How Landlords Work

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By Dave Ross

Landlords sometimes get a bad rap. In the minds of disgruntled tenants, the landlord is the guy who collects money every month, takes two weeks to fix a leaky faucet and hasn’t painted the front of the building since the Ford administration. But the truth is that being a landlord can be hard and often thankless work. Perhaps that’s why so many landlords now call themselves “residential rental owners” to avoid the stigma associated with the ancient profession.

At one time in history, landlords literally were lords. In the manorial and feudal systems of medieval Europe, all land was owned by a lord who allowed peasants to live on his property in return for labor. In exchange for working the land, peasants received protection against roving bands of marauders and invading armies. Peasant labor was only a small step away from slave labor. Technically, peasants had their freedom, but many lords used all manner of financial and physical intimidation to keep peasants under their power.

Today, landlords are property owners who rent homes, apartments and condominiums as a business. The professional relationship between a modern landlord and his tenants is dictated by strict state and federal laws meant to protect the rights of both the renter and the property owner. Landlords sometimes hire property managers to screen tenants, handle repairs and oversee the day-to-day operation of a rental property.

Reasonable landlords and their representatives treat tenants with respect, charge a fair price, keep their properties up to code and quickly complete repairs. Keep reading to learn how landlords find and screen potential tenants, what’s included in a lease or rental agreement, landlord rights and responsibilities, and what’s involved in an eviction.

Finding Tenants

One way landlords find tenants is by placing an ad for a rental unit in the local newspaper or on Web sites like Craigslist.org and Apartments.com. The ad should include a complete description of the property that details its size, monthly rent, how many bedrooms and bathrooms there are, and which appliances and utilities are included. If the landlord is considering yearlong rather than month-to-month leases, he should make that clear as well.

By listing all of these details in the ad, neither the landlord nor the potential tenant wastes time discussing or walking through a dwelling that’s wrong for the client’s needs. It’s also recommended that the landlord talk to all potential tenants over the phone before meeting at the rental property. This is another way to double-check that the unit is right for the tenant.

At an appointment to show the apartment, the landlord should come prepared with a rental application. The purpose of the rental application is to have written proof that the tenant has the income and financial stability to pay the rent on time and that he has a solid rental history with no evictions, legal problems with landlords or history of missed payments. Here’s some standard information that should be collected on a rental application:

  • Personal information: Name, address, phone numbers and an e-mail address for all applicants and co-applicants, including how many children and pets will be living in the unit.
  • Credit check authorization: The applicant’s written permission to check his credit history. To run the credit check in the United States, the landlord will need the applicant’s Social Security number and a copy of his driver’s license.
  • Income: Recent pay stubs and bank statements to verify the applicant’s monthly income and bank account holdings. A good rule of thumb is that the monthly rent should equal no more than one-third of a tenant’s monthly income.
  • Employment history: A list of recent employers, including how long the applicant stayed at each job.
  • Rental history: A list of addresses and landlord contact information for the past two or three years. A prospective landlord will want to know if the applicant has ever been evicted, had his home foreclosed or missed more than three rental payments in a year.
  • Code of conduct and rent agreement: The applicant should sign a code of conduct — what behavior is and isn’t acceptable on the property. The agreement should also include the rent amount.

Meeting with tenants and collecting applications is all part of the tenant screening process. It’s extremely important that the landlord understand any applicable fair housing laws to avoid any claims of discrimination during the screening process

The basic rule of tenant screening is to establish a clear set of criteria against which all applicants will be judged. For example, each applicant must have a minimum amount of monthly income, a minimum credit score and no prior evictions. It’s a good idea to put that set of criteria in writing and have a lawyer take a look at it. All decisions should be based on sound business logic, like using the same standards to evaluate each prospective tenant, not personal impressions. To avoid discrimination, a landlord shouldn’t make exceptions for one applicant if he wouldn’t make those same exceptions for all of them.

Once the landlord has found the right applicant, it’s time to sign the lease.

The Fine Print: Rental Agreements and Leases

Rental agreements and leases are binding legal contracts that establish the specific terms of the arrangement between the landlord and his tenant. The difference between rental agreements and leases is that rental agreements usually cover short-term or month-to-month rentals, while leases cover six-month and yearlong rentals . Rental agreements automatically renew after 30 days, and leases need to be renewed when they expire.

