Top 10 Must-Do’s Rules to avoid costly Landlord losses

When I think back over the past eleven years, I could write a book about the many close calls that COULD have cost our property management company dearly had we not been so diligent about these basic 10 rules.  The sad reality is that most of these rules we learned ‘the easy way’, when individual owners would bring us their properties and tell us their stories about what went wrong in their situation and expect us to clean up the mess and start over.  Today we have a complete set of very distinct policies and procedures that we enforce without deviance. 

1. Never rent to a tenant ‘sight-unseen’.  

One of the costliest mistakes we have seen over the years came to us from an owner of a property who rented  his property ‘sight-unseen’ to a tenant that was moving across the country.  He had emailed a few photos to the tenant, accepted their damage deposit and eagerly waited their arrival.  When they arrived, they were not satisfied with the house and claimed that the photos were misleading and not depictive of the property. It is true that as photos can look better than the real thing.  If you don’t believe me, go have a look at a few photos on MLS and then go have a look at the property.   Even when we are taking photos of a dirty, damaged property to prove why we are keeping the damage deposit, it is sometimes difficult to capture  damage and the dirt on camera.  That particular owner ended up losing his case in court which cost him into the thousands of dollars as he was ordered to pay for a hotel room and food allowance for the displaced tenants, and of course, he lost that month’s rent.

2. Poor screening methods (or no screening methods): 

Every tenant must fill out and submit an application form to the office.  We never automatically approve someone right there in the living room because they ‘look good’.  Some of the best-looking tenants can become your worst nightmare.  It is true that a person can get a pretty good feeling for a potential tenant, but skipping the application process can be risky.   The application form should be comprehensive enough to separate the good from the bad.  A good tenant doesn’t mind completing the whole form.  We need to know rental history, income history, financial history including authorization for a Credit Check and some personal information.  If the tenant refuses to give his or her Social Insurance Number, it can become a bit of a red flag and in a situation where the vacancy rate is really low and we have the luxury of choosing another good applicant, the tenant does not get approved.  However, if the vacancy rate doesn’t allow us to be this choosy, it is possible to check with their full name, date of birth and current address.  As a side note, it is becoming more difficult to get this history for all applicants with the growing number of new immigrants to Canada.

3. Poor Lease or No lease at all:

When we accept a new contract that has an existing tenant the previous landlord hands over a copy of the lease agreements and in some cases it is absolutely astonishing to see what some property managers or individual owners are using as a lease agreements.  One page of scattered contact information with the stated rental rate and the move-in date does not constitute a lease agreement, and yet we see them all the time, even on large multi-family buildings.  A well-written, comprehensive lease agreement is a landlords’ insurance policy against the Rental’s board.  I can not even count the number of times a staff member of ours has come back to the office after a tenant vs. landlord hearing and requested a small change in the wording on the lease. We are constantly tweaking our already 6-page lease to make it clearer, more comprehensive and free of loopholes because the lease agreement is the legal document that will make or break a landlord’s case if and when they end up in court.  

4. The tenant must pay the Damage Deposit in Full BEFORE they move in:

In our province, the legislation favors the tenant with respect to the payment of the damage deposit and it allows the tenant to pay it over the first 2 months.  Even though this is the rule, we always ask for the damage deposit up front and in full when they are signing the lease agreement and 95% of the time we get it.  If nothing else, it just makes for less paperwork, and fewer errors when the damage deposit is collected in full before they move in.  However, the real reason we like to get the damage deposit in full is that the tenants that pay up without even questioning the full payment tend to better tenants in the long run.  It’s just a correlation that seems to go hand in hand.

5. Always request proof of Utility hook-up BEFORE you give them the keys:

We absolutely do not hand out any keys until we have proof of utility hook-up.  We prefer that the tenant take our form and get the utilities company’s stamps which then gets added to their lease agreement.  These days, however, with the ease of signing on to utilities on the computer, we ask for their account numbers which generally means they have made the application if they quote an account number.  Again, we have seen tenants get away with month’s of free utility bills when private landlords forgot to enforce this requirement and then could not get the tenant to make application for several months.

