it over with their spouse, but insist they let you know within a few hours, twenty-four hours at most. If you have done your job well, they will normally call within an hour or two and let you know. By giving them a little time to think and talk it over, they will never feel they were roped into something when they really weren't sure.
When the tenants return your call, explain what monies are needed and make an appointment to meet at the unit if possible. If the unit is not ready, or the old tenant is still living there, make an appointment for them to come by with some trust or earnest money. This money is to show that you and the tenant are bargaining in good faith. It also has the advantage of letting you know how serious the applicant is. As with airline tickets, some tenants keep more than one option open. The trust money, later to be added to their deposit, will alert you to their true intentions.
Some states have laws governing trust money and the money may not be yours to keep unless the tenant can move into the unit on the day you stated or for other reasons that are your responsibility. On the other hand, if the tenant changes his mind after you have given up other prospects and discontinued your advertising, the monies are normally yours to keep, especiallyif the tenant was advised. We have it stated on the last line of our application. It can also be stated on the receipt you give the tenant. We do not feel it is necessary to demand trust money equal to the deposit. Remember, a person in the process of moving is paying rent at one place, has to pay your rent in advance and whatever other monies you require. If you add up those numbers, you will find that it is a strain on many people. We usually require a hundred dollars in trust money. But, the tenants must pay the balance to equal the deposit before they are given the keys. In this way they have the opportunity to raise the balance, even if only a few days remain before the unit is ready. If the unit is ready, we require the full amount of the security deposit before we will turn over the keys.
Although every state has its own definition of what constitutes a security deposit, simply put "Security Deposit means any deposit of money or property to secure performances by the tenant under a rental agreement."
We are aware some landlords will let tenants move in if they have enough to cover the monthly rent, and make payments on the deposit. We frown upon such action since a landlord would have no means of securing a good performance from the tenant. The few times we have tried it, the tenant was usually gone before the deposit was paid in full. In addition, we have learned people who pay no deposits can be gone before the first month is over because there is no reason to abide by their rental agreements. There is something about a deposit, even a small one, that creates a bond between landlord and tenant.
The amount of the security deposit is one segment of landlording that has been argued for years. Some landlords feel it is too hard to rent their properties by requiring a deposit. Others want the largest amount they can get. Experience has taught us that if you pick your tenants with care, and if their deposit is around a month's rent, the chances of a tenant moving out and leaving a significant balance behind is very rare.
We have kept our deposits around 15% lower than a full month's rent since 1981 and only 8% of our tenants left owing any money at all. Of the 8%, only half, mostly independent entrepreneurs and partnership breakups, owed more than fifty dollars. If however, you get a tenant who develops financial or personal problems and must be forced out, the charges to cover legal fees, damages, cleaning, back rent, and rerenting costs cannot be covered with a deposit equal to three months' rent. Yet, all but a few states forbid any more of a deposit than the equivalent of one to two months' rent. In addition, a deposit requirement above the amount of one or two months' rent, can make it extremely hard for you to find a new tenant. The lower deposit not only makes our places very attractive to the majority of renters, but by keeping it slightly less than the monthly rent, tenants do not confuse it with a rent payment. Since we adopted this policy, we have never had a tenant ask us to use the deposit for the last month's rent or ever had a tenant use the deposit as an excuse when their rent was late.
The reasons for a deposit are many. By requiring a deposit you will eliminate many unstable tenants who are only looking for a place for a month or two. It also puts an end to losses due to surprise skip-outs. You are also protected if your rental is left damaged or unclean, and most important, deposits are also to protect you from tenants who fall behind on their rent.
As for deposits making it harder to rent a unit, we will agree. It normally discourages people you would not want as a tenant. If a potential tenant really likes the location and other important aspects of your rental, and your deposit is reasonable, they will find the money. If they are short of cash and can't produce a deposit, they may have trouble paying the monthly rent.
If any tenant ever questions you on your deposit, don't rent to them. Any tenant we have ever known who complained about paying a deposit, with the understanding they would get it back when they moved if nothing was owed, were people that leave owing plenty. Almost anything rented today requires some form of deposit. Your rental should be no exception.
Some landlords have reverted to non-refundable fees. Already there are states, such as California, that forbid such practices. It is best to have all of the deposit refundable. It is obvious through our experiences that when moving, 85% of the tenants will correct any damages and clean the unit exceptionally well to insure the return of their deposit.
Because of all the accusations against landlords unfairly withholding security deposits, there are many laws concerning their use and protection. If you have more than three to five rentals (depending on your state) you are required to keep the security deposit in a separate bank account. The reason for this is that many landlords have declared bankruptcy or sold their properties and left tenants holding an empty bag. Also, almost half the states have some form of statute which requires landlords to pay interest on security deposits. This record keeping and bothersome detail seems trivial since the tenant usually receives no more than twenty dollars a year. Nonetheless, you are allowed to keep 1 to 3% for your trouble and you must pay the remaining percentage to the tenant annually. However, some states, require payment of interest every six months. Some states do not require you to pay interest if the deposit is under a certain amount, or if your property has less than two to five units
On the other hand, there are states, such as Massachusetts, whose deposit laws are so inflexible that if tenants find you do not have their depositin a separate bank account, "the tenant is entitled to damages equal to three times the amount," and that is while they are still living in the rental. Some states, require security deposits and cleaning fees be separate. Many other states require the tenant be informed at move-in time, exactly what items can be deducted from the security deposit when the tenant moves. Since all the states have unique and complex laws governing security deposits, you would be wise to send for the information or purchase a lease within your state that defines the law. Contrary to what many landlords believe, if you have a lease agreement that explains what deductions can be made from the deposit, even laws that seem inflexible, bend to accompany a well-defined security deposit agreement.
Even with all the bothersome detail, never rent any property without requiring a security deposit. Security deposits not only weed out potential bad tenants, but they insure that the tenants will fulfill their responsibilities. After you receive a security deposit, you must have your new tenant sign a lease.
Ten Parts of a Lease:
Just as the application can eliminate any unforeseen troubles with applicants, a lease or rental agreement is the protector of the landlord if there should be any troubles with a tenant. Unfortunately, a number of landlords still practice the unforgivable sin of renting their properties without using leases. Leases have the unquestionable status of settling disputes that may arise later. Oral agreements have the potential of being misunderstood and misinterpreted. Next to the application, a lease is one of the most important aspects in cultivating profitable tenants.