In England, there are two different kinds of rental agreements:shorthold tenancies and assured tenancies. The default arrangement is a shorthold tenancy, in which the landlord can automatically regain possession of the property after six months, as long as he gives two months’ written notice. With assured tenancies, landlord can only repossess a property if he can prove to a court that the tenant is behind on rent or violating rental policies . In Brazil, the default rental agreement is for 30 months .

A rental agreement or lease should include the following terms:

  • names of all occupants
  • limits on number of occupants
  • length of tenancy
  • amount of rent, when it’s due and how to pay it
  • amount of security deposits and fees
  • landlord responsibilities
  • landlord rights
  • code of conduct
  • pet regulations
  • miscellaneous restrictions like parking, use of common areas and laundry facilities

A rental agreement or lease document protects both landlords and tenants. The terms of the agreement help protect the landlord against irresponsible tenants and protect the tenant against overzealous or illegal landlords.

Landlords and tenants should pay particular attention to the language in the lease regarding the security deposit and how it will be used. A security deposit is money that the tenant lends to the landlord to cover the cost of any future damages or repairs that exceed the definition of normal use, which we’ll learn about shortly . Security deposits are the most common cause of legal disputes between landlords and tenants.

There are several important distinctions here. The money is lent — not paid — to the landlord. Some states require landlords to keep security deposits in a separate bank account like an escrow account . Upon termination of the lease, that money will be paid back to the tenant (with interest, in some states) unless the tenant has damaged the property beyond normal wear and tear.

So what’s normal use? This is something that needs to be clearly explained in the lease. For example, carpets get dirty, paint gets chipped and drains get clogged. Each of these situations is considered normal use. But, for example, if a tenant illegally uses his apartment to run a small bakery, and the constant heat from the oven permanently damages the kitchen tiles and peels away the paint on the ceiling, that’s not normal use. The damages will be deducted from the tenant’s security deposit.

The best way for landlords and tenants to avoid security deposit disputes is to take plenty of photos of the property before the tenant moves in. Both the landlord and tenant should document any existing damage and sign a waiver or disclosure stating that the current tenant will not be responsible for those repairs. In Australia, it’s typical for landlords and tenants to fill out an official Property Condition Report before signing the lease .

Even after the rental agreement or lease is signed, a landlord shouldn’t hand over the keys until the security deposit and first month’s rent checks have cleared. If a landlord allows a tenant to move in immediately, and the checks later bounce, the only recourse may be eviction proceedings.

As the idiom goes, “An ounce of prevention is worth a pound of cure.” So, let’s look at the landlord’s most important responsibilities to his tenants.

HOW MUCH IS ENOUGH?

Half of all U.S. states impose a limit on how much a landlord can collect for a security deposit . The typical deposit equals one or two months’ rent. In Scotland, it’s illegal to charge anypremiums or holding deposits in addition to the security deposit . In the past, Scottish landlords had asked for thse extra fees to run credit checks and process rental applications.

Landlord Responsibility

A landlord’s responsibility to his tenants is to provide a safe, functional living space. Before a tenant moves in, it’s the landlord’s obligation to make sure that the property is up to local and federal housing code. City and county housing authorities establish strict minimum standards for electricity, plumbing, paint (lead-free), lighting, ventilation and structural integrity. Many cities also require safety measures like dead bolts on all exterior doors, smoke alarms and fire extinguishers in each unit.

Once the tenant moves in, it’s the landlord’s responsibility to repair anything that breaks on the property, from a burned-out light bulb in the stairwell down to leaky faucets. A landlord is expected to respond to a repair request within 24 hours and fix it within a reasonable time frame . The severity of the problem usually dictates how quickly it gets fixed.

If a landlord fails to address a known problem in a timely fashion, he could get into big trouble. The worst-case scenario is that a tenant or his guest is seriously injured by an unresolved issue with the property, like a broken rail on a staircase or a missing floorboard. If the tenant can prove that the landlord knew about the damage and neglected to act with reasonable timeliness to fix it, he can sue and he’ll win. This is why landlords have to buy liability insurance.

