Archive for January, 2010

Keating Memo

Wednesday, 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?

Tuesday, 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

Monday, 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.

Monday, 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.