Articles in This Edition:

• Eliminate bedbugs with a PEST plan.

• Don't become powerless over utility bills!

• Ledger cards - a powerful tool or a curse?

• Rent collection strategies - how to keep the money coming in.

Eliminate bedbugs with a PEST plan.

We recently gave a seminar for the CT Chapter of IREM (Institute of Real Estate Management) on legal strategies for handling bed bug issues.  Because of popular demand, we decided to share the basics of that discussion with you in this month’s newsletter.

The most important aspect of dealing with bed bugs, or any infestation for that matter, is to have a plan in place that you can, and do follow.  Handling infestations cannot be a reactive process.  You cannot wait until you learn of a problem before you determine how you will handle it.  By the time you learn that there is a problem, it will already be significant.  You WILL have an infestation of some kind.  Plan on it and be ready when it happens.

Here is a simple formula to help you develop your infestation strategy – it’s your PEST plan.

Prevention.  Discuss with your pest management company the various things you can do to help prevent infestations.  Whether its preventative treatments, inspection plans, or other strategies, find out what you need to do to help prevent bugs in the first place.  Perhaps education of your residents would be part of that plan.  Also, discuss with your landlord attorney the policies and procedures you can implement to prevent infestation.  Case in point: We have a client who happened to be at a recent move-in and noticed bed bugs on a mattress headed for the unit.  She promptly stopped the movers and had them immediately remove the mattress from the building.  She informed the resident that she was not allowed to bring her furniture into the unit if it was infested.  A great example of an effective PEST plan at work.

Extermination.  Again, your pest management company is your best resource for the treatment plan.  Know how you will handle whatever infestation you are facing and be ready to institute your plan.  You have all faced the situation where you have a treatment plan in place but your resident interferes, won’t let them in, or failed to properly prepare for the treatment.  Knowing how you will react to this situation requires the next part of the PEST plan…

Sound Documentation.  It all starts with a good lease that contains infestation clauses that support your PEST plan.  Your community rules and regulations are also a vital part of the documentation you will need to implement your PEST plan.  Lastly, your communications with your residents and your pest management company will round out the necessary documentation to implement and enforce your PEST plan.  Once you have your prevention plan in place, your extermination plan in action, and all of it is supported by sound documentation, you may find yourself with no choice but to exercise the last step in the plan…

Don't become powerless over utility bills!

Landlords often struggle with utility bills – not their own, but their tenants’ failure to transfer the utility service to their name (and from the landlord) and/or pay their bills (and force a utility shut-off).  Landlords then incur significant time loss and expense as they attempt to get the tenant to comply with the lease requirements on utilities.  How can landlords deal with this seemingly intractable situation?

Landlords must recognize that they can exercise significant control over this situation.  They must make business decisions about tenant selection, lease provision(s), and lease-up / lease termination processes regarding utility service issues, and then implement those decisions.  In short, they must have a plan and process(es) in place well before they lease-up a unit. 

Landlords must ask and answer four key questions to develop that plan and process(es).  Is the landlord willing to:

1.      Create clarity on utility service issues in the tenant application and lease?

2.      Lease a unit to a prospective tenant who has utility service payment issues on his/her background check and/or credit report?

3.      Give the tenant keys to (and, therefore, possession of) the unit without confirmation that the tenant has transferred the applicable utility service(s) to the tenant’s name?

4.      Allow the unit to have no utility service if the tenant fails to pay the bills, or does the landlord want the service transferred into its name to ensure uninterrupted service?

Landlords cannot rely on stock tenant application and lease language to adequately protect themselves on utility issues.  The tenant application must specifically inquire about the tenant’s history with utility services and provide a release for the landlord to ask the utility companies about that tenant’s actual payment history.  The lease must address all of the landlord’s business decisions reflected in Questions ##3 and 4 above, and what the tenant must do (and what happens to the tenant) in any of those situations.

At the lease application stage, nonpayment of rent and/or utilities is a leading indicator of a problem tenant.  Landlords should ensure that their tenant selection process includes checking with prior landlords about these two issues, confirming the answers with the utility companies themselves, and ensuring that their credit report screening flags an applicant’s utility billing/payment issues.

