Archive for April, 2010

Is It Time To Hire A Property Management Company?

Apr 27

Posted by Tristan R. Pettit, Esq. in Property Management | 14 Comments

I would like to state at the outset that this particular post is very different from my past posts.  In the past I have tried to educate readers about various aspects of landlord-tenant law.  I will not be doing that this time.  My goal with today’s post is to generate a discussion and to have you, the reader, provide me (and the other readers) with your thoughts and concerns regarding the topic of professional management companies and when a landlord should consider hiring one to handle the daily management of rental property.

You may be curious as to why I am writing a different type of post.  The reason is quite simple and straightforward — in the last month or two I have received several phone calls from landlords that are frustrated with dealing with their tenants and the daily management issues.  My response to these calls is often along the lines of  “welcome to being a landlord,” but I have refrained from such comments lately as I have noticed that these are not just the usual rants about irresponsible tenants.  Instead I am noting real frustration and a wish to get out of “landlording.”  Many of the individuals that I have spoken with have been very upfront in telling me that if they could afford to sell their rental properties that they would but since they cannot they have decided that they want to hire someone else to take over the management.  They then ask me if I can provide them with the names of some professional property management companies that I would reccomend.

After giving the caller some names of property management companies, I make a point of explaining to the caller that hiring a management company does not make all of their problems disappear.  I explain to them that there are a lot of different management companies out there.  I point out to them that just like landlords, property management companies have different styles and ways of running their respective businesses. 

Giving up the daily management of your rental properties is a big decision.  The decision should not be made lightly.  A landlord needs to find a company or manager that s/he feels confident in and comfortable with.  It is important that you interview any managment company that you are considering hiring.  You will be trusting this company with the care of your real estate investment – take the time to get to know them and learn how they will handle their job.  Some management companies are more “hands on” then others.  Some are more “service oriented” then others.  Some follow applicable landlord-tenant laws more than others.

Most management companies will handle everything that you can possibly think of if you want them to, such as:

-  Finding tenants for your vacant units

-  Showing the units to prospective tenants

-  Screening applicants and vetting their applications

-  Fielding complaints and maintenance requests

-  Accepting rent

-  Hiring contractors to make repairs or making the repairs themselves

and much more.

If you find the right property management company, it can be the best decision that you ever made.  The exact opposite can be true if you choose the wrong company. 

Even if you hire a company to manage your properties for you, it is important to understand that you — the owner — may still be held responsible/accountable if the management company does something wrong.  If the management company does not understand fair housing laws and runs a discriminatory advertisement for your vacancy, both the management company and the owner could be sued.  If the management company doesn’t make adequate and timely repairs and as a result a tenant is injured, there is a strong chance that both the owner and the management company could be on the hook.

Some landlords wish to retain some level of control even after they hire a management company.  I know of landlords that still choose to be involved in the tenant selection process but leave everything else to the management company’s discretion.  I have met other landlords that want to personally approve every repair that is made to their income properties.  There are no “typical” situation.  It all depends on what the owner wants and what the management company is willing to do.

Some management companies consist of 1 person.  Others have hundreds of employees.  Some offer their services on an a la carte basis while others offer various packages that the owner can choose from (kind of like a trim package for cars).  Some only manage apartment complexes; others may take on the management of duplexes and single families.

I personally do not feel that there is a “right” time for each and every landlord to give up the daily management of their rental properties and turn it over to a professional management company.  Its not like there is a certain “cashflow magic number” that dictates the hiring of a property management company.  The best time to make that change — or even if the change should be made in the first place — depends on the specific landlord and his/her situation. 

I believe that there are three issues that often casue the topic of hiring a property manager to the forefront for landlords.  First, the landlord no longer has the time to properly manage their rental properties.  Second, the landlord realizes that they are not “cut out” to handle daily management of rental properties.  Third, a landlord gets “dinged” by a tenant.  This could run the gamut from having an eviction action dismissed because of improper service of a 5 Day Notice, or getting sued by a tenant for making an improper deduction from their security deposit, or any other number of situations.  These situations often arise becasue the landlord does not know th ebasics of landlord-tenant law for one reason or another.  We have all met landlords that don’t have a “clue” what they are doing . . . they usually are the ones that are not members of an apartment association, do not attend seminars, and don’t read my blog : ) 

In my years as a landlord-tenant law attorney I have read many good articles that discuss what you should consider when hiring a property management company.  One recent article that I came across is entitled What To Consider When Hiring A Property Management Company.  Another article adressing the topic is entitled Should I Hire A Property Management Company For My Rental Property?  What are the 10 Questions You Should Ask Before Hiring A Property Management Company?  There are many more articles on the web that discuss this issue.  I would suggest that you take the time to read these articles and others as they are very good at raising issues that you should consider when making this important decision.

