In our August 2012 newsletter’s lead topic “Making changes when times are good”, we addressed national trends published by Reis Inc. that utilized vacancy rate reductions and effective rent rate increases to reflect an increasingly positive marketplace for landlords. In that article, we reported that effective rents would likely begin to increase as the demand for apartments continued in the face of a slowly growing supply. Now, over a year later, we have updated data that shows an even stronger increase in effective rents, which fortunately this time, have also percolated down to the Class C properties that have long suffered (since early 2007) through years of under-performance brought on by the recent recession.
Let’s take a closer look at the latest data (collected by Axiometrix, and reflective of market trends through July 2013):
- Class A properties have raised rents $47 per month over the last year – moving the average rent to $1,502 per month, while Class C properties have raised rents $32 per month – to an average rent to $737 per month.
- While Class A properties have had higher rent increases on an absolute dollar basis, Class C properties are experiencing the strongest annual effective rent growth rate of 4.3{b3839be935df112798d4ec5997aa1a27aa9a9725854b075bcbd0000f0c7f06fc} (versus 3.2 {b3839be935df112798d4ec5997aa1a27aa9a9725854b075bcbd0000f0c7f06fc} for Class A properties, which is the lowest growth rate) – Class C properties have also experienced the best occupancy growth in that timeframe.
To understand how this data reflects a maturing of the market recovery, here is a brief discussion of the normal performance trend for multifamily housing starting with a downturn in the economy like the recent recession:
- When the economy contracts, Class A properties lower their effective rents to maintain occupancy, whether through outright rent reductions or concessions. Tenants are then able to move-up in class, say from B to A properties, as the Class A rents approach the current Class B rent. This dynamic continues downward to the point that Class C properties experience the most tenant loss. Indeed, some parts of the country saw Class C properties’ occupancy rates dip into the low-80{b3839be935df112798d4ec5997aa1a27aa9a9725854b075bcbd0000f0c7f06fc} range during the Great Recession. In that range, it is difficult to raise rents as tenants have so many options to relocate to other such properties with similar vacancy rates.
- When the economy returns to growth, Class A properties first increase their effective rents, and the trend reverses with tenants dropping in class to see stable rents (or a lower increase in rent), thus allowing Class B and C properties to increase their rents. Currently, according to Axiometrics, Class B properties are experiencing stable growth, and Class C properties have improving growth.
This current period of positive growth speaks not only to an increasing and maturing economic recovery, but also presents an ideal opportunity for landlords to refocus their attention on any policy and procedure changes that they have been forced to back burner — particularly those surrounding rent collection and legal action.
OK, we understand. You, like many landlords, may be resistant to revamping your rent collection and eviction process — even though you acknowledge the logic and long-term benefits associated with the effort. However, while the challenges of changing both tenant and management staff expectations and conduct may be significant, they are not insurmountable. Remember the old axiom: It is usually much easier to change course when times are good, then when times are bad.
Below are a number of simple steps that we feel you should work into your change process that can have a significant and positive impact on your rent collection process:
- Start rent collection efforts early — as early as the day after the rent is due. Although state law may prevent you from charging a late fee or starting legal action on that day (for example, Connecticut has a statutory nine (9) day grace period from the rent due date before either can occur), the rent is still late, and you can communicate with the resident accordingly and hopefully prompt full payment.
- Do not halt your collection efforts on a tenant’s promise to pay. The only tenant actions that should stop your rent collection efforts are an actual full rent payment, or the tenant vacating and returning the keys. Anything else is a recipe for violating the next principle.
- If you choose to wait beyond the first missed payment date, do not allow a tenant to get more than one month behind on the rent before you initiate legal action. The lost rents associated with a problem tenant (either on their own, or their effect on other tenants or prospective tenants) usually heavily outweigh any associated legal expenses. Moreover, a tenant who is only one (1) month behind and facing a court date is much more likely to perceive the ability, and have the financial capacity, to recover and regain the status of tenant “in good standing,” and rarely vacates or forces an eviction. Rather, the tenant usually pays the arrearage (and the associated attorney’s fees and costs, if the landlord has a legal fee clause in the lease) and regains the status of “in good standing.” This moves the landlord closer to accomplishing its objective (that we share and endorse) of having full units with compliant tenants.