During lease-up, a landlord can require that the tenant obtain a form or letter from the utility company confirming that the tenant has placed the utility in his/her name before giving the tenant the keys.  Alternatively, the landlord can create a form acceptable to the utility on which the tenant instructs the utility to place the service in the tenant’s name as of the lease term start date.  The landlord can require that the tenant sign the form (in compliance with the lease) during the lease-up process, and then simply fax, email, or mail that form to the utility to ensure that the utility handles the billing correctly.

Finally, before a utility shutoff can occur, the landlord must decide what is more important – avoiding any utility bill for a leased unit, or allowing the utility to transfer the bill to the landlord’s name to keep the service intact (e.g., to keep the heat on in the winter to avoid frozen, and maybe broken, pipes and the resulting water damage).  If the landlord chooses to allow utility shutoff, the landlord must be prepared to give the utility company access to the meter or tenant’s unit to shutoff the service.  (Apparently, this has become such a problem that the utility companies are pursuing a bill in the State of Connecticut legislature this year to mandate such access and provide for sanctions if the landlord or property manager denies access, including the utility company’s costs and attorney’s fees and the utility service charges.)  Moreover, the landlord must be ready to refer the tenant to its attorney for injunctive relief and/or a summary process (eviction) action to get a court order forcing the tenant to pay for and resume the utility service or lose possession of the unit.

If the landlord chooses to have the utility company automatically transfer the service into its name to protect the unit, the landlord must take steps to ensure that it is notified of this event when (or, even better, before) it happens.  Unfortunately, landlords often rely on the utility company’s own form for this situation, and therefore do not learn about the utility billing issue until it receives a bill for the unit as much as 30-40 days after the switch.  As above, the landlord must also be ready to take the appropriate legal action against the tenant to resolve the situation.

Ledger cards - a powerful tool or a curse?

A ledger card is an accounting of the landlord’s charges to the tenant (including rent, late fees, damages, repairs for which the tenant is responsible, and legal fees and costs) less the tenant’s payments to the landlord.  It exists to support the landlord’s rent (or other charges) collection and summary process (eviction) cases when the tenant refuses to pay.  Sounds simple, right?  Unfortunately, problems often arise for landlords in one or more of three main areas regarding their ledger cards, which can severely undermine their collection and litigation efforts.

First, the landlord’s accounting system automatically applies tenant payments first to the current month’s rent and then to older amounts due.  This is not necessary in Connecticut, where landlords may contract with the tenant (i.e. in the lease) that tenant payments are applied to the oldest amount due first.  The advantage of this system is obvious – if the tenant owes the landlord for property damage by the first of the next month, and the tenant only pays his/her rent, the landlord may apply the payment first to the property damage amount due and then to rent, which will leave the tenant subject to a nonpayment of rent summary process (eviction) action.  This puts the landlord in a very strong negotiating position to collect amounts due from the tenant.

However, it is not enough for the landlord to have that lease provision – the accounting system must actually work that way.  If it does not and applies tenant payments to rent first, the landlord is not following the lease and is undermining the lease’s authority and legitimacy.  If nothing else, the landlord will have created a situation where he/she must rely on a housing court judge to uphold the lease’s no-waiver clause (if it has one) over the “actual” business practice.   Moreover, even with a no-waiver lease clause, the judge will likely hold the landlord to the accounting system’s approach, particularly if the landlord shared a copy of the ledger card with the tenant, which often happens when charge and payment disputes arise between the landlord and tenant. 

Second, the accounting system does not allow for corrections to the actual entry itself – rather, it creates a new line on the date of the correcting entry.  While this creates audit clarity, it is destructive in the practical, real-world application of ledger cards between landlords and tenants.  Depending on the issue (e.g., a mistaken charge or NSF check from the tenant), these landlords and their agents (like accountants or attorneys) must attempt to cross-reference each correcting entry against an earlier entry to realize the “actual” entry.  Moreover, housing court judges facing large dockets do not appreciate it when complicated explanations are necessary to get to the actual entry. 

