Avoid Costly Mistakes In Purchasing Rental Property
If you are considering buying rental property, avoid the following seven costliest mistakes:
- Mistake #1 - Bad location. The property should be in an area where the demand for rental housing exceeds the supply and there is access to public transportation, churches, schools and stores. This will ensure good rents and resale price.
- Mistake #2 - Failure to check utility costs. Under the Truth-in-Heating Law, sellers and landlords of residential, buildings, including one and two-family residences, condominiums, cooperatives and apartments, must provide prospective buyers and tenants with a summary or a copy of heating and/or cooling bills for the preceding two years and a statement of the type and location of insulation installed by the owner and previous owners. Determine whether the utilities are separately metered.
- Mistake #3 - Zoning or building code violations. Determine whether the building and planned renovations conform to zoning ordinances, building codes, deed restrictions and loan requirements of the bank, VA or FHA. Also, inquire as to whether a certificate of occupancy is necessary.
- Mistake #4 - Assuming personal property stays with the real estate. The contract of sale should state what appliances, equipment, furnishings and other personal property are included with the sale.
- Mistake #5 - Defective or dangerous property. The contract of sale should contain a clause that the sale is contingent on a inspection by a professional inspector, licensed engineer or licensed architect. Ascertain whether the property contains lead paint, asbestos or other hazardous materials.
- Mistake #6 - Assuming that there are no leases. The seller should be required to furnish copies of all leases, tenant applications and move-in/move-out checklists prior to closing. Since the purchaser will be bound by any leases between the seller and his or her tenants, the purchaser should study the terms of the lease very carefully for such items as the expiration date, rental amount, tenants right to sublet and whether the lease is renewable. If there are no leases, the contract should specify whether or not the units must be vacant at the time of closing, assurances that the seller will not enter into any new leases, the amounts of security or cleaning deposits, the names of the tenants and the monthly rent amounts.
- Mistake #7 - Expecting to close on the "closing date". The closing date stated in the contract is merely a target date unless it is specified that "time is of the essence".
What's New In Landlord/Tenant Law?
There are several new developments that should be considered if you own income property:
- Invisible Disabilities - Tenants with "invisible disabilities" such as mental illness, mental retardation, brain injury, multiple chemical sensitivity and neurological disorders are protected by the Fair Housing Act and the Federal Rehabilitation Act of 1973. These laws require that landlords "reasonably accommodate" the tenants' disability. Courts have held that mentally disabled tenants cannot be evicted for threatening others. They must be given a chance to control their behavior with medication. A condominium association was forced to stop using pesticides and to pay a $40,000.00 settlement because the owner had multiple chemical sensitivities. Tenants have been allowed to keep pets in violation of no pet provisions if the pet is needed for therapeutic reasons. Tenants cannot be denied an apartment on the basis that they are unable to live independently.
- Reasonable Occupancy Requirements - The U.S. Department of Housing and Urban Development (HUD) has created confusion concerning the "reasonable occupancy requirements" under the Fair Housing Act. Last summer, the HUD General Counsel issued a memo rescinding the "two-person per bedroom" standard as reasonable occupancy under the Fair Housing Act. The counsel advised landlords to use the Buildings Officials and Code Administrators Standards. However, this memo was rescinded by the Deputy Assistant Secretary of HUD in September, 1995. The Mountainside case upheld reasonable restrictions on occupancy by landlords. A mobile home park was allowed to restrict three people per unit to accommodate sewer capacity and to maintain the quality of life.
- Zoning - In City of Edmunds, the U.S. Supreme Court ruled that a group home for recovering addicts may operate in a residential neighborhood even though zoning ordinance prohibited more than five unrelated people. The city must allow the home as a reasonable accommodation for the handicapped.
- Strict Liability - The California Supreme Court in its shift to conservatism, reversed a 1985 case which had held that landlords were strictly liable for latent defects in apartments.
- Lead Paint and Carbon Monoxide - Lead paint abatement requirements are becoming a costly burden for landlords. A Maryland Court of Appeals ruled that a tenant's child who ate lead paint was covered by the landlord's homeowner's policy. The U.S. Court of Appeals (Second Circuit) ruled that carbon monoxide poisoning was covered under the landlords homeowner's policy.
- Civil Forfeiture - The U.S. Attorney has a notification program to landlords who rent to drug dealing tenants. Landlords who ignore the notices risk having their property seized under civil forfeiture laws.
