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Here are six lessons for landlords from the pandemic that may help better prepare for the future should another potential disaster appear.
COVID-19 created a perfect storm for landlords, many of whom were thrown curveball after curveball, requiring them to adjust on the fly for their renters. The most challenging part for a landlord during the pandemic has not been the inability to collect rent, but the ongoing duty to maintain the property and to control emotions brought on by the pandemic.
Landlords’ obligations were not put on hold during the pandemic, but COVID made it more difficult to fulfill them. Even if tenants are unable to, or refuse to pay rent, landlords are still required to manage tenant disputes, assure tenants’ ordinary safety – and extraordinary safety when and if a tenant contracted the virus – and maintain the property when many building-maintenance services were closed or limited.
Landlords are not relieved of their duties until the landlord-tenant relationship ends, either by agreement with the tenant or by order of the court. For landlords who ignored their duties during the pandemic, their inaction could have serious legal implications, including the ability to recover costs and to profit.
We do not know when another disaster will appear, but landlords can learn important basic lessons from the COVID-19 crisis.
- The Importance of Cash Reserves
During this pandemic, property owners paying federally backed mortgages were allowed to forbear their required payments. That may not be the case next time. Even without the forbearance, landlords must understand that the mortgage is not their only expense. They are required to maintain the leasehold in a habitable condition, including but not limited to maintaining a clean building free from pests, with properly functioning plumbing, heating and electricity.
- Importance of Proper Screening of Tenants
Preventing litigation is better than litigating. So, although it seems easier to choose tenants who agree to pay a higher price, can pay immediately, will move in quickly, and claim to hold a steady job, it is vital to conduct a thorough background check to review their credit history. It can help you in understanding the tenant better. Some tenants are financially solvent, but have poor money management skills. A high credit score generally indicates a person who cares about their credit. They may have a habit of paying their debts on time and in full. They may be less likely to believe the misconception surrounding COVID-19 that they are excused from paying rent, with or without a reason to do so.
“It is vital to conduct a thorough background check to review their credit history. It can help you in understanding the tenant better.”
- Communicating with Tenants
Tenants are human, and they interact with one another. During a high-stress event, including the pandemic, conflict between tenants may be heightened. A landlord has a duty to keep the property safe and habitable. It is important to have a pulse on the situation, be diligent and thorough when faced with an issue, and to be fair with all tenants. The best way to manage and minimize problems is to keep open communication with all tenants. As a bonus, open communications help you maintain the property and resolve minor issues before they become major.
- Maintaining Properties
A landlord has a duty to keep their rental habitable and, in some instances, to repair and replace damaged items. A well-maintained property keeps both the landlord and the tenant safe. During the pandemic, it was difficult for landlords to enter their property, especially when people were told to isolate and remain at home. However, landlords still were required to obtain the necessary materials and find service providers to make repairs. Planning and tending to the property’s needs on an ongoing basis will benefit the landlord and the tenant in the future.
- The Pain of an Eviction
“The cost of evictions varies a lot, but it could be for landlords an expensive process as well. Among the costs for landlords as well is the emotional cost of an eviction.”-Matthew Desmond
It is no secret that evictions are expensive. In normal times, evictions take months to complete. The pandemic only lengthened the time for evictions to conclude. Even when an eviction has concluded, and the court has granted possession of the property and holdover rent, a legal judgment may need to be enforced. Landlords can ask the local sheriff to remove former tenants and commence their collection efforts through a garnishment or levy. Landlords, however, cannot physically remove the tenant from the premises.
When a landlord asks the sheriff to remove tenants from the property, the sheriff must provide written notice to the tenants, explaining when they will appear on the property to remove the tenant. The notice will state a date after a tenant is instructed to leave the property pursuant to the court judgment. Tenants may confuse the date the sheriff provides and believe it is a government-sanctioned extension for them to stay in the property. When tenants vacate the property, they sometimes commit waste by leaving old furniture and trash on the property. The landlord may be required to store the furniture for 15 days before the tenant legally abandons the property.
