As a landlord, you should think of yourself as a business owner: your rental is your asset, and your tenants are your clients. You must protect your investment by taking care of it. Managing your finances responsibly, keeping up your property, and being prepared for potential problems will make your "business" thrive. This guide will help you understand what is expected of you when you invest in self-managed rental properties.
Key Point Module
- 1 Twenty-three states have specific rules for security deposit funds.
- 2 You can be liable, even fined, if your tenants interfere with a neighbor’s comfort due to noise, drugs, or other criminal activity.
- 3 Consider increasing your liability insurance to manage the increased complexities of managing commercial rental properties.
- 4 The FHA protects tenants falling into protected classes from discrimination during the screening process.
Table of Contents:
- What Is A Landlord Responsible For?
- Landlord’s Responsibilities to Their Tenants
- Rental Property Responsibilities For Landlords
- Landlord’s Legal Responsibilities
- Landlord Responsibilities After a Fire
- Hotel Expenses During Maintenence
A landlord is obligated to fulfill a “warranty of habitability“, meaning the tenant has the right to a safe, livable, and clean rental. You will also need to manage finances including taxes, utilities, and insurances, and ensure you follow all rules set by the FHA and FCRA, as well as federal, state, and local regulations.
When it comes to specific responsibilities to tenants, a landlord has many, but they all generally fall under the categories in the following table and primarily center on providing a safe and habitable unit, using state and local regulations. Safety and habitability includes not only the immediate environment within the unit, but the common areas on the property, as well as potential problems such as mold and pests.
Keep Up with Safety Codes
Safety codes vary according to type of structure and your state and local laws. For each section below, you will need to perform research.
|Safety Codes and Descriptions|
|Lead Paint||If your rental was built before 1978, you must provide a lead paint disclosure form and pamphlet explaining the risks of lead paint to your tenant.|
|Mold remediation||If mold is found, you may be required to clean it up and address the cause. Read more and check your state laws here.|
|Occupancy Standards||Occupancy standards differ based on type of building and state laws, so you will need to determine what the maximum tenancy is for your rental. Living rooms and dining rooms may count as rooms of occupancy.|
|Smoke and Carbon Monoxide Detectors||The amount of smoke and carbon monoxide detectors required in a unit depends on various factors such as state laws, amount of appliances in a given room, etc.|
|Keep Common Areas Safe||You must keep any common areas, such as laundry rooms, hallways, and garages free of hazards.|
|Window Guards||You may be required to install window guards if requested in writing by a tenant with a child ten years or younger who lives or regularly spending a lot of time there.|
|Snow Removal & Other Weather-Related Laws||If you live in an area with heavy snowfall in the winter (or other adverse weather), you may be required to make sure the sidewalk is free and clear.|
|Pest Control||The landlord must provide a pest-free property. (If the renter is responsible for an infestation, they can be held liable.)|
Responsibilities not related to the unit’s immediate environment are also very important. Along with general property maintenance, you will need to ensure your financials are in order, and maintain multiple insurance policies to cover the necessary protections for yourself and your tenants. The following table goes over these expectations in more detail.
|Responsibilities and Descriptions|
|Keep up Property Maintenance||Many disputes arise from maintenance or habitability issues. Save yourself time and effort by knowing your responsibilities before problems arise. Start by checking with your city or state housing office for information on specific maintenance and repair duties for rentals. Some states, such as California, offer an outline of landlord and tenant maintenance responsibilities online. Landlord or property manager associations can also provide helpful information.|
|Who cleans the gutters?||It depends, and should be outlined in the lease based on state laws and type of property. Generally, single family home tenants would clean gutters, but in a multifamily unit this would fall on the landlord.|
|Performing Repairs||You are responsible for maintenance and repairs to the property. Peeling paint, clogged drains, faulty devices, etc. should be fixed. This also protects you, as ignoring minor problems could mean costly repairs and tenant conflict down the road.|
|Pay Mortgage||It seems obvious, but staying on top of your mortgage payment is essential. If you are more than 60 days late, your credit score could be affected. 90 days? You’ll default, which means foreclosure is on the horizon, by the bank or by the city for unpaid taxes and fees. Be responsible – set aside money and pay on time.|
|Insurance||Most lenders require proof of insurance before providing a loan for a rental property. You may need to set up an escrow account to pay your insurance policies. Your tenants should get a renters policy as well. $5-10 a month means coverage for possessions that are not covered by you, and increased peace of mind for everyone.|
|Pay Utilities||The lease determines who is responsible for certain utilities. Location can also determine the standard practice. In some cities, landlords typically pay for garbage and water. You don’t want to leave a utility bill languishing and get foreclosed by the city!|
|Setup Landlord Utility Accounts||You may want to consider a landlord connection service, which is offered by most utility companies This allows you to find out if a tenant has put their name on and turned on utilities, and eliminates time spent waiting for service hookups.|
Commercial landlord responsibilities
Commercial landlords have additional responsibilities. Make sure the property abides by commercial building codes and commercial insurance laws. Consider increasing your liability insurance to manage the increased complexities of managing commercial rental properties.
