Wednesday, January 4, 2017

When the rental situation at your investment property is going through potential changes

Call:  301.943.4370

As the saying goes, the only constant in life is change.  Changes can be expected as well as surprises.  Whenever a possible change is about to come up, whether it is business or personal,  we must we the positives and negatives,  flesh out the implications and make sure these changes can be smoothly and legally implemented before going forward (or not going forward with the change).

Recently an investor who owns a rental property and discovered that there was a change in tenancy.   The rent check came in the mail and when the investor looked at the envelope, he saw an address label with the tenant's name and a second person's name with the property's address.   He opened the envelope and the rent check had both the tenant and this second person's name on it.  Sometimes the check comes in with a second person's name,  because the tenant and the tenant's parents have  a shared account.  This name wasn't familiar but the investor remembered that the tenant was dating someone.

So the next logical step was to ask the tenant if he now has a roommate because a second name was on the address label and on the rent check.
The answer was confirmed. They decided to move in , left for the holidays and forgot to tell me.  To say it was an unexpected change would be an understatement.
There are several things for the landlord/investor to consider:
1.  Does the lease between the landlord and renter allow a sublease,  adding to a lease and if so, what are the procedures for approval.
Legally speaking, the tenant didn't ask up front  permission  (even if we'll intended).
2.  Legally, with an additional tenant in the property, is the landlord's property in compliance with the jurisdiction's department of housing occupancy standards and regulations.
3.  If the property is in part of an association,  what rules and procedures need to be followed when someone moves in to the property....yes there can be community association rules and regulations,  fees for changes in tenancy. 

Assuming that the answers to 2 and 3 are yes and it is manageable from the investor's standpoint,  there are additional considerations:

4.  Has the tenant been responsible in paying rent on time, taking good care of the condo and is a fair and reasonable person who you get along with or if you have a property manager,  the property manager has had easy and pleasant dealings with.
5.  How will this impact utility bills?  Well, if that is a tenant responsibility, then is it really an issue?
6.   In relation to 5, how much additional wear and tear will be put on the property, appliances and is it worth it?
7.  Does the additional tenant smoke or have pets?  This is important particularly if you don't want smokers and/or you don't want pets/additional pets if the first tenant has pets.  In addition if in an association are there smoking and pet restrictions?
So these are several issues that a landlord has to consider and there are probably additional considerations.   If the landlord is OK with a second tenant moving in, then he and the tenant have to come to an agreement on any changes to the rental terms,  the tenant should agree to pay the association any fees associated with a new tenant and the new tenant has to agree to comply with all the terms of the lease and community rules.

If you add a tenant to a lease make sure to put all the terms and conditions into an addendum to the lease,  make the association...if you live in an association aware of the situation and give them a copy of the addendum. 
Mostly,  if you encounter this kind of situation,  bring in a real estate attorney to work things through if you don't have a professional property management company who deals with this as part of their job.  I am just giving you things to consider. 
Amazing how this situation came about because the landlord is old school and gets rent checks in the mail rather than getting paid via PayPal or the tenant directly placing/transferring money into the landlord's bank account.
Any time you or someone you know is looking to make a move, has a real estate question or just wants to know about the current real estate market, call or email me.  I always have time for and am grateful for your referrals.

Life is good!

Licensed in MD & DC
RE/MAX Realty Group 
Cell:  301.943.4370
Office:  301.921.4500-ask for Adam 
Information deemed to be accurate but not guaranteed.