Every Landlord's Legal Guide
Janet Portman, Attorney; Marcia Stewart, ; and Ralph Warner, Attorney
May 2012, 11th Edition
The best, most effective way to make and save money as a landlord is to keep up with the law, so turn to Every Landlord's Legal Guide, which gives you the legal and practical solutions you need to rent your residential property right. From move-in to move-out, this book covers a wide range of issues, including fair housing, repairs, sublets, screening for good tenants, and environmental hazards such as mold and bed bugs (yes, bed bugs). With handy 50-state charts listing specific laws for each state, this complete resource will help you avoid hassles and headaches -- not to mention legal fees.
From fair housing to security deposits and more, Nolo's bestselling book Every Landlord's Legal Guide helps you:
- screen and choosing tenants
- prepare leases and rental agreements
- collect and returning deposits
- avoid discrimination charges
- keep up with repairs and maintenance
- hire the right property manager
- minimize your liability
- deal with problem tenants
Every Landlord's Legal Guide provides over 30 forms you'll need, including leases and rental agreements. This edition is completely revised with the latest in the law, plus explanations of new federal rules affecting foreclosed properties and new information on security deposits in your state.
Are you a landlord in California? Check out The California Landlord's Law Book
"…the bible for landlords."
"Start with... Every Landlord's Legal Guide.... You are now equipped with the information needed to be Trump, the Landlord."
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"Complete, detailed, accurate, practical, easy-to-understand and superb.... Every residential landlord in all 50 states should be required to read this outstanding book and to keep it handy for reference."
-Los Angeles Times
Screening, Choosing, and Rejecting Applicants
- Rental Application
- Consent to Contact References and Perform Credit Check
- Tenant References
- Notice of Denial Based on Credit Report or Other Information
- Notice of Conditional Acceptance Based on Credit Report or Other Information
Rental Documents and Moving In
- Receipt and Holding Deposit Agreement
- Landlord-Tenant Checklist
- Move-In Letter
- Month-to-Month Residential Rental Agreement
- Month-to-Month Residential Rental Agreement (Spanish Version)
- Fixed-Term Residential Lease
- Fixed-Term Residential Lease (Spanish Version)
- Cosigner Agreement
- Disclosure of Information on Lead-Based Paint and/or Lead-Based Paint Hazards
- Disclosure of Information on Lead-Based Paint and/or Lead-Based Paint Hazards (Spanish Version)
- Protect Your Family From Lead in Your Home Pamphlet
- Protect Your Family From Lead in Your Home Pamphlet (Spanish Version)
- Property Manager Agreement
- Verification of Disabled Status
Rental Documents during the Rental Term
- Amendment to Lease or Rental Agreement
- Letter to Original Tenant and New Cotenant
- Consent to Assignment of Lease
- Agreement for Delayed or Partial Rent Payments
Repairs and Maintenance
- Time Estimate for Repair
- Semiannual Safety and Maintenance Update
- Agreement Regarding Tenant Alterations to Rental Unit
- Notice of Intent to Enter Dwelling Unit
- Resident’s Maintenance/Repair Request
Handling and Returning Security Deposits
- Letter for Returning Entire Security Deposit
- Security Deposit Itemization (Deductions for Repairs and Cleaning)
- Security Deposit Itemization (Deductions for Repairs, Cleaning, and Unpaid Rent)
- Tenant’s Notice of Intent to Move Out
- Landlord-Tenant Agreement to Terminate Lease
- Move-Out Letter
- Warning Letter for Lease or Rental Agreement Violation
Marcia Stewart writes and edits Nolo books and forms on landlord-tenant law, real estate, and other consumer issues. She is the co-author of Nolo's Essential Guide to Buying Your First Home, Every Landlord's Legal Guide, First-Time Landlord, Every Tenant's Legal Guide, Leases and Rental Agreements, Renters' Rights, and The Legal Answer Book for Families. She has edited dozens of Nolo books, including The Women's Small Business Start-Up Kit.
Marcia is also an author on a popular landlord-tenant law site.
You can also find her on Google.
Ralph "Jake" Warner, a pioneer of the do-it-yourself law movement, founded Nolo with Ed Sherman in 1971. Nolo began publishing do-it-yourself law books written by Jake and his colleagues after numerous publishers rejected them. When personal computers came along, he added software to many Nolo books. When the Internet arrived, he championed the move online, where Nolo published huge amounts of free legal information.
In addition to running Nolo for much of its first 40 years, Warner was an active editor and author. He wrote many books, including Retire Happy: What You Can Do Now to Guarantee a Great Retirement and Save Your Small Business: 10 Crucial Strategies to Survive Hard Times or Close Down & Move On. Today, he operates a storytelling repertory group, Jake's Tales, devoted to keeping alive the tradition of telling children wonderful stories.
Warner holds a law degree from Boalt Hall School of Law at the University of California at Berkeley and an undergraduate degree in history from Princeton.
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1. Screening Tenants: Your Most Important Decision
- Avoiding Fair Housing Complaints and Lawsuits
- How to Advertise Rental Property
- Renting Property That’s Still Occupied
- Dealing With Prospective Tenants and Accepting Rental Applications
- Checking References, Credit History, and More
- Choosing—And Rejecting—An Applicant
- Finder’s Fees and Holding Deposits
2. Preparing Leases and Rental Agreements
- Which Is Better, a Lease or a Rental Agreement?
