SS204: Illegal Property Management Practices to Avoid

SS204: Illegal Property Management Practices to Avoid

When managing property, it is important to follow all legal standards. In this episode, Charles discusses some common illegal property management practices that should be avoided.

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Talking Points:

  • When managing a property, it’s essential to follow all legal and ethical standards to avoid problems that can grow into costly and time-consuming legal issues. Many of these illegal property management practices are common sense and revolve around the simple idea of treating your tenants how you would want to be treated, keeping your word, and being fair. The second part is intimately understanding federal, state, and local landlord/tenant laws since they vary greatly.
  • Let’s go through some of the most common illegal property management practices:
    • Misrepresentation or Fraudulent Agreements
      • False Advertising: Misleading potential tenants about the property’s condition, policies, or amenities. This is illegal and also a waste of time for landlords. Your goal is to find tenants who like your property and want to stay for years into the future.
      • Fraudulent Lease Agreements: Leases with illegal terms or waiving tenant rights. No matter where you get your lease, always have an attorney review it before using it.
      • Ignoring the Lease: Failure to maintain your responsibilities outlined in the lease can result in a breach of contract.
      • Unapproved Lease Changes: Altering the lease terms without the tenant’s written consent is illegal. Just wait until the current lease is up to give your tenant the new lease agreement.
    • Discrimination When Leasing
      • Fair Housing Act Violations: The Federal Housing and Urban Zoning laws protect tenants from discrimination when obtaining a mortgage, purchasing a property, or renting a unit. It protects people on the basis of race, color, religion, sex, familial status, and disability.
      • Discriminatory Advertising: Posting ads that specify a preference for a particular gender, race, or age group is also illegal. Your screening process needs to be consistent with all applicants.
    • Failure to Maintain the Property
      • Neglecting Repairs: I never understood landlords who do not maintain their property for whatever reason. But it happens, and property owners are required by law to maintain their property and repair issues in a timely manner.
      • Violating Building Codes: Building code violations bring the government into your property, which is never simple, quick, or inexpensive. It is always the best course of action to properly maintain your property, no matter what tenant issues you might be experiencing.
    • Unlawful Evictions
      • Evicting a Tenant without Notice: Evictions must follow a strict legal procedure with specific notices given at certain times and require a valid reason for the eviction.
      • Illegal Eviction Practices: These are also called “self-help” evictions, where managers change locks, turn off utilities, remove personal belongings, physically remove the tenants, or deny access to the rental unit.
    • Illegal Rent Increases
      • Raising Rent Illegally: If your property is subject to rent control, you must follow certain laws, but other illegal ways of raising rent might include increasing the rent during a lease period or mid-lease. You will need to wait until the next lease period to raise rent.
      • Retaliatory Rent Increases: A manager who raises rent against a tenant who has reported a violation or exercises their legal rights is against the law.
    • Entering the Unit without Proper Notice
      • Landlords must provide adequate advance notice before entering a tenant’s unit. The only exception to this is in the case of emergencies.
      • Landlords that unnecessarily or repeatedly enter apartments can have their actions considered harassment.
    • Inappropriate Handling of Security Deposits
      • No matter what state your property resides in, the laws are very strict, with huge penalties for landlords who misallocate or mishandle security deposits. This includes:
        • Failing to return security deposits; holding onto security deposits without justification or not returning them within the legal timeframe.
        • Misusing security deposits; using them for anything other than fixing issues caused by the tenant
      • Evicting a Tenant When Selling a Property
        • Typically, a tenant has the right to remain in the property until their lease expires, regardless of who owns the property (lease continuation). Other common tenant’s rights during a sale include:
          • The transfer of their security deposit to the new owner
          • Notice of sale: this is usually done after the sale is complete; however, the tenant will most likely notice all of the new people and inspectors at the property and will probably realize this before the sale.
          • Privacy rights – people cannot just enter their unit with ample notice.
          • Some buyers looking to remodel a property without tenants might ask a seller to vacate the tenants before closing. My biggest worry is if the new buyer backs out and the current owner has an empty property, which will cost them time to prepare for tenants. I would only consider doing this with smaller properties and a buyer who puts down a large, non-refundable deposit.
        • If the goal is not to renew current tenants, I will usually give them ample notice, assist with moving costs, and give them a cash payment if they move out sooner rather than later. This goes a long way with tenants.

 

Most of these practices are common sense, but landlords must fully understand their local, state, and federal laws when managing properties.

Transcript:

Charles:
Do you think landlords are always in control? Watch out for these illegal practices that could land you in court. After being a landlord for the nearly 20 years, I’ve identified the top mistakes that lead landlords straight to court and how to avoid them.

Charles:
Welcome to Strategy Saturday; I’m Charles Carillo and today we’re gonna discuss the eight most common illegal property management practices that could cost you big and you might not even realize you’re making these mistakes. From misleading ads to unlawful evictions, we’re covering it all so you can protect your investment, keep your tenants happy, and stay on the right side of the law. And trust me, some of these might surprise you when managing a property. It’s essential to follow all legal and ethical standards to avoid problems that can grow into costly and time consuming legal issues. Many of these illegal property management practices are common sense and revolve around the simple idea of treating your tenants how you would want to be treated, keeping your word and being fair.

