The world of commercial real estate investment offers a plethora of opportunities for financial stability, growth, and freedom. However, alongside the potential rewards come significant legal responsibilities that landlords must understand and adhere to. The old adage is true: ignorance is not an excuse for noncompliance. Here are six tips you should be aware of as a landlord to remain compliant.
Handling security deposits in accordance with local laws and regulations is a fundamental aspect of commercial property management. Security deposits serve as a financial safeguard for landlords in the event of lease violations or property damage caused by tenants.
As a landlord, it is important to understand the legal requirements governing security deposit handling and ensure compliance with applicable statutes to avoid disputes and legal liabilities. Some states may require landlords to place security deposits into interest-bearing accounts. Many states put a cap or maximum on how much a landlord can charge for a security deposit, particularly in the case of residential leases. Of the states that put a cap on the amount of the security deposit, some of them put a cap on the total amount of upfront money that a landlord can receive — so whether you call it a security deposit, first and last month’s rent, a pet deposit, a cleaning deposit, or any other type of deposit, all of those payments combined might have a legal maximum amount.
Additionally, most states have strict time requirements as to when a deposit must be returned and a failure to do so in a timely manner can result in the tenant having a right to the entire deposit amount, even if there was extensive damage done to the property by the tenant. In some states, a landlord might be required to pay two or three times the amount of the original deposit for failure to refund the deposit on time.
Fair housing laws prohibit discrimination in housing based on protected characteristics such as race, religion, national origin, disability, or familial status. While primarily applicable to residential properties, fair housing principles also extend to real estate leasing. A landlord must familiarize themselves with fair housing laws and ensure compliance with anti-discrimination regulations to avoid legal repercussions and maintain ethical business practices.
Sometimes seemingly innocent statements can still give rise to fair housing issues. For example, there was a lawsuit brought because a rental listing stated that the unit was within walking distance from a place of worship. While the landlord gave that information using the place of worship as a landmark and reference, others viewed that as a tip towards rental preferences based upon religion, which is unlawful.
Environmental regulations impose strict requirements on property owners to mitigate environmental risks and protect public health and safety. From hazardous waste management to pollution prevention measures, landlords must adhere to a complex array of environmental laws and regulations. As a landlord, understanding and complying with these requirements is essential for minimizing environmental liabilities and preserving the value and marketability of your properties.
Are you partaking in value-add activities with extensive renovation? Be sure that you know your municipality’s disposal requirements as well as the hours in which the work can be done. Residential landlords are typically required to provide their tenants with “quiet enjoyment.” Quiet enjoyment effectively means that the landlord cannot interfere with a tenant’s peaceful living. While a landlord may not be under a duty to provide constant silence, the dust, noise, additional people, and other disturbances that often come with renovations could rise to the level of a quiet enjoyment violation.
Further, if a landlord knows of environmental issues or contamination that will affect tenants, the landlord will have a duty to remediate those issues or potentially be responsible for damages stemming from them.
Tenant eviction is a legal process that landlords may need to pursue in cases of lease violations or non-payment of rent. Understanding the legal requirements and procedural steps involved in the eviction process is a basic requirement for protecting landlords' rights and interests while ensuring compliance with applicable laws and regulations. As a landlord, it's crucial to familiarize yourself with eviction procedures and seek legal counsel if necessary to navigate this complex and potentially contentious aspect of property management.
You’ll want to find local counsel that focuses specifically on landlord-tenant issues. In many states, there is an exact, specific, and precise process that must be followed, and failure to follow every single step can result in you having to start the process over from square one or incurring other costs or time delays. Particularly if you are in a tenant-friendly state, eviction is not the time to conduct DIY legal services.
Insurance is a critical risk management tool for property owners, providing financial protection against property damage, liability claims, and other unforeseen risks. From property insurance to liability coverage, landlords must secure adequate insurance policies to safeguard their investments and mitigate potential financial losses.
As a landlord, understanding the different types of insurance coverage available and assessing your risk exposure is vital for making informed insurance decisions and protecting your assets and interests. While insurance doesn’t legally limit your liability, in practical terms, it can help mitigate your exposure by covering litigation costs and covering some or all of the required payments should you lose.
Be sure to understand what insurance requirements your lender has — you will likely be required to list the lender on the insurance policy. Here are some types of insurance coverage you might want to look into as a landlord:
Lease renewals and negotiations are critical processes that landlords must navigate to maintain stable occupancy levels and maximize rental income. Understanding the key factors influencing lease negotiations, such as market trends, tenant demand, and property performance metrics, is crucial for achieving favorable lease terms and securing long-term tenant commitments. As a landlord, developing effective negotiation strategies and maintaining open communication with tenants can help you optimize lease renewal outcomes and sustain profitability in your property portfolio.
One extremely important thing to keep in mind with leases or any written contract: only what is written down on the agreement is part of the deal. If there are other lease terms that the parties have talked about but were not memorialized in writing with the rest of the written agreement, those unwritten terms are not part of the deal, and a court will not even look at any evidence that attempts to show it was part of the deal.
We know ignorance is not an excuse for legal compliance, but now you know better and thus can do better for yourself, your business, your investors, and your tenants. Save these tips to keep your real estate portfolio in strong, compliant shape.
About the Author:
Nic McGrue is a tenured professor of law and the founder of Polymath Legal PC. At Polymath Legal PC, Nic helps real estate investors lawfully raise capital allowing them to generate passive income while creating generational wealth.
Disclaimer:
The views and opinions expressed in this blog post are provided for informational purposes only and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.