Posted by & filed under Rentals.

The roof is your rental property’s first line of defense against the elements, but it’s also arguably one of the most vulnerable parts of the building – and one of the costliest to replace. However, just like bringing your vehicle to the mechanic regularly for maintenance will lower your overall repair costs, roof maintenance can extend the lifespan of your roof and how often it will need replacement.

Tenant Screening Cambridgeport MA

Property maintenance is an essential part of keeping your property maintained and habitable. Capital budgeting also becomes more predictable and simplified when you factor in preventive maintenance and inspections. With that in mind, here are some tips on how to extend your roof’s lifespan and save money in the long run.

Routine Maintenance

Regular maintenance on your roof is one of the most cost-effective options for landlords and property managers. Manufacturers tend to agree; it’s estimated that routine maintenance can extend a roof’s lifespan by 25%. Maintenance would include things like removing snow, re-caulking or re-sealing as needed and clearing debris. If there are trees around the property they should be trimmed back away from the roof to reduce leaves, twigs, moss, and other debris from clogging the gutters and to prevent animals from getting onto the roof. You should also check that the insulation in the attic is adequate, especially if you provide electricity for your tenants. Poorly insulated attics are one of the largest sources of potential energy loss, particularly during extreme temperatures.

Although you may have some small upfront maintenance expenditures, keeping up with your roof maintenance can significantly minimize the roof’s overall cost. A well-maintained roof needs minimal repair annually and will have fewer expenses associated with it overall, plus it minimizes how often the roof will need to be replaced.

Roof Maintenance Inspections

In addition to performing maintenance on your roof, roof maintenance inspections can help you plan and budget for any future costs. For example, a contractor can provide you with a detailed report that will tell you you’re likely going to need repairs in about 3 years, and a complete replacement in 12 years. Using this information, you can reduce the likelihood of budget shortfalls and emergency repairs.

While you should conduct your own visual inspections regularly, most experts recommend consulting with a roofing contractor twice a year for a more detailed inspection and projection of what types of repairs will be necessary in the future. Keep in mind the location of your rental property when scheduling inspections, as things factors like snow and salt air can put substantial wear and tear on a roof that may require more frequent maintenance or repairs.

Lower the overall cost of your roof replacement

Performing regular maintenance and minor repairs as they occur will help prevent larger-scale projects and reduce the overall costs; it also protects your building operations from interruptions that can be expensive and time-consuming. Repairing small leaks, for example, can protect your deck or other structures from becoming damaged and ensure the insulation doesn’t become saturated and require replacement.

Simple maintenance items can save you up to 30% of the entire expense of replacing your roof and may provide even more savings when you factor in the costs of replacing other areas that would have become damaged otherwise. On average, a well-maintained roof will cost approximately $3 – 5 per square foot for a re-roof, as opposed to $12 per square foot for a poorly maintained or structurally unsound roof. These costs can easily be mitigated by implementing a regular maintenance plan.

It’s easy to neglect roof maintenance, especially while capital planning; however, consistent upkeep will significantly reduce the need for repairs and replacement, as well as unforeseen costs. Additionally, as the landlord or property manager, you have a responsibility to keep the property habitable in accordance with your state laws. Hiring a contractor to conduct regular annual or bi-annual inspections will also ensure you have a complete picture of what your roof will need and when, so you can plan and budget accordingly.

Posted by & filed under Landlords.

Tax season is here again, so it’s an ideal time to review several important tax breaks that you could be overlooking with your rental housing properties. Here’s a look at some common tax deductions you may be able to take advantage of this tax season; please note that this is for informational purposes only and is not intended as financial advice. For more information on how these tax breaks can be applied to your rental properties, please consult with a tax advisor.

  1. Repairs & Maintenance
    In general, anything you do to maintain your rental properties and keep them in good condition and livable is tax-deductible. This includes things like appliance repair, fixing a broken window, pool cleaning, or pest control. You can also deduct the money you’ve spent on equipment to maintain the property, like lawnmowers or chainsaws.

    The costs of the supplies needed to complete repairs are also deductible. This includes things like door handles, shelving, light fixtures, plumbing supplies, and labor costs. Rental fees for tools or equipment needed for repairs count as well. In addition, if there’s anything that makes the property uninhabitable for any reason and the tenant needs to stay in a motel while the issue gets resolved, the hotel fees would also be tax-deductible because they are considered to be a part of the repair process. Deductible repairs are essentially anything you need to do to the property to get it back to livable, working condition.

  1. Advertising
    Most business expenses are tax-deductible, including advertising. Regardless of whether you choose to advertise on the radio, television, or the web, you’ll be able to write it off on your taxes. Make sure to keep all your receipts, just in case of an audit. It’s also important to save your receipts to ensure you’re taking advantage of all your deductions and providing accurate information on your taxes.

    One thing to keep in mind is that word of mouth is also a form of (free) advertising, however, you can’t deduct the time you’ve spent talking to people about your property. For example, you can’t write off a lunch where you discussed your property with some friends. Although most landlords wouldn’t think to do this, some might consider it. Be careful and accurate about your advertising deductions and ask a tax advisor if you’re unclear on what falls under tax-deductible advertising.

  1. Property upgrades
    In contrast to repairs, upgrades are anything that adds or increases the value of your property. This includes things like adding a screened-in porch or installing new cabinetry or countertops. Upgrades are usually more labor-intensive and cost more than general repairs or maintenance, and the assumption is that the improvements will add value to the property over many years, not just the current year. For this reason, you can deduct a percentage of the costs of upgrades during the year they’re performed, but not all of them. Depending on the type of upgrade you make, you may also be able to deduct depreciation on your taxes over the course of several years.

    Tax credit amounts can be very specific, which can make it difficult to distinguish some types of improvements from repairs. For example, replacing older windows is a bit of a gray area, and whether or not that would be tax-deductible depends on the age of the windows and the type of windows you’ll be replacing them with.

  1. Services and commissions
    Any fees you pay property managers, attorneys, or other professional services that are specifically related to your property are considered business expenses and therefore tax-deductible. Other fees that would fall into this category are fees from tax accountants, real estate agents, notaries, and investment portfolio managers.

