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All landlords typically follow the same process when renting property. We recognize that a landlord with 40 (or 400) units has different business challenges than a person with an in-law cottage in the backyard or a duplex around the corner. Still, the basic process of filling rentals remains the same:
In this chapter, we examine the practical and legal aspects of each of these steps, with an eye to avoiding several common legal problems. Because the topic of discrimination is so important we devote a whole chapter to it later in the book (Chapter 9), including advice on how to avoid discrimination in your tenant selection process.
For comprehensive information and over 40 forms on advertising, showing your rental, screening applicants, and accepting and rejecting prospects, see Every Landlord's Guide to Finding Great Tenants, by Janet Portman (Nolo).
Before you advertise your property for rent, you'll want to make some basic decisions, which will form the backbone of your lease or rental agreement -- how much rent to charge, when it is payable, whether to offer a fixed-term lease or a month-to-month tenancy, and how much of a security deposit to require. You'll also need to decide the responsibilities of a manager (if any) in renting out your property.
If you haven't made these important decisions, the details you need are in Chapters 2, 3, 5 and 6.
In renting residential property, be consistent when dealing with prospective tenants. The reason for this is simple: If you don't treat all tenants more or less equally -- for example, if you arbitrarily set tougher standards for renting to a racial minority -- you are violating federal laws and opening yourself up to lawsuits.
Of course, there will be times when you will want to bargain a little with a prospective tenant -- for example, you may let a tenant have a cat in exchange for paying a higher security deposit (as long as it doesn't exceed the legal limits set by law). As a general rule, however, you're better off figuring out your rental plan in advance and sticking to it.
In some areas, landlords are lucky enough to fill all vacancies by word of mouth. If you fit this category, skip to the next section.
There is one crucial point you should remember about advertising: Where you advertise is more important than how you advertise. For example, if you rent primarily to college students, your best bet is the campus newspaper or housing office. Whether you simply put a sign in front of your apartment building or work with a rental service or property management company, be sure the way you advertise reaches a sufficient number of the sort of people who are likely to meet your rental criteria.
Legally, you should have no trouble if you follow these simple rules:
Make sure the price in your ad is an honest one. If a tenant shows up promptly and agrees to all the terms set out in your ad, you may run afoul of the law if you arbitrarily raise the price. This doesn't mean you are always legally required to rent at your advertised price, however. If a tenant asks for more services or different lease terms, which you feel require more rent, it's fine to bargain and raise your price. And if competing tenants begin a bidding war, there's nothing illegal about accepting more rent -- as long as it is truly freely offered. However, be sure to abide by any applicable rent limits in local rent control areas.
Don't advertise something you don't have. Some large landlords, management companies, and rental services have advertised units that weren't really available in order to produce a large number of prospective tenants who could then be "switched" to higher-priced or inferior units. This type of advertising is illegal, and many property owners have been prosecuted for bait-and-switch practices.
Be sure your ad can't be construed as discriminatory. Ads should not mention age, sex, race, religion, disability, or adults-only -- unless yours is senior citizens' housing. (Senior citizens' housing must comply with CC § 51.3. Namely, it must be reserved for persons over age 62, or be a complex of 150 or more units [35 in nonmetropolitan areas] for persons over age 55.) Neither should ads imply through words, photographs, illustrations, or language that you prefer or discriminate against renters because of their age, sex, race, and so on. For example, if your property is in a mixed Chinese and Hispanic neighborhood and if you advertise only in Spanish, you may be courting a fair housing complaint. In addition, any discrimination against any group that is unrelated to a legitimate landlord concern is illegal. For example, it's discriminatory to refuse to rent to unmarried couples, because the legal status of their relationship has nothing to do with whether they will be good, stable tenants.
Example: An ad for an apartment that says "Young, female student preferred" is illegal, since sex andage discrimination are forbidden by both state and federal law. Under California law, discrimination based on the prospective tenant's occupation also is illegal, since there is no legitimate business reason to prefer tenants with certain occupations over others.
If you have any legal and nondiscriminatory rules on important issues, such as no pets, it's a good idea to put them in your ad. This will weed out those applicants who don't like your terms. But even if you don't include a "no pets" clause, you won't be obligated to rent to applicants with pets. You can still announce the policy at the time you interview a prospective tenant -- and you can use your discretion when deciding whether their pets are acceptable.
It's good business, as well as a sound legal protection strategy, to develop a system for screening prospective tenants. Whether you handle reference checking and other tasks yourself or hire a manager or property management company, your goal is the same -- to select tenants who will pay their rent on time, keep their rental in good condition, and not cause you any legal or practical hassles later.
