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Landlord/Tenant

Medical Marijuana in Property Management

Background

As a Schedule I controlled substance under the Controlled Substances Act, marijuana is illegal at the federal level for any use. However, 23 states and the District of Columbia have passed their own legislation authorizing the use of medical marijuana to varying degrees. This conflict between federal and state laws creates a complicated situation for property managers.

Per a 2011 memo, HUD has directed public housing agencies or owners to deny admission of applicants who are using medical marijuana.

Position

It is critical for property managers to stay up to date on the legality of the cultivation, use, and sale of marijuana in their jurisdiction. The legality and regulation of medical marijuana varies not only by state, but also by local municipality. Property managers should check with local municipal officials to ensure they are up to date on medical marijuana regulations. There are tools available to property managers enabling them to deal with marijuana as they see fit, such as lease addendums, with which smoking and illegal drug use can be prohibited. Please refer to our Statement of Policy on Combating Drugs in Real Estate, Smoking in the Workplace and Residential Smoking, and our white paper on Marijuana Legalization Laws.

(Confirmed 10/14)

Military Lease Clauses

Background

In response to situations that have arisen due to U.S. troops committed to war, legislation has been enacted which essentially amends the Soldiers and Sailors Relief Act of 1940. The Servicemembers Civil Relief Act of 2003 (SCRA) allows military personnel to break a lease if they are transferred for 90 days or more. It would apply only in cases where deployment was unexpected, as it was with recent military actions. The legislation would apply to both reserve and enlisted military families. Due to the recent increase in deployment, the Act has also been extended to include those serving in the National Guard and their families.

The protections afforded by the SCRA only apply if the cost of rent is below a certain amount. The cost limit was set at $2,400 per month in 2003, but is adjusted each year to match the Consumer Price Index housing component that is published by the Bureau of Labor Statistics of the Department of Labor.

If a landlord files an eviction, the court may stay the proceedings for 90 days. The judge may lengthen or shorten this time period as they see fit. The judge may also adjust the obligations of lease in an attempt to preserve all parties’ interests. If a stay is granted, the court may grant the landlord relief.

Position

It is with great respect to our servicemen and their families that IREM endorses special treatment of military families called to active duty. IREM members understand the emotional and financial hardship that can befall military families during times of war and military crisis. To allow real estate managers to do their utmost to ease these hardships, we would like to endorse fair and equitable handling of early lease termination for activated military personnel.

We feel that in times of war and unexpected deployment of U.S. military forces for national defense, a thirty day minimum written notice to vacate is a privilege that should be offered to military personnel. Legislation mandating this privilege should specifically state that this minimum notice can only be invoked by military personnel who are called to serve or are transferred in times of war or unexpected military deployment and who then present the landlord with military documents so ordering the assignment or transfer.

This privilege should only be exercised when the military personnel activated or transferred has met all the terms, covenants and conditions of his or her lease and is current on his or her payment of rent and other monies due the landlord. Under these circumstances, activated military personnel should be released from all further liability to the landlord.

We also believe that this privilege should be fully extended to individuals serving in the reserve branches of the armed forces who are called to serve during times of war. However, we do not feel that a mere offer of local on-base military housing is an adequate cause for the early release from a rental agreement.

IREM understands that the need for this legislation has emerged from widespread transfer, activation and reassignment of military personnel resulting from unexpected deployment of military forces.

While IREM endorses this legislation, the Institute encourages its members, even in the absence of a legislative mandate, to include special termination clauses for unexpected transfer or reassignment of military personnel which respect the military individual's circumstance in a manner that does not jeopardize a property's viability. By doing so, real estate managers can avoid detrimental effects of legislative mandates and unfavorable public relations.

(2/91, updated 4/06, 10/10, 3/16)

Multifamily Housing Ownership

Position

Private ownership of real property is the foundation of our nation's free enterprise system. Every citizen has the inherent right to own property. Each citizen's right to share in the privilege of property ownership must have a preferred place in our system, publicly recognized by federal, state and local governments.

Condominium and cooperative forms of ownership are legitimate shelter resources providing important, economically attractive options for consumers. To further the goal of making this affordable form of homeownership more available, there is a need for the government agencies involved with condominium and cooperative financing to continue to streamline and update their policies.

We oppose all unreasonably restrictive requirements and moratoria regarding the conversion of rental housing units into condominium and cooperative forms of homeownership and believe that the regulation of the condominium/cooperative form of ownership should be formulated at the state level where needs can best be determined and met.

(Adopted: 6/86. Updated: 4/05, 10/09, 9/12, 9/14, 10/17)

Occupancy Policies

(NOTE: This position is to be accompanied by the IREM recommendation entitled, "Establishing Fair and Reasonable Occupancy Standards". See Appendix II.)