The Fair Housing Act (FHA) and the Fair Credit Reporting Act (FCRA) regulate the tenant selection process to ensure accuracy and fairness. The FHA protects tenants falling into protected classes from discrimination during the screening process. The FCRA places regulation on the manner in which a landlord or property manager obtains and handles person information when reviewing an application for tenancy. These acts are essential reading in their entirely for any landlord, but a summary is provided below.
FHA (Fair Housing Act)
Tenant screening is the process by which landlords find tenants to occupy rentals. The Fair Housing Act prohibits discrimination concerning the sale, rental, and financing of housing based on race, religion, national origin, sex, disability, and familial status. It is your responsibility to make sure your screening practices are free of discrimination. A violation can cost you.
FCRA (Fair Credit Reporting Act)
You may wonder why the Fair Credit Reporting Act (FCRA) is relevant to you. It was enacted to ensure the accuracy, fairness, and privacy of consumer information, and so regulates the collection, dissemination, and use of this information, including credit data. You will collect such information, so you must properly handle and protect it. Keep rental applications in a secure environment, and obtain written consent (as part of the application) for a background check and to contact old employers and previous landlords.
Issue Adverse Action to Denied Applicants
You are required to issue adverse action to a denied applicant, and to do so in a lawful manner free from discrimination.
Landlord Legal Responsibility to Neighbors
ou can be liable, even fined, if your tenants interfere with a neighbor’s comfort due to noise, drugs, or other criminal activity. Quiet hours and related rules should be outlined in the lease.
Landlord’s Right to Enter
Your tenant is entitled to privacy, so many states dictate the circumstances of lawful entry. Landlords can only enter:
- To make repairs or assess the need for repairs (check your state laws)
- In case of emergency
- To show the property to prospective tenants
In most states the landlord must notify the tenant before entering the property, and give specific notice such as 24-48 hours.
Twenty-three states have specific rules for security deposit funds. For example, in Kentucky, if a tenant damages the rental before leaving and you want to go to court, you must show the security deposit was kept in a separate account from other funds and that the tenant is aware. If this is not done, and you attempt to take legal action, you may not be able to keep the security deposit.
Up Front Fees
You can hedge your liabilities by charging fees upfront to tenants, such as first and last month’s rent, a security deposit, and application fees. These fees are regulated by state. Example: in Massachusetts, you cannot charge any fees up front, even for an application.
Landlord’s Responsibility for Not Renewing a Lease
Again, this will vary by state. It is standard practice to notify a tenant 60 days before the end of the lease if you plan to not renew. This also gives them time to find a new rental.
Pet Deposits and Emotional Support Animals
A no “pets” policy does not apply to emotional support animals or service animals. Even though an ESA is not typically trained like a service animal, they are authorized by a healthcare provider, so if a tenant furnishes proof their pet is an ESA, you must accommodate them and cannot charge them a pet deposit. Denying an application on this basis can count as discrimination.
A fire is a landlord’s worst nightmare, and dealing with the aftermath is a complicated undertaking. Even if you think it could never happen, you’ll benefit greatly if it does and you are prepared. This section provides an overview of what to do immediately after a fire, and in the subsequent days.
Immediately After the Fire
- Get a fire officer’s contact name and number.
- Contact your insurance agent to file a claim.
- Get a list of recommended fire damage restoration companies from your insurance and set up an appointment as soon as possible.
- Make sure your tenant is unharmed, and see if they have any information about how the fire started. If so, take notes.