  1. Insurance
    Almost all insurance premiums you pay for your rental property are tax-deductible, including fire, theft, flood insurance, and landlord liability insurance. If you have employees, you can also deduct the cost of their healthcare and worker’s compensation insurance.

  1. Mortgage interest
    If you’re paying a mortgage on your rental property you’ll have to pay interest on it, however, the interest for those payments is tax-deductible as a business expense. Although there’s a yearly limit to how much you can deduct, you’ll want to make sure you can deduct the maximum amount you’re entitled to. Other items you can deduct are points or prepaid interest that you paid when you first took out the loan.

  1. Pass-through deduction
    As of 2018, most landlords qualify for the pass-through deduction established by the Tax Cuts and Jobs Act. This is a special income tax deduction that’s set to expire in 2025, rather than a rental deduction. Depending on your income, you may be able to deduct up to 20% of your net rental income OR 2.5% of the initial cost of the property plus 25% of the amount you pay any employees.

  1. Travel expenses
    Landlords can deduct most of the driving they do for rental activities. This would include driving to the property for maintenance or going to the hardware store for repair supplies. However, travel for improvements cannot be deducted – these types of travel expenses must be added to the property’s tax basis and depreciated over years, like the improvements themselves.

    If you drive your own vehicle for rental activities, you have two options for deducting expenses. You can deduct the actual expenses like gasoline, upkeep, and repairs, or use the standard mileage rate provided by the IRS. However, to qualify for the standard mileage rate, you have to use it in the first year you used your vehicle for rental activities.

    If you need to travel overnight for rental activities (for example, if your property is in another state), you can deduct airfare, hotel bills, meals, and other travel-related expenses. However, be aware that auditors pay close attention to overnight travel deductions because many taxpayers claim them without providing records to prove they’re valid. If you do any overnight travel, make sure you keep good records and all your receipts in case of an audit.

Knowing what you can deduct with your rental properties ensures you get all the tax breaks you’re entitled to and helps recoup the cost of many common expenses throughout the year. Make sure to do the proper research and to reach out to a tax advisor if you’re uncertain if a particular tax break applies to your properties.

Posted by & filed under Rental Housing.

Renting to tenants is risky, so it’s understandable that you want to choose the best applicants when filling a vacancy. Tenants can cause property damage, hurt your reputation, or even potentially sue you for damages, which is why it’s important to screen your applicants before extending an offer.

However, some landlords can get a little overzealous about finding the right tenant. Although it’s legal to deny rental applications, you’re can’t deny applicants simply because they don’t fit your exact criteria for an ideal tenant. For this reason, it’s important to understand the legal reasons you can deny an applicant without the risk of legal ramifications. Please note the information presented here is for informational purposes only and is not intended as legal advice.

Why Can’t I Deny Any Application For Any Reason I Want?

Whether it’s a matter of bad credit or you don’t like the information that they put on their application, there are many reasons you might want to deny an applicant. However, there are federal, state, and local laws that limit the reasons why an applicant can be denied to prevent discriminatory practices that can block renters from having a fair chance at housing.

Legal Reasons You Can Deny an Applicant

Although the laws can vary depending on the location of your rental property, there are five valid reasons for denying an applicant that apply nationwide; some of these reasons may vary slightly depending on your jurisdiction. It’s also recommended to familiarize yourself with any additional state and local laws to ensure you’re doing everything by the book.

  • Income-to-Rent-Ratio
    If the applicant doesn’t make enough money to be able to afford rent, this is a valid reason to deny them. A general rule of thumb is that the applicant should make at least three times the monthly rent to order to rent to them, although this amount might be higher depending on where your property is located.

    For example, if the rent is $3,000 per month ($36,000 per year) the applicant would need to make at least $120,000 per year to rent the property. As a landlord or property manager, you are well within your rights to require evidence of the applicant’s income. This a pay stub or direct deposit statement, or you can have a tenant verification conducted, which verifies the applicant’s income and employment status with their employer. If the applicant cannot verify their income or refuses to, you can deny their application at will.
  • Too Many People Would be Living at the Property
    This reason can get a bit confusing because the number of tenants allowed to live on a property is determined by local, state, and federal housing departments, rather than the landlord. To find out how many people are allowed to live at your rental properties, check the relevant occupancy laws. A general rule you can follow is two people per habitable room plus one additional person.
  • Bad Credit
    As a landlord or property manager, you’re allowed to require a minimum credit score for applicants to be considered for renting your properties. However, this score can’t be changed whenever it suits you or because you’d like to deny a particular applicant. It’s important to stay consistent if you choose to use credit scores as a factor in your decision.
  • Evictions and Unpaid Balances
    You can legally deny an applicant that has unpaid balances from former rental properties, as well as those who have been sent to collections. Although eviction laws are in a state of constant change due to COVID-19 and concerns over the lack of accessible housing in many areas, it’s legal to deny an applicant that has a long history of evictions. However, if the applicant had only one eviction that took place a long time ago, it’s worth considering overlooking this as a cause for denial.

    Likewise, if the eviction has been within the last year during the pandemic, you may also want to get more information about the reasons the applicant was evicted and weigh whether you feel they are truly a risk. Was it due to circumstances related to the pandemic (and out of their control), like becoming sick or losing their job? Do they have a good rental history otherwise? Do they meet your other criteria for a tenant? If so, it may be worth overlooking.
  • Incorrect Information
    If you discover the applicant has provided you with false information, it’s legal to deny them until the information has been corrected and they’ve reapplied. Some examples of false information include creating a fake employer or landlord to use as a reference, or misrepresenting how much their salary is. This is where tenant verification can be valuable because it provides you with accurate information directly from previous landlords and the applicant’s current employer. If you find out the applicant lied, you can legally deny them.

Other Reasons You Can Deny an Applicant

Here are a few other reasons you may be able to deny an applicant, depending on your state or local laws:

  • For most states, if you have a property that doesn’t allow smoking or pets, you can deny applicants who smoke or have pets – even if they say they won’t smoke or keep pets at the property.
  • Some states and cities allow landlords and property managers to deny applicants with specific types of criminal history, generally violent crimes. However, using criminal history can get complicated, so make sure you understand when you can use criminal history to screen applicants, as well as the legal reasons for denial at your property. You’ll also want to carefully consider whether the applicant’s criminal background really has any bearing on their rental reliability.