- Clause-by-Clause Instructions for Completing the Lease or Rental Agreement Form
- Signing the Lease or Rental Agreement
- About Cosigners
3. Basic Rent Rules
- How Much Can You Charge?
- Rent Control
- When Rent Is Due
- Where and How Rent Is Due
- Late Charges and Discounts for Early Payments
- Returned Check Charges
- Partial or Delayed Rent Payments
- Raising the Rent
4. Security Deposits
- Purpose and Use of Security Deposits
- Dollar Limits on Deposits
- How Much Deposit Should You Charge?
- Last Month’s Rent
- Interest and Accounts on Deposits
- Nonrefundable Deposits and Fees
- How to Increase Deposits
- Handling Deposits When You Buy or Sell Rental Property
- Legal Reasons for Rejecting a Rental Applicant
- Sources of Antidiscrimination Laws
- Types of Illegal Discrimination.
- Valid Occupancy Limits
- Managers and Discrimination
- Unlawful Discrimination Complaints
- Insurance Coverage in Discrimination Claims
6. Property Managers
- Hiring Your Own Resident Manager
- How to Prepare a Property Manager Agreement
- Your Legal Obligations as an Employer
- Management Companies
- Your Liability for a Manager’s Acts
- Notifying Tenants of the Manager
- Firing a Manager
- Evicting a Manager
7. Getting the Tenant Moved In
- Inspect the Rental Unit
- Photograph the Rental Unit
- Send New Tenants a Move-In Letter
- Cash Rent and Security Deposit Checks
- Organize Your Tenant Records
- Organize Income and Expenses for Schedule E
8. Cotenants, Sublets, and Assignments
- What to Do When a Tenant Wants to Sublet or Assign
- When a Tenant Brings in a Roommate
- Guests and New Occupants You Haven’t Approved
9. Landlord’s Duty to Repair and Maintain the Premises
- Your Duty to Keep the Premises Livable
- How to Meet Your Legal Repair and Maintenance Responsibilities
- Avoiding Problems With a Good Maintenance and Repair System
- Tenant Updates and Landlord’s Regular Safety and Maintenance Inspections
- Tenant Responses to Unfit Premises: Paying Less Rent
- Tenant Responses to Unfit Premises: Calling Inspectors, Filing Lawsuits, and Moving Out
- Minor Repairs
- Delegating Landlord’s Responsibilities to Tenants
- Tenants’ Alterations and Improvements
- Cable TV Access
- Satellite Dishes and Antennas
10. Landlord’s Liability for Tenant Injuries From Dangerous Conditions
- How to Prevent Injuries
- Liability and Other Property Insurance
- Your Liability for Tenant Injuries
- If a Tenant Was at Fault, Too
- How Much Money an Injured Tenant May Recover
11. Landlord’s Liability for Environmental Health Hazards
- Carbon Monoxide
- Electromagnetic Fields
12. Landlord’s Liability for Criminal Activity
- Comply With All State and Local Laws on Security
- Keep Your Promises About Security
- Prevent Criminal Acts
- Protect Tenants From Each Other
- Protect Tenants From Your Employees
- Deal With Drug-Dealing Tenants
- If You Are Sued
13. Landlord’s Right of Entry and Tenants’ Privacy
- General Rules of Entry
- Entry in Case of Emergency
- Entry With the Permission of the Tenant
- Entry to Make Repairs or Inspect the Property
- Entry to Show Property to Prospective Tenants or Buyers
- Entry After the Tenant Has Moved Out
- Entry by Others
- Other Types of Invasions of Privacy
- What to Do When Tenants Unreasonably Deny Entry
- Tenants’ Remedies If a Landlord Acts Illegally
14. Ending a Tenancy
- Changing Lease or Rental Agreement Terms
- How Month-to-Month Tenancies End
- How Leases End
- If the Tenant Breaks the Lease
- When a Tenant Dies
- Condominium Conversions
15. Returning Security Deposits and Other Move-Out Issues
- Preparing a Move-Out Letter
- Inspecting the Unit When a Tenant Leaves
- Applying the Security Deposit to the Last Month’s Rent
- Basic Rules for Returning Deposits
- Deductions for Cleaning and Damage
- Deductions for Unpaid Rent
- Preparing an Itemized Statement of Deductions
- Mailing the Security Deposit Itemization
- Security Deposits From Cotenants
- If a Tenant Sues You
- If the Deposit Doesn’t Cover Damage and Unpaid Rent
- What to Do With Property Abandoned by a Tenant
16. Problems With Tenants: How to Resolve
- Disputes Without a Lawyer
- Negotiating a Settlement: Start by Talking
- When Warning Notices Are Appropriate
- Understanding Mediation
- Using Arbitration
- Representing Yourself in Small Claims Court
- How to Avoid Charges of Retaliation
17. Terminations and Evictions
- The Landlord’s Role in Evictions
- Termination Notices
- Late Rent
- Other Tenant Violations of the Lease or Rental Agreement
- Violations of a Tenant’s Legal Responsibilities
- Tenant’s Illegal Activity on the Premises
- How Eviction Lawsuits Work
- Illegal “Self-Help” Evictions
- Stopping Eviction by Filing for Bankruptcy
18. Lawyers and Legal Research
- Finding a Lawyer
- Types of Fee Arrangements With Lawyers
- Saving on Legal Fees
- Resolving Problems With Your Lawyer
- Attorney Fees in a Lawsuit
- Doing Your Own Legal Research
- Where to Find State, Local, and Federal Laws
- How to Research Court Decisions
State Landlord-Tenant Law Charts
- State Landlord-Tenant Statutes
- State Rent Rules
- State Rules on Notice Required to Change or Terminate
- Month-to-Month Tenancy
- State Security Deposit Rules
- Required Landlord Disclosures
- State Laws in Domestic Violence Situations
- State Laws on Rent Withholding and Repair and Deduct Remedies
- State Laws on Landlord’s Access to Rental Property
- State Laws on Handling Abandoned Property
- State Laws on Prohibiting Landlord Retaliation
- State Laws on Termination for Nonpayment of Rent
- State Laws on Termination for Violation of Lease
- State Laws on Unconditional Quit
- State Small Claims Court Limits
- Landlord’s Duty to Rerent
- Consequences of Self-Help Evictions
How to Use the Landlord Forms Library CD-ROM
- Installing the Files Onto Your Computer
- Using the Word Processing Files to Create Documents
- Using EPA Forms
- Files on the CD-ROM
Basic Rent Rules
One of your foremost concerns as a landlord is receiving your rent—on time and without hassle. It follows that you need a good grasp of the legal rules governing rent. This chapter outlines basic state and local rent laws affecting how much you can charge, as well as where, when, and how rent is due. It also covers rules regarding grace periods, late rent, returned check charges, and rent increases.
