As a rental property owner, the most obvious risk you have to face is failing to get a return on your investment. You’re aware of potential problems when you do things wrong, but are you fully comprehending the consequences of legal mistakes?
A small resident screening error or a misstep in the eviction process can land you in hot water, so you must know your legal duties as a landlord. Here are the most common legal risks you can face, along with proactive ways to prevent them.
Key Highlights:
- Fair housing compliance is non-negotiable: Apply consistent resident screening criteria to avoid discrimination claims and ensure legal protection.
- Habitability standards must always be met: Regular inspections and prompt maintenance help prevent violations, resident complaints, and costly repairs.
- Proper handling of security deposits is critical: Store deposits correctly, document deductions, and return them on time to avoid disputes and penalties.
- Avoid retaliatory actions at all costs: Always follow legal procedures and lease terms when addressing resident issues, rather than taking unlawful shortcuts.
- Stay compliant with building codes: Understanding and adhering to local safety and structural regulations helps prevent fines, lawsuits, and liability risks.
1. Discrimination Claims
The Fair Housing Act was passed to protect both residents and applicants from discriminatory acts based on protected classes, such as race, color, religion, sex, national origin, familial status, or disability. Violating this can result in criminal proceedings, which carry greater consequences than fines or vacancies.
Solution:
During the resident screening process, treat all your applicants equally. Establish a systematic approach to screening residents, and apply your criteria to all applicants. Use factors that are crucial to ensuring that they can pay rent and follow your lease rules, such as credit scores, employment verification, rental history, and income verification. When you consider criminal history, you can reject applicants only if the conviction puts your rental property or residents at risk.
2. Violation of Habitability Standards
Tennessee has a comprehensive list of standards that landlords must meet to consider a home habitable. It mentions codes and regulations that must be met, even in overlooked areas of the rental property, like places with standing water. If repairs are not made to remedy any violations after 14 days’ written notice, residents can contact a local code enforcement office, withhold rent, or terminate the lease.
Solution:
Conduct regular inspections to find issues early and fix them before they get worse. This can help you prevent resident harm and costly repairs, as well as preserve your property value. It is also advisable to provide a platform where residents can submit maintenance requests and ensure that you respond to them promptly, especially in emergency repair situations, to avoid further damage.
3. Security Deposit Disputes
Security deposits are essential to protect your investment property from resident-caused damage, and in turn, you are responsible for handling, storing, and returning them within the required timeframe. Failing to do so can prompt the resident to file a lawsuit, and you will be charged with legal penalties.
Solution:
Although Tennessee has no laws limiting the security deposit amount, landlords are still required to place security deposits in a separate and federally insured bank account located within the state. If you must make deductions to cover repairs or other costs, be sure to provide an itemized statement of all the charges. The security deposit or what remains must be returned to the resident within 30 days after they terminate the lease.
4. Retaliation Against Residents
There is always an appropriate action for lease violations and resident complaints. For consistently paying rent late, for instance, you can impose late fees and warn them that repeated late payments can lead to eviction. Punishing them for voicing complaints by shutting off utilities, raising rent, or changing the locks can be considered retaliation, and residents can file a lawsuit against you for doing so.
Solution:
Refer to your lease agreement or rental laws to determine the appropriate action. Eviction, for example, can only be done when residents breach their contract by paying rent late or causing severe property damage. Even then, you have to follow the proper procedure, such as providing a written notice and going through the legal process. When a resident complains about something related to your rental property or lease, you can either fix the issue or have a polite discussion with your resident. When that doesn’t work, you can hire a mediator to come to an agreeable solution.
5. Non-Compliance with Local Building Codes
In many cases, landlords are not even aware that they are already violating state and local building codes. Regardless, it is no excuse. Failing to meet safety standards for your rental business, such as fire safety or structural integrity, can lead to heavy fines, lawsuits, and forced repairs. Keep in mind that building code standards can vary from state to state or city to city.
Solutions:
Research the state and local building codes to ensure that you are following all of them. If not, you can consult professionals like contractors or property managers. Once you’ve ensured that your rental property is up to code, you are still obligated to conduct regular inspections to keep it that way.
Rental Property Legal Risks FAQs
What happens if a landlord fails to maintain habitability standards?
- Residents may have the right to withhold rent, terminate the lease, or report the issue to local authorities. In some cases, landlords may also face fines or legal action.
How should landlords properly handle security deposits?
- Security deposits should be stored in a separate account, and any deductions must be clearly itemized. The remaining balance must be returned within the required timeframe to avoid disputes.
What is considered illegal retaliation against a resident?
- Actions like shutting off utilities, changing locks, or threatening eviction in response to resident complaints can be considered retaliation and may result in legal consequences.
What should landlords do if a legal issue arises?
- Stay calm, review the lease agreement, document everything, and follow legal procedures. When in doubt, consult a legal professional or property manager to handle the situation properly.
Why Hiring a Property Manager Makes All the Difference
Real estate investors hire property managers mainly to delegate the work, since property management can be a full-time job. What they sometimes miss are the things that keep their rental business out of trouble, like lawsuits.
Companies like Keystone Realty & Management aren’t just knowledgeable about existing laws, they also stay up-to-date on new and updated laws to keep your rental business legally compliant. This practice also ensures that your residents feel safe and respected, improving resident satisfaction and retention.
Contact us, and we can outline the benefits of our property management services!