Leases are the savior and protector of uncounted conflicts with tenants. If ever a dispute should arise between you and the tenant, quoting terms from the lease can usually solve the problem to your satisfaction in minutes, even if tenants claim they were never aware their lease contained such terms. To quote from Michigan's 1990 well-written, "Everything You've Always Wanted To Know About Landlord/Tenant Relations, But Were Afraid to Ask": "What if one party to the lease later states that he/she did not understand something in the lease? Does that mean he/she is not responsible for living up to that part of the lease? No. There is no reason for not living up to the terms of a 1ease including ignorance of its terms."
There are different definitions for leases. The most popular is that a "lease" is signed for at least one year, while a "rental agreement" is normally on a month-to-month basis. However, most people refer to them as leases. There are no laws, we are aware of, which ever made a legal issue of defining differences between monthly leases or a yearly lease. Whatever they are called, they are a binding contract between two parties who agree to abide by them. This book uses both terms interchangeably.
All leases contain the following:
1. Establishment of a landlord/tenant relationship.
Since you are supplying the lease and the property, everything else is meant for your protection as long as it is reasonable and does not violate any laws. Many courts will uphold a tenant's claim that anything which is not expressly forbidden in writing is acceptable. For example, one state law declares that if there is no lease, or clause in a lease about children or pets, then it is presumed that: "There are no restrictions on occupancy by children or pets." Anther state law declares that if tenants fail to pay their rent as agreed you must provide the tenant with a 15 day notice in summer and a 30 day notice in winter to pay rent or vacate. However, if you have a clause in your lease which waives the requirement; no notice is necessary and you can demand prompt payment the first day the rent is late. One state goes even further by granting the tenant 30 days notice to pay rent or vacate all year, unless a written lease waives the requirement. With all these hidden laws, it is to any landlord's financial advantage to purchase a lease that offers him or her the greatest amount of protection.
Although many tenant organizations have tried to reverse the lease process to make it beneficial to the tenant, a lease or rental agreement is primarily meant to protect the landlord. After all, it is the landlord who is providing the property. Using a tenant lease would be equivalent to a bank or loan company letting borrowers write their own loan agreements. Never use a tenant-approved lease. You are the one that needs the protection.
Every office supply store carries one or two different forms of leases and if one shops around, she can find many more. However, due to the lease manufacturers' determination to get everything on one page and not ruffle the feathers of tenant organizations, most of their leases are poorly written. The problem with most leases is they are conceived as though the tenant will always abide by their agreements. Unfortunately, this is not the case. You want a lease which protects you against the possibility that the tenant may not abide by his or her agreements.
There are leases written by "rental, owners associations" or Apartment Associations. They are normally much better written since there is always someone within these groups who understands the law and how to use it to the landlord's advantage. These leases provide much more protection to the landlord than a "store bought" lease. If possible, contact, or join one of these associations (it pays to belong), and obtain one of their leases.
Since state and local laws vary widely, we have not included a full example of a lease in this book. The following ten items are samples and explanations from our lease. The lease you obtain must contain similar categories.
1. The first section of any lease identifies the parties to the lease and the location of the rental. All leases begin in this way while establishing the landlord/tenant relationship.
2. Length of term: This acknowledges the dates on which the lease begins and ends. For leases of one year it is normally stated: "The term of this lease shall begin on ___________ and end on ____________." Unfortunately, if a long-term tenant wants to sublet, you cannot go on refusing everyone s/he may propose. Experience has taught us it is almost impossible to keep a determined tenant from moving. Since less than one in four tenants stay for less than a year, we use the month-to-month lease, or rental agreement.
Since most people usually move out of an apartment around the last day of the month and the new tenants can't move in till the rental is completed a day or two later, and we want the rent collection to fall on the first of the month, we use the following wording:
"The initial term of this agreement shall begin on ____________ and end on the last day of the month. After the initial term ends, the agreement will continue for successive terms of one month each. (beginning on the first and ending the last day of the month) unless terminated as prescribed in section 6 (see below)."
We recommend all rents be due on the first of the month. This is the universal time that most tenants have come to accept, and it is almost impossible for them to forget.
If the tenants are moving in during the last week of the month, have them pay for the remaining part of that month and for the following full month. Some landlords insist that tenants moving in anytime after the first week pay for the remainder of that month plus the following full month. We find this to be hard on most tenants. Remember, tenants normally earn only 55 to 60% of what homeowners earn. They are pulling up roots and paying moving costs, deposits, and rent on two places. Our experiences has shown it is highly unlikely they will start off on the wrong foot the first few months. We have never had any real problems with this aspect.
It should be mentioned here that some landlords are beginning to ask for the "last month's rent." Due to the hardship it creates on many tenants, not to mention the difficulty in renting a home or apartment, we have never required it. Some Landlords claim that many tenants have a tendency to look at the last month's rent as a cushion to fall back on when they have financial problems; consequently, it can create rent payment problems. However, if you have such a policy, make sure it is legal in your area, and the terms under which the last month's rent is to be applied are clearly stated somewhere in this section.
3. Rent Payment: This is one section most store-bought leases, and especially tenant organizations leases, fail to provide enough information to the tenant. Many tenants do not realize delinquent rent is a cash loan and the landlord is not in the lending business. It should be explained in depth. Since payment of rent is one of the most important aspects of operating your rental profitably, it will be covered thoroughly in chapter eight under "Rent Payments."
4. Security Deposit: Notice in the quotes to follow that our lease refers to a condition report. It is nothing but a piece of paper attached to the lease which tenants sign when they move in. (The condition report will be explained in the next section.) Also note: "[in an account at ______________ ]. This insert is for landlords with larger properties or where state law requires the money be placed in a separate bank account or when interest is to be paid.