If you have just finished reading the above paragraph and have now realized that this is the end of the post and are about to click away . . . DON’T.  Please post a comment.  If I don’t get any comments on this post then I will be forced to just go back to the boring old lecture format.  Nobody wants that, do they : )

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Proposed Bill To Require Landlords To Disclose If Their Rental Property Was A “Meth Lab”

Apr 19

Posted by Tristan R. Pettit, Esq. in Investing In Rental Property, Legislation | 7 Comments

On March 26, 2010, Senators Lena Taylor and Spencer Coggs along with Senator Lehman sponsored 2009 Senate Bill 650.  SB 650 will affect both landlords and sellers of real estate in which the drug methamphetamine has been manufactured.

The bill requires both owners wishing to sell and landlords wishing to rent property that was used as a “meth lab” in the past to disclose in writing this fact to potential renters and purchasors.

If methamphetamine was manufactured on the property the seller of the property must disclose this in the real estate condition report.  If a landlord is renting a property that was previously used as a “meth lab” then the landlord must disclose this in writing to any potential renters.

The production of “crystal meth” has become an increasing problem, one that does not just affect city properties.  In fact more and more meth labs are being discovered in rural areas where the illegal activity is far less likely to be noticed.

Studies have shown that the hazardous chemicals that are used to make meth and the chemicals which are a produced during the manufacture of  the drug can seep into floors, ceilings, walls, duct work etc. and can remain for years.  I believe that this discovery is the prime impetus for the creation of this bill.

While I think this is a good bill, it goes without saying that any landlord or seller of real estate in which meth has been manufactured will have a very difficult time renting or selling this property if the bill is passed.  As a result it is more important than ever for landlords to visit and inspect their rental properties.  To be a good landlord you need to know what is going on in your units.  Wisconsin law allows landlords to make periodic inspections of their rental property with at least 12 hours notice (ATCP 134.09 (2).  Landlords should take advantage of this opportunity to inspect their rental units —- especially if they suspect illegal activity.

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Do Not Miss Next AASEW Meeting on How To Manage The Financial Side of Your Rental Properties

Apr 15

Posted by Tristan R. Pettit, Esq. in AASEW | No Comments

On Monday April 19, 2010 at 7 pm the AASEW will hold its monthly membership meeting.  This meeting will focus on how to manage the financial side of you rental property business.  The AASEW is very excited to have Mr. Tim Nolan, CPA of Nolan Accounting Center as the featured speaker.

Timothy Nolan

Mr. Nolan works with smal businesses and property owners and gives special focus to income taxes and business management.

I have known Tim personally and worked with him for the past several years.  This should be a very informative meeting and I hope to see everyone there.

The meeting is held at the Best Western Midway Hotel on 1005 S. Moorland Road in Brookfield.  Meeting will start promptly at 7 pm.

The AASEW will be holding its Trader’s Corner (where you can meet with other members to buy, trade and sell rental properties) at 6:30 prior to the main meeting.

With A Month To Month Rental Agreement A Landlord Has More Options Than Just The 5 Day Notice

Apr 12

Posted by Tristan R. Pettit, Esq. in Notices | 6 Comments

One reason many landlords choose to enter into a month to month tenancy (m2m) with a tenant rather than a 1 year lease (or other term lease) is because it is easier to remove a tenant under a m2m tenancy.

In a m2m tenancy a landlord has the choice of serving a tenant with a 5 Day Notice, a 14 Day Notice, or a 28 Day Notice.  One of the notices — the 28 Day Notice — can legally terminate a m2m tenancy without the tenant even having committed a breach.

