Working With Tenants PDF

8 Working with Tenants Learning Objectives After completing this lesson, students should be able to… Discuss the best ways to create and maintain a strong manager-tenant relationship Describe the process of receiving and responding to ten...

8 Working with Tenants Learning Objectives After completing this lesson, students should be able to… Discuss the best ways to create and maintain a strong manager-tenant relationship Describe the process of receiving and responding to tenant requests and complaints Compare the most common late fee arrangements and the advantages and disadvantages of each method Summarize the ways both landlord and tenant may breach a lease agreement List the advantages of retaining tenants Discuss the lease renewal process Identify the ways a tenancy may terminate Explain the eviction process in detail Suggested Lesson Plan 1. Give students Exercise 8.1 to review the previous chapter, “Leasing.” 2. Provide a brief overview of Chapter 8, “Working with Tenants,” and review the learning objectives for the chapter. © 2021 Rockwell Publishing  Property Management Instructor Materials 3. Present lesson content: Creating a Strong Manager-Tenant Relationship – Welcoming the tenant – Walkthrough – Maintaining communication – Responding to requests and complaints – Tenant services Rent Collection – Rent collection system – Recordkeeping Breaching Lease Agreements – Breach by the landlord – Breach by the tenant EXERCISE 8.2 Quiet enjoyment and habitability Retaining Tenants – Importance of retention – How to retain good tenants – Lease renewals Termination of Tenancy – Lease expiration – Abandonment – Surrender – Eviction – Foreclosure, destruction, or condemnation EXERCISE 8.3 Abandonment of the premises and eviction EXERCISE 8.4 Steps in eviction procedure 4. End lesson with Chapter 8 Quiz. Chapter 8 Outline: Working with Tenants I. Creating a Strong Manager-Tenant Relationship A. Management can welcome a new tenant by providing moving assistance and/or a welcoming gift 2  Chapter 8: Working with Tenants B. Walkthrough: when the manager and tenant walk through the property together, as- sessing its condition 1. During the walkthrough inspection, the manager and tenant should use a move-in/ move-out inspection form to note the property’s condition 2. During the walkthrough, the manager should give the tenant a copy of the tenant handbook and explain the property’s tenant rules C. The manager should maintain communication after the tenant moves in by providing regular updates and by soliciting tenant input D. The manager should respond to every request and complaint promptly and equally in order to keep tenants happy and to avoid discrimination claims 1. It’s a good idea to require tenants to make requests and complaints in writing, except in emergencies E. Management can create goodwill and additional income for the property by offering tenant services, such as housekeeping or private rental of facilities for events II. Rent Collection A. A dependable rent collection system consists of three parts: billing, late notices, and late fees 1. A rent bill isn’t usually necessary for residential tenants, but is used for com- mercial tenants because the monthly amount often varies based on the building’s operating expenses 2. Late notices are an effective rent collection tool, even when a late fee isn’t charged 3. The four most common late fee arrangements are: a. flat percentage: a flat percentage of the amount due after a certain date b. flat fee: a straight fee that becomes due after a certain date c. daily fee: a daily fee charged beginning on a certain date d. flat fee plus daily fee: a flat fee charged a certain number of days after rent is due, plus an additional smaller daily fee charged until rent is paid in full B. Managers depend on management software to track rental payments, issue late no- tices, and generate two important rent collection schedules 1. Rental ledger: a list of each tenant’s payment history, organized by tenant; it lists such things as rent rate, security deposit, lease expiration date, recurring and pass-through charges, payments made, late charges incurred, and balances owed 2. Rent roll: a list of every rental unit or space; includes the current tenant’s name, phone number, email address, rental rate, lease terms and payment status, and amounts due, if any III. Breaching Lease Agreements A. Breach occurs when one party violates a provision of their contract (lease agree- ment); if the breach is serious enough to justify terminating the lease, it’s known as a material breach 3  Property Management Instructor Materials B. The landlord (or his agent) can breach the lease by violating an implied or express provision 1. Quiet enjoyment: an implied right in a lease that assures the tenant of freedom from any unreasonable intrusion by the