- Debt Collection - The area of debt collection is the only good news for landlords. Creditors can garnish the wages of military and federal employees. Skip tracing of tenants is made much easier through a wide number of computer databases. Attorneys must comply with the Fair Debt Collection Practices Act when handling evictions.
- Defamation - A landlord cannot be sued by a tenant for defamation for calling him an obscene name and threatening to evict him for odors emanating from his restaurant.
- Punitive Damages - Punitive damages are allowed and warranted in habitability cases only if there is clear, unequivocal and convincing evidence that the landlord's conduct was motivated by malice or so reckless or grossly negligent as to rise to the level of criminal disregard for the tenant's health and safety.
Eight Mistakes Landlords Can Avoid
Landlords can avoid costly mistakes by heeding these eight words of wisdom:
- Know thy tenant. Screen potential tenants with a rental application and credit check.
- Always use written leases. An oral agreement isn't worth the paper it's printed on!
- A picture is worth a thousand words. Use move-in/move-out checklists supported by before-and-after photographs and videotapes of the apartment.
- No money--no keys. Do not give the apartment keys to the tenant until the first month's rent and security deposit are paid.
- Get the lead out. Warn tenants of the dangers of lead paint and abate any existing lead paint.
- Don't delay until tomorrow what you can do today. Don't wait too long to evict a delinquent tenant.
- You get what you pay for. Never have tenants do repair work or painting in exchange for the payment of rent.
- Ignorance of the law is no excuse. Do not ignore building code violations and drug-dealing tenants.
Landlord Can't Be Sued for Defective Tub
The California Supreme Court ruled that a landlord cannot be sued in products liability for a defectively designed bathtub and overruled a contrary 1985 decision.
The 1985 case was the first time that a state high court applied products liability theories to real estate law by subjecting landlords to strict liability (liability without fault) for injuries to tenants caused by hidden defects in apartments.
The tenant sued the landlord because he was badly cut when he slipped and fell against an untempered glass shower door. The tenant claimed that the landlord was negligent and should be held strictly liable for having a defective product in the apartment.
The court in 1985 had rejected the landlord's claim that: (a) he should not be liable for latent defects unless a known danger had been hidden or there was some express duty to repair and (b) as a purchaser of a used building, he should not be liable because he had no continuing business relationship with the apartment builder.
The court had held that landlords are strictly liable for injuries caused by latent defects existing at the time the tenant rents the premises. The court reasoned that a tenant who rents for a limited period of time is not in a position to inspect for latent defects or to bear the expense of repairs, whereas the landlord is in a much better position to inspect for and repair latent defects.
However, the court in 1995 noted that a landlord might still be strictly liable if he helped construct the building. Louisiana is the only state that holds landlords strictly liable for injuries on their premises.
Landlord's Legal Fees Are Covered
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If I am sued by a tenant for giving a bad reference or wrongful eviction or if I have to sue a tenant for eviction or damages, will I have to pay my own attorney's fees?
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Not if you take the following steps:
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Make sure that your General Liability Insurance policy covers "injury to" tenants from:
- false arrest, detention or imprisonment or malicious prosecution;
- libel, slander or defamation of character or
- wrongful entry or eviction or other invasion of right of private occupancy.
- Use a tenant screening service that pays court costs, sheriff's service fees and attorney's fee if an eviction is necessary because of nonpayment of rent.
- Include a clause in the lease that the tenant is required to pay the landlord's attorney fees for a violation of the lease. However, there is implied by state law the requirement that the landlord pay the tenant's attorneys fees if the tenant is successful in defending the landlord's lawsuit, has a counter-claim against the landlord or sues the landlord.
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Military Service Is Grounds for Canceling Lease
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I recently enlisted in the army. Do I have the right to cancel my apartment lease?
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Yes. Leases of premises occupied for dwelling, professional, business, agricultural or similar purposes may be terminated by a tenant or spouse of a tenant who is entering U.S. or state active military service. The lease must be terminated by a written notice mailed to the landlord or the landlord's agent after the beginning of military service. Termination of a lease which provides for monthly rental payments will not be effective until thirty days after the first date on which the next rental payment is due. For example, if you notified your landlord on June 2nd, the lease would not be terminated until July 31st.
Anyone who seizes, holds or detains the personal effects, clothing, furniture or any other property of one who has lawfully terminated a lease or in any way interferes with the removal of such property from the premises is guilty of a misdemeanor punishable by imprisonment not to exceed one year or by fine not to exceed $1,000.00, or both.
