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Lowering Tenancy Risks

Most landlords operate their rental business on a tight margin. Even little mistakes, when compounded over time, can affect the bottom line in a big way. Because rent prices are largely affected by market conditions, landlords are unable to superficially raise rent to cover costs--even when costs are rising. Thus, landlords must lower the tenancy risks as much as possible so they can adequately cover costs and hopefully be profitable from the market rent rates.


What are common risks that can occur during a tenancy, and how can landlord's lower those risks? Here are some major liability risks to be aware of and avoid.


  • Tenant causes damages to the property


One of the bigger risks of a tenancy is that a tenant causes damages to the property. A landlord cannot monitor the tenant 24/7, and damage can occur any day at any time. Thus, the landlord must use due diligence early in the process to determine if the tenant poses an increased risk of causing damage to the property.


First, the landlord should use a well-planned and thought-out screening process. The questions that the landlord asks in the application should elicit relevant information about the applicant's civil liability and tenant history as possible. Landlords should take the extra time of contacting the applicant's prior landlords to see if there was any negative history from the tenancy. Of course, negative civil liability history may also indicate a higher risk of property damage.


Second, the landlord should conduct inspections early on in the tenancy. Tenants will reveal how they live pretty quickly after moving in. Landlords should conduct the first inspection not long after move-in. If there are indications that the tenant is not caring for the property, the landlord may seek curative action and show the tenant that you are not going to tolerate the tenant damaging or neglecting the property.


Third, the landlord should consider offering incentives to the tenant for good tenant behavior. Come up with an incentive plan and incorporate the plan into your lease agreement or addenda. While some tenants may modify their behavior when negative consequences are probable, other tenants may modify their behavior when positive consequences are probable.


Fourth, there are risk protection policies on the market that can help landlords to offset damages caused by tenants. For example, Surevestor is such a provider. Landlords should consider available policies to help cover damages caused by tenants.


  • Tenant brings more people into the unit that were not approved, thus putting more wear on the property


Another common situation that increases the tenancy risk is when a tenant allows other persons to occupy the property who are not authorized to reside at the property. Increasing the number of occupants puts more wear on the property, and some persons should not be permitted on the property because they do not qualify for any number of reasons (e.g. criminal history, violence, improper behavior, etc.), and as such, pose greater liability on the landlord.


Like catching a tenant's property-damaging behavior early on, the landlord should take steps early in the process to see if there are any indications that the tenant may be breaking this rule.


Keep notice of any indications that a tenant may have the intent to bring in unauthorized occupants into the property who were not part of the application process. Inspect the property soon after the move-in to look for signs of unauthorized occupants.


Another helpful method is to attempt to form a good relationship with reliable neighbor who can inform you if they see persons at the property who are not authorized (e.g. too many vehicles, unfamiliar or new persons living there, etc.). Similarly, if the property is in a homeowner association, let the HOA know about the occupancy limitations and request that they keep you posted on any suspicious unauthorized occupants (e.g. a non-tenant vehicle parked there overnight for many days or weeks).


Another helpful method to lower this risk is to perform occasional drive-by inspections, to see if the vehicles parked in the driveway are authorized under the lease agreement. This takes less time than an interior inspection but can be useful in looking for rule-breaking signs.


Another method is to put in the lease agreement that the tenant must, upon request, submit to you pictures of the interior and exterior of the premises in a tenant self-inspection. This self-inspection report not only saves you time, but also helps to give you an idea of the interior conditions, which may help to indicate a problem or not.


  • Tenant fails to pay rent

When tenants fail to pay rent, the landlord is forced to deal with it. While some tenants may have a legitimate excuse for not paying rent on time on rare occasion, other tenants have no legitimate excuse and attempt to pay as little and as late as possible. If a landlord lets the tenant pay too little, too late, the landlord's rental business is going to suffer, which has a negative snowball effect. Of all the risks involved in a tenancy, a tenant's failing to pay rent is not only the most common, but can be the most costly if not dealt with properly and timely.


