LA Rent Freeze… Dodged that bullet just barely

May 28th, 2010

Author: Scott Goodman • www.scenicwestpm.com

If you’re an apartment owner subject to the Los Angeles Housing Department Rent Stabilization Ordinance (LAHD RSO) – commonly referred to as “rent control” – you can stop holding your breath.  Last Friday , May 21, 2010, the LA City Council voted 10 to 5 to send a motion for a 4 month rent freeze back to the Housing Committee, effectually killing it.  An optimist might point out that 4 month moratorium on rent increases is not that big of a deal.  I tend to view this as what started out as a temporary 4 month freeze, would find a way to become permanent.  You may recall that tenant notice requirements for no fault evictions went the same way.  Up until a few years ago in California, landlords were required to give tenants a 30 day notice to vacate, a sort of no fault eviction.  Then a “temporary law” came along requiring a 60 day notice to vacate.  At some point it was supposed to go back to 30 days.  It never did.  The state legislature made the change permanent (see C.C.1946.1(b))  Now you have to give 60 days’ notice to vacate.  So count your blessings.  Los Angeles rent controlled apartment owners can raise rents this year the allotted 3% as prescribe by the LAHD.

Watch out for that tree… root!

April 27th, 2010

Author: Scott Goodman • Scenic West Property Management

Just a reminder for anyone who holds out hope that the City of Los Angeles is fixing that broken sidewalk in front of your property.  They aren’t…  at least not any time soon.  Perhaps in 10 to 20 years, when I last checked with the City of Los Angeles Special Project Division:
http://www.ci.la.ca.us/boss/SpecialProjects/contact.htm

Repaired sidewalk which had been broken by tree roots

In fact, money is so tight, that the person who picked up the phone said that the next time I call she may have been replaced by an answering machine.

So why should you care?  We recently fixed the broken sidewalk in front of one of our buildings and just in time. I watched as a tree on our property created a crack across the sidewalk that grew from a small thing into a 2” tectonic face in just over a year’s time. Ironically, once we decided to start getting bids to repair the sidewalk (a 30’ x 5’ sidewalk cost us $2,500) at least two people tripped on the sidewalk, one of which demanded that I pay for her emergency room visit.  Don’t wait for the City to fix a tripping hazard.  At the very least you may be able to grind down that crack and avoid writing a check for the emergency room visit.

Do we really want to go there?

April 13th, 2010

Author: Scott Goodman • Scenic West Property Management

I’ve noticed in recent weeks that landlords in Los Angeles, more specifically in Westwood, have begun to lure prospective tenants into signing leases by lowering move in costs.  Typically, move in costs consist of first month’s rent and security deposit.  One can only lower rent so much, so landlords have begun to lower the security deposit requirements.  On average, our property management company charges from 1 ½ to 2 times the monthly rent for security deposit.  I am now hearing from prospective tenants that they guy down the street wants 1x the monthly rent, some even less.  This is a race to the bottom that could end badly.  Some will argue that a large security deposit invites a tenant to skip on their last month of rent; others just shrug and claim that there usually isn’t that much damage.  As I have said before in previous postings, the security deposit protects you and your investment.  Don’t skimp on this “insurance”. Rather, try and work out a payment schedule to ease a tenant who is cash poor into paying a suitable amount of security deposit.  You won’t regret it.

Pay Attention to the Big Picture

April 2nd, 2010

Author: Scott Goodman • Scenic West Property Management

HighsmithI read recently that the Fox and Bruin theaters in Westwood Village were in danger of closure.  Fortunately, Regency Theaters stepped in to avoid what might have been a conversion to retail space or an outright demolition.  I can just picture the local residents and architectural preservationists fighting tooth and nail had this matter not been concluded as it was.  Having the benefits of a strong community where people can spend their free time in a place like Westwood Village should not to be taken lightly.  I grew up in Westwood and watched many  movies in those two theaters. Had we lost the Fox and Bruin theaters to the laws of highest and best use, we would have lost yet another piece of our history, as well as a reminder of why we chose to live in West Los Angeles.  It is easy to get caught up in the day to day of property management.   The property you own or manage may be “your world” but do not forget that it was the greater community which lured your customers (i.e. tenants) to live in your building in the first place.

