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The LandLord Advocate May 2011

Lead Article:

Study shows increased confidence in 2011.

Our goal and objective at the Landlord Law Firm is to help our clients achieve “full units with compliant tenants,” in particular tenants paying the rent on time and in full. We watch surveys of the apartment industry to keep abreast of industry sentiment, and to help our clients answer the question: “If I evict this problem tenant, will I be able to find one who will meet my screening criteria and be compliant with the lease, including paying the rent?”

In its March 2011 units magazine, the National Apartment Association (“NAA”) reported that J Turner Research recently released the results of its January 2011 survey of 149 senior executives in the apartment industry representing 57 companies. The general theme of the survey is that the executives’ confidence is up.

Here are some highlights from the survey:

Indexes: There are three (3) main indexes, which use a scale of 0 (strongly disagree) to 10 (strongly agree):

  • 37{b3839be935df112798d4ec5997aa1a27aa9a9725854b075bcbd0000f0c7f06fc} increase in optimism about the national economy. This index increased from 4.08 in January 2010 to 6.49 in January 2011 measuring response to this statement: “Generally speaking, I feel optimistic about the national economy in the next 12 months.”
  • 112{b3839be935df112798d4ec5997aa1a27aa9a9725854b075bcbd0000f0c7f06fc} increase in optimism about rent growth. This index uses the statement: “I feel optimistic about rent growth for my portfolio in the next 12 months.” From January 2010 to 2011, the index rose dramatically from 3.58 to 7.61, respectively.
  • 14{b3839be935df112798d4ec5997aa1a27aa9a9725854b075bcbd0000f0c7f06fc} decrease in experiencing higher rent payment delinquencies. This index decreased from 7.28 in January 2010 to 6.28 in January 2011 based on the statement: “I have experienced an increase in delinquent rent payments at my properties.”

Concessions: J Turner Research reported an 18{b3839be935df112798d4ec5997aa1a27aa9a9725854b075bcbd0000f0c7f06fc} decline in communities offering concessions between $401 and $1,200 and up from 46{b3839be935df112798d4ec5997aa1a27aa9a9725854b075bcbd0000f0c7f06fc} of communities in 2010 to 28{b3839be935df112798d4ec5997aa1a27aa9a9725854b075bcbd0000f0c7f06fc} in 2011. The largest decrease came in the $401 to $750 concessions segment, which realized a 12{b3839be935df112798d4ec5997aa1a27aa9a9725854b075bcbd0000f0c7f06fc} decrease from 28{b3839be935df112798d4ec5997aa1a27aa9a9725854b075bcbd0000f0c7f06fc} of respondents in September 2010 to 16{b3839be935df112798d4ec5997aa1a27aa9a9725854b075bcbd0000f0c7f06fc} of respondents in January 2011.

Top Challenges Facing Owner/Operators in 2011:

  • “Timely rental payments” remained the top challenge facing owner/operators in 2011 – 62{b3839be935df112798d4ec5997aa1a27aa9a9725854b075bcbd0000f0c7f06fc} of respondents listed it as their number one concern in 2011.
  • “Reducing utilities” came in second as a challenge – 53{b3839be935df112798d4ec5997aa1a27aa9a9725854b075bcbd0000f0c7f06fc} voiced concern about this subject in 2011.
  • “Low occupancy” was the third challenge – 39 percent selected this item in 2011.

We offer our clients three (3) seminars that assist owner/operators with increasing their rent growth and rent collection, creating time to address broader, unique challenges like utility expense, and increase occupancy rates. In “Get the Rent or Get Them Out,®” we focus on the most vital relationship between landlords and tenants – the paying of rent. It describes how rent collection efforts often needlessly overwhelm a landlord, leaving other aspects of their operations – including dealing with reducing utilities and increasing occupancy – unattended.

In “The Appropriately Meddling Landlord,” we emphasize that the owner/operator does not lose that status or rights and responsibilities just because a tenant assumes occupancy of a unit. Quality of life in the community and within each unit is a critical operational need. A landlord must always be aware of the condition of its premises to ensure tenant issues are addressed as well as to prevent the possibility of legal liability.