Invalid Reasons to Deny an Applicant

As previously mentioned, there are also legal reasons you’re not allowed to deny an applicant, specifically Fair Housing Laws under the Fair Housing Act. Fair Housing Laws explicitly forbid rejecting an applicant due to discrimination based on their protected class. This includes denying an applicant based on:

  • Race
  • Ethnicity
  • Age
  • Sexual orientation
  • National origin
  • Disability
  • Religion
  • Gender or gender identity
  • Marital status
  • Familial status
  • Participation in the Section 8 Program or other subsidy programs (this can vary based on your state and/or municipality)
  • Other types of arbitrary discrimination

How to Deny an Applicant

In addition to understanding why you can deny an applicant, it’s also important to know that there are rules and regulations to follow when actually denying them.

In order to deny an applicant, you must let them know of your decision by sending them an adverse action letter that informs them of the reason why they’re being denied and if they can do anything to be reconsidered. This is done using the following steps:

  1. Decide whether you want to accept the applicant with conditions (for example, a higher security deposit for renters with pets) or deny the applicant completely.
  1. Write the adverse action letter. If you’ve never done this or aren’t sure what to include, there are many templates and examples available online. Make sure that you are thorough about your reasons for your decision and provide clear information to prevent confusion.
  1. Mail the letter to the tenant. If you used a credit report, you’re legally obligated to include information regarding their rights under the Fair Credit Reporting Act (FCRA). If you live in California, you’ll also need to include information regarding their rights under the Investigative Consumer Reporting Agencies Act (ICRAA).

Choosing the Right Tenant

Although it can be tempting to choose a tenant based on arbitrary things, like first impressions or just a general feeling they would be a good fit, it’s best to use objective information to base your decision on. The main factors that you should consider are:

  • Credit score
  • Landlord and employer references
  • Income-to-rent ratio
  • Background checks
  • Eviction history

All of these give a clearer picture of whether the applicant is likely to be a reliable and trustworthy tenant. Using our screening services is a convenient and hassle-free way to obtain the information you need to choose the right tenant for your property. When making your rental decisions, spend time considering the legal basis for them, and be sure to send out the proper notifications to applicants you’re denying. This will help to negate any risks associated with claims of discrimination or illegal actions.

Posted by & filed under Rentals.

Whether you’re the landlord of a single-family home or you own a multi-unit apartment building, it’s important to understand whether your rental is considered an investment or a business because the distinction can have important tax consequences. If you’re considered a business owner, you’ll receive valuable tax deductions that don’t apply to investors. With tax season on the way, it’s an ideal time to revisit how rental properties are classified and some of the requirements you’ll need to know about if you’d like to turn yours into a business. Please note that this is for informational purposes only and is not intended to provide legal advice.

Investments versus Businesses

Typically, rental properties are considered investments by the IRS. This is because you may make a profit from the rent, but you don’t necessarily spend time working at the property. It’s essentially passive income. If you use the rent money from the property to pay for bills related to the property, the IRS considers it an investment.

However, even though many rental properties are considered investments, they can be businesses. For example, if you take on the management of your property where you’re regularly making repairs or replacing appliances, it’s more likely considered a business. If you own and manage a rental that’s been vacant for a long time or only has occasional occupants (like a vacation rental), the IRS may consider it an investment because you’re likely spending less time working at it. Likewise, properties that involve limited times partners, real estate investment trusts, and time-shares are considered investments.

In order for your rental property to qualify as a business, you’ll need to show the IRS that you have been performing management duties continuously throughout the year. You don’t necessarily have to do all the work yourself either; you can hire property managers or maintenance employees to assist you with office work, marketing, maintenance requests, and other day-to-day tasks and the property will still be considered a business.

There are no requirements on how many properties you need to own to qualify as a business; it can be a single rental home, multifamily homes, or even a commercial space that a store rents.

What is a Residential Rental Property

It’s also important to know that residential rental properties have some additional rules that set them apart from other types of properties. To be considered a residential rental property, the property must be a residential dwelling unit. This means someone lives there and considers it their home. It can be a single-family home, a duplex, a townhouse, an apartment unit, or even a mobile home, as long as it has living conditions like a bathroom, kitchen, and bedroom. The second rule is that you must have a lease or rental agreement.

Friends and family living at the property likely won’t be considered tenants for business purposes by the IRS, so if you’d like to take advantage of tax deductions, you’ll want to make sure your tenants are third-party people that you’re not otherwise associated with.

The 80% Rule

To be considered a residential rental property, the IRS also requires that the property gets more than 80% of its revenue from dwelling units. This may seem unnecessary, as most landlords probably receive 100% of the revenue from their units, but some property owners have mixed buildings, particularly in larger cities.

Your property could consist of a convenience store on the first floor with a handful of apartment units above it. In this case, you’d have to receive 80% of your income from the rental units for the property to be considered a residential rental property; otherwise, it would be considered a commercial property.

The 80% rule also applies to duplexes and apartments where the landlord is also residing. In this case, you’d need to make sure that 80% of the revenue coming in is coming from the other tenants in the building (excluding yourself).

Depreciation Tax Breaks

A large advantage to owning a residential rental property is that you can recover the cost of the property as a capital expense by depreciating it each year on your tax returns. Although you can’t depreciate a primary home, you can depreciate appliances, furniture, or other things inside the home.

To determine your annual depreciation allowance, you’ll need to know the property’s cost basis and the recovery period. You can find the cost basis by adding up what you paid for the property (including closing costs, legal fees, and taxes) as well as any improvements or remodeling you’ve done to it in the time you’ve owned it.

Over time, residential rental properties depreciate with a recovery period of just over 27 years; this is in contrast to non-residential rental properties, which depreciate over about 40 years. What does this mean for you? You’ll be able to write off residential properties quicker than a non-residential rental property. Items in the unit like appliances have a recovery period of fewer than 10 years.