"SECURITY, DAMAGE, CLEANING DEPOSIT: The tenant has deposited $____________ with the landlord, [in an account at ___________ who will pay interest of ____% per year]. The landlord will hold the security, damage, cleaning deposit for the period the tenant occupies the unit. After the tenant has moved from the unit, the landlord will determine whether the tenant is eligible for a refund of any or all of the deposit. This deposit does not limit landlord's rights or tenant's responsibilities. The amount of the refund will be determined in accordance with the following conditions and procedures:
a. The tenant will be eligible for a refund if the tenant provided the landlord with the state required _____ day written notice of intent to move as required in section 6.
b. After the tenant has moved from the unit, the landlord will inspect the unit and complete the "move OUT" portion of the "Condition Report."
c. The landlord will refund to the tenant, within _______ days after s/he has vacated and turned in the keys, the amount of the security, damage, cleaning deposit LESS any amount needed to pay the cost of:
1. Unpaid rent or other charges owed.
2. Damages that are not listed on the "move in" portion of the condition report that was signed by tenant prior to occupancy.
3. Any cleaning done to restore the apartment to the same clean condition listed on the condition report that was signed by the tenant prior to occupancy.
4. Charges for any unreturned keys, missing items, and any cost to restore the unit to the condition in the report prior to occupancy, less normal wear and tear. Tenant agrees that a burn, smudge, scratch, crack, dent, tear, or stain is not considered normal wear and tear.
5. Any other cost incurred by tenants' (or their visitors) actions, or failure to abide by this agreement. _______ Initials.
Note: "cleaning" deposit would be separate if your local laws say it must be. The blanks were left because the laws in states vary widely on these aspects. Note also that we also inform the tenant that if they are entitled to any of their deposit upon vacating that it will be refunded in a certain amount of time. Many landlords do not like this because they feel it will create unnecessary hardships on them. We find it eliminates problems with many tenants who believe we should refund their deposit the day they move. We stopped that years ago when we found that many damages and dirty items were overlooked until the unit was completely made ready for the next tenant. There is no state or local area that we are aware of which requires a landlord to refund the tenant's deposit immediately.
We also let the tenant know s/he is not responsible for normal wear and tear. The reason is many tenants believe that a burn, smudge, etc., is normal wear and tear. When this aspect is explained to them, they have a better understanding of their responsibilities and what normal wear and tear is. We understand that some of the explanations in our lease, such as normal wear and tear, are avoided by some landlords because they feel the tenant may try to take advantage of the law. We have learned that today's tenants are normally aware of their rights, but misunderstand them. By going half way, the tenant understands you are being fair and you understand the law as well, or better, than they do. In our years of renting property, we only had one tenant who halfheartedly questioned us on the amount we withheld from her deposit. We will explain further on how our condition report eliminates any problems.
5. Utilities & Services: there is more than one nightmare story of tenants not knowing who pays what utilities. Make sure your lease states who is to pay what. Ours is worded as follows:
"Utilities & Services: The following describe how the cost of utilities and services related to the unit will be paid: The tenant must pay directly to the utility companies, the following: ________________________ __________________________________ etc..Landlord pays _____________________________ ONLY."
Note the "etc." for tenant and "only" for landlord. There can be no misunderstandings.
6. Termination and Renewal: This heading is normally ignored by all leases; yet, it is one of the most important aspects of averting trouble in the future. One of the largest "landlords" in the world, HUD, uses it in every one of their leases.
Since tenants' groups write literally thousands of pamphlets explaining tenants' rights without ever mentioning the landlords, you must inform the tenant you also have rights. Although many landlords frown upon including such unpleasantries, it is well worth having the tenants know what your rights are if they should fail to live up to their agreements.
Many tenants mistakenly believe they cannot be evicted if they have small children or are sick or pregnant. Many believe they must be at least 30 days behind on their rent before you can take any legal action. Some even believe they cannot be "put out" in the winter. (The only area we are aware of that has any such law is Washington DC which forbids putting anyone in the street if the temperature is under 25 degrees Fahrenheit.) You must educate your new tenant.
You will note we are using a month-to-month lease. Blanks are for the varying state deadlines.
"Termination & Renewal: Unless terminated or modified as provided in the following, this agreement shall be automatically renewed for successive terms of one full month, subject to changes as follows:
a. Tenant may terminate this agreement by giving __________ days written notice to the landlord before the next month's rent is due, as provided by state law.
b. Landlord may terminate this agreement for/by:
1. Just as the tenant has the right to give _____ days notice to move, the landlord may give a written ________ days notice to the tenant to move.
2. Material noncompliance with this agreement. "Material noncompliance" shall include: One or more major violations of this agreement or repeated minor violations which disrupt the livability of the property or which have an adverse financial effect on the property. (Late or nonpayment of rent, or any other financial obligation, due under this agreement shall constitute a major violation. If tenant does not pay rent as agreed and fails to abide by the procedures set down in "RENT PAYMENT" above, the landlord may serve the tenant with a _____ day notice to move from the unit or pay all amounts owed as required by state law.
3. Failure of tenant to carry out obligations under any landlord/tenant act.
4. Other good cause. "Other good cause" is anything that isn't stated in this agreement but the landlord has given the tenant prior notice that such conduct is not acceptable, and the tenant does not conform or repeats the violation."
We should note that in regards to item "b 1" that some areas have "good cause laws," which mean that the tenant cannot be asked to move unless they are in noncompliance of their lease. This means that some areas took away the landlord's right to ask a tenant to move unless the tenant violates the lease (if the law was equitable the tenant would not be allowed to move unless the landlord violated the lease). If this lopsided law exists in your area, obtain a lease which covers every possible problem that may occur. In this way you can normally find a reasonable (good cause) lease violation if you really want an undesirable tenant out. For example, if one of your tenants creates a situation not forbidden in your lease, or the problem is not covered by your state landlord/tenant law, you must notify the tenant that such action is not acceptable and wait for a full rental period to pass (in most states) before you can demand they cease such conduct. If the problem is included in your lease, the violation is considered "noncompliance" and you can demand (because of "good cause") the tenant conform or move in much less time.
Note, in item "b 2" that if tenant's fail to pay their rent as agreed, a few states do not require notices or the notices can be waived. Unfortunately most landlords are not so well blessed.