The 5 Day Notice:

Under a m2m tenancy a landlord has the option to serve the tenant a 5 Day Notice if the tenant commits a breach.  A 5 Day Notice allows the tenant the right to cure the breach within the 5 day cure period and if that is done then the tenancy continues and the tenant can remain.  If the tenant fails to cure the breach within the 5 days then the tenancy is terminated and the landlord may file an eviction action against the tenant if they have not already vacated.

     NOTE:  I am not sure why, but many landlords believe that they are required to serve a tenant with a 14 Day Notice after the tenant has been served — and not cured – a 5 Day Notice.  This is not true and is not required under Wisconsin law.  If a tenant is served a 5 Day Notice for committing a breach and does not cure the breach within 5 days the landlord is NOT required to then serve the tenant with a 14 Day Notice.  If a 5 Day Notice is not cured (and the tenant has not voluntarily vacated the property) then the landlord should immediately file an eviction action to remove the tenant.  This is true whether the tenant is under a m2m tenancy or under a term lease.   

The 14 Day Notice:

If a tenant commits a breach under a m2m tenancy the landlord can legally bypass the 5 Day Notice and proceed directly to a 14 Day Notice.  Under a 14 Day Notice the tenancy will terminate at the end of the 14 days and the tenant has no right to cure the breach and remain.  At the end of the 14 days the landlord is entitled to file an eviction to remove the tenant if they have not vacated.  A 14 Day Notice is basically a “1 strike and you are out” notice.  Landlords using m2m rental agreements do not have to give a tenant the opportunity to cure the breach.

This is a key difference between a m2m tenancy versus a term lease.  If a tenant commits a breach for the first time under a term lease, the tenant must be given the opportunity to cure the breach.  A landlord using a term lease can only serve a tenant with a 14 Day Notice if this is the tenant’s second time committing breach within a 12 month period and the tenant was previously served a 5 Day Notice for the same or similar breach. 

The 28 Day Notice:

The other major distinction between a term lease and a m2m tenancy is that a tenant under a m2m can have their tenancy terminated even if they have not committed a breach with a 28 Day Notice.  So a landlord using a m2m rental agreement has the option to issue his/her tenant a 28 Day Notice to vacate for any reason or no reason at all.  The only restriction is that the landlord cannot serve a 28 Day Notice to retaliate or discriminate against a tenant.

Summary:

Under a lease for term a landlord may only terminate the lease if the tenant has committed a breach.  If it is the first time that the tenant has committed a breach, a landlord must serve the tenant with a 5 Day Notice which allows the tenant the opportunity to cure the breach.

A tenant under a m2m tenancy is not afforded the same protections.  A m2m tenant can be removed even if no breach has been committed by simply serving them with a 28 Day Notice.  If the tenant has committed a breach, the landlord can choose to serve a 14 Day Notice (which does not allow the tenant the opportunity to cure the breach), a 5 Day Notice (which does allow the tenant the opportunity to cure the breach and remain as a tenant), or a 28 Day Notice if the tenant has not committed a breach but the landlord still wants the tenant to vacate (or if the landlord does not want to have to prove that a breach occurred if the tenant would contest the eviction).

The ease in removing a tenant under a m2m tenancy is a significant reason for first time landlords, landlords that have had difficulty with past tenants, or any landlord that wants to have flexibility to consider using a m2m rather than the ol’ standby 1 year lease.  I personally only offer my new tenants a m2m rental agreement.  It is only after a period of time has passed and the tenant has proven to me that they will pay their rent on time and that they will treat my rental property with care — in other words they have demonstrated responsibility — that I will offer them the opportunity to enter into a 1 year lease.

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BLOG COMMENT: What If Tenant Does Not Give You Proper Notice To Vacate? . . . and Other Questions.

Apr 5

Posted by Tristan R. Pettit, Esq. in ATCP 134, Rental Agreements | 4 Comments

I recently received a very good question through my blog but because it was posted under my “About The Author” section I don’t think enough people would see it so I decided to reprint it as a post.

THE QUESTION:

Good Morning,
I will start by saying thank you for this forum, I find it very helpful and one of a kind.  I know you must be very busy but I was hoping you could point me in the right direction regarding a question I have.  I am a landlord and I had tenants move without giving a 90 day notice which was one of the provisions I set within their lease.  I think this is a breach of contract and if so can I to take them to court?  Would it still be filed by small claims, and is there a time limit I must file within?  Can I even file for this?  Thanks for your time.

