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Do Not Let Suits and Regs Bite You

April 2018

Whether it is fair housing, applicant screening or employment law, there are many potential trouble spots that can hurt IROs.

No matter how few apartment homes an owner has, leasing housing to the public can be a risky proposition. With fair housing laws and state and local government regulation, stumbling blocks seemingly lurk at every turn.

“A lot of cities and municipalities like to blame apartments for their financial woes,” says John Ridgway. “They want to take action against the perceived evil owner. We have to educate these government entities so they understand that we are not who they think we are.”

To successfully advocate for local legislative and regulatory interests, Ridgway advises IROs to become involved in their local, state and national associations. In Houston, Ridgway has a close relationship with Andy Teas, Vice President of Public Affairs at The Houston Apartment Association.

“You need to know how a city ordinance is going to impact you as an apartment owner,” Ridgway says. “I encourage people to engage at a local level. Doing so, you will gain tremendous awareness.”

Making sure not to trip on federal housing regulations can begin with an owner’s first contact with a prospective resident.

Dan Lieberman, President of Berkeley, Calif., -based Milestone Properties and author of The Effective Owner and Mark Hurley, Owner of Highland Commercial Properties in San Antonio, say owners should be more careful about conducting criminal background checks. “Resident screening is critical, especially in this age when people can purchase fake pay stubs on the Internet and misrepresent themselves in so many ways,” Lieberman says.

Victoria Cowart, CPM, Vice President of Property Management, Darby Development, Charleston, S.C., says fair housing has become “a lot more nebulous” and that it opens both apartment companies and their employees to litigation.

“By definition, disparate impact is a violation of fair housing laws that you do not intend to violate, and in a manner you could not predict, but that simply comes true and causes complaints and lawsuits and payouts or worse,” Cowart says.

Lieberman advises that once the prospect is ready to sign, ensure the lease complies with local rules and regulations. He has seen rental owners get tripped up because they have language in a lease that requires a 60-day notice to vacate when a locality requires a 30-day warning.

“Your rental agreement is critical,” Lieberman says. “Many state and local regulations may be one sided. For example, in California, if a resident has lived in an apartment one year or longer, the owner is required to give the resident a 60-day notice. But the resident is still only required to give a 30-day notice. So, why not re-write your lease agreement to make both parties have to give a 60-day notice.”

The same strategy holds true with employee agreements. “Employment law is complex,” Lieberman says. “Sometimes [owners] are doing illegal things without even knowing it, such as the amount of rent they charge their managers,” Lieberman says. “In California, there is a maximum amount of the rent you can credit toward a site manager’s wages. If an owner violates this, they can be subject to significant penalties. Make sure your employment agreement is reviewed by a knowledgeable attorney.”

It also is necessary to keep a close tab on the number of hours worked.

“I’ve heard horror stories where the manager claims that they worked overtime,” Lieberman says. “But with no proof showing otherwise, owners have been hit with huge fines and have had to retroactively pay overtime wages covering a number of years. That is expensive.”

Tricky things can pop up. For instance, Lieberman says that if a community manager is fired but lives in a rent-control apartment, they cannot be asked to leave unless it was stated in the employment agreement that the apartment is provided solely as a condition of employment and is not a rental unit.  

“That one is really bad,” he says.

If IROs ignore legal and regulatory pitfalls, it could lead to one of the biggest challenges they face when running their businesses.

Les Shaver is Senior Manager of Content at NAA