Articles in This Edition:

• Lessons learned from a disgruntled CT landlord.

• Accommodating the "problem tenant".

• Changing the rules about what's "fair' in fair housing.

• The importance of outlining your options and rights.

Lessons learned from a disgruntled CT landlord.

“Attention!!  Squatters live here.”  That’s what Jim’s sign says on his front lawn, with a big arrow pointing to the house next door.  The Connecticut Post recently ran a story about a landlord, who we’ll call Jim, who is rather angry with the three-year tenants living in the adjacent single-family home he also owns.  He is having a difficult time getting the tenants to vacate the home despite a judgment and court order that they leave the premises. 

While Jim has every right to be frustrated, the article fails to reveal Jim’s own actions that helped him get into this tight spot.  Let’s take a look at the circumstances as they are portrayed in the article and tease out some lessons that we can use to avoid finding ourselves in the same situation Jim faces.

Lesson 1:  Don’t let your tenants get 10 months behind in their rent.

Jim tells the reporter that the tenants owe him more than $17,000.  Question:  Could Jim have taken action a little sooner and reached a different result?  While not going 10 months without collecting rent may appear to be the obvious lesson here, the real lesson is a little more subtle.  Decide how “flexible” you want to be with rent collection and operate within that guideline.  Establishing these criteria will require more than just a gut feel for the situation.  You will want to know the answers to these questions: 

1. What are the financial risks of not collecting the rent currently and perhaps not at all? 

2. How much time and effort am I going to spend chasing the rent before I reach my threshold? 

3. If I don’t get the rent, am I prepared to take legal action in the most effective and efficient manner?

As most landlords know, you have the right to greatly limit your financial risk while expend no time and effort to collect the rent – all of it - no later than the 10^th day of each month.  You also have the right to take immediate legal action on the 11^th and demand that your tenant pay for such action.  What is your threshold?  Have you decided to exercise your rights and demand payment?

Revised Lesson 1:  Establish your tolerance level for delinquent payers, then set and follow your policy.
 

Lesson 2:  Never refuse money from your tenants.

Jim also shares that at some point in the past his tenants offered him $5,000 which he refused to take.  This certainly wasn’t payment in full, but it was more than he was getting.  Let’s be really clear, I am in no way suggesting that you should compromise the amount you are owed without thoughtful consideration of the circumstances.  But, I am suggesting that if your tenant owes you money, take it, document it properly, and ensure your tenant is aware that you expect the balance as well.  And, be sure they are offering you money, not a promise to pay. 

Your tenants already promised to pay you when they signed the lease.  Another promise to pay only highlights the fact that the first promise was already broken.  Ask them to show up at your office with a money order in hand and a proposal for satisfying their balance.  If they fail to show, don’t bring the money, or don’t have a satisfactory proposal, take immediate action.  In fact, unless they pay you the entire balance owed, be prepared to take action and formalize their proposal into a court enforceable judgment.

Revised Lesson 2:    Always take money from your tenants, properly document it, and continue to exercise your legal rights for ensuring the balance is paid (see our Quick Tip: Take the Money... It's Yours in our July edition for more on the subject).

 
Lesson 3:  Don’t rent to friends and family.

Well, not without careful consideration and forethought.  Jim tells our reporter that in the beginning, “It was all friendship and family” with his tenants.  Now they show “no signs of good faith.”  If you are a landlord, you are in business – period. 

Now, the question becomes, in what type of business are you?  Are you in a business to make money (your specific reason for making the money is not important)?  Are you in a business to provide charity?  If you are in the business to make money, you aren’t renting to friends and family.  That doesn’t mean your friends and your family cannot become your customers, clients, residents – whatever you call them.  It means that when they are your residents, they are part of your business. 

You must decide where to draw the line between your business and your personal relationship and work very diligently to be clearly on one side or the other when dealing with them.  As you start to blur the line, your ability to maintain your position from Lessons 1 & 2 becomes more complicated and you may end up like our friend, Jim.

Revised Lesson 3:  Anyone who rents from you is a customer, client, or resident and you should keep your personal relationship with them as separate and distinct as possible.

I want to thank Jim for letting us learn so much from his difficult experience.  Before you find yourself making yard signs and throwing in the towel, get good advice on how best to approach the situation you face and what your options are for seeing it through to an acceptable conclusion.  [TOP]

Accommodating the "problem tenant".

Here is the scenario – landlord receives a reasonable accommodation request from a “problem tenant.”  Residential tenant with a disabled child living on an upper floor of an apartment building requests a first floor unit from the landlord as a reasonable accommodation to address the child’s mobility-related issues.  The tenant fully complies with the landlord’s reasonable accommodation policy and procedures, the landlord determines that the tenant is entitled to the reasonable accommodation, and the landlord verbally commits to giving the tenant an available first floor unit. 