Also notice in "b 3" that we mentioned the Landlord/Tenant Act. Every state with the exception of Kentucky (which may have one by the publication of this book) has an "act,' in effect and although many landlords may not like it, the law exists. Believe it or not however, there are many provisions that offer you far more protection than you may believe. Obtain a copy of the landlord/tenant act of your state, or an interpretation, and read it.
7. Persons to occupy unit: In every city and state across this country you have a right to set reasonable limits on the number of people moving into your property. However there are some large cities which bar you from telling tenants that they can't move anyone (especially relatives) into their units if occupancy laws are not violated. But, there is no state or city laws which forbid you from requiring them to have their names put on the lease. After all, the tenant who originally signed the lease may move. It is your right to know who is living on your property.
We know of no store-bought lease which includes this segment, yet, as with the application, it is of the utmost importance. This section of our lease looks like this:
There is nothing illegal about the above, even HUD requires this on all of
their leases. Because of this item, and the same information on our application, we have
had few surprises over the years.
This section should include any information that is not covered in other parts of the lease. It should also include all or most of the following:
·No pets unless in writing.
· Tenants are responsible for their company and guests, and their children's company and guests.
· No excessive noise at any time.
· Do not paint or "improve" the unit without written permission.
· That s/he will receive no rent reduction or compensation due to repairs or interruptions of service except as provided by law.
· That broken doors, locks, clogged toilets, broken windows, and anything not caused by the failure of the equipment or construction, is the tenant's responsibility. Also, and it can be worded as follows "Whenever damage is caused by carelessness, misuse, or neglect on the part of the Tenant, his/her family or visitors, the Tenant agrees to pay rent for the period the unit is damaged whether or not the unit is habitable."
· That they will perform or have done any minor repairs costing less than ten dollars. (This is not legal in some areas--check your local laws.)
· Not to install anything that can't be easily removed.
· Not to sublet. (If they are on a yearly lease, you would want to approve the person subletting.)
· No inoperable cars or major repairs to be performed while on the property.
· Not to place fixtures, signs, fences, etc. about the property.
· Not to permit a nuisance or common waste. (A nuisance is anything that is really bothering others to the extent it could affect their health and safety, and/or affect your profitability. In most states, this violation can get tenants out of your property faster than if they owe rent. Common waste usually refers to the destruction of your property and your profitability. In most states a tenant can be told to move in three to seven days.
· Tenant agrees to waive any notices required by state law. (Most states require mandatory notices for such things as nonpayment of rent or lease violations, However, there are some that do not if your lease contains the waiver clause. As an example, in one state, where a five day notice is required for failure to pay rent, and a ten day notice is required for failure to comply with any part of a lease, these state-granted periods can be waived by the tenant if the lease so states. There are still other states which have similar waiver clauses though some cities forbid them. If you cannot find a lease for your state with the appropriate wording, the following is an example: "Upon tenant's failure to pay rent when due, or if tenant fails to abide by or perform any of the conditions, provisions, or rules of this lease, the landlord may start immediate legal action." Remember though, you cannot have a clause in your lease that is unreasonable or contrary to the laws of your state and locality. If your lease contains such atrocities, some states (such as Ohio) may void the entire lease if the clause is challenged.
* If tenant vacates before the expiration of six months, the tenant forfeits all deposits. Except for a few states, such as California, this clause is legal. Even HUD does not object to it in their approved leases if state law does not forbid it. What the tenant is agreeing to in effect is a six month lease; however, the tenant has the right to move if s/he chooses, but you keep the deposit.
· Their personal possessions are their responsibility and they should have renter's insurance (important since many tenants believe your insurance covers them).
* They must let you show and inspect the rental at reasonable times and intervals.
* Tenant should keep an extra key with a neighbor or family member. If they bother you for a key, there will be a charge. (We charge $5.00.)
· Tenant takes care of "bugs" which were not in the unit when it was rented. (In multiplexes, the landlord is only responsible if more than one unit is affected.)
* If you change the terms of the lease, such as raising rent, they must abide within the time allowed by law.
* If the landlord does not insist upon strict performance of all terms, he has the right to insist on them if he should choose to in the future. There are times when all landlords overlook certain things till they get out of hand. In most areas, the tenant cannot claim that you have no right to enforce your rights since you had not enforced them earlier.
· Tenant must pay for legal fees incurred by the landlord in enforcing the provisions of the lease (some states forbid such clauses and feel if any costs are incurred the court will grant them).
· And our favorite: "Repeated minor violations of this agreement that disrupt the livability of the property, adversely affect the right of any neighbor to the quiet enjoyment of their premises, or have an adverse financial effect on the dwelling, will be subject to an eviction." (Believe it or not, we got that line from a 1989 HUD lease.)
· Anything else that is legal and you feel is reasonable.
9. Now, for the part of the lease that many landlords despise: "Land-lord's Obligations." The reason for it is simple. All states have (or will have) landlord/tenant laws governing the landlord's responsibilities and most tenants are well aware of it; consequently, let the tenant know you know what they already know but misunderstand. They will feel you are a reasonable landlord. However it should be brief so the tenants cannot define such statements as they see fit. Although our wording is more explicit, you can use something such as the following since there is no state where you can waive the responsibility anyway.
"Landlord is responsible for providing a safe and healthful dwelling as covered in the Landlord/Tenant act. If MAJOR problems develop because of the failure of the equipment or construction, landlord will make repairs within a reasonable time, provided the tenant did not cause or contribute to the problem. Landlord also agrees that s/he will not enter the tenant's "home" without the tenant's knowledge unless an emergency arises." (This last item is very important to most tenants. It assures them that you are a fair and honorable person.)
10. House Rules & Recommendations: Since you may have more than one property where conditions are unique, this space would normally be left blank on a lease and filled in for each individual property. Special circumstances may include a single unit house where the water pipes freeze when it drops below a certain temperature. Let the tenant know he is responsible for letting water run. The tenant may be responsible for cutting the grass. If you have a building where the parking is inadequate, you could limit vehicles or charge extra for additional parking privileges. If you furnish drapes or carpeting the tenant is responsible for the care and cleaning. If a multiplex you would include rules about the laundries, garbage, litter, children's play area, etc., There are many more items that can be entered here. Each property has its own unique problems.