landlord, manager, or anyone else; applies to both residential and commercial leases 2. Implied warranty of habitability: an implied lease provision that requires resi- dential managers to provide living quarters that are safe, clean, and fit for human habitation 3. The manager may also breach express lease provisions that benefit the tenant, such as the failure to provide promised improvements or violating a noncompete clause C. The lease usually imposes more duties on a tenant, so there are more ways for a ten- ant to breach a lease 1. Failure to pay rent: the tenant must pay rent, utility bills, and pass-through charg- es when due 2. Failure to maintain the premises: the tenant violates the lease if he causes signifi- cant damage to the premises 3. Engaging in a prohibited use: most leases prohibit the tenant from using the prop- erty for any purpose that is contrary to the intended purpose of the lease 4. Violating property rules: the tenant can breach the lease by violating the land- lord’s rules, or state or local laws that relate to use of the premises EXERCISE 8.2 Quiet enjoyment and habitability IV. Retaining Tenants A. There are three advantages to retaining tenants: avoiding lost rental income, saving on remodeling costs between tenants, and avoiding the marketing and administrative costs associated with finding new tenants and leasing B. A strong manager-tenant relationship is the best way to retain good tenants 1. To get rid of a bad tenant, the landlord can either decline to renew the current lease, or else insist on lease terms that address the tenant’s past problems C. The lease renewal process will vary depending on the type of lease and tenant 1. The manager begins the process by sending a renewal notice a reasonable amount of time before the lease will expire; the amount of advance notice depends on the type of tenant and lease term 2. The manager should follow up on the renewal notice with personal contact, either in person or by phone 3. Renewal negotiations tend to focus on length of lease term, rental amount, and repairs, alterations, and renovations a. The manager must keep current on market conditions, know the client’s fi- nancial goals, and maintain an accurate performance history for each tenant in order to negotiate renewal terms with the tenant 4  Chapter 8: Working with Tenants V. Termination of Tenancy A. Many tenancies simply end when the lease expires 1. The manager and tenant should go through the premises and complete a move-out inspection report; this may be required by state law 2. Depending on the inspection, the manager will refund some or all of the tenant’s security deposit by the state-mandated deadline 3. If the lease expires and the tenant remains, the manager can begin eviction pro- ceedings 4. A lease sometimes requires a party to give notice of the intent to terminate the lease; periodic tenancies always require a termination notice based on the lease terms or state law B. Abandonment: when the tenant leaves the premises before a fixed lease term expires 1. A tenant who abandons the premises has breached the lease and is liable for rent payments, although the manager has a duty to mitigate the loss by trying to re- rent the property as soon as possible 2. The manager may presume abandonment if the rent becomes overdue by a certain number of days and the manager has reason to believe the tenant has vacated the premises 3. Notice of belief of abandonment: notice given by a manager when it appears the tenant has abandoned the rental property 4. If the tenant fails to respond to the notice of belief of abandonment by the dead- line, the manager may follow state rules to remove and dispose of the tenant’s personal property C. Surrender: when the parties mutually agree to terminate a lease before the date stated in the lease agreement D. Eviction occurs when the manager expels the tenant from the property through lawful means 1. The manager should never resort to a self-help eviction, such as locking the ten- ant out or cutting off utilities; he should use the legal eviction process 2. The manager cannot use the eviction process to discriminate or retaliate against a tenant 3. The process of eviction involves four stages: notice to cure or quit, filing an un- lawful detainer action, a court hearing, and then (if the landlord wins) an eviction order followed by physical removal 4. Notice to cure or quit: informs the tenant that legal action will be taken unless the outstanding rent and fees are paid, or violation cured, by the deadline; sometimes called a three-day notice, although the actual deadlines vary by state and local law a. Many states exempt the manager from the notice requirement if the tenant is involved in illegal drug activity 5  Property Management Instructor Materials 5. Unlawful detainer action: a legal court process to evict a tenant a. The