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The LandLord Advocate Sep 2010

Lead Article:

Creative discrimination claims growing.

As we prepare to present Fair Housing training to the members of IREM (Institute for Real Estate Management), I wanted to bring to your attention another growing issue in the world of fair housing law. Tenant advocates and fair housing organizations pride themselves on finding and striking against discriminatory housing practices. As we’ve written before, they are testing you all the time, you just may not know it [see our March 2010 edition for more on the subject]. Some of them take this mission a bit too far and create discrimination where none exists. Their latest technique is one you should know about.

Those of you who have regular fair housing training or who have attended one of our seminars know that familial status discrimination is not allowed. The best example of this situation is where you refuse to rent to a prospective tenant because they have children. You can’t do that. And you don’t do that.

Here’s the “test” that you may experience, if you haven’t already, that can find you facing a fabricated discrimination charge at the CHRO. The tester calls and asks you if you have any two-bedroom units available. You say yes because you have two currently vacant. They then tell you that the couple has 4 children and they would like to apply for one of the two vacant two-bedroom apartments. The variations of the balance of this conversation are irrelevant to our discussion today because they all lead to the same place – they have too many people, which happen to be children, for a two-bedroom apartment. To make matters worse, not only do they exceed your occupancy allowances per bedroom, they exceed the local city’s occupancy limitations. But, since the tenant advocates are unable to get local zoning rules changed effectively, they are attempting to attack the problem through you and your bank account.

While this may sound simple, it is a sophisticated attack on your rights as a landlord as well as on local public policy that could result in a very expensive battle if you are one of the unlucky ones. Some tenant advocates are using it to extract settlement funds from unsuspecting landlords – some are truly pursuing policy change through a back door. Either way, you need to be aware of the potential and how to prepare for it.

Preparation for this one is simple – do what you always do and make sure you have proper discrimination insurance coverage in place. There is no way to “handle the call” that can prevent some exposure for you. Why? If you don’t show or don’t rent the unit to the “Prospect,” they will make a discrimination claim against your for familial status discrimination. If you do rent the unit to the family, you will find yourself in front of a zoning enforcement panel or worse yet, a state prosecutor, for violation of local zoning laws. When zoning or the state tell you to evict the tenant as part of the remedy they seek, the tenant will complain to the CHRO that you are evicting them for an illegal discriminatory reason.

Unless and until a victim of this abusive testing practice takes on the testers in court, shows the metal to see the fight to the ultimate end, and claims a victory for landlords, this practice will continue and test results will continue to chip away at your bottom lines. Beware.

Using lease clauses to protect against slips and falls.

A tenant’s guest suffers a severe slip and fall accident on the premises and brings a personal injury lawsuit against the landlord. Who pays the claim and/or the attorney’s fees and costs to defend against it? It depends on the lease and state law.

Particularly in commercial (but also in residential) leases, landlords include indemnification and insurance clauses in an effort to shift the financial risk and burden of such claims onto the tenant. Indemnification is the assumption of another party’s liability under a contract, such as a lease. Therefore, under an indemnification clause, tenants typically agree to reimburse the landlord, or pay directly, “all losses, claims, suits, liability, and expense” related to a liability situation.

An insurance clause typically requires the tenant to secure its own liability insurance for such situations, and sometimes requires the tenant to name the landlord an “additional insured” to provide further protection for the landlord. In this situation (crazy as it may sound to someone not in the legal or insurance fields), the tenant does not assume the landlord’s liability, the tenant’s insurance carrier does, even though in both situations the landlord is not financially exposed to the risk.

State law defines whether indemnification and insurance clauses are enforceable. If state law generally enforces such clauses, it often provides guidelines for determining whether the specific language of a clause would render some (or all) of the clause unenforceable or void. Substantial recent cases involving Massachusetts and Texas law remind us of key points for these types of lease clauses:

  • The clauses must identify clearly who is assuming the obligation (listing the tenant’s name alone may not be sufficient) and who is being held harmless (again, listing the landlord’s name may not be sufficient).
  • An indemnification clause that seeks to transfer all risk to the tenant, or is not specific enough about what risk the tenant is assuming, may be found void in its entirety, even if state law would allow indemnification in such a global or more specific manner.
  • An insurance clause (and the requirement of making the landlord an additional insured) is generally enforceable, but may become void or unenforceable if the landlord does not keep it sufficiently separated – in both the lease’s language and format – from the indemnification requirement.
  • An insurance clause should not specifically describe the type of policy to purchase, because the coverage required may not be available under a basic liability policy – for example, the tenant may need to purchase an endorsement to the main liability policy (or a separate policy entirely) to provide the necessary coverage for the landlord.
  • An insurance clause should contain a requirement that the tenant prove it obtained the necessary coverage, and the landlord must actually track, collect, and confirm such proof from the tenant (and not just have a “policy” to do so). Please see our article and/ quick tip on the subject in our January 2009 newsletter for a further discussion about this concept.
  • Governing law on these clauses can change with a single case at the state appellate or Supreme Court level at any time, and lease language that was once completely enforceable may become void or unenforceable when such a case occurs. When such an appellate or supreme court opinion is published, the new law applies to all landlords and tenants (not just those involved in the case), and lease clauses that were once valid are not necessarily “grandfathered” in – in other words, landlords bear the risk of making sure that their clauses are enforceable.
  • Other lease clauses can play a role in supporting or undermining these clauses, such as notice, default, and “eliminate any portion of the lease that is unenforceable and make the rest enforceable” clauses.

Contact your landlord attorney if your lease does not contain such clauses (they can be, and are, highly beneficial for landlords) or if you have not had them reviewed for legal compliance in some time.

Are you using the correct lease?

We have written extensively about how important your lease is to your success as a landlord. It is the most important document you have as a landlord and regular attention to its contents will prove beneficial and profitable over your landlording career. But, there is one topic concerning leases that I stumbled across in the context of a summary process case that I thought was worth highlighting here in the Advocate – using the correct lease.

While this will mostly apply to those of you who have tenants participating in various different entitlement programs throughout your property, even those of you who manage only one type of program should read on. We’ll address your risks later in this article.

Here’s the scene. You manage a building with tax credit units. Thus, you have some market tenants, some tax credit tenants, some public housing tenants, and you probably have some Section 8 tenants as well. You have one lease – the one you very prudently invested lots of time and money into when you were managing that strictly market property three years ago. Excellent decision to invest in your lease. All landlords should follow your lead. Now, you make the command decision that you will use that brilliantly drafted lease at the new property and you start leasing units.

Pause. Here’s where other landlords may want to press pause.

Each of the various programs in which your tenants participate have their own sets of rules, owns sets of regulations, and therefore need their own version of your lease in order to properly protect your interests and dispel any unnecessary liabilities. Now, for those of you who have attended our popular Section 8 seminar, you know what you need to do with your Section 8 tenants. But, what about the rest of them?

Here’s a real life example I ran into recently. Tenant received Section 8 benefits. Landlord had the tenant execute a HUD Model Lease for public housing. Sounds innocent enough, and some might even argue is perfectly okay. Well, here’s just one provision of the HUD Model Lease that a Section 8 landlord may not desire in her lease – automatic renewal for successive one-year terms. That’s right, this Section 8 tenant received a perpetual lease. No option for nonrenewal at the end of the year. Such a provision is not allowed in public housing leases.

Well, you say, since the tenant is not a public housing tenant that provision of the lease simply won’t apply. If it were only that simple. The problem is, regardless of the nature of the tenancy or any subsidy program for which the tenant is eligible, the lease between the landlord and the tenant governs their relationship. So, the perpetual lease clause applies, as do all of the provisions concerning rent amount being based on the tenant’s income as calculated under federal regulations, etc. etc.. Imagine if a market tenant was offered and signed this lease. You may be limiting the amount of rent you could charge this tenant without even knowing it.

While many different programs can be effectively managed under the same or very similar leases, the differences in these programs are still important and can be critical to your property’s ultimate success. As you take on new properties with new programs or consolidate your holdings to one particular program, make sure your most important document in your landlording success is the correct one. If it’s not, you may find yourself managing a no-win situation at best.

Criminal housing matters – “Housing is not just a civil matter”.

At the 12th Annual CONN-NAHRO Convention & Exhibition held this year at Mohegan Sun, Judith Dicine, Supervisory Assistant State’s Attorney gave a terrific presentation about criminal housing matters and enforcement of fire, building, zoning, and health and housing codes. CONN-NAHRO is the abbreviation for a landlord organization called the Connecticut Chapter of the National Association of Housing and Redevelopment Officials, which primarily consists of housing authorities, subsidized housing, tax credit, and other affordable housing providers, both for profit and non-profit. This group of experienced housing professionals gathers annually for education sessions and updates covering all areas of housing provision and management, including lobbying at, and legislation from, the state and federal governments.