The lease should then contain a closing statement similar to the following:
"Tenant, by execution of this agreement, having inspected the unit described herein prior to occupancy and signing a Rental Condition Report, which states the condition of the unit, approves of the condition of the rental. Tenant acknowledges that the rental has been satisfactorily completed and that the landlord will not be required to perform any other work, labor or service which has been accepted by the tenant. The tenant confirms, by signing this agreement that the dwelling is in a tenantable condition, and agrees at the end of his/her occupancy to deliver up and surrender said premises to the landlord in as good a condition as received.
Have all parties responsible for the rent sign, especially unmarried parties.
For those who may wonder why our lease is so complex, it should be mentioned that leases used in the Western World were conceived during the Middle Ages. At that time tenants primarily rented the land and what buildings existed were normally made of rock--there was little need for worry. For whatever reason, residential leases failed to keep pace with the changing times.
Our experiences with landlords have taught us that many have their own special lease that they like for various reasons. But, their lease usually lacks something that they would like to see contained within it. If you are one of these or you prefer a more friendly agreement than ours, there is the "quick lease." By visiting a few office supply stores, or through an apartment association, find a lease best suited to your needs, not forgetting what to look for as stated earlier. If anything legal and reasonable is lacking, and you feel it is necessary, add it to the lease.
The first time we mentioned this to a group of landlords at a rental association meeting, we were immediately barraged with comments about tampering with a legal document. Nonsense. You have the right to create, design, write, or invent any form of lease you want, as long as it is not unreasonable and does not restrict the legal rights of your tenant. A lease only becomes a legal document when two parties have agreed to it. In every state you can write and design your own lease and it must be upheld by the courts. However, as stated so many times before, because something is written in a lease does not necessarily mean it is enforceable. It must be reasonable and not contrary to the laws of your locality.
To change the terms of any lease, obtain one you feel offers you adequate protection. If there is anything in the lease you find objectionable or you feel could be better explained to the tenant, write across the section in large lettering: "See addendum," or if you feel that an expanded explanation is needed, write under it: "Also see addendum."
An addendum is nothing more than the back of the lease, or an additional piece of paper which can be attached to the lease and spells out the provisions in depth or modifies a lease. As an example, since all landlords worry about rent payment, take the lease you like and use a marker pen and write across the provision explaining rent payment, "SEE ADDENDUM." On the addendum spell out your policies in detail with all penalties, charges, and time limits which are legal in your area. This precaution is perfectly legal whether it is written by hand on a paper bag or typed on legal size paper. As with the lease, have the tenant initial or sign it and there will be no misunderstandings in the future,
You can do the same with any other provision. Let's say your lease does not explain the security deposit withholding part well enough. Write beside or below the deposit clause, "ALSO SEE ADDENDUM." Then spell it out in length, and no one should ever question your withholding policy.
If one thinks the above sounds bothersome, stop and think. By looking over your lease for an hour or two and making a few changes, you can save yourself uncounted future problems. Once you have what you want, go to your local library, print shop or any place with a photocopy machine and make yourself a few copies. The lease does not have to look professional or have elaborate printing. You can write it by hand if you like. Remember, an ounce of prevention can save you a lot of time and money.
Although not as quick, there is another way to obtain an exceptionally
good lease. Obtain a HUD lease used in your locality. Delete any items concerning
subsidized rent and income qualifications. Eliminate grace periods not required in your
state. Change the normally greater time periods allowed for notices, and soften the
landlord's responsibilities Have someone type up the new lease with the deletions and your
additions. You will have one of the best leases ever created for your state. Furthermore,
since HUD has already spent millions in some areas writing their leases so as to meet with
individual state and local laws, the legal research in many areas has already been done
for you. In fact, we took the best parts out of two different HUD leases, combined them
with a store-bought lease, added our input and ended up with the lease described above.
Whatever lease you use or intend to use, remember, it is to protect you and your investment. Tenants normally have enough protection from private and government agencies. You must protect yourself.
One Condition Report:
When the rental is ready, meet with the tenant and go through a "check in" procedure. Many landlords avoid this by taking the money, turning over the keys, and letting the tenant go to the rental themselves. This is a very poor way to do business. If you are one of these landlords, you are well aware of the problems when "move out" time arrives.
Always, no matter how inconvenient, meet the tenant at the rental, or send your spouse, children, friend, relation, or anyone to meet and "check in" the tenants. After looking the place over, have them sign a rental condition report. It only takes fifteen minutes and it eliminates any misunderstandings in the future. The tenant can never say: "It was like that when I moved in."
Although not directly part of a lease, a condition report is essentially the "legal document" which backs up any clauses in the "tenant agrees" and "security deposit" sections. It is your most valuable possession when the tenant moves out of the rental.
Condition reports are required in many states to protect the tenant.
However, this is one tenant organization inspired idea that has done more to safeguard
smart landlords than any other requirement written into a landlord/tenant act. Although
not required by our present state until recently, we have used a condition report since
1979 and wonder how we ever got along without it. Because of the condition report we have
never been seriously challenged about withholding anyone's security deposits. It has not
only eliminated problems with the tenants who moved out, but has eliminated uncounted
problems with the tenants still residing in their rentals who try to blame their
negligence on past tenants.
For units without refrigerator, stove, drapes, etc., just cross those items out. If your units have fireplaces, washers, dryers, whatever, they can be placed beside other items or filled in on the "other" line. If more than two bedrooms, make note of it beside the bedroom or bedroom(s)/halls/stairs entry.
When we rent houses or apartments they are always cleaned, as mentioned earlier, and we check the clean boxes down the entire length of the IN portion. We use the lines between the headings and the IN portion of the report to insert anything in exceptionally good condition or enter a brief description of any existing damage. For example, if a bedroom door had any signs of damage you could enter a description beside the appropriate space, such as: "Small gash #3 bdrm door," and check the "damage" block. There is also a "comment" line where any comments about the yard, basement, attic, or garage can be stated in a few words.
When you accompany the tenant to the unit, have the new tenant look things over carefully to see that nothing was overlooked before s/he signs so s/he cannot tell you after a month, or at move out time, that it was there when s/he moved in.