tenant must be served with a summons and copy of the complaint b. If the tenant fails to respond, the landlord can ask for a default judgment; otherwise the next step is an eviction hearing 6. Tenants can raise various defenses to the unlawful detainer action at an eviction hearing a. The tenant may claim that the eviction action violates the tenant’s civil rights or is illegal retaliation b. Another defense is constructive eviction: when the landlord caused or permit- ted a substantial interference with the tenant’s possession of the property, so that the tenant was justified in withholding rent 7. If the manager prevails, the judge will issue an eviction order: an order that specifies the deadline for the tenant to move out; a sheriff will conduct the actual physical removal if the tenant fails to comply 8. Just cause exception: a few jurisdictions prohibit the termination of a residen- tial periodic tenancy by a manager unless the tenant has committed a significant breach of the lease agreement (or manager is taking unit off market) E. A tenancy may also be terminated by foreclosure, destruction, or condemnation of the premises 1. Foreclosure on commercial property will terminate a commercial lease a. Foreclosure doesn’t terminate a residential lease; there is an exception in some states if the buyer intends to occupy the property herself, so long as she gives the tenant a long period of notice 2. Destruction of the entire leased property terminates a lease 3. The government can take private property for public use through a process called condemnation, which terminates any existing lease, though both owner and tenant must be compensated EXERCISE 8.3 Abandonment of the premises and eviction EXERCISE 8.4 Steps in eviction procedure 6  Chapter 8: Working with Tenants Exercises EXERCISE 8.1 Review exercise To review Chapter 7, “Leasing,” state who usually must sign the lease in each of the following situations. Tenant Guardian General partner Officer Member Secretary of state 1. A 17-year-old wants to sign a lease on an apartment while attending college. 2. A corporation wants to sign a lease for warehouse space. 3. A mother living with two 17-year-old children. 4. A partnership wants to lease some office space. Answers: 1. GUARDIAN. Generally, individuals younger than 18 cannot enter into a valid lease; they need the signature of their parent or legal guardian. 2. OFFICER. Usually, the officer (such as the president) needs a resolution from the corporation’s board of directors authorizing her to sign the lease. 3. TENANT. Minors living with an adult do not sign the lease. 4. GENERAL PARTNER. Any general partner can sign, though it’s best to require a resolution from the partnership authorizing the particular partner to sign the lease. EXERCISE 8.2 Quiet enjoyment and habitability Discussion prompt: For each of the tenant difficulties described below, state whether the situation amounts to a violation of the covenant of quiet enjoyment, a violation of the warranty of habitability, or a violation of neither. 7  Property Management Instructor Materials Donald, a college student, is having a rough time at a four-plex where he rents a unit: 1. In the evenings after work, his manager uses a noisy backhoe as part of a months- long project to re-landscape the grounds. The noise makes it impossible for Donald to study. 2. Each evening after finishing his work on the landscaping, the manager drops by Donald’s for a beer uninvited and unannounced. Donald is afraid to tell the manager to go away for fear it will result in a rent increase or other problems—the manager often talks of how he’s gotten rid of troublesome tenants in the past. 3. Three days ago, the kitchen sink drainpipes rusted out below Donald’s unit. Now he has to drain all dish water into buckets and pour it out in the backyard. He told the manager about the problem immediately. The manager promised to fix the pipes but has done nothing. 4. Donald just discovered the fire alarm in his unit has stopped working. The unit is wired into the electrical system. 5. The tenant next door to Donald plays rock music on his stereo at full volume until 3 AM. Neither the manager nor Donald has been able to keep him quiet. 6. Donald is tired of the paint color in his living room and has repeatedly mentioned this to the manager, but the manager has failed to repaint the room. 7. Due to the landscaping work, the four-plex grounds are chewed up and muddy. Donald finds the sight of the bare ground depressing and feels the manager should’ve warned him about all this work when he signed the lease. Answers: 1. Violation: Donald’s studying in his apartment in the evening is a reasonable use; since the landscaping project is ongoing, the manager has probably violated the covenant of quiet enjoyment. 