Fred and Michelle decided that their rental house needed painting inside. They were renting to five young men who had lots of energy and said they were eager to paint the place (for a fee, of course). The perfect solution, thought Fred and Michelle. So these young landlords told their five young tenants that they would buy the paint and take $200 a month off the rent while the tenants were painting.
A year later, not one can of paint had been opened, must less having found its way to the wall and Fred and Michelle had to borrow money to make the mortgage payments. They said enough is enough, told their tenants to forget the painting and they were putting the rent back to where it was.
You should have heard the uproar. “Two hundred dollars a month! That’s an obscene rent increase,” moaned the tenants almost in unison. “You landlords are all alike, you just gouge us tenants.”
Now it was Fred and Michelle’s fault that the tenants didn’t live up to their end of the deal. Go figure.
That is just one of the several pitfalls of having tenants work on the property. In this article, we will look at others and examine the best way to pay tenants if you decide to let them do work on their unit.
Allowing tenants to paint is fairly safe, except for a liability problem we will discuss shortly. You just have to be sure that they will be as neat and tidy as you would be (or maybe neater, if you tend to be a little messy when you paint) and that they paint only what you tell them in the colors you approve. Other work that tenants can do fairly safely is lawn mowing especially in plexes and small apartment buildings, with the same caveats about their attention to detail.
Fred and Michelle’s big mistake was making the work their tenants were supposed to do on the property a function of the rent. Yes, it is easier to treat it that way: there’s no calculating hours and jobs. But what do you do if the tenant doesn’t do the job as you intended it should be done? Your only option is one that is sure to cause a fight: rescind the rent break. As did Fred and Michelle’s tenants, yours too will look at the recision as a rent increase.
The solution—pay for the job separately. Thus, if you want tenants to paint the house, mutually agree on the price and the general time frame for completion. You can arrange to pay for the job in stages or upon completion to your satisfaction. The rent stays the same.
Now the liability problem. Under no circumstances do you want your tenants to be construed to be your employees. Instead, they need to be independent contractors. That means they must meet the requirements for being a contractor. The Internal Revenue Service (IRS) has created specific guidelines for determining whether someone who works for you is an employee or independent contractor.
A safe workplace for your tenant/contractors is also your responsibility. While you don’t have the same liability for ensuring safety for contractors as you do employees, you still can’t allow unsafe or hazardous situations in the place that they are working. You might also hand the tenant/contractor a list of safety rules for working on their unit that include avoiding falls and using safe equipment. Two court cases illustrate your liability.
An elevator repairman was injured in the basement of a building when a pile of boxes fell beneath the wheels of his tool box, causing him to fall. He sued his boss, the tenant of the building, and the owner of the building.
In spite of all arguments that the tenant’s lease required him to make all repairs, the owner of the property was still allowed to be sued because the court said he had a statutory responsibility under the state’s labor law. Sergio v. Benjolo, N.V. 562 N.Y.S. 2d 476 (A.D. I Dept. 1990)
What these cases mean to you, as a landlord, is that you have to supervise the contractors you hire, in this case tenants, to work on your property, always keeping in mind the independent contractor rules. It could pay you big dividends to be aware of the various work safety regulations. Especially if your tenants are not in the business of painting or yard maintenance, you cannot depend on their good sense to create and maintain a safe work environment.
For anything besides painting and yard work, if you allow a tenant to do any work, you had better have your liability insurance and umbrella policies paid in full for the next several years. You are responsible for any work that is done on your property, regardless of who did it.
Witness the case of landlord Kienke, who rented a house to English. The two agreed that English would do repairs on the property as opposed to paying rent. English wasn’t much of a carpenter, but Kienke let him do the work anyway, using mostly his own tools.
Kienke ended up using English to fix the front porch. Subsequently it collapsed on English, killing him. English’s estate sued, claiming workman’s compensation violations. In the end, the court ruled in favor of the landlord, saying that the tenant was a contractor and not covered by the Worker’s Compensation Act. English v. Kienke, 848 P2d 153 (1993) UT.
In spite of the fact that Kienke was absolved, he should have had to pay damages for stupidity. In this case, the landlord had done enough to ensure that the tenant was treated as a contractor and not an employee. But one error, such as providing a tool or telling the tenant when to work, and the landlord could have been held liable for the death of the tenant.
But carrying it one step farther, what would have happened if a guest had been injured on the porch the tenant was repairing while he was visiting the tenant. The landlord is responsible for the work, or lack of work, done by a contractor in his employ.
Carrying the scenario even farther, what if the tenant had completed the work on the porch, moved out, and the landlord rerented the property. The new tenant was then injured on the porch repaired by a tenant with little carpentry experience. Then the landlord and his insurance company would really have to pay. If I was on the jury, I would certainly vote in favor of an injured tenant under those circumstances.
An even more damaging outcome is the case of Randall Nathan,San Franciscolandlord, whose case was chronicled in these pages. Because of apparently sloppy work on a balcony of a property he owns, one tenant fell to her death and several of her guests were injured. In spite of the fact that he had had the work done by a contractor, Nathan was charged with manslaughter.
Even if there were no injuries of any kind, the situation in the case of the porch begs the question, what kind of job can you expect from an inexperienced contractor? It is simply bad business to allow possibly incompetent people to work on your investments. At the same time in the future you may want to sell the property. Sloppily done work is usually obvious. If you look at much property, you can spot it in an instant.
Sloppy work fetches a sloppy price, at best, the wrong end of a judgment, at worst.
So if you must allow tenants to work on your property, restrict it to painting and lawns, and pay them separately from the rent. If you’re ever tempted to hire a tenant to do anything that requires the pounding of a nail, the driving of a screw or the sawing of a board, no matter how qualified he or she says he or she is, talk to your attorney first.
Bob Cain, president of Cain Publications, Inc. has been a publisher and professional trainer and speaker for 20 years. For over 25 years now, Bob has been publishing information, giving speeches, putting on seminars and workshops, and consulting for landlords on how to buy, rent and manage property more effectively, as well as courses for his own customers through Cain Publications’ subsidiary, the Rental Property Reporter. For more information, visit www.rentalprop.com Reprinted with permission.