Also note that since many areas require that you have a functional smoke alarm in the rental, we have them initial the "tested" box to prove it was working when they moved in. If they foolishly fail to maintain the device or remove the batteries, or cut the wires (which some do), your conscience, not to mention your pocketbook, will be spared if the worst happens.
During this inspection we have three rental condition reports, with carbons between, on a clipboard. After tenants have signed, we give them a copy, and we keep the other copy and the original. Although we have a more sophisticated system today, when we were operating less than twenty rentals, we would put the copy and the original into an envelope where the tenant's rent receipts, lease, and other information were kept. Now, when and if the tenant moves, you can inspect the rental and check the appropriate boxes in the OUT portion. Any comments can be entered on the lines in the MOVE OUT PORTION. If the tenant left the place extremely dirty but there were no damages, key charges, or other costs you can strike out these headings and normally have enough room for all your comments. Keep the original and send the tenant the completed copy, along with any bill or refund of her or his deposit.
Although this may seem bothersome to many landlords, most states require it. For example a Texas pamphlet states: "The landlord must return the balance of the security deposit, if any, together with a written description and itemized list of all deductions." If you use a condition report similar to the one above, you should never be seriously questioned on your deductions from any security deposit.
It should be mentioned also when many tenants are vacating, they normally cannot find their condition report, or they do not remember how clean the unit was when they moved in. Consequently we give them, or drop off, a cleaning instruction form that states: "Your unit must be thoroughly cleaned to insure receiving your deposit. It cannot be cleaned in a few hours. Allow yourself a full day or two. Cleaning cost alone, at $12.00 an hour, can exceed $100.00 very easily."
Since all our rentals are painted with low luster wall paint, in 85% of the cases where the rental has been occupied for less than three years, we can have it ready for rerent within three days.
We have never known a tenant to balk at signing our lease or the condition report. However, since most never read their lease completely before signing, we leave them a copy of each form they signed (as required by law) with the advice to read them carefully and as soon as possible. Future problems are thus avoided and tenants understand their responsibilities. In addition, the written word has created an understanding between landlord and tenant that eliminates many unnecessary problems that we know so many landlords suffer from.
It takes less than an hour from the time the tenant shows up to take possession, signs and initials parts of the lease, the unit is inspected, and the condition report is signed. If this all seems burdensome, think about it for a moment. With all of the problems inherent in renting your property, a little inconvenience on your part during the move in period is nothing compared to what one tenant can cost you if something goes wrong. Having it in writing is the only way to insure your profitability. If you are stupid enough not to find the time to protect yourself and your property, you should not be in the business.
1. Don't rent without requiring a security deposit.
WHAT TENANTS DON'T LIKE
Like new seedlings, there are things all tenants find objectionable and problems can develop if the landlord is not attentive. We have found through questioning and listening to our tenants that what upset them most about their former residences, were:
1. "Bad" Neighbors.
(1) "Bad" Neighbors:
Undoubtedly, the largest complaint heard from tenants about their former residences, was what they called "bad" neighbors. Although the largest number of complaints came from tenants coming from multiplexes, even tenants coming from single unit homes complained about the neighbors next door.
As stated earlier, many landlords pick tenants based on credit checks or income without any regard to their lifestyles or how they will fit within a neighborhood. It is very important to pick tenants of comparable class. Although class is normally influenced, to a certain degree, by a person's income, education, and age, it primarily has to do with how people live their lives, their moral and social principles, and what they feel is a proper form of conduct. If you have made your selection with that thought in mind, your problems should be minimal. Even with due consideration however, problems do occur.
Occasionally the new renter may complain about the neighbors during the first month or two, but normally it is the old tenants or neighbors who complain about the new tenant. If the complaints are directed at neighbors living on adjoining property where you have no control, you must tell the tenants to work it out themselves. If, on the other hand, the offending party lives within your control, you are usually expected to intervene.
We do not normally look into any complaints from either the new or old tenant within the first month or two, unless the complaint is based on major objective grounds. Normally the presence of a new tenant upsets the status quo temporarily and a settling down period is required. We advise them to talk to the offending party themselves and try to reach an understanding. If the complaints persist, especially by unrelated parties, only then will we become involved. (See Tenant Versus Neighbors in chapter eight.)
(2) Large Rent Increases:
Before we get into raising rents, one thing should be understood by those who live in rent-controlled territories. No matter what you hear about rent control, you are not required to operate a rental property if you do not receive a fair return on your investment. Rent control boards are no different from human rights groups. The harder a complainer pushes them, the more likely some form of action will be taken. If you need a rent increase, do not take no for an answer. File a petition, insist on a hearing, organize with other landlords, and keep the pressure up every day if necessary. As with tenants who put pressure on organizations to help them, it normally requires little money, just time and determination--organize. If you live in a rent control area, you would be wise to join a rental owners', operators', housing, or apartment association. If more landlords belonged to the apartment associations which exist around the country, things would not have gotten out of hand. Where landlords are united, legislators have a tendency to be less benign toward tenants.
Naturally, the best time to raise rents is between tenants. Check surrounding comparable properties and see what the market will bear. Don't try to keep your rents lower thinking your place will be easier to rent. Our experience has shown it doesn't work. If you are a conscientious landlord with good tenants or neighbors, and you prepare the unit properly and make repairs within a reasonable time, keep your rents at least 5% higher than comparable properties--someone has to be the highest in the neighborhood.
Raising rents on existing tenants can be more ticklish. Some landlords will raise rents on tenants shortly after they move in. Nothing aggravates tenants more, they feel betrayed and tricked. But, if a tenant has been in the property over a year, it is probably time for a rent increase unless economic conditions have deteriorated in your area. Most tenants have come to expect it. On a year's lease you can re-negotiate the rent increase if the tenant decides to renew. With a month-to-month lease, most states require a thirty day notice. There are a few states which require longer periods and most areas in Canada require ninety days. We advise giving the longest possible time.
For the states which require thirty days, you can give the tenants notice a week or two before their rent is due notifying them after the upcoming month that their rent will be raised the following month. Although the increase will take effect in a little over a month, it appears longer and the tenant won't be startled.