Charles:
And the second part is based on understanding federal, state, and local landlord tenant laws since they can vary greatly from municipality to municipality. So let’s go through some of the most common illegal property management practices. Number one is misrepresentation or fraudulent agreements. So this includes a false advertising, so misleading potential tenants about the property’s condition, policies or amenities. And this is illegal and also a waste of time for landlords. I mean, your goal is to find tenants who like your property and wanna stay for not just one year but for years into the future. And if you kind of get people out to the property and it’s not what they expected or not what you sold it as, they’re not gonna rent and you’ve just wasted your time. Or if you convince them to stay for a year, they’re not gonna renew, which is not what we want.

Charles:
We want tenants that renew at least once or twice during their stay with you. Fraudulent lease agreements. So this is leases with illegal terms or waiving tenant rights. No matter where you get your lease, always have an attorney review it before using it, ignoring the lease. So failure to maintain your responsibilities outlined in the lease can result in a breach of contract and unapproved lease changes. So altering the lease terms without the tenant’s written consent is illegal. Just wait until the current lease is up to give your tenant the new lease agreement. Number two is discrimination When leasing. So Fair Housing Act violations. The federal housing and urban zoning laws protect tenants from discrimination when obtaining a mortgage, purchasing a property, or renting a unit. And it protects people on the basis of race, color, religion, sex, familial status and disability. So also be discriminatory advertising.

Charles:
So posting ads that specify a preference for a particular race, gender, age group is also illegal. Your screening process needs to be consistent with all of your applicants. Number three is failure to maintain the properties neglecting repairs. And I’ve never understood landlords who do not maintain their property for whatever reason, but it happens. And property owners are required by law to maintain their property and repair issues in a timely matter. Violating building codes. So building code violations bring the government into your property, which is never simple, quick, or inexpensive. It is always the best course of action to properly maintain your property no matter what tenant issue you might be experiencing. Number four is unlawful eviction. So evicting a tenant without notice. So evictions must follow a strict legal procedure with specific notices given at certain times and require a valid reason for the eviction.

Charles:
This is where property managers come in ’cause they understand this inside and out. And this takes a lot off of your shoulders as a property owner. Next is of illegal eviction practices and these are also called self-help evictions where managers change locks, turn off utilities, remove personal belongings, physically remove the tenants, or deny access to the rental unit. These are all super, super illegal and they’re gonna get you in hot water in a number of different ways legally. So avoid all of that work through the courts with typical evictions. Best just to hand it off to your attorney if they won’t take cash for keys and let them handle it from there. Number five is illegal rent increases. So raising rent illegally, if your property is subject to rent control, you must follow certain laws, but other illegal ways of raising rent might include increasing the rent during a lease period or mid lease.

Charles:
You’ll need to wait until the next lease period To raise rent shouldn’t be a problem because Lisa is only run 12 months usually. So in that case it’s only a few more months for you to wait until you’re able to raise rents. Next part of this is retaliatory rent increases. So a manager who raises rent against the tenant who has reported a violation or exercises their legal rights is against the law. You can’t do that. And it’s important that when you give rent increases, you give them a little bit, you give ’em notice. And it’s usually, it’s I would say at least 60 days when you’re renewing it. You wanna get the renewal sooner than later because you want to get them before they start looking at other apartments. And people probably start looking at other apartments, I would think, right around 30 to 60 days.

Charles:
So you really want to get there like 60 days out and this way they’re not like wondering what’s gonna happen. So let them know as soon as possible. Gives ’em some time for them to renew with you before they start looking around. And that’s really the goal. You don’t wanna go to the last minute when they’ve already made their decision ’cause they don’t know what you’re doing. Number six is entering the unit without proper notice. So landlords must provide adequate advanced notice before entering a tenant’s unit. The only exception to this case is in the case of emergencies and landlords that unnecessarily or repeatedly enter apartments can have their actions considered harassment. I always like to let tenants know about emergencies beforehand because when people are putting in a like kind of a request or repair request, whatever it might be, and you can let people know that, you know, we’re gonna fix normal stuff within two days.

Charles:
Other stuff, you know, within 24 hours and emergencies, we’re gonna do that immediately and immediately means that we’re gonna call you. And if it’s an issue that we need to get into your uniform, ’cause it’s like a leak coming from your unit, something needs to be turned off in your unit. We’re gonna enter that apartment if you don’t answer the door, you know what I mean? 24 hours a day. And that’s just kind of like what happens, you know what I mean? And so they have to be aware of this that ’cause they would want the same thing happening too if it was reversed and you know, the tenant above them had water that was leaking to their apartment. Number seven is inappropriate handling of security deposits. So no matter what state your property resides in, the laws are very strict with huge penalties for landlords who misallocate or mishandle security deposits, you know, failing to return security deposits, holding on security deposits without justification or not returning them within the legal timeframe.