Not all landlord-tenant arguments end in a lawsuit. But if a tenant gets frustrated with how long it takes his landlord to fix the dishwasher, he has several options. In most states in the United States, he can legally withhold his rent until the repair is made. He may also have the right to arrange the repairs himself and subtract the cost from his next rent check. In some states, if things get really bad, the tenant can treat the failure to respond as a breach of contract and move out in the middle of the lease.

A landlord can protect himself by documenting exactly when he receives all notifications of a problem with the property and when he took action to resolve it. Even if the landlord can’t fix the problem right away, it’s his responsibility to let the tenant know the circumstances that are causing the delay and when it might be resolved. A good landlord will encourage his tenants to report all known problems immediately to avoid potential liability for injuries.

It’s also the landlord’s responsibility to keep his tenants safe from crime. All stairways and common areas need to be well-lighted. Main doors and gates need to remain locked at all times. If there’s an intercom system for buzzing in guests, it needs to be in working order. Exterior doors should have deadbolts and windows should have locks, particularly those that are accessible by an external fire escape.

A landlord also has to take reasonable measures to make sure that his tenants aren’t criminals. If a landlord knows that some of his tenants are dealing drugs from their apartments, for example, and doesn’t report them to the police, the landlord might be held accountable for any neighborhood crimes that can be linked to the drug-dealing operation.

In addition to their many responsibilities, landlords have some important rights under the law. We’ll take a look at them in the next section.

DOUBLY INSURED

Landlords are often small business owners and typically carry two separate insurance policies —property insurance and liability insurance. Property insurance protects a landlord’s building from damages inflicted by outside sources, like fire, storms, vandalism and possibly earthquakes and floods. Insurance for the last two potential perils requires additional coverage and costs extra.

Liability insurance covers the legal and medical bills when a landlord is sued for damage he allegedly inflicted on a tenant, including injuries caused by landlord neglect, discrimination, wrongful eviction and invasion of privacy .

Landlord Rights

The landlord’s most basic right, as detailed in the lease or rental agreement, is to collect rent. Depending on the nature of the rental, rent may be due once a month, twice a month or every week. The landlord and tenant will agree on how and when the rent is paid. Some landlords only take checks or money orders and others use bank deposits or even online payment systems. If a tenant fails to pay rent on time, it’s within the landlord’s rights to take action that could eventually lead to eviction.

In most U.S. states, and with most types of properties, it’s within the landlord’s rights to increase rent after the term of the lease expires. If a tenant signs a six-month lease, then the rent is fixed for the term of the lease. But when the lease expires, the landlord can raise the rent. Some older buildings in certain large American cities like New York, Chicago and San Francisco are rent-controlled or rent-stabilized, meaning that it’s illegal for a landlord to charge more than a set amount for the property. The purpose is to ensure the availability of affordable housing in major city centers.

The landlord also has a right to enter the rental property, but only under specific conditions outlined in the rental agreement. For example, if a landlord wants to enter the rental unit to make general repairs, he usually has to give at least 24 hours’ notice. In the case of an emergency like a flood, fire or major damage from a storm, the landlord has the right to enter the property without giving any advance notice. It’s also within the landlord’s rights to enter the rental unit to demand rent from a tenant whose payment is overdue and who is not responding to written notices.

As part of the tenant screening process, the landlord has to adhere to strict anti-discrimination laws. These apply only to people — he does have the right to refuse to allow pets on the premises. He can even stipulate which breed or type animal is or isn’t allowed to be kept on the property.

If a tenant doesn’t keep up with his end of the lease or rental agreement, it’s the landlord’s right to initiate eviction proceedings. We’ll talk more about how evictions work in the next section.

LANDLORDS VS. SLUMLORDS

Unscrupulous landlords who have no intention of making repairs or improvements to a property are commonly known as slumlords. Some slumlords wrongfully evict tenants or use intimidation tactics to force low-income tenants out of a building so the owner can lawfully renovate it and turn it into a hotel or high-priced apartments.

Evictions

Evictions must follow a strict legal process. If a tenant isn’t paying rent or has repeatedly broken rules laid out in the code of conduct , the landlord has the right to begin the official eviction process. He can’t take the law into his own hands, though. It’s illegal in nearly all 50 United States for the landlord to lock out a tenant. The definition of a lockout includes changing locks, blocking entry into the rental unit, cutting off electricity or water, or any other method that prevents the tenant from normal use of the property .