Finally, in “Getting Rid of the Problem Tenant,” we focus on achieving the goal of “full units with compliant tenants” by separating the problem from the tenant. In particular, we discuss strategies to get the tenant to eliminate the problem. By doing so, the landlord can keep the tenant (if the landlord so chooses), which helps increase profit by moving the tenant in the direction of being a long-term occupant. This seminar also addresses the situation where the tenant refuses to – or cannot – eliminate the problem, and the landlord must evict the tenant for the betterment of the community and operations.

Visit our website or contact us for more information about these seminars or to discuss the implications of J Turner Research’s executive survey.

Acting promptly protects you in many ways.

As I sat in court yesterday awaiting the mediator who was trying to impress upon a tenant their need to pay the significant balance owed to my client, I was approached by a woman, whom we’ll call Sharon, with a polite, “Are you an attorney?” Knowing that a yes would prompt, “Can I ask you a question?” (because it always does), I hesitantly nodded and said, “Yes, Ma’am.” Sharon gave the scripted reply and we were off.

It turns out that Sharon was the mother of a tenant who, with a roommate, was facing an eviction for failure to pay the rent. As it also turns out, as of their day in court, the daughter and her roommate had not paid more than 6 months of rent. The rest of the story Sharon related to me is also the same one I hear in many cases that arrive in court. The landlord said this…the landlord didn’t fix that…the landlord won’t help us…the landlord…the landlord.

“What can we do about it?” Sharon asked aloud, with the unspoken question being, “What can we do to avoid paying the landlord any or all of the money since we don’t want to take responsibility for our own actions? We want to hold the landlord responsible but refuse to set the same standard for ourselves.” Mind you, Sharon relayed that the condition of the apartment was deplorable and that her daughter and the roommate most certainly shouldn’t have to pay rent to live in such conditions. As I questioned her about the conditions of the apartment, I asked her how her daughter and roommate remained in the apartment under such conditions, and why they might expect to do so without having to pay the rent. I learned as much as Sharon was willing to share and challenged her perception that it was the landlord who was at fault each chance I got.

The point of the story is that six months earlier, when the tenants failed to pay the rent the first time, the landlord could have avoided the problems he now faced. What problems, you might ask…

  • First and foremost, his tenants are six months in arrears on the rent.
  • Second, they don’t believe they should have to pay any of it and are willing to fight over it.
  • Third, the tenants are becoming educated on ways to fight the process.
  • Fourth, the tenants are seeking outside help from local planning and zoning officials to put pressure on the landlord.
  • Fifth, the day ended with the housing mediator changing her tune about the tenant paying the amount due to a tune about how they could fight the landlord in court – she even escorted them to the clerk’s office in the courthouse to assist them with filing the proper paperwork.

I am certain there are more concerns and issues that were avoidable, but I think you get my point.

Do I know exactly what this is ultimately going to cost the landlord in time and money to resolve? No. But, I have a good sense it will be multiples of what it would have cost him to serve a notice to quit after the first missed payment and to follow that up with an eviction case in court 6 months ago. Do I know all of the liability and cost associated with being scrutinized under a microscope by the local code enforcement authorities? No. But, it will be considerably more expensive than addressing a few minor concerns raised long ago by the tenants. Do I know how this will all play out in the end? No more than the weatherman knows the exact temperature at 12:00 PM tomorrow. But, I know without question that if the landlord had acted promptly, he would have protected his long-term investment in his property much better than he is now.

Consider the long-term impact that your short-term decisions may have. A bandage may stop the bleeding, but if the wound doesn’t heal, you are in for a much longer and costlier recovery.

CFLs – handle with care to protect yourself and your tenants.

Compact Fluorescent Lamps (“CFLs”) are likely the single largest “green” method undertaken by commercial and residential landlords and tenants. Compared with the old incandescent bulbs, CFLs have a solid return on investment due to their lower energy usage and longer bulb life.