After making this commitment, the landlord belatedly realizes that the tenant is over five (5) months behind on rent, and decides to start a nonpayment of rent action against the tenant.  That done, the landlord fails to facilitate the tenant’s move to the first floor unit.  Landlord evicts the tenant in the nonpayment of rent case.  Former tenant contacts the State of Connecticut Commission on Human Rights and Opportunities (“CHRO”), which opens an investigation into the matter. 

This is a terrible situation for the landlord, because it has arguably violated the federal laws governing reasonable accommodation requests, despite the fact that the landlord was well within its rights to pursue a nonpayment action against the tenant.  Moreover, CHRO investigators and attorneys are part of the state government, and their investigation (and possible prosecution) of a claim against the landlord are without cost to the former tenant.  Obviously, this is not true for landlords, who must conduct and pay for their own defense. 

How could the landlord in this scenario have avoided this situation?  There are really two (2) separate matters at play here.

First, the landlord made the common mistake of not enforcing its rights in a timely manner.  The landlord would not have even faced the reasonable accommodation request before placing the tenant on a stipulated judgment, or evicting the tenant, had the landlord taken appropriate legal action after the tenant failed to timely pay the rent the first time (in the above scenario, five (5) months before the tenant made the reasonable accommodation request).  We covered the subject of rent collection in our May 2009 newsletter, and the key point here is that a landlord failing to enforce its rights timely can often lead to more complicated (and thus, more time-consuming and expensive) situations later, as in this scenario.

Second, even though the landlord has appropriately defined the tenant as a “problem tenant” for the failure to pay rent, there is no such thing as a “problem tenant exception” to the federal laws governing reasonable accommodations.  Under those laws, disabled residential tenants may request a “reasonable accommodation” to permit the tenant to enjoy the benefits of living in the apartment as a non-disabled person would.  Landlords must have a reasonable accommodation policy and procedures in place to address any such request from a tenant in a timely manner, and must execute that policy and procedure despite the tenant’s lease and/or statutory violations.

Landlords facing a reasonable accommodation request from a problem tenant often believe that they must choose between responding to the reasonable accommodation request or pursuing legal action to address the problem tenant issues.  This is a false choice – landlords can do both.  Landlords should have separate people (if possible) work on the reasonable accommodation and problem tenant issues, respectively, so that one process does not contaminate the other, while allowing their attorney to oversee and handle the legal aspects of both subjects.

For example, in this scenario, the landlord complained that transferring the tenant would have “required a new lease and abandonment of the nonpayment claim as to the former unit.”  This is not correct.  A well-drafted lease for the new unit and/or transfer documents could easily keep the landlord’s nonpayment case alive and well.

What if the tenant rejects the new lease and/or transfer documents because of the language retaining the landlord’s right to pursue a nonpayment of rent action?  Then the tenant is declining the offered reasonable accommodation, not the landlord refusing to provide the reasonable accommodation.  Remember, the reasonable accommodation laws exist to allow the tenant to enjoy the benefits of the apartment as a non-disabled person would.  Non-disabled tenants may not fail to pay the rent, so neither can disabled tenants.  Thus, memorializing that reality in the lease and/or transfer documents is acceptable.

Changing the rules about what's
"fair" in fair housing.

Well, it seems like a large number of clients, and landlords in general, have fair housing on the brain these days.  We have given a couple of fair housing seminars in the last few months and the requests for additional information and for additional presentations of a seminar just keep on coming.   

As we discussed in April’s Landlord Advocate, fair housing seems to be on everyone’s mind, not just the landlords.  Tenants and tenant advocacy groups are continuing their push to expand fair housing into areas not currently covered by law and to grow the “protected classes” beyond those presently included in fair housing laws.  Two such areas are worth discussing here because they have broad implications for all property owners and managers and you should at least be aware of the current trends in society that could shape tomorrow’s laws – “age-in-place” initiatives and criminal backgrounds.

But, before I get into the specifics, it is important to note that these two areas are not explicitly included in the fair housing statutes.  Nonetheless, the National Apartment Association [NAA] and the Institute of Real Estate Management [IREM], co-authors of “Fair Housing and Beyond”, cover both topics specifically in their course materials and caution landlords and managers to take notice of the ever changing “horizon” of fair housing laws.  Your best business judgment along with sound advice from your landlord attorney govern how much, if any, attention you give to these possible areas of fair housing discrimination and your policies surrounding them.

Let’s start with “age-in-place.”  You are probably already aware of the growth of “age-in-place” initiatives in the multifamily housing industry.  These are basically expectations that a resident’s continuing rights to enjoy the facilities and amenities you provide can become more challenging, both physically and operationally, as their age-based needs change.  One particular situation where this is creating some operational difficulties is the tenant who needs outside assistance or a live-in aide. 

