REDBOOK Blues – Resident Misconceptions
As our companies, our industry, and our residents slowly begin to emerge from the personal and economic impacts of the COVID pandemic, supply and demand rental-housing market fundamentals reappear. The rental housing supply did not significantly increase the past eighteen months, so multifamily owners/operators are peering into their crystal balls and trying to decide if they are "I" people or "C" people – increase rents or offer concessions.
Whether you are an I, C, or somewhere in between, we have all encountered residents that believe with all their heart that:
- There is a legal cap on the amount of rent that can be increased upon renewal.
- They have three days after signing a lease to void the contract.
- Landlords cannot require renter's insurance.
Generally, the resident is basing their claim on their super-reliable, family-friend married to a cousin of an attorney.
Following is fact-based information to help you overcome their misconceptions. As always, I am not an attorney, and if you need legal advice, be sure to call one of AATC's Legal Services Program lawyers.
Rental Increase Caps: When it comes to rental increases, there is no cap in the Lone Star state. In Texas, the free market, aided by modern software, still sets rents. Unlike New York and the Peoples' Republic of California, Texas does not have rent control except under extremely limited circumstances on natural disasters.
Unfortunately, many onsite employees are abused and bullied by residents that falsely claim rent increases are illegal. Residents argue that the pandemic has waived all landlord-tenant laws, including laws that cover contracts. They have been told that rent can only increase $50 or less but no more than 5% or only on odd Thursdays in leap years ending in twenty-one.
If you are using a revenue management software package, be sure your onsite and corporate folks understand how it works. More importantly, ensure they know how to successfully sell a rent increase resident keep renewing. Pre-pandemic, when times were good, and the DFW economy was expanding, selling a rent increase was easy. Now, it is a little more difficult.
Rent increases, concessions, specials, etc., are a function of supply and demand. Bottom line, the market dictates rent—not the resident.
Three Day Rule: Stop me if you have heard this one: "I'm giving you my keys back and moving out of the new apartment that I moved into over the weekend because it is too __________ (fill in the blank), and I was told that it had _________ (fill in the blank) and I'm returning my new pillow covers to Target because they no longer match where I'll be living."
A common misconception in our industry is that the resident has a statutory right to change his/her mind and back out of a lease or an application agreement within three days after signing.
Not so. The resident is signing a contract, not buying a pair of pants.
Texas law defines a "consumer transaction" as goods or real estate sold to a consumer in the consumer's home by a door-to-door salesman. The definition does not include residential dwelling unit leases and does not include sales contracts signed outside of the consumer's place of residence at the time of signing. Therefore, residential leases are not subject to any three-day right of rescission.
As owners/operators, we need to emphasize to our onsite employees that they do not pressure a prospect into committing to a financial arrangement that they cannot meet. Closing the sale is essential, but not at any cost. An unhappy, regretful, and resentful resident will make it know to current and future residents.
We want residents that want to live at our properties. Our assets are their homes. We desire residents who look forward to being in their homes. We do not wish to have miserable residents carrying a grudge against our staff and our company.
Your rental criteria help mitigate any potential financial risks. While a prospect's income is a mere snapshot of current ability to pay, they are previous rental history informs us if they historically met their obligations. Past performance does not equal future performance, but it does enlighten owners/operates to a prospect's integrity. They either pay their bills, or they do not. They do what they say, or they do not. Income is their ability to pay; a credit score is their willingness to pay.
Let me address a potential problem: landlord debt. Post pandemic, we anticipate that some prospects will have significant unpaid obligations to landlords. It is incumbent on us to ensure that these obligations are met before entering a new lease contract.
Bottom line: within three days, the resident can return the pillowcases to Target but not the keys to their new apartment.
Insure/Ensure/Assure: I never get those words right, but if you work in this business long enough, you will have a resident cause a fire in the kitchen that spreads to several units. You will also experience overflowing, second-floor toilets or sinks that cause water damage to first-floor units. Or once in 100-years, there will be a significant winter storm that puts DFW in the deep freeze for three days!!
This fire, flood, or freeze (new "F" words) will cause thousands of dollars worth of damage. Even worse, neither the offending resident nor the offended resident has renter's insurance. Neither one has enough personal assets to pay for the damage, even if the landlord can recover a judgment against the resident in court.
The National Fire Protection Association estimates that there are approximately 100,000 fires in multifamily buildings each year and that a resident's negligence causes 70 percent of all fires. Rain has fallen in DFW for forty days and forty nights this Spring. Fire and flood (sometimes blood) happen—the solution: requiring renter's liability insurance.
TAA's "Lease Addendum for Requirement of Renter's or Liability Insurance" is a tool that you can use to help limit your liability and manage your risk by requiring residents to purchase renter's insurance, which also includes liability coverage to cover your out-of-pocket expenses in the event of resident negligence.
While some jurisdictions in some other states, such as New York and Massachusetts, have enacted restrictions on the ability of a property owner to require renter's insurance, Texas has not done so.
- Research various renter insurance provider company premiums.
- Share this data with prospective residents.
- Do the work for the resident upfront – it will save you time and effort in the future.
John Gillespie, WAK Property Management, is the AATC Government Affairs Committee Chair.