Emergency Response Plan

March 11th, 2010

Author: Scott Goodman • Scenic West Property Management

Ask yourself this:  Do you or your resident manager know two ways in which to shut off the water to your building? Is there a shut down procedure in place to avoid damaging the boiler or other equipment? Do you know how to open your garage gates in the event of a power failure?  Where is the gas shut off to the building? Many buildings have more than one location. Do you know how to make a reasonable attempt to fix a stuck elevator?  Where do you go to shut off the power to the whole building? What about an individual unit?  What do you or your resident managers do if the fire alarm goes off, or in the event of an actual fire? A lot of questions with big implications come up in a crisis moment.  A little time spent preparing and answering these questions can be a big money saver when the time comes… and inevitably it will come.

Emergency manual photosWe have an emergency response plan for every property we manage. We start by taking pictures of the alarm panels, shut off valves, and any other control panels, and put these pictures in a binder. Pictures are inexpensive and easy with today’s digital technology. We then label each picture, and include clear, step-by-step instructions on the operation of each element. The idea is to create an emergency manual. It is amazing how well this information translates to effective action in a time of crisis.  This manual is also a good place to put notes concerning emergency supplies and equipment you may have around the building.  A prudent move for anyone living in earthquake country.  Have an Emergency Response Plan – you will sleep better at night.

Utility Billing: Virtual sub metering of your building, has the time come?

February 22nd, 2010

Author: Scott Goodman • Scenic West Property Management

Bills, bills and more bills.  For those of you who have been paying attention and those of you who haven’t, a typical utility bill in the Los Angeles area has probably increased anywhere from 50% to 100% in the last five years.  Although most buildings have individual electric meters for each unit, they are master metered for water – in other words, they have a single water meter for the entire building. Since property owners cannot measure the water consumption of each individual unit, it is customary  that water is paid for by the landlord. 

It turns out there are several options being developed to transfer this cost from your pocket to that of your tenant.  The devil of course is in the details.  In short, there are a growing number of businesses that specialize in billing your tenants on your behalf a prorated share of your water bill. These proration formulas are beginning to show promise as more owners adopt them.  Most owners adopt these new terms at lease signing.  On your lease where you used to state that the owner pays the water bill you now state that it is the tenant’s responsibility to pay for a portion of your water bill.  

It sounds easy, but there are going to be some bumps along the way.  Is your building under rent control? Rent controlled buildings are best approached with a long term commitment in mind as you are likely to only implement these changes as vacancies occur. Another thing to consider: will you be able to charge as much rent if the prospective tenant has to pay a typical bill of,  let’s say, $40 per month?  Early adopters will face these challenges.  On the other hand, early adopters could reap the benefit of passing through a significant portion of their monthly water charges.  Food for thought.

Keating Memo

January 27th, 2010

Author: Scott Goodman • Scenic West Property Management

A widely used practice among property managers is to limit occupancy to two people per bedroom, plus one extra person per dwelling. Ever wonder where that came from?

The “Keating Memo” 

In 1999, HUD issued a statement confirming its adoption of the “Keating Memo.” This document is a 1991 internal memorandum from former HUD General Counsel Frank Keating, which states that an occupancy standard of two persons per bedroom will generally be considered reasonable under the Fair Housing Act. Specifically, the memo addresses the problem of occupancy standards used as a pretext for family status discrimination. 

When the Office of General Counsel sent the Keating Memo to HUD headquarters and regional counsel in 1991, Keating claimed that the two persons per bedroom standard was “rebuttable.” The memo also said that HUD officials should not use this standard alone to decide whether a landlord’s occupancy standards are discriminatory. 

HUD has listed several other factors that investigators will use to detect whether an occupancy policy is reasonable. They include the size and design of rooms and units, the ages of a family’s children, and the state and local ordinances dealing with occupancy in the locality where a Fair Housing complaint has been filed. 

Even in cases where a landlord’s occupancy policy is reasonable under the Fair Housing Act, HUD will consider evidence that shows the landlord has made discriminatory statements, set different rules for children than adults, or taken steps to keep families with children out of a certain property. HUD will also pursue claims against landlords who enforce a reasonable occupancy standard against families with children and not against groups of adults. 

For more information:  http://www.hud.gov/offices/fheo/library/occupancystds.pdf

UCLA hikes up tuition – will that push up occupancy limits?

January 26th, 2010

Author: Scott Goodman • Scenic West Property Management

Despite student protests at UCLA and elsewhere, the University of California Board of Regents approved a 32% tuition fee increase that will push UC tuition above $10,000 per year for the first time, and this doesn’t even include housing and books. 