However, unlike incandescent bulbs, CFLs contain mercury, the toxic element most people are familiar with as a former component of paint and of old-style thermometers. Nonetheless, as Edward Groth, PhD wrote in his report “Shedding Light on Mercury Risks from CFL Breakage” for The Mercury Policy Project in February 2008, landlords and tenants should “[c]hoose CFLs as energy-saving devices without fear of the mercury they contain, while informing themselves about the nature of risks involved and the appropriate cautions and countermeasures to follow when breakage does occur.”

Mercury is a known poison and possible carcinogen, and landlords and tenants should attempt to limit their exposure to it. Although there is a small amount of mercury in CFLs, “the dose makes the poison” for mercury, which means that the lower the body weight of the person contacting the mercury, the higher the dose and the greater the danger. Therefore, landlords should be mostly concerned with babies and small children possibly coming in contact with mercury.

Light bulbs break by accident all the time, whether from a lamp falling, simply dropping the bulb, or an overly energetic installation. Landlords and tenants can help minimize the risk of resulting mercury exposure by:

  • Purchasing CFLs with the lowest mercury content (approximately 1 mg) and/or that are designed to shield the fluorescent tube from breaking (for example, the fluorescent tube is enclosed inside a plastic shield);
  • Not using CFLs in rooms where children will live or play (kids are generally more likely than adults to knock-over a lamp); and
  • By taking careful steps to handle the clean-up of a broken CFL.

When a CFL breaks, mercury is released as a vapor and as a liquid or powder. Dr. Groth provided these simple guidelines for responding to the broken CFL:

  1. Don’t panic;
  2. Ventilate the area for 45 minutes (and no less than 15 minutes);
  3. Clean-up the breakage promptly, but do not use a vacuum cleaner, broom, or dustpan – rather, use disposable objects to sweep up the smaller pieces, pat the carpet or floor with duct tape or masking tape (wrapped around a piece of cardboard, sticky side-out) to remove any remaining visible particles, and then wipe the affected area with a moist paper towel or commercial wet-wipe; and
  4. Wash your hands (and any tweezers or other tools you may have used) thoroughly, with soap or detergent.

We recommend a fifth guideline: recycle the broken CFL through your city or town’s hazardous waste removal program or manufacturer recycling program, so that it does not sit in a hallway or trash chute and continue to release mercury vapor on the premises.

Here are the federal Environmental Protection Agency (“EPA”) guidelines for cleaning-up a broken CFL:

Before cleanup:

  • Have people and pets leave the room.
  • Air out the room for 5-10 minutes by opening a window or door to the outdoor environment.
  • Shut off the central forced air heating/air-conditioning system, if you have one.
  • Collect materials needed to clean up broken bulb.

During cleanup:

  • Be thorough in collecting broken glass and visible powder.
  • Place cleanup materials in a sealable container.

After cleanup:

  • Promptly place all bulb debris and cleanup materials outdoors in a trash container or protected area until materials can be disposed of properly. Avoid leaving any bulb fragments or cleanup materials indoors.
  • If practical, continue to air out the room where the bulb was broken and leave the heating/air conditioning system shut off for several hours.

Visit www.epa.gov/cfl/cflcleanup.html to learn more about this subject.

Contact your landlord attorney if you use (or have tenants that use) CFLs and have questions about how to implement these guidelines into your maintenance procedures, tenant communications, and/or the lease, including updating or incorporating this subject into your property management processes involving lease-up, accessing the unit for inspection and/or maintenance, and tenant noncompliance with the lease.

Set and enforce boundaries with your tenants.

I recently took a call from a client who was preparing to meet with residents who wanted to lodge a complaint. While I certainly understand the need and desire to address resident concerns, a few things about my discussion with the client prompted this writing. And, while I recognize that many of the points I will make here may run afoul of your customer service policies, perhaps you will agree that when we are done, that sometimes our customers take advantage of us and could undermine our authority and management efforts.

The first thing that struck me was that the PM agreed to meet with the residents after regular business hours. I can imagine that there are certain circumstance where this may be a necessity, but such a meeting should not only be rare, it should be a major exception for a significant reason. I suggest that unless the resident has already produced a written complaint which you have had a chance to review and evaluate, such timing is unnecessary. More importantly, it should be you, the PM, or your staff, that initiates the after-hours meetings. If a resident needs to speak with you about something incredibly important, they can do so while you are work. If their concern warrants your extra effort, you may then follow up with them when it is convenient with them. Don’t assume that just because they have a complaint, your residents’ demand for your valuable personal time is warranted.

