As I mentioned in a previous post, the Minnesota State Legislator passed a set of new laws that are being called the Tenant’s Bill of Rights.  The Minnesota Multi-Housing Associations represented all landlords and help the authors tweak and streamline the bill to lessen any undue impact on landlords.  We thank them for that as most of the items are simply clairifications of how we already do business as landlords.

One important section is worth exploring in more depth.  There were many shady things happening with screening fees and how tenant applications were being reviewed prior to this law being enacted.  This law cleans up any areas for abuse or discrimination against the tenants.  Here are some of the major points (these only apply when a landlord charges an application fee):

• A landlord may not collect or hold a tenants’ application fee without providing a written receipt for the fee if the tenant’s asks for it.  This seems pretty easy and obvious.
• The landlord may not cash, use, or deposit the application fee until all prior applicants have either been screened and rejected or they have been offered the unit and they have declined to take the unit (did not sign a lease).  This is a significant change as it was a previous unwritten rule to screen one applicant and only take that money until you have exhausted all options with that applicant, then move onto the second application.  Some landlords were cashing all the application fees, running all the tenant applications and picking the best one.
• A landlord must return the application fee if the prior applicant is offer the unit and accepts; subsequently entering into a lease agreement.  You can’t keep the application fee.
• You must disclose to the tenant, in writing, prior to taking the application or fee the criteria that your rental decision will be based upon.  I have been doing this for many years as it was required in certain cities, but this becomes a statewide requirement.
• If you reject a tenant application, you must notify the applicant within 14 days of that rejection as well as identifying the criteria that the tenant failed to meet (you should be citing something on the above written application screening criteria).  If you are rejecting the applicant for something that is not on the screening criteria document, you must return all their application fee.
• A prospective tenant who materially provides false information or omits information on the application is liable for damages, plus a civil penalty of up to $500, plus court costs.  I am not sure how this one is going to be regulated or tracked, but it could be interesting if some applicant lies to you and you can prove it.

These are some small, but important changes to how we as landlords run out investment properties.  You should make sure you thoroughly understand these.

I know it is very common for people to rent this homes or apartments to friends.  I suspect that like most things in life, 80% of those rental relationships do just fine. I probably just here about the 20% that do not.  Here are some tips to making sure that you as the landlord (not as the friend) is protected if this friendship goes south and your “friend” becomes the bane of your existence!

• Many “friend” landlords simply let the tenant “friend” move in and just pay them some verbally agreed on amount of rent.  WRONG!  You need a standard written lease.  This may seem formal, but this really protects both of you.  With a written lease there is no opportunity for one party to remember the conversation differently.  Plus, as the landlord, if the friend stops paying you or does something you disagree with, it will be difficult (but not impossible) to evict them.  One example is a couple that let a brother rent this old house in the country.  After about 6 months, the brother started paying parts of the rent every couple weeks when they would hound him.  He then started to remodel the house, plus he moved in a couple other roommates and they all had parties every weekend.  Without a lease in place, these landlords had a terrible time getting this guy out.
• Keep a key to this home and install a 2nd one in a lock box that only you have the combination to.  You can give out this lock box code to repair guys that need access to the property for repairs without bothering your friend.
• Do not allow your friend to be late on the rent.  This will be worse than letting the average stranger tenant be late on their rent.  You will get into this strange situation where you want to hang out with your friend, but will be frustrated when he is buying a round of drinks for the bar, all the time you know he owes you back rent.
• Consider putting your friend on a month to month lease.  Then you can simply give him 60 days notice to move out if the relationship starts to sour.  Then there doesn’t need to be an eviction involved (unless he doesn’t leave).  You just part company from a housing standpoint and go your separate ways.

Renting to friends can be a great way to have a quick and most likely wonderful tenant.  Just don’t leave all your landlord experience and common sense behind!