Different Business Structures

In addition to different classifications for your rental properties, there are also different business structures for landlords:

  • Sole Proprietorship – This is one of the most common types of business structures, as well as the easiest to operate. A sole proprietorship is when an individual (or a married couple) runs the business. Although there are fewer legal controls and taxes, sole proprietors are personally liable for any debts incurred by tenants or the owner’s business.

  • General Partnership – A general partnership is made up of at least two people (who aren’t married) who agree to work together and share the profits, losses, and management duties of the business. Typically, each person is also individually liable for any debt that incurs, so make sure to have all the details of your partnership in writing.

  • Estate – An estate business structure is similar to a sole proprietorship, except that becomes an estate when an individual owner passes away. Due to the legal issues or the operations of the business, the property may go into estate status so that the property or business can continue running until the legal issues have been addressed.

  • Limited Liability Company – Also known as an LLC, a limited liability company is typically formed by one or more individuals through a written agreement that outlines income, tasks, management, and distribution of income or losses. LLCs can engage in any lawful business activity except for banking or insurance. To become an LLC, you’ll have to file with the Secretary of State where the property is.

  • Tenants In Common – This is a business structure that allows two or more people to own the same property while having separate assets and liabilities for it.

Tips for Turning Your Rental Property into a Business

Have you decided you want to turn your rental property into a business? Here are a few tips that can make the process a little easier.

  • – Keep separate books and records for every rental property you have.

  • – Log at least 250 hours of maintenance or rental services each year that were performed by you or an independent contractor; this shows that you’re actively working at the property.

  • – Keep time reports or any other documents that show the number of hours you’ve worked on the property, all the tasks or services you did, the date and time that the services were completed, and who completed them (if you hired someone).

  • – Consider taking a real estate and/or business class.

  • – If you’re a new landlord or you don’t have much business experience, you may want to consider getting a partner; however, you may want to avoid partnering with friends or family, as that can cause tension in your relationship. Find a partner who has experience in the areas you’re lacking.

  • – Hire help, like property managers or maintenance employees, to make your job a little easier.

Owning a rental property can be a lot of work and turning it into a business can definitely make things more complicated. Hopefully, this guide has given you some clarity on how your property is classified and how to turn it into a business – if it’s not already.

Posted by & filed under Rental Housing.

In September, the Centers for Disease Control and Prevention (CDC) issued a temporary nationwide eviction moratorium on most evictions for nonpayment of rent to curb the spread of COVID-19. The CDC stated that the moratorium, which is set to end December 31, 2020, would help reduce the spread by allowing people to follow stay-at-home orders and social distancing measures. It’s also intended to reduce homelessness and in turn, people moving into congregate housing like homeless shelters, which can increase the spread of the virus. The moratorium, as it currently stands, covers tens of millions of renters across the U.S.

The following is an overview of the moratorium; please note that this is for informational purposes only and is not intended as legal advice.

Does the Federal Moratorium Halt All Evictions?

The moratorium only covers evictions due to non-payment of rent and other fees or charges; landlords can still move to evict bad faith tenants. Any evictions that were initiated before September 4, 2020, that haven’t been completed are subject to the moratorium. The reasons a landlord can still move to evict a tenant includes:

  • Conducting criminal activity on the property
  • Threatening the health or safety of the other residents
  • Damaging or posing an immediate and significant risk of damage to the property
  • Violating applicable building codes, health ordinances, or other regulations related to health and safety
  • Violating any contractual obligation other than the timely payment of rent, late fees, penalties, or interest

The CDC guidance states that landlords may initiate eviction proceedings at any time, however, tenants covered under the order cannot be evicted until the order expires on December 31. If you do choose to evict during the moratorium period, make sure you follow all local procedures but be aware that the process may take longer than normal. In jurisdictions that have a local eviction moratorium, the stricter of the two moratoriums is likely to apply, although the CDC hasn’t provided clear guidance regarding this. You can find an up-to-date list of the state and local eviction moratoriums that are currently in place here.

Does the Federal Moratorium Cover All Forms of Rental Housing?

Eviction and Mask

The CDC order covers all standard rental housing, including mobile homes or property in a mobile home park. Some types of housing are exempt; these include individual hotel rooms, motels, or temporary guest home rentals. Your state or local government may have eviction protections in place for the federally exempt housing, so it’s recommended you research local applicable laws if you own these types of rental properties.

How Do Renters Qualify for Eviction Protection?

Tenants are not automatically covered by the moratorium; to qualify for eviction protection, they must essentially “opt-in”. This is done by filling out and submitting a form to their landlord stating that they’ve lost income due to the coronavirus pandemic and have made an effort to look for financial assistance. Translations of the form (in several languages) can be found here.

The CDC recommends that each adult listed on the lease, rental agreement, or housing contract should complete and sign the form, although tenants who file a joint tax return may submit a single form. Landlords are not required to make their tenants aware of the CDC order, but they must comply with it.

Other qualifications for the moratorium include:

  • Earning no more than $99,000 annually (or $198,000 if filing jointly) in 2020, or the tenant wasn’t required to report income to the IRS in 2019, or received an Economic Impact Payment
  • The tenant is unable to pay rent in full due to a loss of income, loss of work hours, or extraordinary (exceeding 7.5% of the household’s adjusted gross income for the year) out-of-pocket medical costs
  • The tenant is doing their best to make timely partial payments that are as close to the full rent payment as possible.
  • It’s likely the tenant would become homeless, need to live in a shelter, or would have to move in with another person if they were evicted

Tenants should also be aware that they will still be responsible for paying all back rent and fees that accumulated during the moratorium.

If a landlord violates the moratorium, they may be subject to a fine of up to $100,000, one year in jail, or both. If the violation somehow results in the death of a tenant, the fine is increased to $250,000. If an organization is found violating the moratorium, it may be subject to a fine of $200,000 per violation or up to $500,000 per violation if it results in the death of a tenant.

Can Landlords Challenge a Tenant’s Declarative Statement?

On October 9, the CDC issued new guidance for the moratorium, stating that landlords could challenge their tenants’ declarations and initiate eviction proceedings at any time. However, the CDC doesn’t give any guidance on the standards or procedures for such a challenge, so it’s likely the burden of proof will rest on the landlord in court, who will need to prove that the tenant isn’t being honest about their financial situation. Anyone who makes false claims to be covered by the moratorium may be subject to criminal penalties under 18 U.S.C. § 1621 (perjury) or other applicable criminal law.

