Most landlords understand the importance of business savvy and industry knowledge, but legal knowledge has not always been an important factor in running a landlord business. In recent years, states have begun to more closely regulate most aspects of renting properties. To avoid getting into trouble, make sure you don’t make any of the following common legal mistakes, or consider using a property management company to ensure you’re on the right side of the law.
1. Using the wrong lease form
It’s important to have lease forms that comply with state laws. A common mistake is to buy a generic form that is sold in stores. These so-called “standard” forms may not include all the tenants’ legal rights, and they may also impose greater restrictions and obligations on the landlord than the state requires. Using such a lease could place you at a disadvantage in a courtroom situation or make you vulnerable to a lawsuit.
2. Fair housing issues
The most important aspect of a landlord business is choosing the right tenants. The wrong decisions can result in not receiving rent payments or damage to property. In spite of this, landlords must be careful about the questions they ask during the screening process. If a tenant is rejected for reasons they believe are discriminatory, you could come under fire from a fair housing lawsuit. To prevent this problem, avoid asking questions pertaining to marital status, disabilities or other areas protected by discrimination laws. Another common mistake arises with families with children. Although children can cause property damage and excessive noise, it is illegal to deny tenants because they have children.
3. Failing to deliver on promises
In the competitive rental market, it’s often advantageous to list many perks and amenities of your property, but make sure the tenant gets everything as advertised. Failing to do this may allow the tenant to break the lease and sue for the value of what was not delivered. Even if the tenant doesn’t win, it still costs time and money to go to court.
4. Violating a tenant’s right to privacy
Be aware of your state’s rules for tenant privacy rights. This includes any unapproved visits to the property to look things over, make repairs or show the property to other prospective tenants. If you have a property management company that is looking over a property for you, make sure they are fully aware of your tenant’s privacy rights as well. A privacy violation could result in a court order that excuses a tenant from paying the rest of the rent on the current lease, plus additional damages for privacy intrusion.
5. Unsafe conditions
It’s important to know the local and state requirements for health and safety in and around your rental property. These requirements are set forth in building codes, health ordinances and landlord-tenant laws. Make sure to promptly deal with environmental hazards, attend to important repairs and solve security issues that could make the tenant’s space vulnerable to criminals. Otherwise, the tenant may break the lease or make the repairs themselves and deduct the costs from the rent.
6. Excessive Late Fees
Although late fees are an effective motivation for tenants to pay on time, you shouldn’t be unreasonable. The fees should fit the amount of cost incurred to you when the rent is late. A late fee that can’t be justified in court will usually be ruled in favor of the tenant. If a tenant is habitually late, it’s better to serve warnings of eviction than to overcharge with late fees.
7. Misusing and failing to return security deposits
Even if a tenant breaks a lease, it’s still a mistake to keep the entire security deposit, even if the money is needed to cover unpaid rent after the tenant leaves. The tenant’s violation of the lease does not legally empower the landlord to withhold the security deposit. Also, it’s a mistake to use the security deposit for projects such as new appliances or redecorating. The deposit should only be used to fix damages or do cleaning that is necessary to restore the property to its original condition.
Some states require the landlord to document all uses of the deposit and return the remaining balance to the tenant. Be aware of the specific regulations of your state and local government for handling security deposits. The deliberate withholding of security deposit funds could result in the landlord having to pay two or three times the amount of the deposit back to the tenant.
By keeping these common mistakes in mind, you can avoid some of the pitfalls that could spell disaster for your landlord business. To be successful as a landlord, it’s important to do plenty of research about proper procedures and regulations.