We have found raising rents on existing tenants a percentage or two above the inflation rate per year does not increase move-outs. Tenants will usually tolerate small increases understanding that almost everything increases yearly. If one waits for two years, the increase seems unrealistic to many tenants. If you ever increase your rents higher, it is wise to improve the place somewhat. Schedule any needed repairs or renovations shortly before notification of the increase. It prepares the tenant in a nice way for the inevitable.
Many landlords try to justify their rent increases by giving lengthy monologues or letters to the tenant about the drawbacks of property finance. Most tenants don't understand, don't believe it, or don't really care. Although some states and areas require certain wording, we have used the following for over fifteen years. It has served us well on a yearly basis.
Please be informed that there will be a change in your rental agreement that takes effect on ________________, at which time your rent will be increased by _____% which is required for the following reasons: Your present rent has not been increased since __________________ while the cost of taxes, services, labor, material, utilities (garbage collection, water, sewage,), and the overall cost of maintaining your dwelling have increased.
We hope you realize while we dislike having to moderately increase your rent at this time, it is necessary. Therefore, your rent will be increased from the present $__________________ to $____________ per month.
For a single rental you may not pay any utilities and that portion would be eliminated. You will note also we list a percentage. Many tenants do not realize how little their rent is being raised. Also note, while not going into specifics of homeownership, the tenants are reminded not all of their rent payment is going into your pocket.
If you are taking over a new property, the same type of letter will do while listing mortgage and interest. By the way, if you are a new owner, raise rents as soon as possible. We have never met a tenant who didn't expect it.
(3) Unfulfilled Promises:
Contrary to what many professional property managers seem to believe, and property management courses teach, the complaints we have heard over the years from disgruntled tenants about landlords who would not fulfill their obligations were minimal. Interestingly, the majority of the complaints came from tenants who resided at larger complexes where property management companies hire untrained part-time husband and wife teams in place of needed full-time professionals.
Another tenant group who complained about the lack of services were tenants who came from substandard housing. They seem to expect the same high degree of services as tenants paying twice as much rent.
On the whole, complaints coming from the average renter were slight except for professional people and some first time younger renters from upper income households. Some of the people within these two groups seem unable to take care of themselves and think nothing of having you make a twenty-mile round trip to change a light bulb for them.
In most cases, however, the first thing heard from a tenant is a reasonable "request" for maintenance. Most tenants don't complain, they do request. If the repairs are not carried out within a reasonable time, then they complain. If you can think along those lines it makes your job much easier.
Once a tenant is in your property, you are responsible for maintaining any major repairs to the property if tenant negligence has not caused or added to the problem. If you have prepared the place properly before the tenant moved in, problems should be minimal.
Many times the first maintenance request is for something the tenant just doesn't understand or misuses. It is all part of the settling-in period and normally can be corrected by assuring the tenant the item is functioning properly, or explaining the proper use of the item. Also, many requests soon after move-in are items overlooked by you or the person responsible for preparing the unit. Even if you have a statement in your lease requiring the tenant to take care of any minor repairs, you cannot expect them to start shelling out money the first month they live in the unit. Try to take care of these things as soon as possible so the tenant sees you fulfill your obligations. In this way, if the tenant's rent is ever late you can always point out your promptness.
Also. some landlords will make promises of future renovations to convince a tenant to move into their unit. Never promise anything if you aren't absolutely sure you will do it.
As the settling-in period ends, things should remain quiet for a few months; then, sooner or later the tenant will again request some type of repair or service. The first thing that one has to think about is whether the requested service was the cause of normal wear and tear, or tenant negligence. If you can tell by the request that it was tenant negligence, you should tell the tenants to take care of it themselves, or explain there will be a charge. Many landlords balk at this important moment and some even make repairs knowing the tenant was responsible rather than discussing a few dollars worth of work. Thus, if the tenant learns you will make repairs without questioning them, they will come to expect it, even when they know it is their responsibility. Never make repairs or provide any service when the tenant is responsible without making them pay, or insisting they have it repaired themselves. If you are the good-hearted kind, and have an exceptionally good tenant, you can do the work, but explain that they will have to take care of their own responsibilities in the future. If you explain it to the tenant in a sensible and calm way, we have found most tenants understand and will normally not bother you in the future for what is obviously their responsibility. Oh--after telling tenants something is their responsibility, don't try to show what a fair person you are by saying you will repair anything that is your responsibility--you may find yourself at the property the next few days, repairing or replacing items five previous tenants never mentioned.
On the other hand, if the maintenance is required due to the failure of the construction or equipment, it is your responsibility, and all states provide guidelines as to when work should begin.
State laws normally take into account that each problem has its own unique circumstance and each problem can be resolved within a "reasonable" time. All minor repairs, not caused by the tenant, are usually required to be repaired by the landlord within thirty days. On the other hand, if a tenant was deprived of hot water for a day or two, no one would seriously question you. But, after a week you may find the tenant, as well as the law, getting extremely impatient. Common sense and fairness normally fall within the limits of the law.
Written requests: Many states have provisions requiring the landlord to commence major repairs within "specific" times if the landlord receives a written request from the tenant. For example, some states have laws which requires a landlord to take corrective action on any "material" item (lack of hot water, heat, leaking roof, etc.) "within seven days" of a written request, or the tenant may move or withhold the rent. In other states, after a "three day notice" a tenant can institute a formal legal proceeding and if the tenant is successful, the judge will order the landlord to not only fulfill his duties but pay court costs and the fees of the tenant's attorney.
Even for minor repairs, most states have laws governing time limits if a tenant sends a written request. One state law explains that if the cost of a "minor defect" is less than one-half of the monthly rent and the landlord doesn't have the problem corrected within twenty days, the tenant may have it repaired and "deduct from his rent the actual and reasonable cost of the work." All states have similar laws that may be more or less extreme. Hence, if you receive a written request from any tenant, you would do well to look into the problem quickly.
On the other hand, there is NO state which requires you to make repairs or provide services of any kind for problems caused by the tenant. Although all states have various wording to that effect, Texas law puts it very simply: "The landlord does not have a duty to repair or remedy a condition caused...by the tenant, a member of the tenant's family, or a guest of the tenant."
