3 Most Costly Landlord Mistakes

by | Sep 1, 2014 | Tenant Screening

If your goal is to keep your rental properties profitable, both in the short term and the long run, there are some mistakes you can’t afford to make:

1. Housing Discrimination

Landlords who don’t learn to navigate fair housing laws risk serious income loss.

tenant screeningJust this week, the Department of Justice announced that it settled a claim against a landlord accused of rejecting applicants based on race and family status. The landlord, who owns three apartment buildings, will pay $850,000 in damages and fines. Ten former employees corroborated the tenants’ claims and testified against the landlord in this case.

Even the smallest landlord businesses can get hit with housing discrimination claims. And, landlords who are charged with discrimination face more than the costs of fines and damages. Typically, the landlord will be forced to submit to continuing government oversight, and to undergo fair housing training.

Two common violations of fair housing are policies that restrict or exclude children, and violations of the rules concerning companion animals. This comment from a tenant highlights the need for more education on companion animal rights:

“I live in Minnesota. I am prescribed a pet companion due to several mental health issues. I prefer to have a cat as they are more soothing for my anxiety. My landlord says I can only have a dog because he is allergic to cats. Plus, he wants a $100 deposit and says I have to wait 6 months. I’m not sure the laws here as in Iowa I never had a problem.”

Complaints like the one above often can lead to a secret investigation where the housing authority hires testers to check out the landlord. The landlord has no way of knowing which phone calls or rental applications are coming from actual tenants and which are testers bent on catching the landlord in the act.

Fighting illegal housing discrimination is a top priority of the Department of Justice, which represents HUD. Equally tenacious, state fair housing advocates are keeping a watchful eye on landlords, scanning rental ads, and encouraging tenants to file complaints against landlords who appear to be bending the rules.

2. Premise Liability

This area of liability is far broader than many landlords imagine. While landlords can’t guarantee a tenant’s safety, they will be called upon to prove that they acted with due care should a tenant or guest get injured. That level of care — the “reasonable landlord standard” — requires frequent inspections of the property and  keeping up with repairs and maintenance.

Building code violations make the tenant’s case easy to prove. Tenants can use the fact of a violation in court to win a case. This also increases the chances of a punitive damages award.

Today, one of the most costly areas of premise liability is environmental hazards. Lead paint in older homes can generate tens of thousands in fines, whether or not a tenant is affected. Secondhand smoke cases have gained popularity in recent years, with judges saying that the “reasonable” landlord understands this health risk.

Premise liability also covers pest infestations. Whether it’s bedbugs, wasps or potentially rabid bats, keeping pests at bay should be a top priority. That said, improper use of pesticides in do-it-yourself pest applications can be one of the costliest liabilities a landlord will ever encounter.

3. Security Deposit Deductions

The security deposit rules are there to protect landlords from excessive risk. But in practice, it’s one of the most litigated areas of landlord tenant law.

It may seem easier from an accounting prospective to take “standard” security deposit deductions from each tenant for items that are commonly damaged in rentals — replacing all the lightbulbs, painting, carpet cleaning and so on. Some landlords make a point of taking the same amount from each tenant to avoid allegations of discrimination.

But the truth is that deposit deductions should only be taken in extreme cases where the tenant has caused damage beyond ordinary wear and tear. This figure has to be calculated on a case-by-case basis, and only for the exact amount of the damage.

Factors such as the length of the tenancy will dictate what constitutes wear and tear, and what is a legitimate deduction.

Local laws place limits on what amount can be collected for a deposit, and whether the funds must reside in an interest-bearing account. Notice must be provided for pending deductions. If these rules are violated, the landlord may be subject to penalties for wrongfully retaining the tenant’s deposit.

If the inappropriate policies have been applied to a number of tenants, a landlord risks a class action lawsuit. Tenants in these cases can claim violation of consumer protection statutes and even racketeering  in the worst cases. These laws typically provide for civil penalties, such as treble (three times) the security deposit, attorneys fees, and punitive damages.

But there’s a bigger issue at play here: If you are always taking security deposit deductions from every tenant, you’re not choosing the right tenants. It’s time to review your tenant screening policies to determine if you have become too lax, because you are relying instead on your right to take deductions from the deposit.

This post is provided by Tenant Verification Service, Inc., helping landlords reduce the risks of renting with fraud prevention tools that include Tenant Screening, Tenant Background Checks, (U.S. and Canada), as well as Criminal Background Checks, and Eviction Reports (U.S. only).

Click Here to Receive Landlord Credit Reports.

Disclaimer: The information provided in this post in not intended to be construed as legal advice, nor should it be considered a substitute for obtaining individual legal counsel or consulting your local, state, federal or provincial tenancy laws.

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