The LandLord Advocate Jan 2013

It’s January. People all around the world are making resolutions to put things back into order and to get back into shape. Whether you are a weekend warrior, a serious fitness junkie, a couch starch, or somewhere else on the spectrum, you have at least heard about the concept of the core system and how it equates to your overall balance and strength. You can’t exercise or even watch television without hearing about it. I am not even sure you can go a grocery store without a shelved product claiming to be a vital part of your core fitness program. For those who have not heard of the concept (and to be certain we are all starting on the same page), the fundamental of a strong core system is this: building a strong core muscle creates an invaluable foundation on which the rest of your fitness can build while helping you prevent injury in your exercise and daily life.

OK, I can hear all of you asking – what’s this got to do with property ownership and property management? Well, let’s consider the concept, and for the purposes of this article, forget about the crunches. The idea is to establish a strong foundation of the central components of your business system so that you can build from there and prevent any negative consequences that may result from your efforts.

In fitness, your core system is comprised of the core muscles around the center of your body – the ones that support everything else on your skeleton. On your property, that core foundation is your specialty, it’s what you do well and should be the bread and butter of your business model – the thing which you know perfectly and which you feel could (or at least should) run on auto-pilot.

• If you are a market landlord, your core is your portfolio of market residents paying market rents.
• If you are a public housing authority your core is your federally subsidized properties.
• If you are a one or two unit landlord your core is comprised of the duplexes and individual family properties that generate income.

The point is, you each have a core competency. Now you need to develop it into your core strength.

However, just as in the fitness arena, building and/or fine-tuning your core strength will require some hard work. As mentioned, your core competency (or specialty) is what you do most and what you do the best. Notice I didn’t say perfectly, or even well. It should be what encompasses the bulk of your efforts and brings you success (as compared to your other enterprises or pursuits). It is with this competency that you will begin to build your core strength. Take that aspect of your business model, your portfolio, whatever it might be, and develop it into the core foundation from which you can build other competencies.

Unfortunately, there are always diversions. We tend to focus our attention on the periphery, on the extremities, and forget about what is that makes us stronger and more profitable. With our attention diverted to these tangential aspects of our business fitness, our core begins to weaken and the entire enterprise suffers as a result. We must focus dedicated time and attention to building that core strength – to making our core competency the foundation from which our business can grow.

We’d like to think, as I suggested before, that our core strength will run on auto-pilot, with little or no attention necessary to achieve success. And, as with physical fitness, there may come a time when our efforts at the perimeter deliver benefits at the core. However, this self-run status is not possible if our core isn’t strong to begin with.

In business, core strength is the key to your long-term success and sustainability. Once established, it allows you to handle your core competency with utmost precision and balance, delivering to your residents that which you are best equipped to deliver, paying big dividends in the end. Like a snowball on a downward angle, your core strength begins to build a momentum and at some point, will continue to build on itself, elevating its own strength. It’s at this point that your peripheral efforts will begin to improve rather than detract from your core strength.

Additionally, if your primary business focus, your core, is solid and strong, the people on whom you rely to manage and run your core business, your “corps”, will share in that strength and the entire business system will begin to support and sustain itself. It is then, with a strong core and a stronger “corps” that you will be able to achieve all of your goals and your success will start to multiply.

As we proceed further into the New Year and resolutions begin to falter (at least the ones around the midsection), don’t let your commitment to a strong core get lost in the shuffle. Find your core competency, build it strong and stable, and then let your “corps” of dedicated people grow strong along with it.

Quick Tip:

Rising effective rents drive residential market trends.

A recent Wall Street Journal article evaluated the impact of rising rents on tenant behavior while home mortgage rates are at record lows and the economy is still struggling. It verifies data that we have previously discussed, particularly that landlords are experiencing growth in “effective rent” – the final amount paid by the tenant after discounts and promotions are included. According to the article, effective rent averaged $1,044 in October 2012, up 3.7{b3839be935df112798d4ec5997aa1a27aa9a9725854b075bcbd0000f0c7f06fc} from a year earlier.

This increase in effective rent corresponded with a dramatically higher-than-average ratio of rent to after-tax mortgage payments in the third quarter of 2012 of 107.8{b3839be935df112798d4ec5997aa1a27aa9a9725854b075bcbd0000f0c7f06fc}, compared to the 85{b3839be935df112798d4ec5997aa1a27aa9a9725854b075bcbd0000f0c7f06fc} average since 1991. A ratio over 100{b3839be935df112798d4ec5997aa1a27aa9a9725854b075bcbd0000f0c7f06fc} means that after-tax mortgage payments are less than rent for the median homeowner. (Amazingly, the ratio was down from an all-time high of 120.7{b3839be935df112798d4ec5997aa1a27aa9a9725854b075bcbd0000f0c7f06fc} in the first quarter of 2012).

The article notes three interesting trends:

• First, it cites the lack of rental housing supply along with tight mortgage underwriting standards at banks and mortgage companies for the increased effective rent numbers, particularly in the low income, affordable, and moderate income housing segments.
• Second, it describes the vice that many median-level income renters are facing as economic forces cause stagnation or decline in their household income, while rental units are scarce and effective rents increase.
• Finally, it describes the likely path for those tenants with strong income and credit scores – often, terrific tenants – toward home ownership.

Our advice – ensure you have a good landlord attorney in place to support your problem tenant policies and procedures, as well as marketing and resident retention programs you plan to implement to address these market trends. Landlords with the right representation in place will not only be able to effectively, efficiently, and quickly address any problem tenants who may negatively affect their community or cash flow, but will also be better prepared to keep those compliant tenants who may otherwise be considering a move away from rental housing.

