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Seven Common Mistakes Many Small Property Owners Make – By Ted Loewenberg

Posted on 15. May, 2012 by in all

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A friend of mine (Betty) rented an illegal unit for 23 years and established a close friendship with the owner, (Joanne).  During those many years, Betty spread out her belongings into places that were off limits to her, but Joanne said nothing.
Joanne said she didn’t get to the bank until after the middle of the month, so raised no objections when Betty paid her rent after the fifth.
Betty wanted a cat and Joanne agreed.  Before long, Betty had three felines.  And when Betty moved her boyfriend in, Joanne failed to verify his creditworthiness or issue Betty proper notice.
Even the minimal terms and conditions detailed in her flimsy lease evaporated over the years because Joanne thought she was happy having a friend live there and contribute to her income.
Ignorance may be bliss, but¦.it all came crashing down for Joanne when Betty finally moved out.  Betty waited for her security deposit refund (plus substantial interest), but it never came.  She wrote a letter to Joanne about 70 days after moving out asking for her refund.  In return, she received a letter with a check for only about a third of the amount due and a list of deductions, many of them illegitimate.  Now, things got interesting.

Betty talked to me and learned about many of the issues involved.  She wrote another letter to Joanne advising her of the California law on security deposits, the key point being that if a full accounting is not provided within 21 days after vacating the premises, the entire deposit plus all interest accrued is due.  Additionally, through Small Claims Court, a fine of $500 can also be applied as penalty for failure to act promptly.
It turns out that the property owner, Joanne, was totally clueless and admitted as much in her response to Betty.  She had no idea that she had to pay interest on the deposit, no idea that she had 21 days to provide an accounting and no idea where she might go to get information about her responsibilities as a rental property owner.   Apparently, she was not aware that her property was zoned as a single family residence and that she needed a Certificate of Occupancy to add a second housing unit to the building for rental.  She probably never paid income tax to the State or Fed on her rental income and certainly didn’t pay San Francisco Rent Board fees on her property taxes.  Joanne seemed to live her life as a property manager according to Bobby McFerrin’s song, Don’t Worry.  Be Happy.
Joanne’s letter to Betty detailed a long list of complaints about her behavior as a tenant “ in retrospect.  She now regretted doing nothing about all the alleged violations for the terms of the lease (written on standard stationery lease form, missing any of the legal language imperative for San Francisco leases).
While Joanne didn’t explicitly say so, she also obviously ignored all those messy details in the many ballot measures and landlord-tenant battles, waged over the years at the Board of Supervisors, assuming that none of it really affected her.  She never bothered to appreciate the fact that she really was in business as a rental property owner and that there are many laws that restrict or regulate a property owner’s actions.  She blindly assumed that these laws protect both renters and landlords equally.  Had she only read newspapers or joined [AOA or] a small property owner advocacy group like SPOSFI, she would have been far more aware that San Francisco’s one-sided Rent Ordinance is heavily biased towards renters; so staying informed is absolutely imperative.

Seven Common Mistakes Many Small Property Owners Make

1.    Failing to enforce the terms of your lease.
2.    Ignoring all the political battles over tenant rights issues because they don’t matter to me.
3.    Never consulting with your attorney about how to manage your rental property.
4.    Failing to pay income taxes and fees that are due on your rental income.
5.    Failing to return the security deposit when your tenant vacates.
6.    Assuming that there’s no need to respond to letters from former tenants.
7.    Never admitting making any mistakes in letters to your tenants.

Ignorance may at times be bliss, but it can get very expensive managing a rental property in San Francisco.  To be effective rental property owners requires that we become very familiar with the laws to which we are subject.  It requires that we get sound legal advice about how to deal fairly and legally with our renters.  It requires that we follow good business practices as expressed in SPOSFI’s Code of Conduct and reflect a professional attitude in running this heavily regulated business.
Don’t make the same mistakes that Joanne made.  Educate yourself.  Get involved.  Participate in political debates about your business.  Support the goals of local advocacy groups that serve your interests.  Otherwise, you may hear your renters say, See you in court.

Reprinted with permission of the Small Property Owners of San Francisco Institute (SPOSFI) News.  For more information on becoming a member of SPOSFI or to send a tax-deductible donation, please visit their website at www.smallprop.org or call (415) 647-2419.