One more thing worth noting: Contrary to what many landlords and tenants believe, there is no state or federal law which requires any landlord, resident landlord, or maintenance person to be on call 24 hours day. Not even Washington State, whose "reasonable" time limits are one of the shortest in the nation ("not more than twenty-four hours, where the defective condition deprives the tenant of water or heat or is immediately hazardous to health.") expects a landlord to commence action immediately, even if the fault is through the failure of the equipment or construction. Furthermore, these time limits only take effect once the tenant has notified you of the problem (although it is expected you can be contacted in a reasonable time). Therefore, if a tenant informs you of a problem that you are responsible for, you do not have to jump up from the supper table and rush out of the house still chewing on your baloney sandwich The tenant will probably survive very nicely till morning. Remember, to a tenant an emergency is anything that causes them unpleasantness. An emergency to you is anything that may jeopardize life or cause further damage to your property.
In all our years of managing property we had only three incidents which could be considered emergencies: Twice water pipes broke, and a careless tenant caused a major fire. If we judge these emergencies as objectively as possible today, our immediate presence would have done little to combat further damage. In one of the incidents the tenant had the water turned off, in the second incident, nothing could be done till the water company arrived, and in the third, the fire department had everything under control.
We never answer our business phone after 6pm on weekdays, and not at all on weekends. Our personal phone has an unlisted number which is unavailable to any tenant. Although some large cities have laws requiring a resident landlord if the property has more than fifteen units, he or she cannot be on call every minute of the day. Do not spoil tenants or they will expect you to answer their calls for help immediately.
One of our tenants recently asked what she should do if an emergency arose. "What kind of emergency?" she was asked. She thought and then quickly retorted: "A fire!"
The response came quickly: "Call the fire department."
(4) Uninvited Visitors:
Many landlords believe they have the right to slip into a tenant's home during the tenant's absence to confirm the tenant is abiding by his lease. Every State in the US from coast to coast have laws restricting landlords from such visits. In Oregon, if tenants can prove a landlord entered their unit without good cause and without their knowledge, the tenant gets a free month's rent. In Maine, a tenant gets a hundred dollars and the landlord must pay all legal fees. Although the number of tenants complaining about this aspect is small, the tenant's emotion, when even suspecting such a thing, is always extreme anger. Although items that were discussed above contributed to the tenant's reasons for moving, uninvited visitors was reason unto itself. Furthermore, if tenants choose to move after proving a landlord entered their home uninvited, it is highly unlikely that a landlord will be able to stop them or retain any of the security deposit, no matter in what condition the tenant leaves the dwelling.
If landlords want to know the true situation and condition of the tenant's unit, they must take a different approach. In every state and Canada, a landlord has the right to contact the tenant and make an appointment to come at a reasonable time to inspect the rental. If handled with tact, the chances of running into trouble will be minimal. If the tenant refuses, you have the right to give a reasonable notice, then enter the unit whether the tenant likes it or not. Naturally, this solves little in finding out the true state of affairs. We are well aware of tenants who live on a par with primitive man, harbor humongous pets, guests, potted illegal plants, and plenty of dirt. Only when they are aware someone is coming do they reform.
Over the years, we have watched with awe and amusement as more than one tenant, whose mobility was that of a sloth, reached a height of activity in one day that was awesome. Patios which were never swept, were swept clean. Curtains never parted, were flung apart. Windows never opened, were opened wide. Human shadows darted about inside and it appeared that ten hands were working feverishly as dust particles floated out into the sunlight. Many trips were made between the front door and the curbside as bag after bag of garbage was discarded. With each trip their appearance improved as they cleaned themselves between intervals of house cleaning. The mobility of their vehicles was put into high gear as trip after trip was made to fill the cupboards, wash the clothes, and pick up the children unseen for months. And finally, sleepy-eyed men gathered their unhideables and loaded them into their loud vehicles, and for the first time in months, drove away in the daylight. Then, with precise timing, the tenants would walk out of their rental, doting over their confused children, to meet their out-of-town relations, ex-spouses, or social workers. That evening the children would be gone again, the windows closed, and the curtains drawn. Late in the night, the loud vehicles would return--everything back to normal, until the next uninvited visitor.
Consequently, we can understand that if you are the type to worry about such things, giving notice that you are coming is not the solution. Also, most landlords do not want to give a notice for fear of upsetting a tenant who may have nothing to hide. Therefore, if landlords really want to know the true state of affairs, they must resort to stealth.
Some landlords like to show up unexpectedly while someone is home and ask if there is anything that needs to be taken care of. There usually is, and they may spend a few hours taking care of those things while finding there was nothing to worry about. On the other hand, if the tenant has no repairs to be done, the landlord may find himself looking rather foolish. The landlord must find an excuse that is almost certain to get him into the unit.
Since over 50% of the homes in America use gas to heat and cook, the old "gas leak" story works well. A landlord can usually get in to sniff around. Another favorite is a claim that to avoid an insurance coverage increase you must enter the unit and check certain items personally, such as opening the electric breakers for one second each to make sure they are not fused. (That is true. It should be done once a year.) Or, you could claim that you must personally check the smoke alarm, electric outlets, hot water tank, air conditioning or heating system. There are other tales you can use and landlords will find over 50% of the tenants will let you in immediately. On the other hand, many people are not the best of housekeepers and don't like any uninvited visitors, even their mothers, showing up unexpectedly. If the tenant seems hesitant, tell her that you will be in the neighborhood for a while and you will stop back in a half hour. Not many tenants will refuse. If there is something in the home you may not approve of that the tenant can conceal in half an hour, it probably isn't that bad. Although no excuse we are aware of gets one through the whole unit, unless one admits he wants to check the whole unit, it is usually enough to satisfy the most curious landlord.
We have found the best way to check on a unit is to wait until the tenant needs something repaired. Then, you can say you are not sure when you can make the repair, get permission to enter, and then show up when no one is home. Then if one cares to, one can check things out. There are, however, about 2% of tenants who will not let anyone enter their units without an advance of two or three days, or they insist that someone be there. We have found most of these people are usually not hiding anything; they, like some landlords, do not trust anyone.
We have found that if the tenants pay their rent as agreed, and do not create problems for us or the neighbors, to leave them alone. If you take a wait-and-see attitude, sooner or later the neighbors, especially children, will let you know if there is something amiss.
1. Choose tenants that are compatible.