Avoiding Rent Disputes
Here are three guidelines that can help you and your tenants have a smooth relationship when it comes to an area of utmost interest to both of you: rent.
Clearly spell out rent rules in your lease or rental agreement as well as in a move-in letter to new tenants.
Be fair and consistent about enforcing your rent rules.
If rent isn’t paid on time, follow through with a legal notice telling the tenant to pay or move—the first legal step in a possible eviction—as soon as possible.
Related topics covered in this book include:
Lease and rental agreement provisions relating to rent: Chapter 2
Collecting deposits and potential problems with calling a deposit “last month’s rent”: Chapter 4
Compensating a manager with reduced rent: Chapter 6
Highlighting rent rules in a move-in letter to new tenants and collecting the first month’s rent: Chapter 7
Cotenants’ obligations for rent: Chapter 8
Rent withholding and other tenant options when a landlord fails to maintain the premises in good condition: Chapter 9
Tenants’ obligation to pay rent when breaking a lease: Chapter 14
Accepting rent after a 30-day notice is given: Chapter 14
Evicting a tenant for nonpayment of rent: Chapter 17
State rent rules: Appendix A.
How Much Can You Charge?
In most states, the law doesn’t limit how much rent you can charge; you are free to charge what the market will bear. However, in some cities and counties, rent control ordinances do closely govern how much rent a landlord can legally charge. (Rent control is discussed below.) And in Connecticut, which does not have rent control, tenants may challenge a rent that they believe is excessive. (Conn. Gen. Stat. Ann. §§ 7-148B and following.)
If you aren’t subject to rent control, it’s up to you to determine how much your rental unit is worth. To do this, check rents of comparable properties in your area, and visit a few places that sound similar to yours. Local property management companies, real estate offices that handle rental property, and Craigslist can also provide useful information. In addition, local apartment associations—or other landlords you meet at association functions—are a good source of pricing information.
Many wise landlords choose to charge just slightly less than the going rate as part of a policy designed to find and keep excellent tenants. As with any business arrangement, it usually pays in the long run to have your tenants feel they are getting a good deal. In exchange, you hope the tenants will be responsive to your business needs. This doesn’t always work, of course, but tenants who feel their rent is fair are less likely to complain over trifling matters and more likely to stay for an extended period.
Unless you own property in California; the District of Columbia; Takoma Park, Maryland; Newark, New Jersey; or New York, you aren’t affected by rent control and you can skip this section.
Communities in only five states—California, the District of Columbia, Maryland, New Jersey, and New York—have laws that limit the amount of rent landlords may charge. Typically, only a few cities or counties in each state have enacted local rent control ordinances (also called rent stabilization, maximum rent regulation, or a similar term), but often these are some of the state’s largest cities—for example, San Francisco, Los Angeles, New York City, and Newark all have some form of rent control.
California rent control. California landlords should consult The California Landlord’s Law Book: Rights & Responsibilities, by David Brown and Janet Portman; and The California Landlord’s Law Book: Evictions, by David Brown. These books are published by Nolo and are available at bookstores and public libraries. They may also be ordered directly from Nolo’s website, www.nolo.com, or by calling 800-728-3555.
The Rent Control Board
In most cities, rent control rests in the hands of a rent control board of five to ten people. Board members often decide annual rent increases, fines, and other important issues. (In many areas, the law itself limits how and when the rent may be raised.)
The actual rent control ordinance is a product of the city council or county board of supervisors. But the rent control board is in charge of interpreting the provisions of the law, which can give the board significant power over landlords and tenants.
Rent control laws commonly regulate much more than rent. For example, owners of rent-controlled properties must follow specific eviction procedures. Because local ordinances are often quite complicated and vary widely, this book cannot provide details on each city’s program. Instead, we provide a general description of what rent control ordinances cover.
If you own rental property in a city that has rent control, you should always have a current copy of the ordinance and any regulations interpreting it. And be sure to keep up to date; cities change their rent control laws frequently, and court decisions also affect them. It’s a good idea to subscribe to publications of the local property owners’ association, and pay attention to local politics to keep abreast of changes in your rent control ordinance and court decisions that may affect you.