Charles:
And in most states, this can be at least two x you know what I mean, where you’re paying for a penalty on it. So it’s extremely expensive. It’s easier just to handle the security deposit like you’re supposed to and then return it. Another part of this is misusing the security deposit. So using them for anything other than fixing issues caused by the tenant, the security deposits is only for fixing issues for what the tenant actually caused. Number eight is evicting a tenant when selling a property. Now, typically a tenant has the right to remain in the property until their lease expires regardless of who owns the property. It’s considered lease continuation and other common tenant’s rights include during the sale, the transfer of the security deposit to the new owner. Your new owner is going to request this anyway because they don’t wanna be on the hook providing this outta their pocket when that tenant moves.

Charles:
And then notice the sale. This is usually done after the sale’s complete. However, the tenant will most likely notice all the new people and inspectors at the property and will probably realize before the sale happens. So you know, if you have inspectors and all types of people and agents walking in and outta the property, they’re gonna notice something is going on before the sale. But it’s important that after that sale, or same thing if you’re doing, if you’re changing management after it’s official, you’ll send out documentation saying that, Hey, here is we’ve changed management and here’s a letter that you send out to the tenants. We’re taking over all this kind of stuff. This is how it goes from here and, you know, introducing them. And also it’s the same thing with the sale. So just letting people know there’s gonna be a change of management, change of ownership, and this is kind of the rules on how we have it.

Charles:
And of course, as people’s leases come up, you now as a new owner, you can resign those leases as as you wish with your tenants. Next part is privacy rights. So people cannot just enter the unit without ample notice we spoke about this before and some buyers look to remodel a property without tenants might ask a seller to vacate the tenants before closing. And my biggest worry is if the new buyer backs out and the current owner now has an empty property, which will cost them time to prepare the units and time to rent the units to new tenants. And I would only consider doing this with smaller properties and with a buyer who puts on a large non refundable deposit and gives us time to do it. Because to do this correctly and ethically, it takes months, right? Even if the people don’t have any leases, and it’s all like verbal month to month.

Charles:
One of the things is that if the goal is to not renew current tenants, I will usually give them ample notes. When I’m saying saying ample notes, I’m saying 60 days. I’m not giving them 30 days. You know, some verbal leases get 15 days. Like no, that’s where you’re gonna get yourself in trouble. It’s not ethical for doing that. They’re not, you’re not gonna be able to find like a real place that you want to live in 15 days, right? I will usually give them 60 days. I’ll assist with them moving costs, give them a cash payment if they move out sooner rather than later. And this goes a long way of tent. So it’s kind of like cash for keys almost. But in the sense of like they’re still on good terms with you in most cases, right?

Charles:
So there’s not really a problem there. I remember the first apartment complex I bought, well, it was a three family house. The first multi-family property I bought and I was buying it from a pretty big landlord in the city that was going into larger apartments complexes with his partner and they had a tenant. It was a third floor of one of the properties. It was a it was an older retired Polish mason. And he was very nice guy. Didn’t really speak much English, but when the person I was buying the property from bought it, he was told by that guy, Hey, take care of the guy on the third floor. So I let the seller know when I was buying it, Hey I’m gonna be like clearing this out and renovating stuff like this little by little.

Charles:
And he goes, you know what, I’m gonna take care of that guy up there. I’ll, I’ll take care of him. He’ll, it’ll be, it’ll be vacant, don’t worry about it when you move in, or like within weeks of you if you buying it, right? And he found the guy apartment. He had a apartment complex with like some one bedroom. So he moved him in there, he had his guys move ’em all in. He kept the same rent of like, it was really inexpensive, right? And and that was one of the things is that it kind of stuck with me because it’s something that he kept his word, he did it really ethically put him into a better place, kept his same Brent, and kind of just knew that not this is the cost of doing business, but like it’s the right thing to do.

Charles:
You know what I mean? I was told this, I agreed with it when I bought this property and I’m, you know, I’m passing that along. And then when the other two people vacated in the property we bought, we did the same thing. You’re making sure also that your property’s not damaged. So, you know, it’s a win-win for everybody. And, you know, most of these practices are common sense, but landlords must fully understand their local state and federal laws when managing these properties and then also just doing win-win situations with their tenants. And I feel that it’s gonna be turn out much better for them in the long run as a rental property investor. So I hope you enjoyed it. Please remember to rate, review, subscribe some, make comments on potential show topics at globalinvestorspodcast.com. If you’re interested in passively investing in real estate, please check out our courses and mentoring programs at syndicationsuperstars.com. That is syndication superstars.com. Look forward to two more episodes next week. See you then.

Charles:
Have you always wanted to invest in real estate, but didn’t have the time, didn’t know where to find the deals, couldn’t get the funding and didn’t want tenants calling you. Since 2006, I’ve been buying income producing properties and great locations that provide us with consistent passive income. While we wait for appreciation in the future and take advantage of tax laws while we’re waiting and unlike your financial advisor, we invest alongside our investors in every property we purchase. Check out to investwithharborside.com. If you like the idea of investing real estate, if you like the idea of passive income partner with us at investwithharborside.com, that’s investwithharborside.com.

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