Contact your landlord attorney now to take advantage of the good times and initiate the steps necessary to review and revamp your policies and procedures on rent collection and legal action.
Quick Tip:
Addressing the unauthorized occupant in a Violence Against Women Act (“VAWA”) situation.
I was speaking recently with a Project-based Section 8 property manager who asked about handling a sticky situation. It revolved around a single-mother tenant and her boyfriend — an unauthorized occupant of the apartment — who had committed violence against her. Despite the property manager exhorting the tenant to have the boyfriend removed and prohibited from the apartment (for example, by using a restraining or protective order), the tenant refused to do so.
The property manager was left in a quandary — how do you address the unauthorized occupant situation given the Violence Against Women Act (“VAWA”) defense available for a protected tenant against eviction?
Unfortunately, this is becoming an all-too-familiar question, which is sad on many levels. Luckily, while landlords and property managers of federally-subsidized housing may not be able to change the mind of the abused tenant, they can take straightforward legal steps to evict (at least) the unauthorized occupant — a violent person — and eliminate his negative effects on the building (and on the tenant while she is in the building).
With the help of a landlord attorney, the property manager can bring an unauthorized occupant claim against the tenant and the unauthorized occupant, which starts in Connecticut with a commonly known “Kappa Notice” — giving the tenant 15 days to remedy the matter (if possible). Hopefully, this legal notice will prompt the tenant to remove the boyfriend and resolve the matter. If that happens, the property manager should work with their landlord attorney to issue promptly a no trespass notice against the former unauthorized occupant, and press criminal charges if he enters the building again for any reason.
If the tenant does NOT remove the unauthorized occupant, the landlord can then proceed with a notice to quit and summary process complaint to evict the tenant AND the unauthorized occupant, or at a minimum, at least the unauthorized occupant (if the tenant responds under VAWA and certifies her protected status). While VAWA may prohibit the landlord from evicting the tenant, it definitely allows for the landlord to evict the unauthorized occupant while retaining the tenant.
We realize that this concept of a “split-eviction” violates a commonly known principle of Connecticut landlord-tenant law requiring (in most cases) the entire household to be evicted or not, and are publishing this Quick Tip to pass it along to residential landlords and property managers.
In summary, the key points are:
- A tenant may have the protection of VAWA, but she must meet certain requirements to obtain that protection (and landlords have the right to demand certification from the tenant of her protected status and, in some cases, require third party verification); and
- A tenant protected by VAWA has no right to retain an unauthorized occupant (particularly, the abuser) and a landlord can evict (at a minimum) that unauthorized occupant without running afoul of VAWA.
Contact your landlord attorney if you have questions about unauthorized occupants or VAWA, or their combination, for guidance on addressing a problem situation that is affecting your community, and for the landlord attorney to assist in delivering a solution.
Quick Tip:
Pilot program to allow former inmates in public housing.
Those of you who read our newsletter regularly know that we’ve discussed the topic of Fair Housing laws and how they apply to former inmates in the past. Previously, protection for former inmates has been nothing more than a possibility. Beginning in December, at least in New York City, it is a reality.
New York City, which previously banned former inmates from public housing, will be easing those restrictions this month. This pilot program will be conducted by the NYC Housing Authority, one of the first such programs that will run for a two-year period. While there will be limitations on who is and who is not eligible for the program, the program is intended to respond to HUD’s urging public housing agencies to relax their admissions policies as they relate to former prison inmates.
As we’ve suggested before, as goes HUD and public housing, so goes the housing policy throughout the market. And, as we’ve also said before, as goes NY, so goes CT. This “pilot” program, when it succeeds (you know those running it will ensure that it does), will serve as the model for expanding the protection for former prison inmates as they seek to reenter mainstream society.
