Tuesday, February 14, 2012

Being a Landlord

Being a real estate investor is a great business, if you have the stomach for it.

Being a landlord is not easy. Some time ago, I wrote about “Suddenly Landlords,” people who could not sell their home and instead decided to rent them out until the market improved. Today, many of the leases on those homes are ending...and these landlords are facing new challenges.

“Suddenly Landlords” are now preparing once again to have vacant properties. When tenants move out, there is often some damage to walls, floors, carpets and other components of the home that often just simple wear and tear. These landlords then quickly figure out that they need to possibly shell out money to make these small repairs in order to list their home again.

But what happens when tenant issues are worse than just a few touch-ups?

A “Suddenly Landlord” I know currently has a vacating tenant. This landlord was just informed two days ago of the impending vacancy of her home. While the lease is not officially up until April, the tenant will be leaving at the end of February and does not plan to pay any rent after that. Oh, and they also won’t pay the February rent because they requested that the landlord take that money out of the security deposit.

A situation like this is certainly at the top of the list of nightmare scenarios for landlords. What can they do if a tenant breaks a lease?

The landlord conferred with an attorney and sent out a certified letter detailing the parts of the lease the tenant was in violation of, along with a copy of the lease. First, the tenant was breaking the terms of the lease by choosing to vacate the property earlier than was agreed to. Secondly, the tenant cannot choose to use the security deposit to pay the last month’s rent, as that is against the terms of the lease.

Most landlords are caught off guard and are just dumbfounded when this happens. Beware -- this is a common occurrence in the landlord business. If you use a lease that is not detailed enough, a landlord can lose their rights over certain issues.

First, leases should detail everything a landlord wants and needs, from when rent is due and how it is to be paid, to who is expected to maintain the property. Often, a boilerplate lease is not enough for most landlords.

Secondly, it is very important that a rental agreement contain a good security deposit clause. The security deposit clause should explain the circumstances of the deposit, and under what conditions the landlord may use that deposit. The clause should also explain how security money may not be allowed to be used as rent. The landlord should also detail how the security deposit will be kept- will it be an interest bearing account, and how will it be paid back.

The tenant quickly responded by texting my “Suddenly Landlord” friend, saying, “I know all about the tenancy laws, and of course I can leave whenever I want, plus you will use the security deposit as my last month’s rent because I am not paying you anything more. And no, you can’t show the house before I move out.”

Thank you very much, Mrs. Tenant.

What recourse does a landlord have? Well, they can sue a tenant for breach of contract. However, often the process becomes expensive and time-consuming, so each situation needs to be weighed carefully. In addition, a landlord does want to try and protect the relationship as much as they can before a tenant vacates their property.

Once a tenant has informed a landlord of their intentions to move, depending on how much time is left before the lease is over, the landlord may want to immediately begin looking for a new tenant. However, if there is no showing clause in the lease, a tenant has the right to decline viewings until they leave.

In some cases, the real estate market has improved enough for many “Suddenly Landlords” to try and sell their property once again. However, many of them are finding that without a showing clause, tenants can legally prevent showings to any potential buyers until they vacate.

Research is key. Before renting to any tenant, a landlord should always meet with them. They should also consider the risks and responsibilities of renting out to others. Unfortunately, today there are so many tenants who know how to use the system, they know how to make a landlords life extremely difficult.

Even experienced real estate investors make mistakes, but through the years they learn more about how to protect themselves. Lucy, an investor of over 20 years in Red Hook, N.Y., is aware of this.

“I always meet with my tenants and make sure they understand every part of the lease and what our agreement will be. When we do it in person, it is putting a little more pressure on each party to hold up their end of the bargain," Lucy said.

Lucy also recommends making the lease easy to read. “I pretty much baby-proof the lease. I don’t use too much legalese because I want to make sure tenants can read and understand every word in there.”

When asked if this always works, she said, “Almost always. There are always a few tenants out there who know the system really well, and they know they can take advantage of the laws in New York because they tend to be very tenant-friendly.”

Landlords should always consult the expertise of a real estate attorney before signing a lease. Oftentimes, a landlord will try to save money by obtaining a standard lease themselves instead of hiring an expert. In the end, the attorney’s fee might just save a landlord lots of headaches, heartaches and loss of sleep.

When asking my “Suddenly Landlord” friend if she plans to rent her house again, her reply was “The house needs to go. I really miss a good night’s sleep. Landlording is just not for me.”

About this column: Rose Marinaccio is the Office Manager of Five Corners Real Estate and writes a weekly column on real estate issues in the village. You may reach her by email at Rose.Marinaccio@evscarsdale.com or at 914-723-5555.

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