Lawsuits are everywhere and they can happen to anyone — including you.
Rental properties are a lucrative investment but they come with the risk of litigation. Aside from making sure that your property is “rent-ready”, you should also make sure that you’re prepared to defend yourself in case you’re facing legal action.
Below, let’s take a look at eight things you can do to prevent nasty lawsuits:
#1 Keep Records of Everything
And by everything, we mean everything. As a property owner, you should keep records of rent receipts, work orders, eviction notices, and more. Proper documentation can protect you when you’re faced with legal issues. To avoid pointing fingers, you should hold on to pertinent documents that may be considered as evidence.
This includes all landlord-tenant communication including emails, text messages, call logs, and the like. Whenever you’re discussing important matters with your tenant (e.g. late rental payment fees, eviction, etc.), it’s best to stick to written modes of communication.
#2 Understand Data Privacy Laws
Although the US doesn’t have federal-level data privacy laws unlike the UK’s General Data Protection Regulation (GDPR), the US does have state-level statutes such as the Californian Consumer Privacy Act (CCPA) and the Hawaii Consumer Privacy Protection Act (SB 418). These laws provide consumers with greater control over their personal data, such as their names, addresses, phone numbers, and more.
The state of Florida does not yet have laws governing data privacy, but there have been talks about introducing a law that is similar to the CCPA.
Data privacy laws apply to all landlords and property managers that collect personal information from their tenants. This includes the information found in the rental application.
#3 Require Renters Insurance
A property owner’s typical landlord insurance won’t cover the costs of replacing the tenant’s belongings in the event that they get destroyed or stolen. It also won’t cover the tenant’s medical expenses should they get injured on the property.
To protect yourself from lawsuits, consider requiring your renters to obtain renters insurance. Not only does it protect your tenant’s personal property, but it also guards you in the event that your tenant decides to sue.
Keep in mind that including this clause in the rental agreement may be prohibited in certain states. Be sure to check with your property manager to ensure that your requirements are within the law.
#4 Don’t Enter the Unit Without Notice
You may own the rental property, but the moment that it is rented out, you lose the ability to walk inside the home whenever you want. Tenants have the right to utilize their rented space without the interference of their landlord. This is called the right to the “quiet enjoyment” of their home. As a general rule, you may enter the property only when the tenant has given you permission.
There are, however, exceptions to the rule. You may enter the rental unit without notifying your tenant when:
- There is an emergency (e.g. gas leak, fire, flood)
- The is reasonable cause to believe that the tenant has abandoned the property
- The tenant has been absent from the property for an “extended absence”
#5 Require a Security Deposit
A security deposit is a fee that a tenant has to pay on top of the first month’s rent. It is a refundable amount that the tenant can get back when they move out. Its purpose is to protect you, the landlord, in the event that the tenant damages the property or fails to satisfy their financial obligations (e.g. rent payments and utilities).
The law does not require landlords to collect a security deposit from their tenants, however, it would be in your best interest to do so. If you decide to require a security deposit, keep in mind that some states have set a cap on the maximum amount that you can collect.
Florida does not have landlord-tenant laws governing security deposits, hence, you have complete discretion over the amount that you will charge. Just make sure that it’s a reasonable amount, otherwise, your tenants may change their minds about renting the place.
#6 Keep Your Security Deposit in a Separate Account
Landlord-tenant laws vary by state when it comes to where the security deposit should be stored. Generally, you shouldn’t store your tenant’s security deposit in your personal bank account since it yields interest.
In Florida, you should keep your tenant’s security deposit as a surety bond, in a dedicated bank account, or a non-interest-yielding bank account. It’s worth mentioning that security deposits stored in an interest-yielding bank account must be returned to the tenant along with the accrued interest.
#7 Follow the Fair Housing Act
As a landlord, you should know the Fair Housing Act (FHA) by heart. The FHA protects “protected classes” by prohibiting discriminatory acts in housing, such as:
- Refusing to rent the property due to race, religion, national origin, etc.
- Having preferences regarding the type of tenant/s (e.g. “whites only” and “families only”)
- Failing to provide the same services, amenities, etc. to tenants of protected classes
If a prospective tenant sues you for discrimination and if the Department of Housing and Urban Development (HUD) investigates the claim, you may want to consult an attorney. The penalty for first-time offenders can be as high as $16,000 excluding attorney’s fees, damages, etc.
#8 File Your Taxes Accurately
Filing your taxes is a skill you need to master if you’re planning on becoming a landlord. If you intentionally submit a false report of your annual income or claim unfounded tax deductions, you may soon be getting a visit from the Internal Revenue Service (IRS).
However, if you made an innocent mistake, you should file an amended tax return as soon as possible. You shouldn’t let the period for filing lapse.
Remember, if you purposely attempted to evade your taxes, you may face a maximum fine of $100,000. It’s best to hire a property management company that has its own team of attorneys and accountants to ensure that you don’t violate the law.
The Bottom Line
It’s a lot to take in, we know. Managing a rental property is serious business, especially when it comes to the landlord’s legal obligations.
If you’re self-managing your property, staying up-to-date with state and federal landlord-tenant laws can be a hassle. That’s why Luxury Property Care offers to understand the law for you. Aside from assigning you to a dedicated property manager, you will get to benefit from our team of in-house attorneys. Together, they will make sure that every activity done on your property obeys the law, and that you are protected in the event of tenant-related disputes.