2. Violation: The manager is failing to give notice before entry—a violation of the covenant of quiet enjoyment. (No notice is required for emergencies but there’s no emergency here.) 3. Violation: The warranty of habitability includes a guaranty of working plumbing. While state residential landlord-tenant laws vary, most likely the manager has only a day or two to correct this kind of problem. 4. Violation: The warranty of habitability requires working locks and fire alarms. A nonworking alarm poses a serious safety hazard, meaning the manager probably has 24 hours to fix the alarm. 5. Violation: The covenant of quiet enjoyment not only prohibits the manager from interfering with a tenant’s enjoyment of the premises, but it also requires the man- ager to prevent others from interfering with the tenant’s use. 8  Chapter 8: Working with Tenants 6. No violation: The manager has no obligation to repaint under either the covenant of quiet enjoyment or the warranty of habitability. 7. No violation: The unsightly exposed earth doesn’t amount to a significant interference with quiet enjoyment or health and safety (though Donald might have grounds to claim a discount on rent). EXERCISE 8.3 Abandonment of the premises and eviction Discussion prompt: Tony fails to send in his rent at the beginning of October. He doesn’t respond to two late fee notices. On October 12, the manager enters Tony’s unit. He finds the place dirty and full of Tony’s possessions, but there’s no sign of Tony. Mail has piled up and flies buzz around a stack of dirty dishes in the sink. Tony’s rental application only had one personal reference contact for “Sally” and that phone number doesn’t work. Tony’s employer says they haven’t heard from him in several weeks, and some money and company property went missing around the time Tony disappeared. What are the manager’s options? Answers: It’s likely that Tony has abandoned the premises. However, it’s not absolutely clear. He might’ve been called away on a family emergency, for example. How- ever, failure to pay rent is a breach of the lease that justifies an eviction notice. Alternatively, the manager could deliver a notice of belief of abandonment to the property and to any other contact address listed in Tony’s lease. State law may spell out how long the manager must wait before retaking the premises. Absent guidance from state law, the manager may need legal advice on what is a rea- sonable time to wait. EXERCISE 8.4 Steps in eviction procedure Have your students reorder the following eviction steps in their correct order. Posting notice to quit or cure breach Late rent notice Serving eviction order on tenant Filing an unlawful detainer action in court Physical removal by sheriff’s department (if necessary) 9  Property Management Instructor Materials Answers: Here are the eviction process steps in the correct order: 1. LATE RENT NOTICE. This is optional unless the lease says otherwise. 2. POSTING NOTICE TO QUIT OR CURE BREACH. State law often specifies the wording of the notice. 3. FILING AN UNLAWFUL DETAINER ACTION IN COURT. State law will specify how soon after quit or cure breach notice the manager may file the action. 4. SERVING EVICTION ORDER ON TENANT. This assumes the manager has won the hearing and obtained the order. 5. PHYSICAL REMOVAL BY SHERIFF’S DEPARTMENT. Generally speaking, the ten- ant leaves after the eviction order; if not, the sheriff’s department takes care of removing the tenant. 10  Chapter 8: Working with Tenants Chapter 8 Quiz 1. Which of the following does not happen in a 6. The recordkeeping format that organizes rental walkthrough? information by unit or space rather than by ten- a) Manager and tenant jointly inspect the ant is a: property’s condition a) rent roll b) Manager can instruct tenant on operation b) rent schedule of appliances and other equipment c) rental agenda c) Manager gives tenant handbook d) rental ledger d) Tenant submits supporting information for lease application 7. A parade of constant repairs and remodels in neighboring spaces in a shopping mall has 2. If a manager operates a large building with created frequent interruptions and made access hundreds of tenants, what would be the best difficult to Elizabeth’s store, to the extent that way to solicit tenant input? she is losing much of her business. The landlord a) Internet surveys has potentially violated the: b) Personal visits a) covenant against encumbrances c) Suggestion box b) covenant of quiet enjoyment d) Telephone polling c) covenant of seisin d) warranty of habitability 3. Which of the following maintenance issues would take the lowest priority for an immediate 8. All of the following are potential ways for a fix by management? tenant to breach a lease, except: a) Blocked fire exit a) causing serious damage to the premises b) Broken window b) engaging in a prohibited use c) Inoperative refrigerator c) failure to pay rent d) Inoperative