The good news for landlords in the United States is that the eviction process is one of the shortest legal proceedings on the books. In Texas, for example, it’s possible to legally evict a tenant in as few as nine days, and it’s also possible to temporarily lock out a tenant for repeatedly failing to pay rent . Even in California, which has some of the toughest tenant rights laws, it only takes an average of 20 days for a judge to hear and rule on an eviction case .

In most states, the eviction process begins with a formal letter of notification from the landlord that presents some clear options for the tenant. The tenant must pay his rent by a certain date, resolve whatever issue is at odds with the code of conduct or vacate the premises. Failure to do so will result in a lawsuit called anunlawful detainer — the legal term for an eviction.

During an unlawful detainer case, both sides are given a chance to present their arguments. The judge decides, based on the testimonies and evidence presented by both the tenant and the landlord, whether or not the tenant is in violation of the lease. If the landlord wins, the tenant may be required to vacate the premises and pay all back rent and legal fees incurred by the landlord. If the tenant wins, the landlord may have to pay all of the tenant’s legal fees.

If the landlord wins the case, he’s given a writ of possession. The writ of possession states how many days the tenant has to remove himself and all of his belongings from the rental property. If the tenant fails to vacate by the set date, the landlord can’t forcibly remove the tenant or his possessions. In most U.S. states, that job is the responsibility of a local sheriff or marshal. Most states also have strict procedures about what to do with any belongings that an evicted tenant leaves behind. Sometimes possessions have to be kept in storage for a number of days before being thrown away.

In the next section we’ll look at some professional property management techniques that help avoid some of the hassles and headaches of being a landlord.

FORCED EVICTIONS IN CHINA

Tenants in China don’t have much legal recourse when it comes to forced evictions like those that make way for large construction projects — including those surrounding the 2008 Beijing Olympics. According to official Chinese government statistics, over 2,500,000 Shanghai residents — mostly from the old city district — were relocated between 1993 to 2003 . Anti-eviction protests and demonstrations in China have led to police crackdowns and arrests, despite pressure from international human rights groups.

Property Managers

Not every landlord wants to be a property manager. Property management is hard work with long, unpredictable hours and possibly lots of phone calls from angry tenants. Professional property management companies can help a landlord write vacancy ads, screen tenants, write up leases, collect rent, provide day-to-day maintenance, arrange for repairs and answer the phone in the middle of the night when a toilet gets clogged. Property managers typically charge ten percent of the monthly rent.

Landlords should choose their property managers very carefully. Experience is very important. The whole point of hiring a property manager is to take some of the daily responsibility off the shoulders of the landlord. A good manager will be able to work independently and only check with the landlord on major repairs and possible legal issues. The property manager should have excellent communication skills. Ideally, he’ll act as an effective buffer between the tenants and the landlord and will be able to clearly communicate the needs of both sides.

A savvy landlord will run a full background check on all of his potential employees, including property managers, to screen out any applicants with questionable moral or ethical character. Here’s why: If the property manager perpetrates a crime against one of the tenants, the landlord may be held liable. The landlord should check with the property management company to make sure all of its employees are covered under liability insurance. If not, the landlord should get his property managers covered by his own liability policy.

Being a landlord means running your own business. Many landlords use special rental management software to keep track of their business expenses and income. A program like Quicken Rental Property Manager 2009 helps a landlord stay on top of bills, document expenses, maximize tax deductions and keep business finances separate from personal finances. Larger companies might rely on a Web-based system like Property Boss with features like work order tracking, online tenant screening, tax compliance, accounting and reporting.

The best way to succeed as a landlord — and avoid some of the biggest legal hassles associated with the profession — is to minimize the risks involved . A responsible landlord is properly insured and pays his taxes. He makes sure that his property exceeds the minimum standards set by the state and local building authorities. He actively looks for and removes any potential environmental hazards like lead paint or asbestos that could affect the health of his tenants. He carefully screens tenants and employees to weed out potential criminals. And finally, he treats all tenants professionally and with respect, therefore avoiding the pitfalls of discrimination.

Many U.S. cities now offer training programs that prepare landlords to navigate the legal issues and evolving regulations related to owning and managing property. They also train landlords in techniques for improving relationships with tenants, maintaining properties, using the authorities to help root out criminal behavior in their rental units and improving property values.

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