Background

Occupancy standards, which determine the maximum number of occupants that can reside in a dwelling, have always been a matter of some contention among owners and operators of residential rental property. However, with the passage of the Fair Housing Amendments Act of 1988, occupancy standards, or more specifically the lack of them, have been a serious cause of concern for property managers. Although the Fair Housing Amendments Act did not set specific occupancy standards, it did require that any standard be fair and reasonable. In 1996 Congress enacted a law stating that a 2 person per bedroom occupancy standard was acceptable in most conditions. Even this law has its own grey areas as unusually large or small rooms can have higher or lower standards. Also, fair housing experts disagree among themselves as whether or not infants count towards the occupancy of a unit.

IREM has undertaken a study of occupancy standards which has led to the development of a guideline recommendation. The guidelines are meant to provide guidance tempered with flexibility and are designed to provide clarity to the Fair Housing Amendments Act provisions pertaining to occupancy standards and to reduce litigation resulting from the current lack of clarity. The results can be found in the Appendix II.

Position

IREM shall adopt the guidelines and objectives outlined in the recommendation entitled, "Establishing Fair and Reasonable Occupancy Guidelines" and shall further recommend that IREM chapters and the real estate community in general consider the guidelines and, where appropriate and necessary, pursue their endorsement and acceptance by state and local legislative bodies.

(Updated 10/07, 10/11, 04/16)

Pets in Conventional Housing

Background

The right of conventional and non-elderly subsidized housing owners or managers to elect whether or not to accept pets and set the terms for acceptance has been an issue to IREM and its members for decades. Federal law, as it applies to federally assisted elderly housing, was enacted in the late 1970's. This statute mandates the acceptance of pets under certain conditions.

Recently, some advocacy groups have focused on attempting to encourage owners to accept pets on all types of rental properties. Some municipalities have passed ordinances requiring that landlords cannot enforce no-pet policies for other types of rental housing, not just federally assisted.

It should be noted that, under the Federal Fair Housing Act, service animals for disabled individuals are not considered pets, and as such, “No Pet” policies do not apply, and pet fees cannot be charged.

Position

IREM believes that rental property owners and managers should retain their right to determine pet policies for each rental property on a property specific basis and that these policies should not be mandated by municipalities or other governmental bodies. Legitimate reasons exist for private property owners to choose to not have pets on their properties. The safety of residents and the quiet enjoyment of their home may be materially jeopardized by the presence of pets under a variety of scenarios. First, common household pets increase the normal and customary wear and tear on a rental unit. Second, apartment residents do not always control their pets and properly dispose of animal waste. Even carefully controlled and well-behaved pets increase the maintenance costs of a unit, often through harm to the walls and floor covering/floors, and increased incidence of fleas and other pests, both during habitation by a resident and after the resident has moved. Furthermore, many people have pet-related health issues such as allergies and cannot live in an environment that allows pets. Owners and managers of rental properties have to be able to provide people with pet-related health issues a safe, pet-free environment in which to live.

Finally, there are liability and property rights issues to consider. The presence of pets in rental housing can result in increased tort risks to the owner and manager. Primary are the costs of liability incurred by an owner or manager because of the possibility of injury to a resident or visitor to the property by a pet. Tenants, guests. and others have sought damages from the owners and managers whom they allege know, or should have known, of a pet's vicious tendencies. In addition, injury to a pet may need to be covered by the owner or manager's insurance as well.

IREM acknowledges the positive impact pets can have on an individual's life, However, IREM also understands that not all individuals choose to have pets or live in rental properties that allow pets. IREM strongly believes in the legal right of the property owners to determine whether or not to allow pets into a multiple unit rental property. Because of this, IREM opposes any legislation that requires owners or managers of rental property to allow pets in their units.

(1/00, confirmed 4/08, 10/11, 9/14)

Reporting of Security Deposit Interest

Background

Many states and localities are required by law to pay interest of security deposits held on behalf of a tenant. When interest earned is over ten (10) dollars, the real estate company is required to distribute a 1099 form. According to the Internal Revenue Service (IRS), a copy of the 1099 form must be sent to the tenant no later than January 31 and to the IRS no later than February 28 of the following year. Obviously, this is a very burdensome and costly activity, even for the Internal Revenue Service who collects the tax.

Given the high administrative and computer costs associated with generating these forms and with obtaining and verifying the social security numbers, it would seem that the cost to the federal government and private enterprise greatly outweigh the revenue obtained by taxing such small interest amounts. Additionally, this policy seems discriminatory in light of the fact that a 1099 form provided for services is required only when the amount exceeds $600.

Position

The Institute believes that the ten (10) dollar limit for reporting interest on security deposits with a 1099 form is unnecessarily burdensome and is discriminatory to real estate businesses. The Institute strongly recommends to Congress and the IRS that the minimum limit for reporting interest on security deposits be raised to $150 dollars.

(Adopted: 6/91. Updated: 11/05, 4/10, 10/16)

Section 8 Tenant Protection in Property Foreclosure

Background

As home foreclosures continue to grow, tenants are being evicted from their rental homes, often with no advance notice of the action. Under current law, a Housing Choice voucher tenant does not lose their subsidy as a result of foreclosure, but currently may have to find a new place to live.

