A Primer for Would-Be Landlords

A Primer for Would-Be Landlords

12-Jan-1997 Sunday

Robert Griswold | Steven R. Kellman | Ted Smith
This column on issues confronting renters and landlords is written by Certified Property Manager Robert Griswold, host of KSDO Radio's "Real Estate Management Today!" (Saturdays, 2-4 p.m.) and by attorneys Steven R. Kellman, director of the Tenants' Legal Center, and Ted Smith, principal in a law firm representing landlords.

Q: I am planning to turn my current home into a rental. Do you have a source for a good reference book or pamphlet for the do's and don'ts of renting your home?

A: Griswold: A great question that we often hear on "Real Estate Management Today!" There are several publications that will have information that is important to you as a future landlord. I do not have one specific book that I would recommend as there are pros and cons to each one I have reviewed. I would suggest that you contact the San Diego County Apartment Association (297-1000) in Mission Valley. Or better yet, go to their offices at 2727 Camino del Rio South, Suite 327, San Diego. You can purchase a publication called the "Gold Book" as well as other publications and many of the forms you will need. Their forms are generally prepared by the California Apartment Association. Another local source for forms is the San Diego Association of Realtors bookstore at 2231 Camino del Rio South, also in Mission Valley. These forms are also very good and are prepared by the California Association of Realtors. Since you sent your question via e-mail, you may have access to the World Wide Web and could be interested in checking out the site for Nolo Press, a publisher of self-help guides to legal issues. Their Internet address is www.nolo.com. Or call them for catalog at (800) 992-6656. They have several publications that will address your basic concerns. Another way to gain vital knowledge is to become a member of the San Diego County Apartment Association, a nonprofit organization dedicated to educating and assisting the residential rental property owner. They have seminars throughout the month, including owner/operator workshops and other informative educational programs. They are also active in lobbying and offering legislative support to the rental housing industry.

Smith: Before you take the plunge into landlording, make sure you educate yourself on becoming a responsible rental property owner and operator. Griswold has given you a good start to finding reference books, pamphlets, and forms. Landlord/tenant laws are fraught with technicalities, so make sure you are using the proper leases and other forms. They should be specific to California, since each state differs to a certain degree in this field of the law. For many busy individuals, landlording is a task with very little return and you may want to consider using a professional property management firm to handle the headaches for you. Be sure to thoroughly investigate the credentials and qualifications of any management company. Check references and the status of their real estate license with the state Department of Real Estate.

Q: We are currently on a long-term lease with nine months remaining and need to move. Can we mutually agree with our landlord to a buy-out of our lease? Does our landlord then have a monetary obligation to us if he rents to another tenant during the remaining term of our bought-out lease?

A: Kellman: A landlord and tenant are free to agree on the early termination of their lease. The landlord may pay the tenant to return possession to the landlord before the lease expiration. Ordinarily, if the landlord has paid something to the tenant for the early move-out, the landlord will be free to rent the unit to someone else with no obligation to the tenant. This usually does not come up as a problem since the tenants got what they wanted, payment to move early. There can be some complication, however, in the rare occasion when the tenant just moves out with no agreement and the landlord immediately re-rents the unit for more than that tenant was paying. Under certain circumstances, that tenant may actually be entitled to these profits from the landlord. Of course, it is not recommended to vacate a rental before the lease expires without an agreement to do so or legal advice if an agreement cannot be reached.

Q: If a landlord runs a credit report on me to determine if he wants to rent to me, can he require me to pay for that credit report?

A: Kellman: The landlord can't force you to pay for the credit check but can simply make it a condition of the application process. The landlord is entitled to receive assurance that the credit of an
applicant meets his standards of financial and rental history. The problem is that the landlord gets to choose the system. Therefore, it may be frustrating for the tenant with good credit to have to pay to prove it. It may be equally frustrating for the tenant with less-than-good credit to pay for these credit checks and be denied the rental. These repeated application fees can add up mighty fast. Under new state law, a landlord is prohibited from accepting applications on an already-rented unit unless a tenant gives him or her the right to do so.

Griswold: It has been a long-standing custom and practice of landlords and their property managers throughout California to pass the cost of credit checks to the prospective renters in the form of application fees or credit check fees. The majority of landlords and property managers do not abuse the credit check procedure as part of a comprehensive application evaluation process. However, like many things in life, some individuals have acted improperly and unethically by charging very high credit check fees that have no relationship to the actual costs of running a credit check and performing the other background investigation on rental history and employment to properly and legally qualify a prospective renter. Some landlords in the Bay Area were found guilty of charging application fees of $50 or more and/or collecting application fees when no rentals were even available. They also charged illegal transfer fees of up to $150 just to move from one apartment to another within the same apartment community. Typically, landlords and property managers in San Diego charge $15 to $30, which covers the actual cost of the credit check ($10-20), plus the miscellaneous administrative costs of verifying the information on the application, such as employment, rental history, etc. The application fee is clearly not a profit center for legitimate landlords and property managers. Recently, there was a legal challenge in San Diego regarding the legality of landlords' and property managers' rights to the common practice of collecting a reasonable application fee.

This practice was essentially ratified when Gov. Pete Wilson signed a new law (AB 2263) that took effect Jan. 1. This law (and related legislation passed as AB 2384) specifically excludes application fees from the current definitions of security or advance fees. Essentially, this new law clarifies and basically reinforces the current industry practice of charging a prospective tenant a reasonable fee for a credit check (maximum $30). The legislation also protects tenants by requiring the landlord or their property manager to provide an itemized receipt for the application fee. Of course, the landlord must actually have a unit available and must return the fee if a credit report is not actually obtained for any reason. Also, the tenant is legally allowed to request a copy of the credit report received by the landlord or property manager. The $30 maximum fee will be subject to adjustment per the Consumer Price Index in 1998.

If you're a tenant or landlord, the authors stand ready to answer your questions in this column, although letters cannot be answered individually. Write them at: Rental Roundtable, Homes Section, San Diego Union-Tribune, P.O. Box 191, San Diego, CA, 92112. Or you may e-mail them at rgriswold@retodayradio.com

Back to 1997 Rental Roundtable Index

Robert Griswold and the Real Estate Today! radio show strongly support the intent and the letter of all federal and state fair housing laws. As a reminder to all owners and managers of real estate, note that all real estate advertised is subject to the Federal Fair Housing Act, which makes it illegal to advertise "any preference, limitation, discrimination because of race, color, national origin or ancestry, religion, sex, physical disability, or familial status, or intention to make any such preference, limitation or discrimination." Additional state and/or local fair housing laws may also apply. Be sure to inform all persons that all dwellings offered or advertised are on an equal opportunity basis.

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Revised and Updated - Wednesday, April 26, 2006

Robert S. Griswold, CRE, CPM, CCIM, PCAM, GRI, ARM
Griswold Corporate Center
Griswold Real Estate Management, Inc.
5703 Oberlin Drive, Suite 300
San Diego, CA 92121-1743
Phone: (858) 597-6100
Fax: (858) 597-6161
Email: rgriswold.ret@retodayradio.com