On May 11th, Governor Pawlenty signed a new bill into law.  Although the official name is HF2668, most are calling it the Tenant Bill of Rights.  It is the first change to landlord/tenant regulations and law in over a decade.  As a landlord, you should be aware of these changes as some will come as a surprise.  Some are tougher rules, more are neutral and others are simply clarifying unwritten rules and rumors we all assumed were true.  Most of these changes go into effect on August 1, 2010:

• Tenants living in homes in foreclosure will have the right to stay in the property until the end of the term of their lease or 90 days, which ever is longer.  This brings state law inline with current federal laws.
• Property left behind by a tenant had to be stored by the landlord for 60 days.  This has been changed to 28 days, but now a landlord can be held liable for disposing of the property early in the amount of triple the damages or $1000, which ever is greater.
• Not returning the proper amount of security deposit at the end of the lease has a penalty that is not at $500, up from $200 previously.
• Division of Utility Costs is not very common from what I have seen, but now if the tenant can prove that the landlord has improperly divided the utility costs, the landlord is liable to the tenant for triple the damages or $500, whichever is greater.
• If tenants can be forced to pay Attorney’s Fees if they lose a court case and your lease contains that language; now, if the tenant wins, they can force the landlord to pay the attorney’s fees also.
• Tenant Screening Fees and Criteria have changed. While I thought most of this was already law, it appears they have clarified it further:
  • The landlord must use a clear and consistent screening process for all applicants.
  • Landlords much provide the criteria in written form upon which they will screen applications, prior to accepting and screening fee.   It is thought that if they read the criteria and see something that will disqualify them, they may not then chose to pay the fee and apply.  [In my experience, they will apply anyway!]
  • You must process applicants in sequential order as you cash their check or take their money.  You may NOT take all the applicants money, process all of them and then compare the applicants choosing the best one (and keeping all the money).
  • If the tenant is reject for any reason other than what was specified on the written screening criteria form, the landlord must return the application fee.
• Tenants that knowingly provides materially false information on the application or omits information can be held liable to the landlord for damages plus a civil penalty of up to $500, court filing fees, and attorney fees.  Not sure how you prove this or get the civil penalty charged against them.
• Tenants must be given a receipt if they pay with cash.
• Late fees will now be capped at 8% of the rental amount. This provision begins on January 1, 2011.  You can not charge daily late fees either.

Make sure to start integrating these new changes into your leases and tenant screenings.  You do not want to be the first test case for this new law!

Here is a great post written by Matt Engel regarding if a Notice To Quit is required prior to filing an eviction on your a tenant.

A Notice to Quit would be required in a “tenancy-at-will” situation, which means there is no fixed ending date, or the lease has expired and is now month-to month.  Minn. Stat. 504B.001 defines tenancy at will: “Tenancy at will means a tenancy in which the tenant holds possession by permission of the landlord but without a fixed ending date.”

In such cases, this is what Minnesota law says about terminating tenancy at will:

504B.135 TERMINATING TENANCY AT WILL.

(a) A tenancy at will may be terminated by either party by giving notice in writing. The time of the notice must be at least as long as the interval between the time rent is due or three months, whichever is less.

(b) If a tenant neglects or refuses to pay rent due on a tenancy at will, the landlord may terminate the tenancy by giving the tenant 14 days notice to quit in writing.

Notice must be given in writing that the tenancy will be terminated on a certain date, and should state that if the tenant does not vacate by that date, an eviction action will be pursued. The notice should be drafted with a termination date pursuant to the applicable time period from section (a) or (b) of Minn. Stat. 504B.135 – the interval between time rent is due (typically 1 month or up to three months), or if termination is for non payment of rent, 14 days.

Here is some sample language for written notice terminating tenancy at will:

• The purpose of this written notice is to terminate your tenancy at will.  Please be advised that your tenancy will be terminated on ___________  ____, 2010, [14] [30] [60] [90] days from the date of this notice, pursuant to Minn. Stat. 504B.135.  If you do not vacate by this date, an eviction action will be pursued in ___________ County Housing Court to have you removed from the property.

I suggest the written notice be sent to the tenant via certified mail, return receipt requested, as well as a second copy by regular mail, mailed at the same time.  In case the certified mail is returned for refusal to sign or failure to pick-up, you’ve also sent the written notice via regular mail to the tenant’s address – save the return receipt, if returned, or the refused certified letter, which will be returned to you – for the court hearing.

After the notice to quit time period has expired, and if the tenant still does not vacate, then an eviction action would be required to remove the tenant.  Eviction action hearings are typically set 14 days from date of filing the Eviction Action Complaint.  The Eviction Action Complaint must be served on the tenant at least seven (7) days prior to the hearing via personal service with affidavit under the Minnesota Rules of Civil Procedure (by a third party not a party to the action), and if personal service cannot be made, the process server can complete service by posting on the property after two failed attempts, and then completing an Affidavit of Not Found and Posting.  See Minn. Stat. 504B.331.