Evictions are tiring and stressful. If a tenant files an answer to a lawsuit, they often check a litany of defenses on the court’s form. The landlord must respond to each defense, often requiring an in-depth review of past communications and repair records. Even if landlords receive a judgment from the court, they must analyze their resources and determine whether the extra effort is worth enforcing the judgment. Ultimately, the landlord must have sufficient cash reserves to withstand an eviction.
- Seek Good Legal Advice
Courts were closed during the pandemic, and when they reopened, many landlords were unable to evict tenants for non-payment of rent. While landlords were able to evict tenants during the pandemic, courts could not hear cases predicated on non-payment of rent. Some landlords sought eviction based on a breach-of-contract claim. Unfortunately, contract claims are not as straightforward and easy to prove as non-payment of rent.
The pandemic was and is a challenging time for landlords and their tenants. Landlords should remember that they provide the necessity of a home to tenants, and have a duty to maintain that property. They invested in real estate because it seemed like a less risky business than other investment opportunities, but no business is without risk. The tips outlined above will hopefully help landlords understand their duties, minimize their risks, and keep their investments profitable. Communicating with and keeping good tenants will help the community and the landlord survive difficult times.
2022 Multifamily Completions to Set New Record
Multifamily construction permits surged 15 percent in August, the highest monthly total since June of 2015, Marcus & Millichap reported.
The multifamily construction permit increase is directly tied to the tight vacancy situation in multifamily housing. Single-family permit filings remained relatively unchanged from previous months.
Spearheading the rise in permits was the 53 percent annual advance in multifamily starts. Some of this activity was due to previously stalled developments that “pushed forward as the lumber price index retreated by 36 percent over the past two months,” the report said. However, lumber costs are still high, and well above pre-pandemic levels.
“Elevated material costs and labor shortages limit the potential supply output next year, but recent permit activity and starts signal a weighty pipeline nonetheless. Early forecasts project 400,000 apartments will finalize, while the single-family addition will be the largest since 2006,” the report says.
As completions set a new record in 2022, builders will be challenged to keep up with demand and there is little concern about oversupply, the report said, as the new supply will continue to lag demand as the aging millennial cohort drives robust household formation.
“The U.S. is expected to add 1.5 million additional households next year, given there are enough residences available to support the demand amid a housing shortage. Apartment vacancy sits at a historical low, and demand for single-family homes has consistently outpaced supply, driving inventory down and pushing up prices. The influx of apartments next year is especially crucial as these will provide living options to those priced out of homeownership,” the report said.
John R. Triplett is the publisher of Rental Housing Journal and a veteran journalist who has worked for Cox, Gannett and Belo. He and his business partners also own a digital marketing company, Desert Path Consulting LLC.
Cherrie Tan is an associate with McManis Faulkner in Silicon Valley. With a background in intellectual property and tech law, she represents clients in general civil litigation matters, and these multifaceted experiences give her a powerful combination of skills she can draw upon to represent clients in tech-driven Silicon Valley. Cherrie is also a landlord herself, so she is keenly aware of the issues facing property owners. She may be reached at (408) 279-8700 or [email protected].
McManis Faulkner is a Silicon Valley trial firm, providing a full range of services representing both corporations and individuals through trial and appeal. The firm handles a wide range of litigation, including business, civil rights, class actions, construction, criminal, employment (management), environmental, family, general civil, intellectual property, personal injury, probate, professional negligence and real estate.
The RentalHousingJournal.com is an interactive community of multifamily investors, independent rental home owners, residential property management professionals and other rental housing and real estate professionals. It is the most comprehensive source for news and information for the rental housing industry. Their website features exclusive articles and blogs on real estate investing, apartment market trends, property management best practices, landlord tenant laws, apartment marketing, maintenance and more.
Read more articles from the February edition of the AOA Magazine