Know the law or pay the price. Local governments typically levy fines—sometimes heavy ones—for rent control violations. Violation of a rent control law may also give a tenant a legal ground on which to win an eviction lawsuit. Depending on the circumstances, tenants may also be able to sue you.
Property Subject to Rent Control
Not all rental housing within a rent-controlled city is subject to rent control. Generally, new buildings as well as owner-occupied buildings with two (or sometimes even three or four) units or fewer are exempt from rent control ordinances. Some cities also exempt rentals in single-family houses and luxury units that rent for more than a certain amount. For example, in Los Angeles, a one-bedroom apartment that rents for over a specified rent per month is not subject to rent control, and in San Francisco, tenants in a landlord-occupied single-family home are not covered by the ordinance’s protections.
Limits on Rent
Rent control ordinances typically set a base rent for each rental unit that takes into account several different factors, including the rent that was charged before rent control took effect, operation and upkeep expenses, inflation, and housing supply and demand. The ordinances allow the base rent to be increased under certain circumstances or at certain times.
Rent Increases for Existing Tenants
Most local ordinances build in some mechanism for rent increases. Here are just a few common examples:
Annual increases. Some ordinances automatically allow a specific percentage rent increase each year. The amount of the increase may be set by the rent control board or may be a fixed percentage or a percentage tied to a local or national consumer price index.
Increased expenses. Some rent control boards have the power to adjust rents of individual units based on certain cost factors, such as increased taxes or maintenance or capital improvements. The landlord may need to request permission from the rent control board before upping the rent.
The tenant’s consent. In some cities, landlords may increase rent under certain circumstances only if the tenants voluntarily agree to the increase—or don’t protest it.
A word of caution: Even if you are otherwise entitled to raise the rent under the terms of your rent control ordinance, the rent board may be able to deny you permission if you haven’t adequately repaired and maintained your rental units.
Rent Increases When a Tenant Moves
In most rent control areas, landlords may raise rent—either as much as they want or by a specified percentage—when a tenant moves out (and a new one moves in) or when a tenant renews a lease. This feature, called “vacancy decontrol,” “vacancy rent ceiling adjustment,” or a similar term, is built into many local ordinances.
In practice, it means that rent control applies to a particular rental unit only as long as a particular tenant (or tenants) stays there. If that tenant voluntarily leaves or, in some cities, is evicted for a legal or “just” cause (discussed below), the rental unit is subject to rent control again after the new (and presumably higher) rent is established.
Example: Marla has lived in Edward’s apartment building for seven years. During that time, Edward has been allowed to raise the rent only by the modest amount authorized by the local rent board each year. Meanwhile, the market value of the apartment has gone up significantly. When Marla finally moves out, Edward is free to charge the next tenant the market rate. But once set, that tenant’s rent will also be subject to the rent control rules, and Edward will again be limited to small annual increases as approved by the rent control board.
In some cities, no rent increase is allowed at all, even when a tenant moves out. Check your ordinance.
Where to Get Information About Rent Control
Your city rent control board. It can supply you with a copy of the current local ordinance, and possibly also with a brochure explaining the ordinance.
Your state or local apartment owners’ association. Virtually every city with a rent control ordinance has an active property owners’ association. The New York City Rent Stabilization Association, for example, gives members information and help on rent matters and offers mediation for tenant complaints.
Local attorneys who specialize in landlord-tenant law. Check the yellow pages, search online, or ask another landlord. (Chapter 18 discusses how to find and work with a lawyer.)
Legal or “Just Cause” Evictions
For rent control to work—especially if the ordinance allows rents to rise when a tenant leaves—it must place some restrictions on tenancy terminations. Otherwise, landlords who wanted to create a vacancy so they could raise the rent would be free to throw out tenants, undermining the whole system. Recognizing this, many local ordinances require landlords to have a legal or just cause—that is, a good reason—to terminate and, if the tenant doesn’t leave on his own, evict.
Just cause is usually limited to a few reasons provided in the ordinance. If you really need to evict a tenant, you should have no problem finding your reason on the approved list. Here are a few typical examples of a legal or just cause to evict a tenant:
The tenant violates a significant term of the lease or rental agreement—for example, by failing to pay rent or causing substantial damage to the premises. However, in many situations, you’re legally required to first give the tenant a chance to correct the problem.
The landlord wants to move into the rental unit or give it to an immediate family member.
The landlord wants to substantially remodel the property, which requires the tenant to move out.
The tenant creates a nuisance—for example, by repeatedly disturbing other tenants or engaging in illegal activity, such as drug dealing, on the premises.
Rent control ordinances often affect renewals as well as terminations midway through the rental term. Unless you can point to a just cause for tossing a tenant out, you may need to renew a lease or rental agreement under the same terms and conditions.
Your Right to Go Out of Business
It’s not uncommon for landlords in rent-controlled cities to decide to get out of the residential rental business entirely. To do so, however, they must evict tenants, who will protest that the eviction violates the rent control ordinance.
No rent control ordinance can force you to continue with your business against your will. However, if you withdraw rental units from the market, you must typically meet strict standards regarding the necessity of doing so. Rent control boards do not want landlords to use going out of business as a ruse for evicting long-term tenants, only to start up again with a fresh batch of tenants whose rents will invariably be substantially higher.
If you decide to go out of business and must evict tenants, check your ordinance carefully. It may require you to give tenants a lengthy notice period or offer tenants relocation assistance, and may impose a minimum time period during which you may not resume business. If you own multiple units, the rent control ordinance may prohibit you from withdrawing more than a specified number of units; and if the premises are torn down and new units constructed, the ordinance may insist that you offer former tenants a right of first refusal. State law may also address these issues. Contact your local landlords’ association or rent control board for details on the specifics.