The second thought that came up was the PM agreed to meet with a group of residents. This is a recipe for serious issues. While you cannot prevent the group from discussing their concerns amongst themselves, you needn’t agree that they may all sit down with you at the same time and overpower you by pure volume. Sitting with one person, or one household, will allow you to maintain your concentration and will prevent the meeting from deteriorating into a mud-slinging contest with you as the target. Each member of the group probably has their own concerns and agenda. Handling them all at once will be virtually impossible. Either one representative comes to see you, or you meet with them individually and handle each one separately. Another drawback to having them all there are once, if they haven’t commiserated over their concerns, they will do so in front of you and now resident one’s concerns becomes everyone else’s concern. You can see where that would lead very rapidly.

Next, I perceived that there were no time limits established in advance of the meeting. Your time is not someone else’s to waste. Unless you guard it effectively, someone else will take it away. If you agree to a meeting of unlimited duration or fail to establish limits at the start of the meeting, you are opening yourself up to a never ending monologue of complaints that you will be hard pressed to stop once it starts. Your residents are not going to protect your time. They will easily spend it frivolously on things that are not important. You must treat your time with proper respect and ensure your residents follow the same expectation.

At the end of your live meeting, should you decide to have one at the outset, ask for the resident’s complaint in writing. As a policy, I suggest written complaints. And, this policy does not change for those who have addressed you verbally. You should not expect to remember all of the conversation you have, and, since your resident will likely do most of the talking, you should require that their thoughts and concerns also be delivered in writing after the meeting. If they are unwilling to reduce things to writing, then they have wasted the time you even granted them an audience. Ideally, you should have their concerns in writing in advance of the meeting and hold the meeting to flesh out details or ask questions. But, I may be envisioning a policy that cannot be enforced. So, at least get the concerns in writing after your meeting so you have something to work from if it is a concern worth addressing.

Lastly, don’t answer on the spot. Your resident will expect immediate gratification and a solution to the problem before they leave the meeting. Don’t even try it, and, tell them that up front. Welcome their information and feedback and establish an appropriate timeframe within which you will respond. Trying to answer their questions on the fly and concocting a solution before they leave will lead to many variables unaccounted for that you might not consider during the meeting. Take advantage of your retreat to your office after the meeting to clear your head, consider all of the information and your options and then make a decision on how to handle the situation. They won’t like it, so be prepared for that fact and remind them that was the expectation you set at the start of the meeting. They will have to accept it, so be equally prepared to insist on that fact.

You can learn a great deal about what’s happening on your property, and how better to serve your residents if you listen to their feedback. Key is, listen and respond on your terms, not theirs. It is your property to manage. Manage it the way you see fit.

Quick Tip:

Mitigating or eliminating employee theft.

Landlords report that employee theft is happening in some form at every property, ranging from the material diversion of rent payments to the property manager’s personal account, to the less significant theft of paper, postage, or copies.

How do you mitigate the loss of the former, so that the latter can be more comfortably taken as a simple cost of doing business? Here are some recommendations for those who supervise staff that collects payments from tenants and manage unit turnover:

Meet with tenants who are in nonpayment of rent status and see if they have receipts for payments that are not shown on the tenant’s ledger card – investigate any irregularities.

Review routinely the property’s financial statements and require an explanation for any significant deviations from the budget and for any write-offs that appear out of the ordinary.

Review vacant units to confirm that they are not occupied and are ready to rent – landlords have reported learning that staff have rented “vacant” units to people on a cash basis, which the staff member pockets and does not report to the landlord.

Buy insurance (sometimes referred to as “fidelity bonds”) to protect the property from employee theft.

Criminally prosecute any staff member that steals money from the property.

Contact your landlord attorney if you suspect material employee theft for guidance on how to implement these recommendations, or to develop processes and procedures to mitigate any related losses.

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.