Quick Tip:

Update on the New Britain landlord fee saga: Unit tax may be lowered, but not eliminated.

We recently wrote to you about New Britain’s effort to resolve their budget woes by imposing fees on landlords that would essentially force the landlord to foot the bill for the town’s budget shortcomings (see our October 2012 edition) . Fortunately, the backlash against this proposed ordinance has been loud, has been heard and has had some positive impact for the landlords.

Due to an uprising from local landlords, the town council is now considering a revision of the original ordinance that will greatly reduce the annual fee landlords must pay for each rental unit they own. That is great news. However, it is far short of what many of us consider to be the reasonable outcome – not expecting specific property owners in the town to bear the lion’s share of the town’s financial mismanagement. Imposing additional taxes on landlords simply because they own the property is taking away their rights without justification and could arguably be a violation of their constitutional rights.

We will continue to monitor the situation in New Britain, including a lawsuit filed by a group of landlords attempting to eradicate the proposal in its entirety, and will keep you posted as we learn more.

As we mentioned in October, although the current situation only affects landlords and rental property owners in New Britain, it is an important event for everyone to consider. Don’t assume it won’t happen to you in your town. Get involved, know of the potential for discussion before it appears on a public agenda.

Quick Tip:

Certificates of occupancy – different rules apply for commercial tenants.

In our September 2012 Quick Tip “Certificates of occupancy may be CRITICALLY necessary,” we introduced the concept that compliance with local building, housing, health, and fire codes (or engagement between your landlord attorney and the city or town officials about potential noncompliance) is critically necessary, particularly when talking about subjects like certificates of occupancy. In the previous Tip, we used a New York case as an example, where a landlord had not collected rent for nine (9) years from a residential tenant, and then a state statute precluded the landlord from evicting the tenant because the landlord did not have the required certificate of occupancy. This month, we revisit this subject because another New York tenant – this time a commercial tenant – tried to escape eviction for nonpayment of rent by citing the same case law. He quickly learned that under the law, commercial tenants are different from residential tenants.

A key note: we share this case not because New York and Connecticut law are the same (they are not) but because it demonstrates this point wonderfully and – in CT – much of the law that applies to residential tenants does not apply to commercial tenants.
In this second New York case, a dog grooming business operated in the commercial space of a landlord’s mixed-use residential and commercial property. The previous certificate of occupancy covering the space had been for a restaurant and had expired in 1949 (apparently, certificate of occupancy law is not on the radar screens of some New York landlords). Accordingly, the landlord sought and obtained the City’s approval to convert the premises to a dog grooming business, however the landlord and tenant could not agree on which party was responsible for the work and expenses involved in making the physical alterations necessary to acquire a new certificate of occupancy. Hence, one was never acquired.
Later, the commercial tenant stopped paying the rent, and the landlord brought an eviction action against the tenant in court. The tenant moved to dismiss the case, citing the residential case discussed in our last Quick Tip and the lack of a valid certificate of occupancy. The trial court however, denied the motion and held that the applicable statute only applied to residential units, not commercial ones.
In Connecticut, the key point holds true. While eviction cases against commercial tenants mostly operate through the same statutes that apply to residential tenants, there is an entire chapter of the Connecticut General Statutes (and extensive case law) that applies to residential, but not commercial, landlords and tenants. Moreover, local and state ordinances and regulations may apply to residential tenants, while others – completely different – may apply to commercial space.
Despite these facts, we often hear from attorneys and commercial landlords who believe that the varying statutes, case law, ordinances, and regulations are all interchangeable. Not true – do not fall into that trap. Be sure you know the differences.

Contact your landlord attorney if you are a commercial landlord and your tenant is acting (or arguing) that a law or rule that applies to a residential tenancy is applicable to their commercial relationship.

Quick Tip:

Continuation of firm bios – Meet our IT Mastermind – Anne Altieri.

Anne Altieri was first introduced to Robert and the Landlord Law Firm through a business networking opportunity in 2005. Being the owner of a local computer training and support company, Anne quickly impressed LLF with her knowledge and skills both in IT and overall business management. Consulting with LLF was no longer an option. LLF wanted to improve technologically so the firm lured her away from her entrepreneurial pursuits and signed her up as the firm’s Business Manager. Anne was immediately tasked with overseeing the majority of the day-to-day “back office” operations.

Unbeknownst to LLF was that the firm was competing for Anne’s attention in what would ultimately be a losing battle. In 2008, she made the decision to transplant herself to the warmer climate and cool trade winds of Florida where she could keep a perpetual tan in the Florida sun. Since that time, she has transitioned many of her daily duties to Melissa Bennett, but has remained with the firm to remotely support functions ranging from Editor of the monthly newsletter you’re reading now, to evaluating and implementing the growing technology offerings the firm has for its clients. To many, her location in the firm’s “Florida office” is a surprise, as technology has allowed her to continue working in a virtually seamless and transparent fashion – the only give-away being her 941 area code…

Anne holds a Bachelor’s Degree from Sacred Heart University and resides in Myakka City, FL – where the town’s only stop light is over 8 miles away. She and her fiancé Rick, share their six-acre farm with their two dogs, four cats, two horses, and enough computers to keep her seamlessly integrated with LLF – even when it’s snowing in CT.

When not supporting the firm or feeding one of their many animals, Anne enjoys boating on the Gulf and riding her motorcycle through the Florida back country.

DISCLAIMER:

The reading of this newsletter does not form an attorney-client relationship. The contents of this newsletter are for informational purposes only and do not constitute legal advice. Nothing in this newsletter is intended to imply or predict the outcome of any legal matter that you may be considering or be involved in. The Landlord Law Firm makes no warranties of any kind regarding the information contained in this newsletter.