Since many of the properties we manage are located in Westwood and West Los Angeles, close to UCLA, we rent to a fair amount of students. A typical strategy among students has been for 3 or 4 tenants to share a 2 bedroom apartment, for obvious savings in living expenses. We are predicting that now, because of costlier tuition fees, students will have to get even cozier in their living arrangements, and we may start seeing 5 or 6 tenants applying for a 2 bedroom unit. As landlords, we know that  more people living in a unit equals more wear-and-tear and possibly more noise, but that’s not enough reason to refuse renting to a larger party. So what are the occupancy restrictions?

The Guidelines

HUD, the federal agency which regulates the Federal Fair Housing Act, has never adopted occupancy standards. Rather, it allows for state and local entities to adopt reasonable restrictions on occupancy as long as they apply to all occupants. According to the Los Angeles Fair Housing Department, the rule of thumb is 2 people per bedroom plus one person. This standard, based on the “Keating Memo“, would allow the landlord to restrict occupancy to 3 people in a 1 bedroom unit, 5 people in a 2 bedroom, and so forth. Allowing more tenants to occupy a unit is at the landlord’s discretion. However, according to the Los Angeles Building and Safety Department, the maximum allowable occupancy is 1 person per 200 square feet of habitable area (and that includes bathrooms and kitchens).

The Bottom Line

As a result of a lack of concrete guidelines, owners and managers may develop and implement reasonable occupancy requirements based on factors such as the number and size of sleeping areas or bedrooms and the overall size of the unit.  Consistency is everything. If you decide to adopt an occupancy standard, make sure that it applies to all occupants, and it does not discriminate on the basis of race, color, religion, national origin, sex, familial status or handicap. 

The information provided herein is not meant as legal advice. Please consult with your legal professional to obtain such advice.

Using a Roommate Addendum

January 11th, 2010

Author: Scott Goodman • Scenic West Property Management

The ever revolving door roommates is a source of aggravation for most landlords. Like a game of musical chairs, roommates are constantly moving in, moving out, or somewhere in between. As many of the properties we manage are close to UCLA, in Westwood, we rent our fair share to roommates. It is important to add a new tenant to an existing lease, or to remove one that has moved out. But given the frequency with which this can happen, it could become a full-time job. This is where the roommate addendum comes in. By using the addendum, there is no need for a new lease agreement every time there is a change in roommate tenancy in a specific unit.  A roommate addendum should state that the new tenant is obligated to all the terms of the current lease agreement, and that the outgoing tenant is released from all lease obligations. Landlords should also provide all legal forms, such as a copy of the lease, to the new tenant.

The other issue that is sometimes unclear to landlords, is the question of the security deposit. The simplest answer is that the security deposit is linked to the unit under lease, and not to any one tenant. When there is a switch in roommates, the reimbursement of the security deposit (or portion thereof) to the outgoing tenant should be settled by the tenants amongst themselves. A landlord is not obligated to refund the security deposit until the lease is terminated. This should also be clearly spelled out in the roommate addendum.

Lastly, always screen an incoming tenant as you would any new tenant. Stick to your standards and rental procedures to avoid future problems and ensure the successful occupancy of your units.

Keep your tenants happy, but not at any cost.

January 4th, 2010

Author: Scott Goodman • Scenic West Property Management

I recently came upon an article from Multi Family Executive, a trade publication for income properties, which left me scratching my head.  The article set out to give advice on ways to maximize tenant retention, listing the usual things you would expect:  Keep those repairs up to date, offer incentives like new appliances, new paint or new carpet and of course negotiate a new rent for those tenants who are determined to take advantage of a (from a landlord’s perspective) difficult market.  All these tenant retention strategies make economic sense when stacked against the loss of income resulting from a vacant unit.  

However, there was one item listed in this article which I strongly disagree with.  The article suggested returning the security deposit to long-term tenants who have a good payment track record. It is never a good idea to give back your tenant’s security deposit until the tenant has moved completely out and you have made all the necessary deductions – which you will then itemize in a security deposit refund letter.  You might look like the good guy by giving back the security deposit, but there is not enough room here to list all the problems inherent with this gesture.  The security deposit protects your investment. They may have been an ideal tenant for 30 years, but what if the moving company they hired to move them out damaged your elevator to the tune of $1000.  What are you to do then? Withholding the security deposit until you have done a move out inspection and have deducted all necessary expenses will save you from future hassles.