Registration of Rental Units
Some rent control ordinances require landlords to register their properties with the local rent control agency. This allows the rent board to keep track of the city’s rental units, and the registration fees provide operating funds.
Deposits and Notice Requirements
Rent control ordinances may impose rules regarding security deposits or interest payments and the type of notice you must give tenants when you want to raise the rent or terminate a tenancy. The requirements of these local ordinances are in addition to any state law requirements. For example, state law may require a 30-day notice for a rent increase. A local rent control law might also require the notice to tell the tenant that the rent control board can verify that the new rental amount is legal under the ordinance.
When Rent Is Due
Most leases and rental agreements, including the ones in this book, call for rent to be paid monthly, in advance, on the first day of the month. (See Clause 5 of the form agreements in Chapter 2.)
First Day, Last Day, or In-Between?
The first of the month is a customary and convenient due date for rent, at least in part because many tenants get their paychecks on the last workday of the month. Also, the approach of a new month can, in itself, help remind people to pay monthly bills due on the first.
It is perfectly legal to require rent to be paid on a different day of the month, and may make sense if the tenant is paid at odd times. Some landlords make the rent payable each month on the date the tenant first moved in. Generally, it’s easier to prorate rent for a short first month and then require that rent be paid on the first of the next month. But if you have only a few tenants, and don’t mind having different tenants paying you on different days of the month, it makes no legal difference.
Special rules for tenants who receive public assistance. Some states make special provisions for rent due dates for public assistance recipients. Public assistance recipients in Hawaii, for example, may choose to establish a due date that is on or before the third day after the day they usually receive their public assistance check.
Whatever rent due date you choose, be sure to put it in your lease or rental agreement. If you don’t, state law may do it for you. In several states, for month-to-month rental agreements, rent is due in equal monthly installments at the beginning of each month, unless otherwise agreed.
In a few states, however, rent is not due until the end of the term unless the lease or rental agreement says otherwise. You would probably never deliberately allow a tenant who moved in on the first day of the month to wait to pay rent until the 31st. Nor would you want tenants to continue to pay at the end of the month. By specifying that rent is due on the first of the month in your lease or rental agreement, you won’t have to worry.
Collecting Rent More Than Once a Month
If you wish, you and the tenant can agree that the rent be paid twice a month, each week, or on whatever schedule suits you. The most common variation on the standard monthly payment arrangement is having rent paid twice a month. This is a particularly good idea if you have tenants who have relatively low-paying jobs and get paid twice a month, because they may have difficulty saving the needed portion of their midmonth check until the first of the month.
When the Due Date Falls on a Weekend or Holiday
The lease and rental agreements in this book state that when the rent due date falls on a weekend day or legal holiday, the tenant must pay it by the next business day. (See Clause 5 of the form agreements in Chapter 2.)
This is legally required in some states; it is the general rule in most. If you want to insist that the tenant always get the rent check to you on the first, no matter what, you’ll have to check the law in your state to make sure it’s allowed. It’s probably not worth the trouble.
Grace Periods for Late Rent
Lots of tenants are absolutely convinced that if rent is due on the first, but they pay by the fifth (or sometimes the seventh or even the tenth) of the month, they have legally paid their rent on time because they are within a legal grace period. This is simply not true. It is your legal right to insist that rent be paid on the day it is due, and you should use your lease or rental agreement and move-in letter to disabuse tenants of this bogus notion.
In practice, many landlords do not get upset about late rent or charge a late fee (discussed below) until the rent is a few days past due. And your state law may require you to give tenants a few days to come up with the rent before you can send a termination notice. Even so, your best approach is to consistently stress to tenants that rent must be paid on the due date.
Evictions for Nonpayment of Rent
Failure to pay rent on time is by far the most common reason landlords go to court and evict tenants. First, however, a landlord must give the tenant a written notice, demanding that the tenant either pay within a few days or move out. How long the tenant is allowed to stay depends on state law; in most places, it’s about three to five days.
In most instances, the tenant who receives this kind of notice pays up, and that’s the end of it. But if the tenant doesn’t pay the rent (or move), you can file an eviction lawsuit. (Chapter 17 explains the kinds of termination notices that landlords must use when tenants are behind on the rent, and includes a brief summary of evictions. Appendix A includes details on state laws on termination for nonpayment of rent.)
If you find yourself delivering too many pay-the-rent-or-leave notices to a particular tenant, you may want to end the tenancy—even if the tenant always comes up with the rent at the last minute.
If you wait more than three or five days to collect your rent, you are running your business unwisely, and just extending the time a nonpaying tenant can stay. Be firm, but fair. Any other policy will get you into a morass of special cases and exceptions and will cost you a bundle in the long run. If you allow exceptions only in extreme circumstances, tenants will learn not to try and sell you sob stories.
Where and How Rent Is Due
You should specify in your lease or rental agreement where the tenant should pay the rent and how you want it paid—for example, by check or money order only. (See Clause 5 of the form agreements in Chapter 2.)
Where Rent Must Be Paid
You have several options for where the tenant pays you rent.
By mail. Allowing tenants to mail you the rent check is the most common method of payment, by a long shot. It’s pretty convenient for everyone, and you can make it even easier by giving tenants pre-addressed (and stamped, if you’re feeling generous) envelopes.