First, landlords should make rent payment methods easy for tenants. Electronic payments are the easiest method of paying rent; they are easily traced and immediate. Tenants can also setup auto-payment for rent, which helps the tenant stay current.


Second, the lease agreement should provide for late fees that are adequate to compensate the landlord for the late rent payment and also deter the tenant from late-payment behavior.


Third, the landlord needs a system of operations to consistently and timely deal with late rent payments. While even good tenants may be late occasionally, landlords must stay on top of the delinquency situation. The landlord's process should be incrementally more severe for as long as the rent payment delay continues.


So, the landlord can first send the tenant a reminder text, call, or email after, say, 1-3 days that rent is late. If the tenant still hasn't paid rent after a friendly reminder, the landlord can send a more demanding notice, stating that if rent is not paid by a certain date, the landlord will have to take the next step in the process. If the tenant then still hasn't paid rent, the landlord should deliver a legal notice to pay or vacate. If the tenant still doesn't pay rent after a legal notice is delivered the landlord has the option to file an eviction, or when strategically and prudently handled, enter into a settlement agreement for full payment or possession of the premises (note: any agreements that alter the lease agreement should be drafted by a landlord-tenant attorney).


Of course, in the day-to-day management, situations and personalities can interfere with a very straightforward approach--and there is nothing wrong with a customer service approach, as long as the tenant communicates well, timely, and honestly with the landlord and provides the landlord with certainty that full rent is being paid by a date specific. But there are many landlords who have been taken by "nice" tenants who had no intention to pay rent and were only manipulating the situation to pay too little too late.


Landlords need to come up with their operation rules. Think your operations through based on the normal and not-so-normal situations you encounter. Implement the rules consistently. If the operations need to be tweaked and improved given the lessons of experience, make the changes and implement them. Make the rules known to the tenant. If you waiver on your adherence to your own rules, many tenants will take advantage, which will only serve to harm you. Lastly, follow your own lease agreement. The court will impose the same standard.


  • Someone is injured on the property


The last thing a landlord wants to happen is for someone to get injured on his rental property. To help prevent that situation from arising, landlords should take precautionary, preventative and remedial measures on the property in a timely and consistent manner.


First, the landlord should consider hiring a home inspector who is licensed to provide a detailed review of the home, including any problems that need to be fixed. While this may be consider going "above and beyond", this is a good idea especially for older properties and for properties that have not been professionally inspected in the recent past.


Second, the landlord needs to inspect the property prior to a tenant moving in, to check for safety issues, especially those issues found in F.S. 83.51--the landlord's obligations under Florida law. Always err on the side of safety.


Third, the landlord needs to inspect the property throughout the tenancy to ensure there are no patent defects that need to be addressed. There is no rule regarding the number of inspections that should be performed each year, but the inspections should be periodic.


Fourth, when a tenant reports a safety or maintenance issue, the landlord should not ignore the request. The landlord should have a method of determining the nature of the request and responding accordingly. The more serious the issue, the greater and more timely the response should be. Even if the tenant has been difficult in some ways, never let that personality or performance conflict interfere with your good judgment to reduce your liability risks.


Fifth, use licensed contractors where the maintenance or repair item requires. Many landlords may prefer to "do it yourself" or hire cheap handy-persons, that will only take you so far into the world of liability reduction. When it comes to electrical, plumbing, and structural components and functions, do not go cheap, but hire the right licensed professionals to not only service the home (and tenant), but also reduce your liability.


CONCLUSION


Landlords cannot take a passive approach to their rental business. From the listing of the property to the security deposit claim, there is a proactive method with every step, and it is up to the landlord to know every detail of the process and implement sound policies and lease provisions to execute those policies.


Of course, one of the best ways to be proactive is to hire a professional property management brokerage that is the right fit for your goals. Do your research, request a brief introduction to the executive team, and try to find a property management brokerage who will help reduce you liability risks and increase your revenue.


If you are looking for a professional property management brokerage, contact us aDoor Property Management, LLC, we're happy to get this conversation started.






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