smoke detector d) violating the warranty of habitability 4. Which of the following types of buildings 9. A manager will prefer to retain tenants when- is least likely to need the manager to send a ever possible, in order to avoid: monthly bill to a tenant specifying the amount a) lost income of rent due? b) marketing expenses a) Industrial c) refurbishing costs b) Office d) All of the above c) Residential d) Retail 10. Which type of leasehold does not require any notice to terminate, because it terminates au- 5. Of the various ways to structure late fees, which tomatically on the scheduled ending date? one has the advantage of most encouraging ten- a) Periodic tenancy ants to pay promptly once the rent has become b) Tenancy at sufferance overdue? c) Tenancy at will a) Daily fee d) Term tenancy b) Flat fee c) Escalating fee plus daily fee d) Flat percentage 11  Property Management Instructor Materials 11. How far in advance of a lease’s ending date 15. A notice to quit or cure is also often known as should a manager give a renewal notice to a a: tenant with a one-year residential lease? a) notice of renewal a) One week b) sheriff’s deed b) Two weeks c) three-day notice c) Two months d) writ of possession d) Six months 16. Which of the following would not be an illegal 12. Which of the following is an important way in use of the eviction process? which initial lease negotiations and renewal a) Evicting a tenant because she made legiti- negotiations differ? mate repair requests a) During renewal, a manager already has a b) Evicting a tenant because she belongs to a sense of how valuable the tenant is and how protected class (such as race or sex) much to accommodate him c) Evicting a tenant who reported substandard b) Length of the lease term is not at issue in a conditions to a local government entity renewal d) Evicting a tenant upon finding out that more c) Renewal does not include discussion of people live in one unit than is permitted by repairs or renovations either the contract or by local ordinance d) The monthly rental amount, and nature of pass-through charges, is not discussed 17. Which of the following would not be legitimate during renewal grounds for evicting a tenant, in a jurisdiction that has a “just cause” eviction ordinance? 13. Which of the following statements about aban- a) Failure to pay rent donment is not true? b) Illegal use a) Abandonment may be presumed if it ap- c) Interference with other tenants’ quiet enjoy- pears the rent is overdue and it appears that ment the tenant has vacated the premises. d) Membership in a protected class b) It occurs when a tenant leaves before a fixed lease term expires 18. Which type of situation would result in the c) It occurs when a tenant leaves without termination of a lease, but might also result in giving the notice required to end a month- reimbursement of both the owner and tenant to-month tenancy by a governmental agency? d) The owner has no duty to mitigate the dam- ages by re-renting the abandoned property a) Condemnation promptly b) Destruction of property c) Foreclosure d) Formation of prescriptive easement 14. A self-help eviction occurs when a landlord: a) cuts off utilities to drive out a delinquent 19. Which of the following is information that is tenant not likely to be contained in a manager’s rental b) files an unlawful detainer action ledger? c) gets help from the local sheriff’s depart- ment a) Amount of security deposit d) violates the covenant of quiet enjoyment b) Balance owed c) Pass-through charges d) Rent at comparable property 12  Chapter 8: Working with Tenants 20. The implied warranty of habitability guarantees that: a) a landlord will not disrupt the tenant’s use of the property or allow someone else to do so b) a residence meets all building and housing code regulations for health and safety c) the owner actually holds title to the property and has authority to convey a leasehold interest d) the promised space will be available by the lease date 13  Property Management Instructor Materials Answer Key 1. d) The walkthrough is primarily an op- 6. a) The rent roll contains a separate entry portunity to inspect the property, as for each unit or space, regardless of well as to discuss rules and instruc- whether it is rented or not. It contains tions. The tenant wouldn’t submit tenant information and information on lease application information; that has the current rental amount and balance already happened before the manager’s due. decision to lease the apartment to the tenant. 7. b) The covenant of quiet enjoyment implies that a landlord may not dis- 2. a) Communication by internet is often rupt the tenant’s use of the property, the most effective method of reaching and may not permit others to disrupt tenants in a large building with many the tenant’s use either. A sufficiently units. serious disruption could amount to a material breach of the lease. 