The CDC guidelines are fairly straightforward, but if your state or local government has also enacted a local eviction moratorium, you should review your local laws before moving to evict a tenant. Be sure to keep detailed documentation on the reasons for eviction, as well as all your communications with the tenant. If you’re uncertain of how to proceed with eviction in your area, consult with legal counsel to ensure that you’re taking the right steps and conducting the process legally.

Posted by & filed under Rental Housing.

The housing crisis isn’t a new development in California; since about 1970, the state has experienced an increasing housing shortage, and by 2018, California ranked 49th in the nation in housing units per capita. Rising rents, stagnant wages, and overall high cost of living have all been named as factors in the increase in homelessness and poverty, leading lawmakers to pass Assembly Bill 1482, a statewide form of eviction and rent control. In this blog, we’ll be looking at the rent control portion of the bill. Please note that this is for informational purposes only and is not intended as legal advice.

Assembly Bill 1482 took effect on January 1, 2020, and is set to automatically expire on January 1, 2030. Known more widely as the Tenant Protection Act of 2019 or Protection Act, the law limits the ability of landlords to increase rent rates beyond the cap in a single year. Prior to the passage of the Protection Act, as many as 47 cities and counties already had strict rent control protections. The passage of the law extended rent caps (on rent increases only) anywhere in the state where rent control wasn’t already in place.

If the city your property is located in already had rent control laws, the Protection Act won’t override them. However, it does cover units that weren’t previously covered by local rent control laws. For example, in the city of Los Angeles, the local rent control law only applied to buildings that were constructed prior to 1978. With the passage of the Protection Act, newer units built between 1978 and 2005 now have rent control.

Rent Control Exceptions

The Protection Act covers all multi-family rental units in the state, with some exceptions:

  • New buildings are exempt until they reach 15 years old
  • Duplexes, where one unit is occupied by the owner, are exempt
  • Single-family home and condos are exempt unless they’re owned by a corporation or real estate investment trust (REIT)

How Much Can Rent be Increased?

One of the main questions on many rental housing professionals’ minds is how much they’ll be legally allowed to raise the rent. Annual rent increases are capped at 5% of the gross rental rate, plus the cost of living, and is not to exceed 10%. 

Please note that during a declared State of Emergency, whether statewide or in a single region, California Penal Code Section 396 prohibits charging a price that exceeds more than 10% of the original price before the State of Emergency was declared. This is considered “price gouging,” and is banned for 30 days after the State of Emergency declaration unless otherwise extended by the governor. For more information on whether your region is currently affected by a State of Emergency declaration, as well as the projected end date, please contact your county officials. 

The gross rental rate is determined by using the lowest rental amount charged in any month in the immediately preceding 12 months. This doesn’t take into account things like incentives, discounts, or credits. Even If the rent increase doesn’t exceed the amount permitted under the statute, landlords are still prohibited from increasing the rent more than twice during a continuous 12-month period.

Landlords are required to give tenants notice of their rights under the rent control law. For leases entered into, on, or after July 1, 2020, the statutory language must be included as an addendum to the lease or as a separate written notice that’s signed by the tenant. For leases that existed before July 1, 2020, the notice was required to be provided to the tenant or an addendum to the lease added no later than August 1, 2020.

For sub-tenancies, the rent paid by the tenant plus the rent paid by the subtenant cannot exceed the amount of rent allowable under the Protection Act (tenants can’t make money subleasing). The Protection Act is also careful to point out that the “no profiteering rule” on subleasing doesn’t mean that tenants have the right to sublease without their landlord’s consent.

New Territory for California

California’s rent control law put an additional 2.4 million units under regulation, bringing the total for the state to about 8 million. Will rent control solve the problems that it’s meant to address?

Like most legislation, it will be difficult to know exactly how the Protection Act will play out, especially with factors like the COVID-19 pandemic and continued economic instability. It’s also possible that lawmakers will pass clean-up legislation prior to the expiration of the rent control law. In the meantime, state-wide rent control is new territory for California, which means there are likely to be some kinks for landlords, tenants, judges, and lawmakers alike to work out.

Posted by & filed under Property Management.

Although some states still have restrictions on evictions due to COVID-19, many of them have now begun the process of hearing eviction cases again. As a landlord or property manager, you likely know your local eviction laws fairly well. However, there’s been a growing movement over the past couple of years to amend the normal eviction process to provide greater protections to renters.

Landlord Tenant Law book

The trend overall has been for greater leniency on tenants while increasing restrictions on rental housing professionals, so it’s important to make sure you stay up to date on the most recent eviction laws in your area. You most likely know the reasons you can legally file for eviction – but are you aware of some of the reasons you can’t? Here’s a look at four reasons that could get you into legal trouble.

Discrimination

Even if you’ haven’t been a rental housing professional very long, you’re likely familiar with the Federal Fair Housing Act, which prohibits housing discrimination for seven protected classes, including race or color, religion, sex, national origin, familial status, and disability. Based on the stipulations of the Fair Housing Act, this also means you cannot evict a tenant based on discriminatory factors related to their protected class.

It’s important to understand any biases you may have, and make sure that your eviction decision isn’t based on your personal feelings. If you or one of your staff evicts a tenant due to discriminatory reasons, you’re likely to receive a minimum of a fine from the Department of Housing and Urban Development – worse, they may even put you out of business.

It’s also important to keep in mind that some states have additional protected classes. California, for example, offers legal protection for tenants based on sexual orientation, gender identity, gender expression, marital status, medical condition, ancestry, source of income, age, and genetic information – in addition to the federally protected classes. Make sure that you know about any state-mandated protected classes in addition to the ones outlined in the Fair Housing Act.

Retaliation

Not only is evicting someone to get back at them unprofessional, but it’s also flat out illegal. Although some rental situations can become frustrating, that shouldn’t be the reason for evicting a tenant, even if they make frequent complaints, contacts the health department, or reports you to a housing authority.