THE ANSWER:

Thank you for your kind words and I am happy to hear that my blog is helpful to you.

You did not mention if your rental agreement was a periodic tenancy (month to month or something similar) or a lease for term (1 year lease etc.).  I will assume that it is the latter.

If a tenant breaks a lease for term and moves out prior to the ending of the term a landlord has a duty to make reasonable efforts to re-rent the unit.  The tenant will remain responsible for paying rent if the landlord is unable to find a tenant to re-rent.  The tenant will also be responsible for paying the costs incurred by the landlord to re-rent the unit.  The applicable statute dealing with this issue is Sec. 704.29, Wis. Stats.

If you have a term lease that states the tenant must give 90 days notice if they plan to move out at the end of the lease term and the tenant completes the lease term and then moves out but fails to give the landlord notice then you have an entirely different situation then when a tenant breaks a lease and moves out early.  In this situation the tenant completed the full term and actually did not breach the lease.  Because it was a lease for term and the tenant completed the full term of the lease the landlord cannot hold the tenant responsible for an additional 3 month’s of rent (over and above the lease term) just becasue the tenant failed to give the 90 day notice — the reason being that the tenant did complete the term of the lease.  Such a notice provision in lease is legal and are included to assist the landlord so that the landlord will be alerted by the tenant if the tenant intend to leave at the end of the term BUT a landlord should not solely rely on the tenant to provide that notice.  It is the landlord’s job to determine whether or not a tenant intends to enter into a new lease after the full term of the initial lease is completed.

It is good practice for a landlord to send a reminder to the tenant prior to the 90 days notice period (or whatever notice is set forth in the rental agreement) and either (1) advise the tenant that the lease will not be renewed and providing the tenant with move out instructions, or (2) include a new lease and ask the tenant to sign the documents and return them within X days if they intend to stay for another term.  If the tenant does not return the newly signed lease to the landlord within the requisite time period then the landlord may choose to follow up with a telephone call to the tenant if s/he wants to but it is not necessary and the landlord may assume that the tenant will not be renewing the lease and the landlord should began to advertise and make efforts to re-rent.

To try and hold the tenant responsible for an additional 90 days rent beyond the completed rental term because the tenant did not provide the landlord with the 90 day notice that they would be vacating at the end of their lease would be in violation of both ATCP 134.09(3) and Sec. 704.15, Wis. Stats., regarding “automatic renewal clauses.”

To address the second issue that you raised in your comment (assuming it is not moot because of the above answer) small claims has jurisdiction over any civil lawsuits that are seeking $5,000 or less in damages.  So if you were attempting to collect 3 months of rent from a tenant (and they have already moved out thus negating the need to file an eviction) then as long as the 3 month’s of rent is less then $5,000 you would file that collection action in small claims.  See sec. 799.01(d), Wis. Stats.  If you were seeking damages greater than $5,000 then you would need to file suit in large claims and pay the higher filing fee.

Addressing the next issue raised in your comment, individual persons are allowed to represent themselves in court whether in large claims or small claims (whether or not that is advisable is a separate question that I will not address).  Business entitites (corporations, LLC’s etc.) are not allowed to be represented in large claims lawsuits by a non-attorney — you would need to hire a lawyer to represent your business entity in large claims. 

In small claims actions, the law carves out a small exception and will allow a business entity to be represented in court by a full-time employee of the business entity.  Sec. 799.06(2), Wis. Stats.  Milwaukee – more than any other county – is enforcing this strictly and requires a copy of a W2 from the employee issued by the entity to verify this.  Managing members or sole members of an LLC are not considered to be a full-time employee of the LLC unless they are paid income by the LLC.

For additional discussion on this topic please refer to my May 15, 2009 post, July 21, 2009 post, July 30, 2009 post, and Sept. 2, 2009 post.

Your final question, asks if there is a time limit in which you must file a lawsuit against your tenants for failure to give the requisite 90 day notice to you prior to vacating.  As I mentioned above, depending on your specific fact situation and the type of rental agreement you are using, you may not even have a claim against your tenant for the 3 month’s rent.  However, assuming you do have a claim it would be a claim for breach of contract and the statute of limitations for breach of contract claim is 6 years from the date of the breach.

I hope that helps

T