Matt Engel

The Engel Firm, PLLC

Union Plaza

333 Washington Avenue North

Suite 300

Minneapolis, MN 55401

W: 612-373-7060

F: 612-465-6211

C: 612-385-0554

I have come across many examples of landlords that require, in their lease, that the tenants carry an appliance service plan on the furnace, water heater, and kitchen and laundry appliances.  In Minnesota, this is called Centerpoint Energy Service Plus.  It costs about $8-15 per month, which is added to the tenant’s utility bill.

In the event that one of the covered appliances breaks, that “insurance policy” allows you to call Centerpoint and have a technician fix the broke unit.  Only if the appliance is completely unrepairable will you incur a cost.

Pros:

• The landlord shifts the cost of the plan to the tenants.
• You can virtually eliminate any appliance repair/replacement costs.
• The tenants can make the repair calls themselves without bothering you as the landlord.

Cons:

• Confirming the tenant has put the service plan onto their utility bill is difficult to police.
• Some states this may not be legal.
• Some tenants will simply refuse.

Other thoughts:

• As you increase the number of properties you own, it is NOT cost effective to pay this yourself.  With 28 rental units, I would be paying $300-400 per month in just service fees.  That would only be effective if I have something break every month.  Otherwise, I save the cash and just replace/repair units as needed.

Landlords, when is the last time you read your standard lease from start to finish?  Should I dare say that some of you have never read it?  Your lease is your contract with tenant.  I assume you spent a considerable amount of time working on your purchase agreement (another contract) for the purchase of that investment property.  Why are you now just coasting along with any old lease?

Regardless of whether you buy your leases at an office supply store or you found one on the Internet and print it off your computer, here are some items to put in your leases and some to take out:

• Require at least 60 days written notice for the tenant to vacate the premises even at the end of the lease.  The 60 days notice should start at the beginning of the next month; so you should get a minimum of 2 months notice.
• Rent is due on the 1st, but late on the 6th.  Most tenants look at that as the rent is due on the 5th.  Make sure they understand it is due on the 1st.
• Consider raising your late fee to a large enough amount to make it painful for the tenant to be late (check if your state has a legal limit).
• Put in a clause like the following:  “All drains, waste pipes, and plumbing are accepted as clear by the tenant at the time of occupancy and any material blocking them after occupancy shall be repaired by the tenant except blockages caused by roots or backups from the streets.”  This should put a end to late night blocked toilet calls.  I do recommend, however, supplying a $6 plunger to alleviate any potential problems!
• Remove any automatic 1 year renewal clauses in your lease.  At first it may seem like a good idea, but this clause can backfire on you when the tenant simply refuses to return your calls and the renewal notification window expires, leaving you bound to re-rent to this tenant.
• Include the following language:  “Payment of rent may be made by personal check until first check is returned unpaid.  Thereafter, tenant will be required to pay using certified funds or cash.”
• Confirm your lease has the following regulation:  “Use of property for business is strictly prohibited”.  What if your tenant opens an auto repair shop in the garage or is using the basement as his warehouse?
• Specify the number of adults, children, pets, and automobiles in the lease and set requirements for notification if the number of any increases.
• If you accept pets, make sure to have a pet deposit and some of it should be non-refundable for additional wear & tear on the house and/or carpet cleaning.  Also include the type and/or size of the pet (I have seen a tenant start with 3 approved dogs (10 pounds each) and then after a year upgrade to three 50 pound dogs.  They were still in compliance with the lease!
• Consider requiring the tenants to make any repairs under a certain dollar amount, depending upon the type of property you are renting.  You may also make them responsible for some or all pest control costs (depending upon the building).
• Do not allow any move-outs during November to March as these are the most difficult times to lease properties.

Here are a few others that you should consider using in the right market and circumstance:

• Specify the apartment or entire building as smoke free.  Have the tenants initial or sign a “smoke free addendum”.  This will save you some repainting and cleaning costs.
• Require the tenants to call a locksmith at their expense if they get locked out or lose their keys.  At least set a comparable price ($50-75) for you to unlock their apartment.
• Have all tenants sign a “Non-violence” and “Drug Free living” document with the threat of eviction if violated.

Making these easy changes will make your leases and your position stronger when working to aleviate problems with tenants.  They should also save you money and frustration in the long run.

(Confirm any of the above changes will work in your state and market.)