Reflecting upon and taking from a long career (five (5) years in private practice in landlord-tenant matters and twenty (20) years as a housing prosecutor), Ms. Dicine reminded the audience that:

  • “Housing is not just a civil matter” (her words); and
  • Housing-related criminal law and codes apply to landlords and tenants.

Indeed, she expressed surprise that she did not recognize or know most of the landlords attending her session, because she had not seen, or heard about them being, in court on a criminal matter. By this, she did not mean that she had expected to have prosecuted (or be prosecuting) them for criminal violations. Rather, she was surprised that they were not pressing charges against tenants who violated the criminal housing laws, and that they were not present in court to support their local code official(s) taking criminal action against tenants who refused to comply with code obligations applicable to tenants.

Here were some of the key points of Ms. Dicine’s presentation:

  1. The State of Connecticut takes violations of housing law seriously (whether they are by the landlord, tenant, and/or building official) but it often can act only if the aggrieved party stands-up for and demands enforcement of the law.
  2. Code officials and prosecutors basically are looking for compliance with the law, and are not interested in putting people in jail (although they stand ready to do so when warranted). In short, code compliance issues usually will not become criminal matters unless and until the landlord (or tenant) ignores the official’s order to do something. Note that the operative word is “ignore,” not “fail to comply,” because there can be valid reasons why a landlord (or tenant) is not required to comply with the order then (or perhaps at all). However, the landlord (or tenant) must communicate and coordinate with the code official about these situations (see # 4 below).
  3. Landlords have an obligation to take action against problem tenants because the law demands that they consider and support the rights of other tenants in the building, and eliminate (to the extent possible) risks of injury to first-responders (for example, police, fire, and paramedics) and other government officials (for example, code officials) called to the property.
  4. Put things in writing when you are dealing with a code official, particularly if you are asking them to address the tenant for code violations.
  5. As landlords, make sure that you employ or hire a licensed contractor to do work that requires a state license (for example, certain electrical and plumbing work).

Landlords should contact their landlord attorney if they are unfamiliar with the various statutes and codes that apply to their operations, have not developed a good, working relationship with their local code officials (or have a confrontational relationship), or are unsure what criminal housing laws apply to tenants and how landlords can get their rights enforced.

Quick Tip:

Giving tenants exclusive possession and control can be a “good thing”.

Borrowing from Martha Stewart’s tagline, a landlord giving a tenant exclusive possession, control, and responsibility for the leased premises (for example, operation, maintenance, and repair) can be “a good thing” when it comes to both landlord expense and exposure to personal injury lawsuits by guests or customers of the tenant. However, this does not mean that the landlord must give-up all control.

If written correctly, typical commercial and residential lease clauses requiring the tenant to obtain the landlord’s approval before taking action such as altering or adding improvements to the property can remain in the lease without destroying the tenant’s “exclusive” rights.

For example, the Connecticut Appellate Court recently ruled for the landlord in a personal injury case by a tenant’s customer injured in a car accident in the premises’ parking lot. The Appellate Court emphasized the importance of the lease language, because it could definitively express whether the landlord retained control of the premises or whether it was under the “exclusive dominion” of the tenant. In this case, the commercial lease gave the tenant “full and sole responsibility” for the premises (including the parking lot). Even though the lease also provided that the tenant must obtain the landlord’s approval prior to taking some action regarding the premises, careful legal drafting of the approval clause kept it from undermining the “full and sole responsibility” clause, and gave the landlord the benefit of approval without the risks associated with operation, maintenance, and repair.

Contact your landlord attorney to determine if your lease gives the tenant exclusive use sufficient to include protection from liability lawsuits for injuries occurring on the premises.

Quick Tip:

What’s your passion?

So much of our daily lives are spent doing the things we have to do. When’s the last time you ignored something you had to do so you could do something you wanted to do?

Yeah, like me, it’s probably been a while. And, like me, you are too responsible to ignore something in order to indulge in some guilty pleasure or some mindless pursuit. So, how do you have one of those “me” moments where the responsibility fades away and you can truly treat yourself to a “want?” Yes, but you have to plan it. I don’t mean plan the indulgence. Just plan the time for it. Plan the “when” and leave the “what” for that moment. Besides, when the time arrives, your particular want may be very different than when you scheduled the time.

Yes, it is possible to schedule spontaneity and pursue your passion, even in our busy lives. You’ll feel good about it and perhaps even make it a habit before long.

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.