At home. You can send someone to each unit, every month, to pick up the rent. But this more old-fashioned way of collecting the rent isn’t well-suited to modern life, when most people aren’t at home during the day.
At your office. Requiring the rent to be paid personally at your place of business or manager’s office is feasible (and, in some states, legal) only if you have an on-site office. Asking tenants to drive across town is both unreasonable and counterproductive, because inevitably some of them just won’t get around to it. This approach does have certain advantages. It makes the tenant responsible for getting the rent to you at a certain time or place, and avoids issues such as whether or not a rent check was lost or delayed in the mail. It also guarantees at least a bit of personal contact with your tenants, and a chance to air little problems before they become big ones.
If your lease or rental agreement doesn’t specify where you want tenants to pay you rent, state law may decide. Under statutes in several states rent is payable at the dwelling unit unless otherwise agreed. This is yet another reason to specify in your rental agreement or lease that your tenant may pay by check or at your on-site office.
Form of Rent Payment
You should also specify in your lease or rental agreement how rent must be paid: by cash, check, credit card, or money order. (See Clause 5 of the form agreements in Chapter 2.)
For most landlords, rental checks are routine. You can eliminate the time spent mailing or walking a check to the bank by sending it right to the bank electronically, if you have check-scanning equipment. If a tenant doesn’t have a checking account or has bounced too many checks, you may want to require a certified check or money order.
You should never accept postdated checks. The most obvious reason is that the check may never be good. You have absolutely no assurance that necessary funds will ever be deposited in the account. In addition, a postdated check may, legally, be considered a “note” promising to pay on a certain date. In some states, if you accept such a note (check), you have no right to bring an eviction action while the note is pending. Far better to tell the tenant that rent must be paid in full on time and to give the tenant a late notice if it isn’t.
Don’t accept cash unless you have no choice. You are a likely target for robbery if word gets out that you are taking in large amounts of cash once or twice a month. And if you accept cash knowing that the tenant earned it from an illegal act, such as drug dealing, the government could seize it from you under federal and state forfeiture laws. If you do accept cash, be sure to provide a written, dated receipt stating the tenant’s name and rental unit and the amount of rent and time period for which rent is paid. Such a receipt is required by law in a few states, and it’s a good idea everywhere.
Easy Ways to Pay the Rent
More and more owners, especially those with large numbers of rental units, are looking for ways to ensure that rent payments are quick and reliable. Here are two common methods.
Credit card. If you have enough tenants to make it worthwhile, explore the option of accepting credit cards. You must pay a fee—a percentage of the amount charged—for the privilege, but the cost may be justified if it results in more on-time payments and less hassle for you and your tenants. Keep in mind that you’ll need to have someone in your on-site office to process the credit card payments and give tenants receipts. And if your tenant population is affluent enough, consider requiring automatic credit card debits.
Online banking. Tenants with bank accounts that they trust will always have enough money on deposit to be able to handle the rent, may be willing to set up an automatic transfer. On the day they specify, the rent funds are electronically transferred to your account. Every major bank offers this service, some for a small fee.
Changing Where and How Rent Is Due
If you’ve been burned by bounced checks from a particular tenant, you may want to decree that, from now on, you’ll accept nothing less than a certified check or money order, and that rent may be paid only during certain hours at the manager’s office.
Be careful. It may be illegal to suddenly change your terms for payment of rent without proper notice to the tenant—unless you are simply enforcing an existing term. For example, if your rental agreement states that you accept only money orders, you are on solid ground when you tell a check-bouncing tenant that you’ll no longer accept her checks, and that your previous practice of doing so was merely an accommodation not required under the rental agreement.
If, however, your lease or rental agreement doesn’t say where and how rent is to be paid, your past practice may legally control how rent is paid until you properly notify the tenant of a change. If you want to require tenants to pay rent at your office, for example, you must formally change a month-to-month rental agreement, typically with a written 30-day notice. If you rent under a lease, you will have to wait until the lease runs out.
Late Charges and Discounts for Early Payments
If you’re faced with a tenant who hasn’t paid rent on the due date, you probably don’t want to immediately hand out a formal notice telling the tenant to pay the rent or leave. After all, it’s not going to do anything positive for your relationship with the tenant, who may have just forgotten to drop the check in a mailbox. But how else can you motivate tenants to pay rent on time?
A fairly common and sensible practice is to charge a reasonable late fee and highlight your late fee policy in your lease or rental agreement and move-in letter to new tenants. (See Clause 6 of the form agreements in Chapter 2.)
Some states have statutes that put precise limits on late fees. (See the “Late Fees” column in the “State Rent Rules” chart in Appendix A.) But even if your state doesn’t have specific rules, you are still bound by general legal principles that prohibit unreasonably high fees. Courts in some states have ruled that contracts that provide for unreasonably high late charges are not enforceable—which means that if a tenant fights you in court (either in an eviction lawsuit or a separate case brought by the tenant), you could lose. And, obviously, excessive late fees generate tenant hostility, anyway.
Service Fees for Bounced Checks
Many states allow recipients of bounced checks to collect a service fee, which would apply even if your lease doesn’t specify any consequences for a dishonored check. For example:
Your state’s consumer protection office should be able to tell you whether your state has a similar law. For a list of state consumer protection agencies, see www.usa.gov/directory/stateconsumer/index.shtml.
Landlord may charge no more than $25, plus the amount charged by landlord’s bank for processing the check. (Ariz. Rev. Stat. § 44-6852.)
Landlord may charge $25 for the first bounced check, and $35 for each additional bounced check. (Cal Civil Code § 1719.)
