Even leasing professionals make mistakes. From the California Association of REALTORS® Broker Insights Newsletter – August 2023, there are quite a few common mistakes out there that warranted an advisory. Make sure you, or your REALTOR®, are compliant, especially when it comes to leasing in tenant-friendly California….
COMMON MISTAKES THAT LEASE LISTING AGENTS MAKE
Leasing out property is trickier than it seems. There are a host of complications, both legal and practical, that simply do not arise in sales. Here is a list of six persistent mistakes that lease listing agents make.
1. Not checking with their broker to see if the brokerage permits agents to do lease listings. Leasing is licensed activity. So is property management. That means that these activities can only be conducted through the brokerage to which the agent is licensed. And many brokerages do not permit them. Agents should always check with the broker first before signing a lease listing.
2. When preparing the lease, not filling out the exemption notice (C.A.R. form Rent Cap and Just Cause Addendum, RCJC). California has a statewide rent control and just cause eviction law, called the Tenant Protection Act. Under this law, SFPs, condos and townhomes that are owned by individuals may be exempt, but they are not automatically exempt. The notice exempting them must be attached to the lease and the box for SFPs must be checked. Only then is a SFP, condo or townhome exempt. Although the standard C.A.R. lease will automatically attach the RCJC form, it will not fill it out. Specifically, if the property is a single-family property, condo or townhome, then the agent must remember to check the box indicating the exemption for SFPs.
3. Not taking the move-in inspection seriously. The move-in inspection is an important part of the leasing process. Its main purpose is to document the property’s original condition at the time the tenants move in. If not done properly, the owner will not be able to establish how the condition of the property has changed by the end of the lease when the move-out inspection is conducted. Together, the two inspections — the move-in and the move-out inspections — determine what damages the landlord can charge for and what must be written off as normal wear and tear. See C.A.R. Forms “Move In Inspection” (MII) and “Move Out Inspection” (MOI).
4. Not setting reasonable, non-discriminatory, eligibility standards. The application and selection process must be non-discriminatory. The first step to achieving this is to establish minimum criteria which the applicants must meet. The criteria may include credit standards, verifiable income, income-to-rent ratios, eviction history and rental history. After having established the eligibility criteria, a conservative risk management approach is to work with the first tenant who has provided a fully completed application that meets the criteria. Remember to always keep your screening process as consistent as possible. Inconsistent procedures can result in discrimination claims.
5. Ignoring the mandatory Section 8 rules. A tenant cannot be refused on the basis that they are applying with a Section 8 voucher. That’s “source of income” discrimination.
Do’s and Don’ts regarding mandatory Section 8:
DON’T — Do not advertise that Section 8 tenants are not accepted or any restriction on this basis.
DO — A landlord can check the credit of a tenant, including a Section 8 tenant. They can even apply a rent to income ratio. However, the ratio can only be applied to that portion of the rent for which the tenant is responsible; not the total rent that the landlord charges (because a government agency will be paying the difference).
DO — The landlord can set their own rent. They may even set rent at a higher amount than the local housing authority’s rent standard.
DON’T — However, that higher amount may not be a basis for an automatic denial of a Section 8 tenant applicant. The landlord must engage in reasonable efforts to determine whether the applicant may still qualify under special circumstances that the local housing authority may set.
DON’T — The owner or agent cannot deny a Section 8 tenant on the basis of perceived delays in the process. At the very least they must make the effort to work through the approval process. We have reports that it can take many weeks to get a Section 8 tenant approved. A tenant cannot be refused because of this delay as long as the hold time is similar to what is made available to any other tenant who may request a delay in moving in.
DO — The landlord may charge a normal security deposit.
Remember this a fair housing law which is enforced, perhaps even aggressively, by the Civil Rights Department (formerly called the Department of Fair Employment and Housing). Read here the FAQ put out by the Civil Rights Department on landlords and source of income discrimination.
#6. Not being familiar with the notice requirements of a local rent control or just cause ordinance. Some cities have their own local notice requirements. An agent is not a lawyer and is not required to research the local ordinance. But it’s not unreasonable to expect a leasing agent to have some awareness of the requirement, so that they may at the very least, advise the owner to speak with an attorney about the need to comply with local disclosure or notice laws.
Just as an example, let’s take the city of San Diego, which has a just cause eviction law.
When a lease is signed in the city of San Diego for a SFP or condo, then San Diego has its own special exemption notice. This notice is similar to the state exemption in many ways. But it is in fact a different notice and must be provided to the tenant. For tenancies beginning 2024, the notice must be provided “in the lease.” But that’s not all. San Diego also has a special tenant disclosure that advises tenants of their right to operate a daycare facility in their unit which also must be included in the lease. It’s not clear whether the notice must be incorporated into existing leases. C.A.R. does not provide a standard form for these types of local disclosures and the notice may have to be drafted by an attorney. This is where the agent comes in. An agent with a lease listing in San Diego should have sufficient familiarity with the local requirements to advise the owner on the need to hire an attorney to investigate and possibly draft a notice that complies with the local law.
Sources: Broker Insights Newsletter – August 2023
– Devin Lucas
Author Devin R. Lucas is a Real Estate Attorney, Broker and REALTOR®, specializing in Newport Beach, Costa Mesa and Orange County coastal communities, serving individual and investors in residential real estate, including leasing and select local property management.
Lucas Real Estate – Attorney Devin Lucas and CPA Courtney Lucas – are experts in California landlord-tenant laws.
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