Because it is a public housing pilot, it won’t affect many of you today. However, don’t be surprised to see a regulation someday eliminating your ability to deny applicants based on their criminal background.
If you want to be part of the discussion on how it will be expanded into your community, I suggest you keep your eyes and ears open for this one. It’s not going away.
Quick Tip:
Using face-to-face small talk to increase profitability.
If you’re reading this article, chances are, whether you know it (or like it), you’re in sales. While we may not acknowledge it, and may often ignore it (particularly if our job title does not include the words “sales” or “leasing”), it seems true to say that everyone in the landlord and property management business is in sales.
If you are in the management office, you are selling the product of a wonderful place to live or commercial space in which to operate a business, and managing the services to make that happen. If you are in maintenance, you are helping to deliver that product by providing timely and excellent customer service. If you are in the main office, you are providing the direction, guidance, and support services that enable the onsite staff to be most effective. Among each other, you are daily selling ideas about how to change procedures, or implement new ones, to make the company more profitable or, for the non-profits out there, to deliver more of your units and services to a larger group of people.
However, in an age of electronic communication, we may have forgotten some of the basics in face-to-face communication, particularly in small talk. I read an excellent, short article recently talking about this subject, and thought I would share some tips that I found particularly helpful:
- Pay attention — listen to the other person.
- Let the other person sell themselves — people are often nervous to talk with someone else, and hearing-out their story (often about themselves or an experience that they had) can help develop the relationship.
- Summarize their viewpoint — this helps build trust by showing the other person that you were listening and interested in what they were saying.
- Make eye contact — not with your cell phone, but with the person with whom you are talking!
- Laugh — try to find something that leads naturally to a laugh, which inevitably relaxes everyone involved and helps conversation flow. Short of that, simply smile.
I hope these pointers help you in your daily efforts as salespeople. Contact your landlord attorney if you have a question about how best to implement these suggestions to not only help increase sales, but also to communicate more effectively with your residents, prospective tenants, and staff.
Quick Tip:
Your generosity may be your downfall.
While I am most certain we’ve heard every story in the book regarding why your tenant’s didn’t pay their rent on time, one that is becoming more common is, “My landlord said it was okay to be late with the rent.” Now, most of the time, we, and sometimes the judge, recognize that the tenant is either fully fabricating this excuse, or he/she is completely misrepresenting the discussion they had with their landlord. After all, their backs are often up against the wall and they may be fighting to avoid an eviction (at least when they are talking to us).
However, even while tenant excuses are becoming more prevalent, we’re also finding that it is not uncommon for landlords to make special “payment arrangements” with their tenants, allowing them to temporarily adjust their original lease obligations – at least in regards to how it applies to the payment of rent.
Now, before you consider entering into such an arrangement with your tenant, there are two points we want you to consider:
- First, you already have agreed upon payment arrangements with your tenant. They pay monthly (or whatever frequency called for in your lease) on a certain date with a 9-day grace required by the state. Those arrangements are clear and precise. Giving them additional considerations now, could not only be teaching them to ask for more down the road, but also may make your legal rights less enforceable if/when these new arrangements are not met.
- Second, there may be times throughout the year when your generosity quotient is expected to expand – especially during the month of December. It’s natural. It’s in the air. Everyone feels it. If and when your tenants’ requests come this month, they may very well be laced with mentions of the holidays, children, gifts, or whatever else they may conjure up. Your heart’s willingness to concede this month will not necessarily prove beneficial to you or your tenant in the long run.
While I am not suggesting anyone become a Scrooge, I am suggesting you think twice before extending seasonal generosities to your tenants. The actions you take in December may very well be felt for months to come.
From all of us at the Landlord Law Firm, we wish you a very Merry Christmas, Happy Holidays, and a joyous and prosperous New Year!
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.