Landlord may collect damages by sending the following notice: “You are hereby notified that a check or electronic funds transfer, numbered , in the face amount of , issued or initiated by you on (date) , drawn upon (name of bank) , and payable to , has been dishonored. Pursuant to Florida law, you have 15 days following the date of this notice to tender payment of the full amount of such check or electronic funds transfer plus a service charge of $25, if the face value does not exceed $50; $30, if the face value exceeds $50 but does not exceed $300; $40, if the face value exceeds $300; or an amount of up to 5 percent of the face amount of the check, whichever is greater, the total amount due being and cents. Unless this amount is paid in full within the time specified above, the holder of such check or electronic funds transfer may turn over the dishonored check or electronic funds transfer and all other available information relating to this incident to the state attorney for criminal prosecution. You may be additionally liable in a civil action for triple the amount of the check or electronic funds transfer, but in no case less than $50, together with the amount of the check or electronic funds transfer, a service charge, court costs, reasonable attorney’s fees, and incurred bank fees, as provided in s. 68.065, Florida Statutes.” (Fla. Stat. Ann. § 832.062.)
Landlord may charge no more than $30 or 5% of the face amount of the dishonored check (whichever is greater). If landlord’s bank charges a fee for processing the bounced check, landlord may add that amount to the fee. (Ga. Code Ann. § 16-9-20.)
A seller, or his or her agent, may collect a fee of not more than $25 for each check that was accepted by the seller as payment for goods or services and, upon presentment to the drawee, was not honored because the drawer stopped payment on the check, the drawer does not have an account with the drawee or the drawer does not have sufficient funds in his or her account or credit with the drawee to cover the amount of the check. (Nev. Rev. Stat. Ann. § 597.960.)
If a check is dishonored, the payee may collect from the maker a reasonable fee representing the cost of handling and collecting on the check. The total fee for any single check may not exceed $25 plus the amount charged by the bank for processing the check. (Ore. Rev. Stat. § 30.701.)
Landlord may not charge more than the sum of $50 plus the amount charged by landlord’s bank for processing the check. (Va. Code Ann. § 55.248.4 & § 248.31.)
Landlord may charge 12% interest plus the cost of collection (not to exceed $40 or the face amount of the check, whichever is less). Landlord must first send tenant a notice of dishonor, and wait 15 days, before imposing the fee. (Wash. Rev. Code Ann. § 62A.3-515.)
Your state’s consumer protection office should be able to tell you whether your state has a similar law. For a list of state consumer protection agencies, see www.usa.gov/directory/stateconsumer/index.shtml.
Some rent control ordinances also regulate late fees. Check any rent control ordinances applicable to your properties.
Unless your state imposes more specific statutory rules on late fees, you should be on safe ground if you adhere to these principles.
The late fee should not apply until at least three to five days after the due date. Imposing a stiff late charge if the rent is only one or two days late may not be upheld in court.
The total late charge should not exceed 4%–5% of the rent. That’s $30 to $38 on a $750-per-month rental. State law in Maine sets a 4% limit, and Maryland and North Carolina both set 5% limits on late charges. Even in states with no statutory limits, a higher late charge, such as 10%, might not be upheld in court.
If the late fee increases each day the rent is late, it should be moderate and have an upper limit. A late charge that increases without limit each day could be considered interest charged at an illegal (“usurious”) rate. State laws set the maximum allowable rate of interest, typically less than 10%, that may be charged for a debt. (Ten dollars a day on a $1,000-per-month rent is 3,650% annual interest.) A more acceptable late charge would be $10 for the first day rent is late, plus $5 for each additional day, up to a maximum of 5% of the rental amount.
Don’t try to disguise excessive late charges by giving a “discount” for early payment. For one thing, this kind of “discount” is illegal in some states. One landlord we know concluded he couldn’t get away with charging a $100 late charge on an $850 rent payment, so, instead, he designed a rental agreement calling for a rent of $950 with a $100 discount if the rent was not more than three days late. Ingenious as this ploy sounds, it is unlikely to stand up in court, unless the discount for timely payment is very modest. Giving a relatively large discount is in effect the same as charging an excessive late fee, and a judge is likely to see it as such.
Anyway, fooling around with late charges is wasted energy. If you want more rent for your unit, raise the rent (unless you live in a rent control area). If you are concerned about tenants paying on time—and who isn’t?—put your energy into choosing responsible tenants.
If you have a tenant with a month-to-month tenancy who drives you nuts with late rent payments, and a reasonable late charge doesn’t resolve the situation, terminate the tenancy with the appropriate notice.
Returned Check Charges
It’s legal to charge the tenant an extra fee if a rent check bounces. (See Clause 7 of the form agreements in Chapter 2.) If you’re having a lot of trouble with bounced checks, you may want to change your policy to accept only money orders for rent.
Like late charges, bounced check charges must be reasonable. You should charge no more than the amount your bank charges you for a returned check charge, probably $10 to $20 per returned item, plus a few dollars for your trouble.
It is a poor idea to let your bank redeposit rent checks that bounce. Instead, tell the bank to return bad checks to you immediately. Getting a bounced check back quickly alerts you to the fact that the rent is unpaid much sooner than if the check is resubmitted and returned for nonpayment a second time. You can use this time to ask the tenant to make the check good immediately. If the tenant doesn’t come through, you can promptly serve the necessary paperwork to end the tenancy.
