Minimize Your Risk When Operating Your Building
If you invest in Los Angeles real estate there are rewards. However, there are also risks. Here’s some advice on how to minimize them
Pick the right tenants
Thoroughly vetting potential tenants will minimize problems. Besides credit history and verifying income you want to also check for evictions or lawsuits filed by the potential renter. Always write leases on proper lease agreements. Always require tenants to have renter’s insurance on your lease. Make sure you use proper disclosure documents like the lead based paint disclosures. Be very clear on your house rules and have them sign and agree to abide by them. Trust your gut if something does not add up. If you take these common sense rules your chances of getting a bad tenant diminishes and so does your risk.
Avoid mold and asbestos issues
Over the last few years a worrying trend has emerged, tenants who claim “health issues” due to mold and/or asbestos in their units. Of course, plaintiff’s lawyers are at the ready, suing apartment owners for damages. Tenants are looking for compensation and they often expect the owner to clean their clothing and furniture. I have had several clients who have gone through this and it usually turns in to quite an expensive mess.
Let your tenants know upfront in their lease that they are to immediately notify you or the manager of any repairs issues or if they notice any type of leaking or water intrusions. You or the manager should be inspecting your units every 90 days or so to check for leaks, visual evidence of mold, water damage, drainage problems and other issues that can affect the unit. Check under sinks, around toilets, in showers and tubs, around water heaters, and in laundry areas. Visually check the ceilings of the units to make sure there are no roof leaks or leaks from the unit above. Also look around the exterior of your building and see if there are any wet areas around the building from sprinklers. If your sprinkler is getting water on your building every time it waters than you will have a mold problem
Regular inspections are good because it keeps your tenants on their toes and lets them know that the owner of the building is diligent and informed about what’s going on with their building.
What to do if you get a SCEP inspection notice
If you own rental units in the City of Los Angeles, you are probably familiar with the cumbersome inspection process called the Systematic Code Enforcement Program (SCEP).
The ostensible purpose if this program is to ensure that tenants who reside in rental units in have “safe, livable space, that meets requirements set forth in the California Health and Safety Code”.
Under this program, the Housing Community Investment Department inspects the interior and exterior of rental properties approximately every 4 years to ensure compliance with state and local health and safety codes.
The city is looking for “substandard” conditions. Common things they look for are peeling paint, water damage, broken locks, worn out cabinets, ripped carpeting, cracked tiles, lack of smoke and carbon monoxide detectors, lack of security lighting, broken doors, exposed or unsafe electrical wiring, and any other structural defects that the inspector notices. They also check for things like unpermitted structures, any unapproved use, garage conversions, unpermitted bathrooms, apartments that have been divided up, and lack of a proper heating system in a unit.
Inspectors almost always find something wrong. Tenants are also often happy to point out any deficiencies in their unit to the inspector. Once the inspection is complete the inspector will itemize needed corrections and mail you a laundry list of required repairs along with a re-inspection date where they come back out to verify the repairs are complete. And don’t forget, the owner has to pull and pay for permits for any repairs that require them (like electrical) so that adds to your cost and hassle.
Fortunately, many owners and even tenants are fighting back against what they believe is an unconstitutional law. On February 22, 2017, a class action lawsuit was filed against the city. There are class representatives for landlords and tenants who have had to endure these unconstitutional inspections or searches, which violate their Fourth Amendment rights, and have had to literally fund the violation of their rights by paying the SCEP fees. This has resulted in the City being unjustly enriched to the tune of hundreds of millions of dollars over the course of the program, which was enacted in the early 2000’s.
Because of the lawsuit the city amended it municipal code and now L.A. Landlords now can legally and lawfully refuse entry to the city inspectors. First write a letter fusing the inspection and send it to the inspector. Next, write the same letter for each of your tenants and have them sign it and also send that to the inspector.
Here is some suggested language that you might wish to incorporate in your refusal letter to the city.
Dear Inspector (name):
I have received your letter requesting entry in to my property at 123 xxxxx Ave for a systematic code enforcement program inspection. However, due to Ordinance 185644, which amended the existing code, I am asserting my right to refuse entry to the property. Thank you very much.
Now keep in mind that the city can go to an administrative judge and obtain a warrant to search your property. However, the ten or fifteen landlords I spoke to who refused inspections all said that the city did not get a warrant and come back to do their inspection. However, some landlords reported to me that the city did try to reschedule an inspection for another date and sent another notice to inspect. Some of the inspectors walked around the property and simply did an exterior inspection. Most of the inspectors were pretty nice. Some were a bit belligerent. Some were clueless of the changes in the muni code and had no idea about it.
I am staying in touch with all of the landlords that I spoke with. I am continually getting updates from the ones that are going through the refusal process. If you are a landlord and you have some good intel for me that others might think is important, please email or call me. I want to share the info with other landlords and if we band together (I’m am also an L.A landlord) we can help educate other landlords that we know that we can legally refuse these unconstitutional intrusive Systematic Code Enforcement inspections. The city is on a rampage and is getting very nasty with a lot of landlords, especially about unpermitted issues that were previously overlooked for years by the city. It’s time to put an end to these unconstitutional inspections. And the best way to do that is to refuse entry to your buildings.