Hopefully everyone reading this understands how to handle the situation where a resident needs an accommodation by way of a reserved parking spot because of their physical disability.  However, what if the circumstances were slightly different?  What if your tenant already has a reserved spot, but is now asking that their personal assistant or live-in aide be provided a spot?  Are you clear on how you would handle this request?  What if the request is for a frequent visitor who has a disability?  Is it possible that your tenant is entitled to an accommodation in order to receive guests in their unit?  Do you have policies that comply with the current law on this issue?  Are you prepared to address your current policies if the landscape surrounding this issue changes?

Think that one sounds difficult, how about criminal backgrounds?  There are some jurisdictions, CT included, that are proposing laws that will limit your ability to screen and deny applicants based on prior criminal conduct.  This concept has also caught some traction at the national level where NAA and IREM both suggest that, when evaluating an applicant, the specific crime and perhaps the specific circumstances surrounding the crime may be considered, instead of simply the severity of the crime (e.g. – felony versus misdemeanor) appearing on an applicant’s record. 

Perhaps disappearing are the days when “felony conviction” was the criteria you applied clearly and precisely, to everyone who wanted to live in your community.  Now, it is being suggested that the type of crime and its impact on the safety and welfare of your other residents is the more “forward thinking” approach to these applicants.  While they are not presently a protected class, convicted felons, or in sensitivity speak, “persons previously convicted of committing a felonious act,” are a group of people whose advocates are growing louder and more numerous, and whose influence over fair housing policy is following closely behind.  And, not surprisingly, even permanently registered sex-offenders are having their voices heard on this matter as well.   

Do you include criminal history as part of your rejection criteria?  Does your application get the necessary information you may need to consider the “facts” of the case? 

Again, these are not items you must address immediately.  You must, however, be aware that the changing face of fair housing discrimination continues to morph into areas that, until now, seemed clear and concise.  Regular education on fair housing issues and continuous evaluation of your policies and procedure with your landlord attorney can help reduce your risk of following a perfectly sound policy that only yesterday you thought was legal.  [TOP]

The importance of outlining your
options and rights.

Commercial and residential landlords sometimes include an option to purchase, or right of first refusal, in their agreement to lease a commercial space, building, or apartment to a tenant who is interested in buying the property on terms and conditions acceptable to the landlord.  In their purest forms, an option to purchase is identical to a right of first refusal with one major difference.  While the tenant can generally exercise an option at the tenant’s discretion until the expiration of the time fixed by the parties, a right of first refusal only becomes available to the tenant if the landlord chooses to sell the property.  The remainder of this article will use the term “option” to refer to these related concepts.

In general, the parties will place the option in the lease, a separate option contract, or both.  While a powerful and beneficial tool for landlords and tenants when used correctly, option-related issues may arise when the landlord and tenant fail to focus on two (2) topics, clarity (and its related concept of comprehensiveness) and impact on the landlord-tenant relationship.  Unfortunately, because the option gives the tenant the ability to fundamentally alter the landlord-tenant relationship (for example, by exercising the option and buying the property), landlords tend to be the losing party when the parties (or, more accurately, the landlord) fail to address these topics adequately.

Here are the questions that the option language should clearly and completely answer:

• When can the tenant exercise the option?

• What are the requirements for the tenant to exercise the option?

• Do those requirements establish the terms and conditions for the purchase and sale of real estate, including those additional requirements that a landlord-seller would want (not the least of which is the parties, description of the subject of the sale, terms of payment, and deadline for closing)?

• If the option contemplates another contractual agreement between the parties to establish such terms and conditions (for example, a purchase-sale agreement), how does it handle the situation where the parties are unable to reach agreement on the new contract?

• If the tenant exercises the option, does the lease (or the related obligation to pay for the use & occupancy of the space) terminate until the closing?

There is a real potential for problems if the answer to any of these questions includes the phrase “of course,” “we assume,” or “everyone understands what that requires.”  In such phrases are the seeds of future time, expense, and (possibly) litigation, and a good indication of when the landlord should seek the advice of an attorney.

Landlords need such legal advice because of the general legal principle that courts will hold ambiguity (the opposite of clarity and comprehensiveness) against the drafter, or the party presenting the lease and/or option contract, which is either the landlord or the tenant.  Note that “drafter” does not refer to the person or company that actually drafted the documents, but rather the party that brings them to the table, which is usually the landlord.  The legal theory supporting this principle is that the drafter/presenter has the ability to (and usually does, in fact) control the lease and/or option contract language.

This legal principle often comes into play because the option is contained (in whole or in part) in both the lease and a separate option contract.  This usually results in language-overlap with terms that are inconsistent or contradictory between the two contracts.  The classic example occurs when the tenant does something to cause the option contract to terminate, but that action does not cause the option language in the lease to terminate, which means that the tenant still has an option!  Accordingly, it is usually better for there to be separate documents – a lease that is a lease, and an option that is an option – with the only references to the other contained in cross default provisions (clauses that cause immediate termination of one contract in the face of termination of the other contract) in each contract.    [TOP]
 

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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.