If a tenant habitually gives you bad checks, give the tenant a notice demanding that he pay the rent or move. If the tenant doesn’t make the check good by the deadline, you can start eviction proceedings.
Partial or Delayed Rent Payments
On occasion, a tenant suffering a temporary financial setback will offer something less than the full month’s rent, with a promise to catch up as the month proceeds, or at the first of the next month. Although generally this is a bad business practice, you may nevertheless wish to make an exception where the tenant’s financial problems truly appear to be temporary and you have known the person for a long time.
If you do give a tenant a little more time to pay some or all of the rent, establish a schedule, in writing, for when the rent will be paid. Then monitor the situation carefully. Otherwise, the tenant may try to delay payment indefinitely, or make such small and infrequent payments that the account is never brought current. A signed agreement—say for a one-week extension—lets both you and the tenant know what’s expected. If you give the tenant two weeks to catch up and she doesn’t, the written agreement precludes any argument that you had really said “two to three weeks.” A sample Agreement for Delayed or Partial Rent Payments is shown below and the Nolo website includes a downloadable copy. See Appendix B for the link to the forms in this book..
If the tenant does not pay the rest of the rent when promised, you can, and should, follow through with the appropriate steps to terminate the tenancy.
Agreement for Delayed or Partial Rent Payments
This Agreement is made between
and , [Landlord/Manager].
on , which was due .
agrees to accept all the remainder of the rent on or before ,
and to hold off on any legal proceeding to evict
(Tenant(s)) until that date.
Raising the Rent
Except in cities with rent control, your freedom to raise rent depends primarily on whether the tenant has a lease or a month-to-month rental agreement.
When You Can Raise Rent
For the most part, a lease fixes the terms of tenancy for the length of the lease. You can’t change the terms of the lease until the end of the lease period unless the lease itself allows it or the tenant agrees. When the lease expires, you can present the tenant with a new lease that has a higher rent or other changed terms. It’s always safest to give tenants at least a month or two notice of any rent increase before negotiating a new lease.
In contrast, you can raise the rent in a periodic tenancy just by giving the tenant proper written notice, typically 30 days for a month-to-month tenancy. (If you collect rent every 15 days, you probably have to give your tenant only 15 days’ notice.) State law may override these general rules, however. In a few states, landlords must provide 45 or 60 days’ notice to raise the rent for a month-to-month tenancy. See “State Rules on Notice Required to Change or Terminate a Month-to-Month Tenancy” in Appendix A and the Chapter 14 discussion of changing terms during the tenancy. You’ll need to consult your state statutes for the specific information you must provide in a rent increase notice, how you must deliver it to the tenant, and any rights tenants have to dispute rent increases.
How Much Can You Raise the Rent?
In areas without rent control, there is no limit on the amount you can increase the rent of a month-to-month or other periodic tenant. Also, as noted in “How Much Can You Charge?” above, tenants in Connecticut can challenge rent increases they feel are excessive. Similarly, there is no restriction on the period of time between rent increases. You can legally raise the rent as much and as often as good business dictates. Of course, common sense should tell you that if your tenants think your increases are unfair, you may end up with vacant units or a hostile group of tenants looking for ways to make you miserable. As a courtesy, you may wish to tell your tenants of the rent increase personally, perhaps explaining the reasons—although reasons aren’t legally necessary, except in areas covered by rent control.
Avoiding Tenant Charges of Retaliation or Discrimination
You can’t legally raise a tenant’s rent as retaliation—for example, in response to a legitimate complaint or rent-withholding action—or in a discriminatory manner. The laws in many states actually presume retaliation if you increase rent soon—typically, within three to six months—after a tenant’s complaint of defective conditions. (See the Chapter 16 discussion of general ways to avoid tenant charges of retaliation.) “State Laws Prohibiting Landlord Retaliation” in Appendix A lists state-by-state details.
One way to protect yourself from charges that ordinary rent increases are retaliatory or discriminatory is to adopt a sensible rent increase policy and stick to it.
For example, many landlords raise rent once a year in an amount that more or less reflects the increase in the Consumer Price Index. Other landlords use a more complicated formula that takes into account other rents in the area, as well as such factors as increased costs of maintenance or rehabilitation. They make sure to inform their tenants about the rent increase in advance and apply the increase uniformly to all their tenants. Usually, this protects the landlord against any claim of a retaliatory rent increase by a tenant who has coincidentally made a legitimate complaint about the condition of the premises.
Example: Lois owns two multiunit complexes. In one of them, she raises rents uniformly, at the same time, for all tenants. In the other apartment building, where she fears tenants hit with rent increases all at once will organize and generate unrest, Lois does things differently: She raises each tenant’s rent in accordance with the Consumer Price Index on the yearly anniversary of the date each tenant moved in. Either way, Lois is safe from being judged to have retaliatorily increased rents, even if a rent increase to a particular tenant follows on the heels of a complaint.
Of course, any rent increase given to a tenant who has made a complaint should be reasonable—in relation to the previous rent, what you charge other similarly situated tenants, and rents for comparable property in the area—or you are asking for legal trouble.
Example: Lonnie has no organized plan for increasing rents in his 20-unit building, but simply raises them when he needs money. On November 1, he raises the rent for one of his tenants, Teresa, without remembering her recent complaint about her heater. Teresa is the only one to receive a rent increase in November. She has a strong retaliatory rent increase case against Lonnie, simply because an increase that seemed to single her out coincided with her exercise of a legal right. If the increase made her rent higher than those for comparable units in the building, she will have an even better case.
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