Third, the landlord does not have a written ledger card (or one that he/she can print from a computer).  Surprisingly, many landlords use either their head or a receipt book to keep track of their tenants’ accounts.  Trying to keep a mental accounting is usually exhausting for the landlords (they never have a chance to really stop thinking about their tenant accounts), is prone to confusion and mistakes, and can foster a “he said – she said” situation in court over amounts due that are not specifically defined in the lease (e.g., charges other than rent).  Also, if the landlord (or his/her representative) changes, the tenant accounting is gone.  In general, the lack of a paper trail is helpful to tenants in lease enforcement actions, not the landlord. 

The receipt book approach is slightly better because it captures the tenant’s payment history.  However, the receipt book does not contain the charges to the tenant, so the landlord will not be able to produce a full accounting with that tenant in one source.  Also, landlords often misuse the “Balance Due” section, which is meant to capture the full amount that the tenant owes to date– not just the amount that the tenant still owes for the month captured on the receipt.  This is a critical issue because housing court judges expect landlords to identify easily and concisely what tenants owe.  Finally, if the landlord loses the receipt book, the tenant payment history is gone. 

As discussed, ledger cards can be a powerful tool or a curse.  Landlords should consult with a landlord attorney (particularly one with trial experience) about their ledger cards.  The landlord attorney can assist the landlord with developing and implementing the appropriate lease language, ledger card format and function, and operational policies and procedures necessary to support both effective rent (and other charges) collection and summary process (eviction) actions when the tenant fails or refuses to pay.  [TOP]
 

Rent collection strategies -
how to keep the money coming in.

Several times a year, we give a seminar titled “Get the Rent…or…Get them Out” where we discuss rent collection strategies that allow management to collect more rent with less effort.  With the current state of affairs in the multi-family industry, those strategies could not be more relevant.

A common theme we are hearing throughout Connecticut is that occupancy rates are either down or trending downward and the efforts to fill vacancies are in high gear.  I won’t pretend to know all of the factors that are affecting occupancy rates, but whatever the cause, the net result is the same across the state - management must direct considerable resources to the efforts to find, screen, and move-in residents.  With resources already limited, and in some instances, shrinking, that means other vital functions of management are left unattended or intentionally ignored.  Rent collection is one such vital function that, with effective policies and procedures in place, need not suffer from inattention.

One strategy to keep rent collection from suffering while you are focused on occupancy is to establish a policy where you don’t become a “Rent Chaser.”  A Rent Chaser is someone who, after the resident fails to pay timely, expends a significant number of hours trying to get that rent check in the door.  You can spot the Rent Chaser because they send multiple reminder notices, make several phone calls, sometimes even pay a personal visit to the resident, all between the 10^th and the 25^th of the month, only to be faced with another round of the same after the resident’s repeated promises to deliver the check go unfulfilled.  Often, the Rent Chaser finds they are doing the same dance the following month and the month after that.  To find out if your rent collection strategy has you chasing the rent, click here to evaluate the amount of time you are spending trying to get the rent.

The core of your relationship with your residents is that they are allowed to live in your apartment unit if they pay you a monthly rent by the first day of each month.  It is that simple.  You do nothing that interferes with their right to occupy the unit.  The only effort you should spend each month concerning the rent is completing the deposit slip for the bank when you get the check.  Beyond that, your rent collection strategy should accommodate other management needs, like filling occupancies and handling maintenance needs.

A significant tool for ending the rent chase is effective enforcement of your legal rights under your lease when your residents fail to pay the rent timely.  Your landlord attorney can discuss with you how they can serve your rent collection needs with little or no interruption to your other, pressing management responsibilities and help you get your units filled and get the rent due for those units flowing into your bank account.  They should help you eliminate the need to chase the rent from one month to the next, reduce the growing receivables for delinquent payers, while holding the residents accountable for regular timely payment.  They should also be able to do so at relatively low or no net cost to you.

While your focus remains and must continue to remain on filling vacancies, take advantage of this opportunity to really evaluate your rent collection strategy and incorporate effective enforcement of your legal rights into that strategy.  It will not only serve your immediate needs for other management priorities, it will serve your long term interests of eliminating the rent chase.  [TOP]

DISCLAIMER:
The reading of this newsletter does not form an attorney-client relationship. The contents of this newsletter are for informational purposes only and do not constitute legal advice. Nothing in this newsletter is intended to imply or predict the outcome of any legal matter that you may be considering or be involved in. The Landlord Law Firm makes no warranties of any kind regarding the information contained in this newsletter.