- Have your tenants contact their own insurance company for temporary housing. If they don’t have renter’s insurance, the American Red Cross provides for emergency needs.
- Ask the fire officer when you and the tenant can walk through with them to assess damage and collect any personal belongings. Don’t enter without permission from the fire department.
Days After the Fire
- Take photos of all damage. Collect photos of how the property looked before the fire
- Write an inventory of destroyed/damaged property, including structural damage.
- Prepare a detailed list (make/model) of damaged appliances.
- Get a copy of the fire report from the fire department.
- Do not work on repairing the property before meeting with the fire damage restoration company.
- Lock doors and windows, covering openings with plastic sheeting as needed.
Who Pays For Fire Damages?
You are responsible for cost of fixing structural and systemic fire damages, but that doesn’t mean it will be out-of-pocket – your homeowner’s policy should apply here. A tenant’s lost property is not your responsibility, which is why renters insurance is highly recommended.
Even if a fire is clearly the tenant’s fault, your insurance will contact the tenants for compensation if there is a liability portion on the policy. If the tenant doesn’t have renters insurance, your policy may seek them out directly. You may want to include language in the lease stating that if a tenant causes fire, they must pay the deductible at minimum.
If a tenant can prove that you were responsible or negligent, they may be able to get compensation.
Restoring Your Property to a Habitable State
You are responsible for ensuring the property returns to a habitable condition. Fire restoration officials can provide documentation to this effect once the work is completed. Never attempt restoration yourself – it requires expertise and proper equipment. It is important to attend to restoration right away as smoke, water, and fire damage can quickly weaken a structure.
Sometimes a repair or natural disaster will make a unit uninhabitable, and tenants may stay at a hotel. But how will you know if you are obligated to pay for it?
When Would Tenants Acquire Hotel Bills?
The easiest way to deal with relocation issues and avoid misunderstandings is to have a clear policy written into the lease beforehand. Some tenants assume that the landlord’s insurance covers relocation costs, and expect reimbursement. However, your insurance does not cover costs associated with tenant relocation or damaged belongings. This is why you should require your tenants to have renters insurance.
When Should a Landlord Pay Hotel Bills?
Mostly never. There should be a clause in the lease stating what happens in the event the unit is uninhabitable due to unplanned circumstances. If the event is not in your control, you are usually not liable for hotel bills.
If the unit has to be vacated for a few days, prorate the rent for the number of days. If you did or did not do something to cause the problem, your tenants could petition for hotel reimbursement directly or through small claims court.
If you schedule a fumigation or remodel that requires tenants to vacate for a short period, you can accommodate them by covering reasonable hotel costs, or prorating the rent for the days the unit was uninhabitable. It’s up to you, but be fair, and be specific – for example, if the property becomes uninhabitable for more than 5 days, then tenants are released from the lease.
If the unit is uninhabitable for an indeterminate period, many states require that the landlord returns the deposit and releases tenants from the lease agreement, prorating any rent already paid. You shouldn’t need to cover a hotel – a renters insurance policy should cover that.
You must comply with all laws regarding uninhabitable properties. Consult with an attorney to ensure all your bases are covered, and be aware that in many states, tenants can break a lease without penalty if the rental becomes uninhabitable and it is not their fault.
Landlord Responsibilities By State
Landlord responsibility laws vary by state. The list below includes important items to research:
- What is the maximum security deposit you can collect?
- Are you required to keep the security deposit in an interest-bearing account and give the interest to the renter?
- Are you required to keep the security deposit in a separate account?
- What is the deadline for returning the security deposit?
- Does your state have restrictions on pet deposits?
- What are the laws governing rent increases and how to notify tenants?
- Are grace periods for late rent payments allowed by law?
- Are there any rules or fees for checks with insufficient funds?
- When will you need to perform a move-out inspection?
- What is the timeframe for an eviction notice for nonpayment?
- If your tenant violates the lease, what is the timeframe that you can serve a remedy or quit notice?
- If you need to enter the unit, what notice are you required to furnish?
- What are your rights to enter the unit in an emergency?
- If you go to court, what is the limit for damages?
Being a landlord is an important undertaking, but you can reap big rewards and make it as hassle free as possible if you do your research, stay on top of your responsibilities, and follow the law.