Never let city inspectors into your Los Angeles apartment building.
How to get out of REAP
REAP stand for Rent Escrow Account Program. This program was used to initially punish landlords who ran a slum operation but now it is ensnaring regular folks who might have had some repairs issues. If you are cited for repairs as the result of a SCEP inspection and you do not do the repairs the inspector will refer your case to the REAP department where your tenants will get a reduction in their rent and part of the rent will go to an escrow account. You do NOT ever want to be in this situation. Make sure that you get the repairs done, pull and necessary permits, use a licensed contractor to do the repairs and do everything in a timely manor. If you find yourself in REAP feel free to call me and I will look over your case. I have helped several clients get out of REAP and I may be able to help you as well.
Most if not all landlord insurance policies will cover you for burst pipes or other sudden leaks. They will also defend you against lawsuits brought by a tenant. Mold or asbestos issues are not generally always covered. Please discuss and understand what your policy does and does not cover. Another great bit of advice from my insurance agent is to insist that every tenant you lease to must obtain renter’s insurance.
How to avoid tenant/legal issues
Rent control is tricky. The city is not on the landlord’s side. More voters are tenants than landlords. This is a liberal city so yeah the city favors the tenants. LA tenants are smart. They read the LAHD rent control website top to bottom and know exactly what their rights are. Tenants talk and they hear stories about what landlords can or cannot do. A lot of them know attorneys and are quite vocal in standing up for themselves. A lot of problems with the housing department start because a tenant files a complaint against the building owner.
Make sure you follow the letter of the law in regards to rent control. Know your rights and responsibilities as a housing provider. Document everything. Save text messages, emails, and correspondence from tenants. Use up to date forms for everything. Take care of repair problems promptly. Be proactive and responsive to your tenants.
Find the right eviction/landlord attorney
I work with attorneys all the time. Make sure the attorney you hire only represents landlords. Do not hire one that represents both tenants. There are many excellent eviction attorneys in Los Angeles that only represent landlords. If you think you have an eviction case in your hands the best thing is to contact a landlord attorney ASAP and turn everything over to him or her. If a tenant sues you, usually the first thing to do is to contact your insurance agent, as your insurance company will usually defend you with their in house counsel.
Are things getting out of control? Is it getting harder and harder to stay on top of management issues? Do you have a lot maintenance and repair issues that your tenants are complaining about? You might consider a professional property management company. If you get a good one they can take quite a burden off your shoulders. You don’t have to go it alone.
Unpermitted units or additions
If you have unpermitted additions, or unpermitted units, or garage conversions you may be in a vulnerable situation. The city inspects units every two to three years and if they find illegal or unpermitted additions they will make you correct those violations. Converted garage units and large units that are split to make two units are even worse. Not only will the city make you shut down the units, they may make you refund the entire amount of rent that you collected from the tenants in your illegal units. Make sure that you are aware of the status of your building. Order permits and certificates of occupancy and keep them in your records. If you have any questions or you think you may have some problems, feel free to reach out to me and I’ll give you my thoughts on how to deal with these issues. However as I stated before never let the city in to inspect your buildings.
The bottom line in staying out of trouble
Carefully screen tenants with deep background checks. Make sure you are fair but firm with enforcing the rules. Make every new tenant get renter’s insurance. Use up to date lease agreements. Find a great eviction attorney, you will need one at some point. Consider professional management. Don’t let things slide. Keep things all business with your tenants.
Periodically inspect both interior and exterior of your buildings every 90 days. Be diligent in fixing any repairs issues immediately. Be especially cognizant of plumbing or water intrusion issues. Make sure your bathrooms have adequate ventilation to prevent mold buildup in tubs and showers. Fix safety issues on your property like busted locks or exterior lighting that is not working properly. Consider hiring a management company.
Stay in compliance with rent control and the housing department. Make sure you register your buildings every year. Be familiar with the LA Housing Department and their website. Post appropriate notifications where required. Join organizations like Apartment Owners Association of Greater Los Angeles or the Apartment Owners Association and stay up to date on issues that affect landlords.
If you have unpermitted additions hire a specialist who know how to bring things into compliance. Lots of times things can get permitted if they are up to code and fall in the property guidelines. You’ll need to submit drawings and hire a contractor and pull permits, but it would be worth it. If they can’t be permitted you may have to tear down or remove them or for some perhaps you will have to stop renting your garage. There are many consultants that can help you with these problems. Ask me if you need a referral.
Do you have any issues with the city? Are you in REAP? Do you have a SCEP inspection coming up and need some help. Give me a call at (310) 308-3174 or email me at [email protected]. I’m pretty sure I will be able to help you. Thank you.