If you do have an especially difficult tenant, the best course of action is to take a moment to step back and look at the situation objectively. Unless you have a legal reason to evict them, like breaking the lease, you should try to resolve any issues that come up calmly and professionally. Don’t threaten eviction or take other retaliatory steps. If you suspect you will have to evict them for any reason in the future, keep a list of justifiable (and legal) reasons. If eviction does become necessary, this will provide proof the eviction wasn’t due to retaliation.

Protected Tenants

Similar to Fair Housing Laws, some states and cities have laws that classify some residents as protected tenants. Some examples of this are age (60-65 years and older), disability, and chronic illness. The length of time the tenant has been a resident at the property can be a qualifying factor, for example, if the tenant is 65 and has lived at the residence for 10 years. It’s often difficult to evict a protected tenant, even with legitimate reasons like non-payment of rent, so it’s important to discuss your rights with legal counsel if you’re considering it.

The Resident is Withholding Rent Until a Safety or Health Issue is Resolved

Although it’s rare, tenants can legally withhold rent if there is a serious safety or health issue on the property that hasn’t been resolved. This can vary based on your area, but a common reason is unsanitary conditions due to owner negligence, like a broken toilet, insect infestations, or a lack of power. If the tenant’s health or safety is at risk, they are legally allowed to withhold rent.

Protect Yourself by Knowing Your State’s Laws

Eviction is a time-consuming and potentially stressful process – so it’s important to make sure that it’s the right course of action and within your legal rights. Although screening your tenants will greatly reduce the chances you’ll have to evict them, there’s no 100% guarantee that problems won’t arise in the future. When considering eviction, make sure to base on non-discriminatory factors, like breaking the terms of the lease or non-payment of rent. Review federal, state, and city eviction laws to make sure you’re taking all the proper steps. If your property is located in an area with more complicated eviction laws, you may also want to discuss your options with legal counsel to ensure you’re following all laws accordingly.

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How to Prepare For A Potential Wave Of Evictions

In 2019, New York state passed a law that effectively banned the use of eviction reports for screening rental applicants. The law, which is part of The Housing Stability and Tenant Protection Act of 2019, penalizes rental property owners who deny applicants on the basis of either a pending or prior eviction litigation. The law was met with widespread criticism, as well as fears that other states would adopt similar regulations.

This was all before COVID-19 was a concern. Since the pandemic, many states enacted temporary eviction bans, many of which have since expired. New York state recently extended its eviction moratorium until January 1, 2021, however that date is still subject to change. Despite this, many areas of the nation have reopened and are now conducting eviction hearings again. Could unemployment rates coupled with a potentially large number of evictions cause other states to consider a law similar to New York’s eviction screening ban? The future remains uncertain, but here’s a look at what the New York law entails.

New York’s Real Property Law

Section 227-F of the Real Property Law clearly bans the use of eviction records. It states:

  1. Rental property owners cannot refuse to rent to or offer a lease to an applicant on the basis of a current eviction litigation or a prior one. The provision also establishes a “rebuttal presumption” that the owner is in violation of the law if they request eviction records from a tenant screening company or reviews eviction-related court documents and denies the applicant.
  1. The attorney general can bring an action or special proceeding in the supreme court if they believe they have satisfactory evidence that “any person, firm, corporation or association or agent or employee thereof” has violated the above provision. Each violation could cost between $500 – $1,000.

While the law bans the refusal of applicants based on eviction records, it also discourages landlords and property managers from even looking at eviction records for fear of being fined if they deny an applicant – even if the eviction history played no part in the decision.

The full economic repercussions of the pandemic have still yet to be seen and there’s still uncertainty about how the spread of the virus might look in the winter. As of October 2, 2020, CNBC ran an article estimating as many as 35 million Americans could face eviction, with an average of 1 in 6 renters being behind in their rent as of September. Without further economic relief efforts from state and local governments, we could be facing widespread evictions in areas that no longer have moratoriums. If this happens, it’s possible more areas will enact a law similar to New York’s to account for the many evicted tenants who will be on the search for housing.

Posted by & filed under Rental Housing.

With housing shortages, rising rent prices, unemployment due to COVID-19, and other issues, rent control has become a hot topic this election year. As a refresher, rent control (also called rent stabilization) caps a tenant’s rent at a specific dollar amount or limits the percentage the rent can be increased by after the tenant’s lease is up. While rent control has been utilized across the country for decades, there’s been a notable increase in states’ implementation of rent regulation measures over the past few years.

Rent Laws

Currently, 6 states have some form of rent control laws. Likewise, many states either have no form of rent control or preempt it entirely. Here’s a look at how each state currently handles rent control laws; please note that this is intended for informational purposes only. We recommend further research into your state and local laws to better understand how they affect your rental properties and policies, as well as discussing changes to your policies with legal counsel.

State-Wide Rent Control

  • California
    California is the most recent state to enact rent control, and only the second state to make the laws applicable state-wide. The AB 1482 bill was passed on September 11, 2019, and went into effect on January 1, 2020. This bill placed a 5% cap per year (plus inflation) on rent increases within the state. The cap doesn’t apply to properties that have been issued a certificate of occupancy within the previous 15 years. It also doesn’t place limits on the powers of local authorities, so local governments may choose to enact more aggressive rent control legislation.

  • Oregon
    Oregon was the first state to implement state-wide rent control measures, with Governor Kate Brown signing SB 608 into law in February 2019. This placed an annual limit of 7% (plus inflation) on rent increases in the state. Properties granted a certificate of occupancy within the past 15 years are exempt, as well as landlords who provide reduced rent to tenants as part of a federal or local program, or subsidy.

States With Rent Control Legislation

  • New Jersey
    New Jersey doesn’t have state-wide rent control laws, but local legislators have had the authority to implement them since the 1970s. Currently, over 100 municipalities in New Jersey have some form of rent control. The caps and exemptions for these laws vary from city to city.

  • New York
    New York utilizes two different systems for rent regulation: rent control and rent stabilization. Rent control typically applies to buildings built before 1947, while rent stabilization applies to buildings built between 1947 and 1974. For areas that are outside New York City, rent control may also be referred to as the Emergency Tenant Protection Act (ETPA). Although rent control measures aren’t state-wide, most cities and communities in New York state have some type of rent regulation measure in place.

