Renting Out Property

Renting out property occurs when an individual owns property but allows another person or persons the right to use that property in exchange for money or other considerations. The individual who owns the property is the landlord, or lessor. The person who uses the property is the tenant, or lessee.

In most cases, a landlord rents out property to gain income. Some landlords rent out property with multiple units or with apartments. Others own a single-family residence, such as a house, that they lease out.

Renting property can be lucrative and comes with responsibilities and risks. The landlord needs to maintain the property and make repairs. The landlord must find responsible tenants who pay the rent, care for the property without damaging it, and do not use it for illegal purposes. The landlord also needs to follow all state and local statutes governing the property and landlord-tenant relationships.

Background

In order for a property to be rented out, it must be habitable: in safe condition with working plumbing, electricity, and heat. Windows, screens, and doors need to be secure; porches and stairs must be free of broken rungs; decks must be stable; and the entire structure must meet all applicable building codes.

Other laws may also apply. For example, in many jurisdictions, the locks must be replaced before renting to a new tenant. Some jurisdictions also require proof that all appliances work, the premises are in good condition, and the building is clean and free of insect or animal infestations.

The Fair Housing Act, as well as other federal, state, and local laws, prohibits discrimination in rental practices. A landlord cannot refuse to rent to individuals based on their race, national origin, religion, gender, or disability.

A landlord can refuse to rent to individuals based on their credit, criminal, or past rental history. Landlords can use either an application form or an interview to screen potential tenants. Many use both. An application typically asks for personal and employment information about the applicant. The application form can also ask whether the applicant has ever been convicted of a crime, but it cannot ask about arrest. The application form should require the applicant to sign a statement granting the landlord the right to check the applicant’s credit history, criminal and sex offender records, and professional, personal, and past rental references.

An interview usually requests the same information as the application form and is subject to the same restrictions. In addition, the landlord should require the potential tenant to sign a statement granting the landlord permission to conduct credit, criminal, and work checks as well as personal and professional references.

Many landlords require the applicant to pay a fee for processing the application and performing a credit check. If the landlord denies the application, the credit application fee may need to be refunded, based on the applicable state and local statutes. In addition, if requested by the applicant, the landlord is obligated to provide the reason why the application was denied. For example, if an applicant was rejected due to a poor credit history, the landlord must state this reason and give the name of the credit bureau that provided the credit history.

Impact

When a landlord approves an applicant, the next step is to formalize the agreement with a lease or rental agreement that describes the landlord-tenant relationship. There are four types of tenancies, or arrangements, that govern a tenant occupying another person’s property.

A tenancy for years is a lease that gives a tenant the right to occupy a property based on a fixed term, such as a month or year. The lease automatically expires on a specific date, and the landlord does not need to give the tenant advance notice of the termination of the lease.

A tenancy from period to period is similar to a tenancy for years, with the exception that no termination date is specified at the onset of the agreement. This type of lease covers an indefinite period. An example is the month-to-month lease. This type of lease automatically renews unless either party, the tenant or landlord, agrees to end it and gives formal notice as required by local or state statutes.

A tenancy at will is an agreement between a landlord and tenant that a tenant can occupy a property for an indefinite time unless either party terminates the agreement. Termination requires no advance notice by either party.

A tenancy at sufferance is when a tenant continues to occupy a property after a lease has expired. For example, a tenant may have a yearly lease, or tenancy from period to period, but then stays on for a few months after the lease expires. In some cases, this may be a voluntary agreement between the landlord and tenant, such as when the tenant plans to move to a new property that will be available in two months. In other cases, it is involuntary, such as when a tenant refuses to leave a property after a lease has expired. In both cases, the terms of the original lease govern the agreement and the tenant must pay the rent specified in that lease.

A lease is a written contract that describes the type of tenancy and specifies its terms. The lease should include the following information: the landlord’s name, the name of the occupant(s), the address of the property, how the property can be used, the starting and end dates of the agreement, any options for renewing the lease, and the amount of the rent. It also should include when the rent is due, forms of payment allowed, where payment should be sent or collected, late charges, and any grounds to terminate the lease early. It should also specify the tenant’s and landlord’s obligations in terms of repairs and maintenance, such as who is responsible for mowing the lawn, if applicable; the rights of the landlord to access the property; and rules regarding subletting, maximum occupancy, common areas, parking, and noise. It also must disclose any information about the property required by state or local statutes, such as the presence of lead-based paint or problems with flooding.

Depending on the type of lease, a landlord may be required to give advance notice to a tenant offering to renew the lease or refusing to renew the lease. The amount of advance notice varies based on state and local statutes; typical notices are thirty and sixty days prior to the end date of the current lease.

Landlords often ask for a security deposit at the time a lease is signed. Several states limit the amount of the security deposit to no more than one or two times the amount of the monthly rent. Some allow up to three times the monthly rent. The purpose of a security deposit is to cover any expenses for damage caused by the tenant. The security deposit cannot cover expenses for repairs due to normal wear and tear. Normal wear and tear includes broken appliances that are not due to misuse, faded paint, worn carpets, and warped doors and windows. Repairs covered by the security deposit include carpet stains caused by pets, holes in the wall, broken appliances caused by misuse, excessive mold, and dirty stoves and ovens.

Because the security deposit is considered the tenant’s property, which is being held by the landlord, it must be kept separate from the landlord’s funds. Many landlords keep it in a separate bank account. In some states, landlords must pay tenants interest on security deposits.

Numerous states also require landlords to return any portion of a security deposit to the former tenant within a certain time period, ranging from as little as ten days to two months. They also may require a landlord to provide written documentation listing all repairs made and showing the expenses to repair them, including receipts for material and labor.

A landlord can evict a tenant under certain circumstances, such as failure to pay rent, violations of the lease, or illegal use of the property. State and local laws on the eviction process vary but generally involve three steps. A landlord must first give notice to a tenant before taking action to remove the tenant from the property. If the tenant corrects the behavior, such as removing a pet from a no-pets property, no further action is necessary. When a tenant does not remedy the situation, the landlord can file an unlawful detainer suit. The landlord must give a copy of the lawsuit and a summons to the tenant. Both the tenant and the landlord are allowed to attend the court hearing. If the court rules in the landlord’s favor, the landlord then needs to give the court order for the eviction to local law enforcement, who will inform the tenant of the eviction and order the tenant to vacate the property. If necessary, the tenant’s property will be removed.

Bibliography

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