Legislation has been introduced to require that the "immediate successor in interest" of a foreclosed property be subject to the pre-existing lease and Housing Assistance Payment (HAP) contracts for Housing Choice voucher tenants. This would apply to tenants in conventionally financed properties who received Housing Choice vouchers (not project-based assistance). Through changes in the language to the HAP contract, the legislation attempts to subject a new owner, who is the “immediate successor in interest,” to the existing HAP contract that was agreed to by the previous owner.

Position

IREM supports requirements that banks and lending institutions be required to notify tenants of a pending foreclosure on the property. IREM would support that Housing Choice voucher tenants, if all rents are paid and current, and are in compliance within all other requirements of the lease; could remain in the property through the end of the lease, assuming the subsequent owner does NOT intend to use the property as a principal residence. IREM would oppose a requirement that subsequent owners of rental property be subject to a HAP contract (and the requirements attendant to that contract) without disclosure of such a contract prior to sale of the property to a subsequent owner.

(Adopted 7/09, updated 1/14)

Security Deposits

Background

Most states codify the issue of whether interest on security deposits held by landlords in residential (and/or commercial) lease transactions is to benefit the landlord or tenant. In those states where the landlord is allowed to retain the interest, some of those statutes allow the landlord by written agreement to assign the interest earnings to the third party property management agency as part of the agent’s compensation.

Position

The cost of administering the payment of interest earned on security deposits should be reimbursed to the managing agent to cover his or her overhead, required paperwork, and additional record keeping. Further, we feel that when the tenant is legally entitled to the interest earnings the interest should only be paid to those tenants who have been in occupancy for 12 months or more and complied with all lease requirements because of the small amount of interest that will be earned. 

This will hold true in all cases, except in those instances where the state laws make it possible for banking institutions to administer these funds, in lieu of the managing agent.

(Adopted: 6/86. Updated: 11/05, 4/10, 10/16)

Tenant Improvements

Background

The real estate definition of tenant improvement is money or any other financial incentive to a lessee, by the lessor, to cover either partially or wholly, the cost of any structural changes (items such as upgraded electrical equipment, cable, reconfigured interior space, telecommunications equipment and technological updates), to a space in preparation for occupancy by the lessee.

The Economic Recovery Tax Act of 1981 created a depreciable life of 15 years for all real property placed in service after December 31, 1980. For property placed in service after March 15, 1984, the depreciable life was extended to 18 years, and for property placed in service after May 8, 1985, to 19 years. In 1986, the Tax Reform Act was enacted into law. This changed depreciation rules considerably. It changed the depreciable life of a non-residential property to 31.5 years, and the life of residential to a depreciable life of 27.5 years.

The cost for tenant improvements is amortized over the depreciable life of the nonresidential building, not, as in prior law, over the term of the lease. The current depreciable life for a nonresidential building is 39 years, while the depreciable life of a residential property is 27.5 years. This 39-year depreciation applies to properties placed in service on or after May 13, 1993. This is an outdated time frame, as it does not reflect the useful life of a building and its components. In 2010, President Barack Obama signed into law the 2010 Tax Relief Act temporarily extended 15-year depreciation timeline for qualifying leasehold improvements through 2011.

In 2015, the 15-year depreciation period for leasehold improvements was made permanent by the Protecting Americans from Tax Hikes Act of 2015 (PATH Act).

Position

IREM is in support of legislation to decrease the length of depreciable lives for tenant improvements. IREM supports legislative language that would allow the remainder of tenant improvement costs to be written off upon the expiration of a lease, not over the depreciable life of a structure.

(Adopted: 4/03. Updated 10/08, 9/12, 10/17)

Tenant Protection in Property Foreclosure

Background

As home foreclosures continue to grow, tenants are being evicted from their rental homes, often with no advance notice of the action. Seventeen states and many localities have existing laws requiring disclosure of foreclosure action to tenants, but not all areas do. Also, in many cases, the bank or lending institution can be unaware that tenants are residing in the property.

Legislation has been introduced to attempt to protect tenants and ensure they are not evicted without notice in the case of a property foreclosure. Specifically, the legislation requires the "immediate successor in interest" of a foreclosed property to provide the tenant with at least 90-days notice before requiring the tenant to vacate the property. In addition to the 90-day notice, the bills require that the tenant may stay, beyond the 90-day notice period to the end of the lease term, if the “successor in interest” does not intend to reside in the property as a principal residence. This legislation would preempt state and local laws, unless existing law was more protective to tenants.

It is unclear in many cases whether the “immediate successor in interest” is the bank, lending institution, or the new purchaser of the property following a foreclosure. That may depend upon state law.

Position

IREM believes notification of tenants is important whenever displacement may occur. We would support requirements that banks and lending institutions be required to notify tenants of a pending foreclosure on the property. IREM would support that tenants, if all rents are paid and current, and are in compliance within all other requirements of the lease, could remain in the property through the end of the lease, assuming the subsequent owner does NOT intend to use the property as a principal residence.

(Adopted 7/09, updated 1/14)

 

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