    In New York City, Nassau, Westchester, and Rockland, The Rent Guideline Boards set the rates for increases in rent-stabilized apartments. These rates are evaluated annually and are applied from October 1st to September 30 each year.

    For rent-controlled apartments, New York City uses the “Maximum Base Rate System” (MBR). This method establishes a maximum base rent for each apartment and adjusts the amount every two years based on operating costs. Landlords may raise the rent by either:

    – the lesser of either the average of the five most recent Rent Guidelines Board annual rent increases for one-year renewals, or
    – 7.5% each year until they reach the MBR

    Rent increases are prohibited from exceeding the rates determined by the Rent Guidelines Board, and tenants have the right to challenge any proposed increases. For areas outside of NYC, the New York State Division of Housing and Community Renewal regulates the maximum allowable rates for rent-controlled apartment increases. Rents are prohibited from exceeding these rates.

    Also important to note: in June 2019, the Housing Stability and Tenant Protection Act was passed, which made rent stabilization a permanent fixture of the state’s housing code and closed loopholes used by some landlords to skirt around rent regulation laws. These include things like an end to “vacancy bonuses,” decreasing the percentage a landlord can raise the rent for property improvements, capping the number of family units to one per building, and ending high-income deregulation.

  • Maryland
    Only the city of Takoma Park currently has rent stabilization regulations. This applies to all individual condos and multi-family rentals. Single-family homes, accessory apartments, and duplexes where one of the units occupied by the owner as their primary residence, are exempt. The rent stabilization allowance is re-valuated annually by the city and has been set at 0.4% for the year, from July 2020 to June 2021. All landlords with properties under rent stabilization are required to give at least a two-month written notice of a rent increase and are prohibited from an increase that exceeds the approved allowance.

  • Washington D.C.
    Washington D.C. passed the Rental Housing Act in 1985, which set the annual limit on rent increases based on the Consumer Price Index, plus 2% (with a maximum of up to 10%). For properties with tenants who are 62 or older or disabled, the maximum increase is capped at the Consumer Price Index only, with a maximum of up to 5%.

    Rental units that were built after 1975, federally or district subsidized units, and rentals units that were vacant when the act went into effect are exempt. Despite attempts by local lawmakers to extend the current rent control program to 2030, the program is set to expire on December 31, 2020.

States the Preempt Rent Control

While a number of states have rent control regulations, a greater number of them preempt local governments from enacting rent regulation laws on private rental properties. These include:

  • Alabama
  • Arkansas
  • Colorado
  • Connecticut
  • Florida
  • Georgia
  • Idaho
  • Illinois
  • Iowa
  • Kentucky
  • Louisiana
  • Massachusetts
  • Michigan
  • Minnesota
  • Mississippi
  • Missouri
  • New Mexico
  • North Carolina
  • North Dakota
  • Oklahoma
  • South Carolina
  • South Dakota
  • Texas
  • Utah
  • Washington

States That Preempt Mandatory Exclusion Zoning and Rent Control

Exclusionary zoning was introduced in the early 1900s and has been used in the past to keep families with lower socioeconomic means from being able to find affordable housing in middle and upper-class neighborhoods. Six states preempt local governments from enacting mandatory exclusion zoning or rent control, including:

  • Arizona
  • Kansas
  • Indiana
  • Tennessee
  • Wisconsin

States Without Rent Control or
Preemptions

Seven states have no rent control regulations in place or preemptions:

  • Delaware
  • Maine
  • Montana
  • Nebraska
  • Ohio
  • Rhode Island
  • Wyoming
  • Hawaii

Dillon States Without Rent Control or Preemptions

In addition to states that lack any form of rent control, there are also several Dillon states that don’t have rent control laws or preemptions. Dillon state rules essentially mean that local governments are only allowed to exercise powers that are expressly granted by the state. Unless the state allows local governments to pass rent control laws, the laws must be passed by the state or not at all. The Dillon states include:

  • Alaska
  • Nevada
  • New Hampshire
  • Pennsylvania
  • Vermont
  • Virginia
  • West Virginia

Will we see more states and local governments enact rent control laws in the future? Given the trend over the past decade and the increasing concerns over affordable housing, it’s very likely. As always, we recommend keeping a close eye on proposed laws and bills passed in your area to make sure you’re aware if there any changes made to existing laws that could affect your property.

Posted by & filed under Property Management.

Eviction is one of the worst-case scenarios for many landlords. It can be a long, taxing process that slowly eats away at your time and money – not to mention the impact it has on an emotional or mental health level. Needless to say, eviction is a situation that most landlords want to avoid whenever possible.

What To Do When Your Tenant Files for Bankruptcy

Unfortunately, eviction isn’t the only situation landlords should be cautious about. Since the pandemic, the economy has been in a state of flux. Not only does this mean instability for investors, but also the job market, leading many citizens to be in worse financial standing than they were a year ago. This increases the chances you may have a tenant file for bankruptcy. If this happens, what actions can you take – and how can you prevent it from happening again?

What is bankruptcy?

Bankruptcy is a legal process that enables someone who cannot repay their debts to gain debt relief assistance while ensuring some form of repayment to creditors. Bankruptcy can include things like the liquidation of assets or other changes to a person’s financial or material wealth to reach a repayment agreement. While bankruptcy allows for a “fresh start” with debt, it can make it more difficult to borrow in the future.

If you encounter bankruptcy with a tenant, there’s a chance you’ll know it’s coming (if you and your tenant keep communication open) but it will more likely come as a surprise. In some cases, your tenant may be paying rent on time, while their other debts grow beyond their means. There are a few specific types of bankruptcy you should be aware of to be able to handle them appropriately. The two most common ones that affect landlords are Chapter 7 and Chapter 13.

Chapter 7

Chapter 7 bankruptcy involved the liquidation of an individual’s assets to pay off debts. The debtor must give all their assets to a trustee, who then administers the assets in a way that satisfies creditors. If the tenant’s rent is paid and up to date, they can continue their lease. If they’re behind on rent, they’ll likely need to move.

Chapter 7 bankruptcy is also known as “straight bankruptcy” because it’s the most direct type. Chapter 7 is typically used for people who have a lot of unsecured debt, like medical bills, utility bills, and credit card debt.