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Mobile Home Park Owner Must Provide Leases
The law gives mobile home tenants protection from unwarranted evictions without unreasonably interfering with the rights of mobile home park owners to determine the most desirable use of their property. The law provides milestone protections for more than 78,000 mobile home households residing in 2,100 mobile home parks throughout New York State. All mobile home tenants in good standing have the right to a renewal lease for the term of at least one year. Park owners must provide tenants with at least six months written notice if they wish to change the use of the land comprising the park.
Prior to occupancy, park owners must give all new tenants the opportunity to sign a lease for a minimum of one year. The park owner must submit to each existing tenant in good standing a written offer to lease for one year on or before either:
- October 1st of each year if a tenant does not have a written lease; or
- The 90th day before the expiration date of any existing lease. The offer must include a copy of the proposed lease and a statement advising the tenant that if he or she fails to execute and return the lease to the park owner within thirty days, he or she shall not have any right to a lease for the next twelve months.
A tenant is considered not to be in "good standing" if he or she has been given thirty (30) days notice of:
- Default in the payment of more than one month's rent;
- Use of the property for prostitution or for any illegal trade or business;
- Violation of any federal, state or local law deemed detrimental to the safety and welfare of the residents of the park;
- Violation of any lease term or rule or regulation for more than ten days after being given written notice to correct or cease one violation and the violation continues up to five days before the expiration of the lease.
Landlord's Discrimination Questions Answered
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Is it illegal to refuse to rent to disabled Section 8 tenants?
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No. If a landlord does not rent to any Section 8 tenants (those who receive federal housing assistance), he need not make an exception for disabled Section 8 tenants. The Fair Housing Act requires landlords to make "reasonable accommodations" for a disabled tenant that may be necessary to afford him or her equal opportunity to use and enjoy a dwelling. However, the U.S. Court of Appeals, Second Circuit, has held that landlords are not required to make accommodations to alleviate economic disadvantages that merely correlate with having a handicap.
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Must I allow a disabled tenant to have a professional office in his apartment?
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Yes, this is a "reasonable accommodation" required by the Fair Housing Act. A housing cooperative that refused to allow a wheelchair bound tenant with muscular dystrophy to provide career counselling to ten to fifteen clients per week agreed to pay a $180,000 housing discrimination settlement.
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Where can I find housing discrimination law on the Internet?
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Tenant Net is an online resource for residential tenants focusing on New York City and New York State.
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Tenants Don't Have the Right to Smoke
Landlords may ban smoking in apartment units, as well as in common areas, such as halls and playgrounds. Tenants have unsuccessfully sued for the "right" to smoke. The New York Supreme Court, Albany County ruled that there is no more a fundamental right to smoke cigarettes than "there is to shoot up or snort heroin or cocaine or run a red light". The 2006 U.S. Surgeon General's Report warned that there is no risk-free level of exposure to secondhand smoke and that even small amounts of exposure can be harmful to people's health. Secondhand smoke seeps through electrical outlets, pipes, light fixtures, ceiling crawl spaces and doorways into all areas of the building. Even the most up-to-date ventilation techniques and air cleaners cannot prevent all smoke from spreading. There are six reasons why landlords should ban smoking:
- Most tenants want smoke-free apartments. Only 20% of the adult population smokes.
- Tenants are willing to pay higher rents for smoke-free apartments.
- Landlords can be held liable for tenant's health problems from secondhand smoke and fires caused by tenants smoking. There are more than 4,000 toxins and 50 cancer-causing chemicals in tobacco smoke.
- Tenants can break their leases for breach of the warranty of habitability, nuisance and breach of the warranty of quiet enjoyment. The New York County Civil Court permitted tenants to break a lease because secondhand smoke penetrated into their apartment from another apartment. The court held that secondhand smoke was covered by the implied warranty of habitability which requires that the premises and all common areas be fit for human habitation and not subject the tenants to any condition which is dangerous, hazardous or detrimental to their life, health or safety.
- Cigarette smoke damages the apartment and increases the risk of fires. It may result in the need to replace carpeting, vinyl appliances, flooring, sub-flooring, light fixtures, cabinets and ceiling fans and the use of special sealants to control odors before painting.
- Proposed laws will require smoke-free apartments.
In order to make apartments smoke-free, landlords should do the following:
- Advertise apartments as being smoke-free.
- Include a no-smoking rule in the lease which requires tenants to pay for any damages caused by smoking.
- Post "No Smoking" signs in the building and throughout the grounds.
- Provide a marked designated outdoor smoking area at least twenty-five feet away from windows and doors to accommodate tenants who smoke.