3. c) While a broken refrigerator is by no means desirable, it isn’t a life-threat- 8. d) While a tenant could certainly breach a ening issue to the extent of the other lease by creating dangerous or unsani- possibilities, which either involve a tary conditions, the implied warranty fire safety threat or a threat to tenant of habitability is a duty owed to the security. tenant by the owner; it’s not a duty that a tenant can breach. 4. c) Most residential leases are gross leas- es, so the amount due won’t change 9. d) High turnover creates three separate from month to month. Leases in com- problems: lost income during the time mercial buildings are likely to be either units are vacant, increased refurbishing percentage leases, where the rent will costs between tenants, and increased vary depending on sales, or net leases, expenses associated with marketing where the rent will vary depending on the property to fill the vacancies. pass-through charges, so an individuat- ed bill will need to be sent each month. 10. d) A term tenancy is for a definite term, with fixed beginning and ending dates. 5. a) The daily fee will encourage prompt The lease terminates on the ending payment after rent has become over- date, regardless of whether either party due, since the penalty gets slightly has given notice of intent to terminate. larger each day. With a flat fee, once the rent is overdue and the penalty is imposed, there’s no incentive to pay until the next deadline. 14  Chapter 8: Working with Tenants 11. c) Two months ahead of the termination 17. d) Under federal and state antidiscrimina- date is an appropriate amount of time tion laws, membership in a protected for a renewal notice for a one-year res- class is never a legal justification for idential lease. For a commercial lease eviction, regardless of whether or not with a longer term, you would provide it’s in a jurisdiction that has a “just a longer time period than that, to give cause” eviction ordinance. enough leeway for a long period of ne- gotiations. 18. a) If a property is condemned, that will terminate any existing lease. However, 12. a) Renewal negotiations can be easier the government may need to reimburse than initial negotiations, because land- not only the property owner for the lord and tenant are already familiar market value of the taken property, with each other, and what value each but also possibly the tenant, for any one brings to the relationship. Length remaining value of a leasehold. of term, rent amount, and repairs are discussed in almost any lease negotia- 19. d) It’s useful to know rents at comparable tion, initial or renewal. properties as a means of assessing whether rents are currently priced 13. d) In most cases, a manager must miti- competitively, but that sort of analysis gate the damages caused by a tenant’s appears in a management plan, not a breach; one common way is to re-rent rental ledger. the apartment as soon as possible. 20. b) The warranty of habitability concerns 14. a) A self-help eviction is one where a whether a property is safe and sanitary, manager takes action into his own in other words, whether it complies lands, driving off particular tenants with business and housing code regu- through cutting utilities or otherwise lations that affect health and safety. interfering with the tenant’s use of the property. 15. c) A notice to quit or cure a breach is known in many states as a three-day notice, because it informs the recipient that legal action will be taken within three days unless the outstanding rent balance is paid off. 16. d) It is legal to evict in the case of a ma- jor violation of lease terms, such as having more people living in the apart- ment than is permitted. 15  Property Management Instructor Materials PowerPoint Thumbnails Use the following thumbnails of our PowerPoint presentation to make your lecture notes. 16 Chapter 8: Working with Tenants 17 Property Management Instructor Materials 18 Chapter 8: Working with Tenants 19 Property Management Instructor Materials 20 Chapter 8: Working with Tenants 21 Property Management Instructor Materials 22 Chapter 8: Working with Tenants 23 Property Management Instructor Materials 24 Chapter 8: Working with Tenants 25 Property Management Instructor Materials 26 Chapter 8: Working with Tenants 27 Property Management Instructor Materials 28 Chapter 8: Working with Tenants 29 Property Management Instructor Materials 30 Chapter 8: Working with Tenants 31 Property Management Instructor Materials 32 Chapter 8: Working with Tenants 33 Property Management Instructor Materials 34 Chapter 8: Working with Tenants 35 Property Management Instructor Materials 36 Chapter 8: Working with Tenants 37 Property Management Instructor Materials 38 Chapter 8: Working with Tenants 39 Property Management Instructor Materials 40