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Common Costly Landlord Mistakes “ Am I Doing This Right? – By Patricia A. Harris

Posted on 15. Sep, 2012 by in all, Magazine Articles

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With all of the laws governing California housing providers, it is easy to overlook your responsibilities as a landlord, which may result in financial hardships and legal problems.  To help make your business of providing housing a bit easier, I have compiled a list of the most common mistakes (and solutions) that AOA members have encountered with the hope that these guidelines will keep you out of courts and also keep more money in your pocket.

1.  THE APPLICATION AND SCREENING PROCESS

Is the application filled out entirely and signed by the applicant?
You do not have the permission of the applicant to run a credit, criminal or eviction report UNLESS the application is signed by your prospective tenant acknowledging that those reports will be run.

Am I charging too much for my screening fees?
State Law limits credit check fees “ it is recommended that you charge each applicant your actual out-of-pocket costs plus a reasonable fee for your time.  Currently, the maximum charge for each applicant is $43.40 “ which changes each year depending on the CPI.

Did I give the tenant a Receipt of Application Screening Fee?
California Civil Code Section 1950.6 states that you must give a prospective tenant an itemized statement of receipt for monies collected as an application fee for the purpose of running credit checks and background reports.   AOA members can download this form #147 FREE at www.aoausa.com and must incorporate its use with every new applicant.

Must I notify a prospective tenant in writing if I refuse to rent to them?
If you refuse a tenant based on information obtained from credit or other consumer reports, you must send or give them a letter similar to the AOA Form #140 – Notice to Rental Applicant which supplies them with the required legally-mandated information.

What should be considered before giving possession to a new tenant?
It is highly recommended that the following minimum procedures and addendums accompany every new lease before keys to the unit are presented to your new tenant:

¢    A fully executed and up-to-date Rental Agreement/ Lease signed by all parties over the age of 18 who will be occupying the premises.
¢    A Cashier’s Check or Money Order for the full amount of first month’s rent and security deposit.
¢    The legally mandated Lead-Base Paint pamphlet must be given to each new tenant along with written acknowledgement of receipt.
¢    Bedbug Addendum: Each new lease should be accompanied with the Bedbug Addendum to protect you from pest control costs should the tenant bring bedbugs into your unit at a future date. (See AOA Form #148).
¢    A copy of your community’s House, Smoking and Pool Rules.

2.  RESIDENT MANAGERS

Should I have a written contract with my resident manager?
Absolutely, always and with no exceptions! It is recommended that you have an attorney draw up a manager agreement designed specifically for your properties detailing duties, working hours and compensation.   At the very least, use a form similar to AOA’s Resident Manager Agreement (form #119) outlining the specific terms of employment.

My resident manager is claiming to have worked more hours over the past five years and is now suing me for hundreds of thousands of dollars.  How can I protect myself from this in the future?
It is highly recommended by Attorney Dale Alberstone that you require the manager to record all hours that he or she works during any given month.  Also require the manager to submit a written certification to the owner at the beginning of each following month setting forth the total number of hours that the manager worked that preceding month.

Must I Have Workers’ Compensation for my resident manager?
In California, employers are required to provide coverage for their employees (this includes resident managers) and are held liable for all injuries suffered by employees while they are on the job.  You could get 60 days in jail and up to a $100,000 fine for not having Workers’ Compensation insurance. AOA members can take advantage of our low-cost group insurance policy to obtain Worker’s Comp insurance.

Am I required to deduct taxes from my resident manager’s compensation?
As an employer, you are obligated legally to withhold proper federal and state income
taxes whether you pay your manager by check or offer reduced rent. (CA
Unemployment Insurance Code §13020).
You are also required to make payments to the IRS for state and federal taxes on a
quarterly basis. For information about social security, unemployment and disability
insurance deductions, you may contact the IRS for their publication number 334 which is
the Tax Guide for Small Businesses at 800-TAX-FORM. This publication is also
available at www.irs.gov – choose Form 334. There are substantial financial penalties for not adhering to this law.

Where can I find all the pertinent information regarding California law mandating my responsibilities as an employer of resident managers?
Each year, in the January issue of your AOA Magazine, Attorney Dale Alberstone writes a fact-filled article regarding updated laws and compensation for resident managers.  By following these laws and his recommendations and incorporating them into your landlording business, you will protect yourself from any possible lawsuits from disgruntled managers.

3.    THE MOVE-OUT PROCESS

I sent my tenant the Security Deposit Refund itemization, copies of invoices and the balance owed before the required 21 days after move-out period, but they are still suing me in Small Claims Court for their entire security deposit plus damages.  What did I do wrong?
AOA encounters this question frequently and would like to remind everyone of the AB2330 Walk-Through process.  Besides the final inspection, an Initial Move-Out Inspection must also be conducted where the tenant or you gave a 30, 60 or another regular notice of termination of tenancy.
No sooner than two weeks before the actual move-out date, a landlord MUST OFFER the vacating tenant an initial move-out inspection.  The purpose of this inspection is to document all damages and items that will be deducted from the tenant’s security deposit at the time of move-out.  This procedure gives the tenant an opportunity to correct these problems, therefore avoiding the intended charges.  If you do not adhere to this law, you may just find yourself returning the tenant’s total deposit plus damages of up to two times the amount of the deposit “ regardless of the condition in which they left your unit.
Upon notification of intent to move, print out AOA’s AB2330 Walk-Through instructions and forms to present and conduct this exit inspection in a timely manner.

Must I pay interest on tenant’s security deposit and how do I do that?
There is no state law that requires a landlord to pay interest on security deposits, however some cities require a landlord to either credit rent or pay interest.
The below listed cities all require interest or separate accounts for security deposits that must be insured by FSLIC or FDIC: Berkeley, East Palo Alto, Hayward, Los Angeles, San Francisco, Santa Cruz, Santa Monica, Watsonville and West Hollywood.
If you don’t already know, it is highly recommended that you call the city where your building is located to find out its policy for:

¢    The amount of interest that must be paid
¢    When the payment must be made to residents and
¢    If a special interest-bearing account is required

In all the cities listed above, interest must be paid once a year and at move-out either on the anniversary date of move-in or by a certain date “ again, depending on the city.  A complete list of each city’s requirements may be found on pages 90 and 91 of the 14th edition of The California’s Landlord Law Book “ Rights and Responsibilities by Nolo Press.
NOTE:  I recommend that every rental property owner have this book on their desk as it is a very valuable tool of references, rules, regulations and state laws that every California landlord must know.

With all the Federal, state and local city regulations, I suppose that this article could be endless.  It is my sincere hope, however, that by reading this, you have discovered one thing that will help you manage your building to the best of your ability.  If I’ve saved just one of you from having to make a court appearance, having to spend unnecessary money in fees and fines, or wasting your valuable time revisiting an improperly done procedure, then I’ve accomplished my goal.
If you have questions, recommendations or suggestions for future articles that you consider would be valuable to this business of landlording, please feel free to email me at editor@aoausa.com.

Patricia A. Harris is Senior Editor of the AOA News and Buyers Guide, the official publication of the Apartment Owners Association of California, Inc.