Chapter 13

Chapter 13 bankruptcy is based on creating a debt repayment plan and can be seen more as a type of financial reorganization rather than a fresh start. When someone files for Chapter 13, their debts are reorganized into a payment plan that repays creditors over 3 – 5 years. This type of bankruptcy is typically utilized to resolve short-term financial setbacks, like an illness or job loss.

What Should I do if my Tenant Files Chapter 7?

If your tenant files for bankruptcy, the court will grant an automatic stay, which means all creditors are required to stop debt collection attempts until the case has made its way through the court system. Tenants who are renting will have to assume (continue with their lease and making rent payments) or reject their current lease. Tenants will only be able to assume the lease if they can pay past-due rent quickly, as well as provide assurances that they’ll continue to pay rent on time. They’ll typically have 60 days to make this decision.

The court doesn’t have a strict definition of how quickly back payments must be made, but it’s typically required to be paid back within a year. Your tenant will also be required to show some proof of income to show that they’ll be able to make timely payments without falling behind on their regular rent payments.

If your tenant rejects the lease, the lease becomes part of the assets that are liquidated or put onto a payment plan. Rejection of the lease is considered voluntary termination, so the tenant will be expected to leave the property and will no longer be bound by the terms of the lease.

Once the tenant’s assets and debts have been cataloged, a judge will decide if the bankruptcy can continue and if so, how best to use the assets fairly to pay off creditors. Once the judgment has been made, you’ll be notified of how you can expect to be paid for any back rent that’s owed to you. You’ll also be told what to expect with the remainder of the time the tenant will be at your property. If you find the decision to be unfair, it is possible to challenge the decision.

If the court does order the tenant to make payments through a repayment plan, you’ll eventually get the money owed to you. In some cases, however, the court may not require the tenant to pay you back at all. While this can feel like a huge blow, the best way to handle it is to move on and put your focus into finding a reliable tenant to fill the vacancy.

Steps to take once your tenant files for bankruptcy

Once your tenant has filed for bankruptcy, you’ll need to start making some plans to protect yourself financially. This isn’t to say that you can’t be sympathetic to your tenant – but rather that you should make sure that you’ll be able to sustain your financial wellbeing. Here are a few ways you can be sure that you’re included when it comes time to divvy out creditor repayments:

  • The Automatic Stay:

As previously mentioned, when a tenant is granted an automatic stay, creditors can no longer collect or attempt to collect debts until a ruling has been made for the case. This includes you, as the landlord; you won’t be allowed to collect past-due rent. You also won’t be able to file for eviction, unless it’s an ongoing case that has been ruled on or is allowed to continue. New eviction filings are allowed if the tenant has done something illegal or is endangering your property in some way.

If you have a guarantor named under the lease, you can still pursue and collect back rent from them, even while the tenant is in bankruptcy. In most cases, however, there likely won’t be a guarantor, so as soon as your tenant files for Chapter 7 or Chapter 13, stop trying to collect rent and keep track of what you’re owed for the court proceedings.

The automatic stay only pauses debt and past-due rent collection; your tenant is still legally required to continue paying rent for as long as their lease is active. It doesn’t change anything regarding the amount you’re owed or the date rent is due. If your tenant stops paying their rent on time, you can request the court to begin eviction proceedings and they will decide whether that’s a viable option.

  • Claiming Debt

If your tenant owes you any money for past due rent, you should create a claim outlining how much they owe you and why. This document will be filed with the bankruptcy court if you’d like the debt to be included in the court-decided payment plan or liquidation of assets. It’s recommended that you always file a claim if there’s a bankruptcy case. This ensures you won’t lose out on any money, especially if the tenant decides to reject the lease. If they do reject the lease, your claim can include:

  • Past-due payments and associated damages
  • Unpaid rent or fees caused by the bankruptcy filing
  • Damages from the lease rejection, which can be up to one year’s worth of rent

To make sure you’re getting back as much as possible, it’s recommended to consult with a bankruptcy professional.

Other Actions You Can Take

If you’d prefer not to wait through the bankruptcy process, you can try some alternative options. Although not all these may be possible, they could save you some time and money.

  • Pre-bankruptcy

Depending on your tenant’s financial situation, you may have some warning signs that they may be thinking about bankruptcy. Or, they may have even told you they were considering it. In either case, you may be able to set up a pre-bankruptcy resolution with your tenant before they actually file. Here are some considerations:

  • Are there any changes you could make to the lease that would make it easier for your tenant to continue paying rent?
  • Is there a way you could amicably terminate the lease before the tenant files for bankruptcy?
  • Can you forgive some of their debt or arrange for it to be repaid via early lease termination?

While your tenant may not agree to these options, there’s no harm in exploring them – and in many cases, coming to a pre-bankruptcy agreement will reduce stress for you and your tenant.

  • Bankruptcy history

Do you happen to know that your tenant has a history of filing for bankruptcy? If so, this is something you should bring to the judge’s attention. Make sure you’re only doing this if you don’t believe the bankruptcy was filed in good faith, for example, if the tenant only filed to avoid paying you past-due rent.

No one wants to deal with a bankruptcy filing but if you do encounter one, stay calm and keep organized. Start by trying to set up a pre-bankruptcy resolution. If that isn’t a viable option, file your claim for any debts as soon as possible once the bankruptcy is filed. While you’re waiting for the verdict, be sure to keep track of any additional missed payments. Once the case has a ruling, follow the court-ordered solution.

Preventing Future Issues

Bankruptcy filings, like evictions, can be stressful and time-consuming. Although there’s no way to completely guard against a tenant filing for bankruptcy, you can take an important step in eliminating some of the risk through tenant screening. By running a credit and background check, you can get a better understanding of how an applicant handles their finances, whether they’ve had previous bankruptcies and their overall level of debt and financial wellness.

We recommend our RentalConnect program to help you select the right tenants for your property. You can choose from three different report packages, making it easy to find one that will fit your rental criteria. With RentalConnect, there are no on-site visits, sign-ups, or membership fees, and the cost of the reports is deferred to the applicant. Order yours today or reach out to us for more details!