Never, never let anyone stay in your property on a temporary basis. Even if you haven't signed a rental agreement or accepted rent, giving a person a key or allowing him or her to move in as much as a toothbrush can give that person the legally protected status of a tenant. Then, if the person won't leave voluntarily, you will have to file a lawsuit to evict him or her.
Each prospective tenant -- everyone age 18 or older who wants to live in your rental property -- should fill out a written application. This is true whether you're renting to a married couple sharing an apartment or to a number of unrelated roommates.
[Sample Rental Application Form] omitted for online sample chapter.
You'll find a tear-out version of the Rental Application in Appendix B. The CD-ROM that accompanies this book also includes this form. You can use the .pdf version (print this as is and give it to your applicants), or the .rtf version. You can word-process the .rtf version to add or delete questions, but be aware that extensive changes might affect the form's layout (the margins and available space for answers). Nolo's technical support will not be able to assist you in re-formatting this form.
Complete the box at the top of the rental application, listing the property address and amounts due before the tenants may move in.
Ask all applicants to fill out a rental application form, and accept applications from everyone who's interested in your rental property. Refusing to take an application may unnecessarily anger a prospective tenant, and will make him or her more likely to look into the possibility of filing a discrimination complaint. Make decisions about who will rent the property later.
The rental application form includes a section for you to note the amount and purpose of any credit check fee. (Credit check fees are discussed below.) If you do not charge credit check fees, simply fill in "none" or "N/A".
Be sure all potential tenants sign the rental application, authorizing you to verify the information and references. (Some employers and others require written authorization before they will talk to you.) You may also want to prepare a separate authorization, so that you don't need to copy the entire application and send it off every time a bank or employer wants proof that the tenant authorized you to verify the information. See the Sample Consent to Background and Reference Check, below.
[Sample Consent to Background and Reference Check] omitted for online sample chapter.
You'll find a tear-out version of the Consent to Background and Reference Check in Appendix B. The CDROM that accompanies this book also includes the form.
Don't take incomplete rental applications. Landlords are often faced with anxious, sometimes desperate people who need a place to live immediately. Some people tell terrific hard-luck stories as to why normal credit- and reference-checking rules should be ignored in their case and why they should be allowed to move right in. Don't believe any of it. People who have planned so poorly that they will literally have to sleep in the street if they don't rent your place that day are likely to come up with similar emergencies when it comes time to pay the rent. Always make sure that prospective tenants complete the entire Rental Application, including Social Security number (or an alternative; see below), driver's license number or other identifying information (such as a passport number), current employment, and emergency contacts. You may need this information later to track down a tenant who skips town leaving unpaid rent or abandoned property. (See Chapters 19 and 21.)
State law limits credit check or application fees you can charge prospective tenants, and specifies what you must do when accepting these types of screening fees. (CC § 1950.6.) You can charge only "actual out-of-pocket costs" of obtaining a credit or similar tenant "screening" report, plus "the reasonable value of time spent" by you or your manager in obtaining a credit report or checking personal references and background information on a prospective tenant. Section D, below, covers credit reports and other screening efforts.
The maximum screening fee you can charge each applicant is $30, but you can adjust for inflation by consulting the Consumer Price Index for the nearest metropolitan area. To determine the allowable charge, go to the Consumer Price Index website at www.bls.gov/cpi and search for the article, "How to Use the Consumer Price Index for Escalation."
Upon an applicant's request, you must provide a copy of any consumer credit report you obtained on the individual. You must also give or mail the applicant a receipt itemizing your credit check and screening fees. If you end up spending less (for the credit report and your time) than the fee you charged the applicant, you must refund the difference. (This may be the entire screening fee if you never get a credit report or check references on an applicant.)
[Application Screening Fee Receipt] omitted for online sample chapter.
Finally, you cannot charge any screening or credit check fee if you don't have a vacancy and are simply putting someone on a waiting list (unless the applicant agrees to this in writing).
In light of state limits on credit check fees, we recommend that you:
You'll find a tear-out version of the Application Screening Fee Receipt in Appendix B. The CD-ROM that accompanies this book also includes the form.
Nonrefundable move-in fees are illegal. Any "payment, fee, deposit, or charge" that is intended to be used to cover unpaid rent or damage or that is intended to compensate a landlord for costs associated with move-in, is legally considered a security deposit and is covered by state deposit laws. Security deposits are always refundable. (Chapter 5 covers security deposits.)