What’s behind door number 8? Take our quick quiz.
Are you a seasoned landlord? New to the business?
Either way, you probably know there’s a lot more to managing property than hanging out a “For Rent” sign, drawing up a lease, and investing in a sturdy pipe wrench and plunger.
Over the years, regulators at the federal, state and local level have built up a bevy of rules that apply to property owners big and small. Even though there’s no absolute right to housing in the U.S. Constitution, those who are seeking to rent have rights under the 1968 federal Fair Housing Act and its many amendments. Tenants also have a host of other protections that vary from state to state and town to town.
If you’re trying to make a living as a small landlord, it might seem as if the whole game is stacked against you. But then again, even though your properties are your business, they’re also someone’s home, and you need to make sure you’re fair and responsible.
Take a minute to test your landlord legal savvy with this quick quiz. Answer true or false. Resist the urge to Google!
1. If a wheelchair-bound tenant asks you to install a ramp or make other accessibility upgrades to their unit, the Americans With Disabilities Act requires you to comply.
2. You should not complete a lease signing inside the property, and should instead meet with the tenant at an outside location such as your office or a cafe.
3. You can refuse to rent to a person whom you know has a history of alcoholism or drug abuse.
4. You can ask for an additional security deposit from a family with four or more children under the age of 18 because of the higher wear-and-tear on the apartment.
5. If you don’t want to run the risk of renting to families with young children, one legal option is to find enough tenants who are over 55 so that your property can qualify as housing for “older persons.”
6. Under federal law, if you own a building that was constructed after 1991 and is more than two stories tall, you are required to install an elevator.
7. A prospective tenant whom you turn away can file a discrimination complaint against you for something they say happened a full year ago—even if they made no mention of it at the time.
8. In competitive rental markets, it’s a good idea for a landlord to ask a prospective tenant for “key money” in addition to the security deposit, cleaning fees and rental amounts that are included in the lease. Key money is usually paid in cash to ensure that the tenant is committed to signing the lease.
9. If your tenants have not switched the utility accounts into their names, as required in their lease, the best thing to do is to shut off the accounts and force them to re-start them in their own names.
10. If a tenant’s child releases his overgrown baby crocodile back into the “wild” by flushing it down the toilet, thus clogging the pipes, flooding the bathroom and destroying the ceiling of the unit below, you’re on the hook for to pay for the repairs restore the units to habitable conditions.
Ready for the answers?
1. False. That was a trick question, and it requires a multi-part answer.
First of all, the Americans With Disabilities Act does not apply to privately owned rentals (it only covers housing that has received government funding). What applies in this case is the Fair Housing Act (FHA).
The term “comply” is also misleading. Under the FHA, landlords are required to make and to pay for reasonable accommodations for tenants with handicaps. That means things like giving a disabled tenant the parking spot that is closest to their apartment. However, it’s the tenant who is responsible for the cost of any reasonable modifications they need to make their home safe and comfortable. That means structural changes like ramps, lower countertops, or special bathroom fixtures. The law requires landlords to allow tenants to make these changes, with prior written approval.
Rules under the FHA vary depending on whether your units were built before or after 1991, and for owner-occupied housing. If you have a newer building with four or more units, it should have been constructed to meet basic accessibility requirements, such as doors, kitchens and light switches that can be used by people in wheelchairs. Older buildings are exempt from those requirements.
2. False. It’s usually in your best interest to meet the tenant at the property to sign the lease. That’s because it’s critical for both of you to conduct a move-in inspection at the time of signing. Make sure to bring a video or regular camera with you, so that you can document any deficiencies the tenant points out. If there’s something that needs to be fixed, do it right away so it doesn’t come up later. You want an accurate record, in writing and pictures, of the condition of the property before the tenant starts moving in their grand piano and Great Dane.
3. False. The word to pay attention to here is “history.” The Fair Housing Act prohibits discrimination against people with physical or mental disabilities, and that includes chronic alcoholism. The law also protects recovering drug addicts and alcoholics who have completed a rehab program. It may surprise you that you can’t use a criminal drug-use conviction as your sole basis to reject a tenant.
However, the law does not protect current illegal drug users, or people who might pose a threat to the health and safety of your other tenants. And you can reject tenants who have felony convictions for selling or manufacturing drugs.
Landlords can cover their bases by requiring prospective tenants to meet certain standards, such as passing a credit check and criminal background check, getting clean references from past landlords, and showing proof of sufficient income to pay the rent. Those standards will also help screen out tenants with drug problems, and are perfectly legal as long as you apply them across the board and get prospective tenants to sign a “release of information.” Learn more about screening tenants.
4. False, for a couple of reasons. First, the Fair Housing Act makes it illegal to set different terms, conditions or privileges based on race, color, national origin, religion, sex, handicap or family status. You must treat all tenants and prospective tenants equally. Second, “wear and tear” is generally considered to part of the cost of business. You can only charge more for excessive damages (there can be a fine line there, as most landlords know!).
5. True. Though it’s a rare 55-year-old who considers themselves a senior these days, that’s the age when the Housing for Older Persons Act (HOPA) of 1995 kicks in. To qualify for HOPA and make your property “adult only,” you must:
- have 80% of your units occupied by at least one person who is 55 or older, or
- only rent to tenants who are 62 or older.
6. False. However, you would be required to make your ground-floor units handicap-accessible.
7. True. Tenants have up to one year to file a Housing Discrimination Complaint if they believe you’ve violated the FHA. If an investigator from the U.S. Department of Housing and Human Development finds grounds for the complaint, you’ll face a hearing before an administrative law judge. The stakes are high: if the judge rules that the charges are true, you could be hit with costly damages, including humiliation, pain and suffering; plus a civil penalty between $16,000 and $65,000. You may be also have to pay attorney fees and provide housing for the person. In addition, the rejected tenant can file a separate lawsuit against you.
If you ever face a Housing Discrimination Complaint—even if you believe it to be groundless—you probably want to consult an attorney.
8. False. In most of the U.S., requiring a tenant to pay “key money” is illegal and can be considered a bribe. Be careful—you must document all payments in the lease.
9. Fales. You definitely can—and should—specify in the lease that tenants must switch utilities to their name. If the tenant does not, they’ve defaulted on the lease and you have grounds to begin eviction proceedings. However, simply shutting off the utilities could arguably be considered the first step in a “self-help” eviction. That means trying to evict a tenant without taking legal action in court, which is illegal in most places.
While rules in different jurisdictions may vary, it’s always best to play it by the books, and in the landlord business, turning off utilities is a big no-no.
A better approach would be to avoid setting up an ongoing account in your name, or to have your account end on the day before the tenant moves in. That way the tenant would have to set up their own accounts to get the lights on in the first place.
10. False, usually. Rules may vary from place to place, but in general, your tenants are responsible for damages any damages caused by their children, guests, pets, and themselves. You, as a landlord, are responsible for maintaining your rentals in habitable condition. So in this case, it’s likely that the tenant would have to pay for repairing the damage. Your job would be to ensure everything is back in working order.
No one said being a landlord was easy—caricatures of fat cats and penny-pinchers aside. It’s a business, and that requires work. To protect yourself, you need to know what you’re doing. Some rules of thumb:
Get up to speed on your local and state rental laws, as well as the federal laws governing discrimination.
Set up a standard screening procedure that you use for all tenants. Keep it in writing.
Make sure your lease is clear, detailed, and defensible. Start with a sound legal document, and consider having it reviewed by real estate attorney. If you ever have to take legal action against a tenant or defend yourself in court, you’ll want to be sure that you have everything in order.
You can find more resources in Rocket Lawyer’s Real Estate Legal Center.