Landlord's Legal Kit For Dummies
Being a landlord certainly sounds easy. All you have to do is line up responsible residents, maintain the property, and count your money as the rent rolls in, right? Actually, no. Owning and leasing residential real estate requires that you comply with a host of federal, state, and local laws. Certain residents may complicate your life by taking legal action against you or forcing you to take legal action against them. This snapshot explains some important landlord legalities and helps you avoid the most common legal pitfalls of owning and leasing residential rental property.
Brushing Up on Fair Housing Laws
The federal Fair Housing Act prohibits you, as landlord, from discriminating against or giving preferential treatment to people based on a protected class — a characteristic that can't be used to discriminate against or in favor of an individual or group. The Fair Housing Act specifies the following seven protected classes:
Race: Ethnicities or cultures, including African American, Caucasian, Hispanic, and Asian. Some interpretations may include designations that would seem to belong to other protected classes, such as Polish or Jewish.
Religion: System of belief, such as Christian, Muslim, Wiccan, or atheist.
National origin: The country or area a person was born in, such as Canada, Mexico, the Middle East, Nigeria, and even the United States.
Sex: Physical sex — male or female. Sexual harassment is recognized to be an element of sex discrimination.
Color: Skin color or shade, which may seem to be the same thing as race, but whether or not someone knows another person's race, they may discriminate based on lightness or darkness of skin.
Handicap: Physical or mental handicaps or disabilities, including hearing and visual impairments, chronic alcoholism, HIV/AIDS, depression, hoarding, allergies, and more.
Familial status: Whether a household includes minors. Pregnancy is also protected. An exception does apply to bona fide senior housing.
State and local laws may extend protection to additional classes, including age, marital status, income source, and sexual orientation.
Careful screening can help you avoid legal issues, because you have less need to take legal action against good residents, and they're less likely to file legal claims against you. To screen applicants, take the following steps:
Have the person complete and submit an application.
Order a credit and background report for the prospective resident.
Contact the applicant's employer to verify the applicant's employment or check other sources of income.
Check recent paystubs, W-2s and 1099s, the previous year's tax return, and a recent bank statement.
Contact the applicant's personal references and ask questions about the person's character and reliability.
Contact any landlords the applicant rented from in the past and ask about payment history, the condition the applicant left the property in, and whether the applicant caused problems with her neighbors.
Interview the applicant in person.
When screening prospective renters, you must comply with fair housing laws, so certain questions are off limits. You can gather information about a prospect's employment status, income, credit history, housing history, and criminal past, but you're prohibited from asking an applicant whether she has children, what country she's from, which church she attends, and so forth.
Establishing Security Deposit Policies and Procedures
One of the most common sources of landlord-resident disputes is the return of security deposits. To prevent confusion and disagreements, make sure you establish security deposit policies and procedures that address the following:
Amount: Usually no more than the equivalent of one- or two-month's rent. Some states and municipalities have specific limits.
Due date: Usually due at the signing of the rental contract.
Allowed uses: State and local laws usually allow landlords to use security deposits only to cover unpaid rent, damages to the unit beyond ordinary wear and tear, cleaning expenses (only to make the unit as clean as it was when the resident moved in), and to restore or replace damaged or missing property, including keys and appliances furnished with the unit.
Where the deposit will be held: Even in states when it is not required, deposit all security deposits in a separate interest-bearing account and pass along any interest earned to the resident when you return any unused portion of the deposit.
Return of the unused portion: Check on the required maximum number of days you're allowed to hold any unused portion of the security deposit before returning it to the former resident, and return it earlier if possible.
The security deposit is the resident's money. Don't treat it as another source of income, because doing so may get you into legal trouble and tarnish your reputation as a fair landlord.
Meeting Your Landlord Legal Obligations
As a landlord, you have certain legal and ethical obligations to your residents that are rarely spelled out in the rental contract, including the following:
Maintain habitable living conditions. According to the implied warranty of habitability, you must provide residents with dwellings that are fit for human occupancy.
Address safety issues. Comply with all local building, fire safety, and pool and hot-tub safety codes; provide sufficient exterior lighting; maintain walkways, stairwells, and railings; secure any construction sites; enforce pet policies; and address safety issues within rental units by using safety glass, ground fault protection outlets, and safe-cord window coverings, where necessary.
Disclose and address environmental hazards. Let residents know about any potential environmental hazards, including lead paint, toxic mold, carbon monoxide, asbestos, and methamphetamine contamination, and take any steps necessary to mitigate risks.
Protect residents from criminal activity. Enforce your policies consistently and work with local law enforcement to minimize crime in your facility.
Honor the resident's right to quiet enjoyment. Enter a resident's premises only in an emergency or after giving 48 hours' advanced notice to perform essential inspections or repairs or to show the unit to a prospective renter or buyer.
Dealing with Cotenants, Sublets, and Assignments
Residents often need or want to take on a new roommate, sublet the rental unit, or assign their rental contract to someone else. To deal with these types of situations, consider this advice when you’re a landlord:
Require that all prospective roommates be screened and added to the rental contract.
Prohibit residents from subletting their rental units. When a resident sublets, the new resident has no legal obligations to you under the contract.
Prohibit residents from assigning their rental contracts without your written consent and only on condition that the assignee be screened and approved by you.
Except for children and other dependents, everyone living in one of your rental units should be screened and approved and required to sign the rental contract.