6. Define your rent-paying policy in the lease agreement and always enforce it:

Our company absolutely does not pick up rent from any tenant for any reason.  Our office is open Monday to Friday 9:00 am-5:00 pm. and we manage to collect more than 95% of half a million dollars in rent funds in less than 5 business days every single month.  The other 5% generally comes in before the 15^th and we almost never have to evict tenants for lack of rent payment.  Why is this?  One reason is because we have a few different options of how tenants can easily pay their rent:  cash, post-dated cheques, debit machine, pre-authorized debit in which we pull their rent from their accounts on the 1^st and after-hours drop boxes for money-orders and cheques in our office building and in all the multi-family buildings.  The other reason for prompt payment is the $25 late-fee applied after the 5^th business day.    Lastly, a friendly reminder letter is hand-delivered on about the 8^th, and a firm warning of eviction on the 16^th.  If they haven’t paid up by about the 18^th, eviction papers are definitely put into effect.   Of course, we can be somewhat understanding in certain cases where the tenant falls behind for a good and acceptable reason, but in general, we are not social workers, we are not their friend and we are not running a charity so the excuse has to be pretty darn good for us to accept it.  We represent our clients who are the owners of the properties and we are committed to collect their rent in full every month, so generally excuses for non-rent payment don’t fly in our office and the consequences are not up for negotiation.  The tenants know all of this information upfront from the 6 page lease agreement they sign. 

7. Know your local Tenancy Rules and Bylaws:

I can’t stress enough the importance of knowing the Rentalsman’s rules and the city bylaws.  The most dangerous error we see all the time that is broken by private landlords is failure to check their smoke detectors as per the bylaw rules.  The problem is that it never is a problem until there is a problem!   If an owner never checks a smoke alarm and the house never burns down, usually nothing happens.  It’s not common that the fire department will do inspection reports on individual landlords so the landlord doesn’t realize the importance of these regular checks.  Companies such as ours are required to send in year’s worth of smoke detector checks with dates and tenant’s signatures.  What more commonly happens to the private landlord is penalty charges in the thousands of dollars AFTER a fire has occurred.  I can’t even imagine the stress and the risk involved in these cases, but we do see them in the local newspapers once in a while;  “Landlord fined $10,000 for not having the proper smoke detector!   Know your local bylaws and abide by them.

8. Stay in line with the current market rent

It’s great that some private landlords love their tenants who have been living in their buildings for many years, and that they enjoy giving them ‘a break’ on regular rental increases, but when this happens in multi-family buildings it absolutely astounds me!  The reason it frustrates me as a property manager is that besides knowing that these are the tenants who are usually running the show, their low rent is de-valuing the building.  So what commonly happens these days, a savvy investor comes along and scoops the building for a low price (since the value of multi-family buildings is directly related to the income which is directly related to the tenant’s low rent).  This savvy investor purposely and blatantly increases the rents by up to 75% which causes havoc in the building (since most of these long-term tenants all know each other) and they band together, go the media and cry for ‘rent control’.  I have seen this situation happen more than a few times over the past few years.  Smaller, regular, fair rental increments are far more effective and acceptable in keeping rental rates inline where they should be without causing a media uprising.

9. Skipping the move-in walk-through report:

Landlords are busy people so it’s much easier to just give the keys to the new tenant and say “let me know if there is anything wrong”.    This is a set-up for disaster when they move out.  Doing a thorough move-in inspection with many photos is absolutely crucial for when they move out.  I think the most common phrase a tenant will use when they are moving out is: “It was way dirtier when I moved in!”  It’s at that point, you pull out the move-in report which they signed that says “if you sign here, you are acknowledging this property is clean and satisfactory” followed by the photos (which we admit usually look a little better than it actually was because of the limitations of photos).  When doing the move-in report, we give the tenant a few days into their first month to call in and report any deficiencies but after that, it is assumed the property is 100% clean and in good condition.  

10. Teach your tenants to identify and report bed bugs ASAP!  

Getting a bed bug infestation in your rental property can be very costly.  It’s becoming quite the phenomena amongst the rental community and landlords are becoming quite resistant to being responsible for the bill.  However, this is the law in our province:  a landlord is responsible for providing a habitable property for the tenant to occupy, and the definition of  ‘habitable’ means free of pests.  So if it is determined there are bed bugs, the landlord must be proactive to treat the infestation as soon as possible.  If it can later be proven that it was the tenant that responsible for introducing the bugs to the property, the tenant may be held responsible.  This is basically how the law reads here in Saskatchewan.   We try our best to get the tenants to cover the cost, but as the problem worsens, the tenants are getting more knowledgeable on the subject.  Teaching tenants how to identify bed bugs and encouraging them to call the office immediately if they suspect bugs will save landlords thousands and thousands of dollars in the future.  It’s always better to be proactive rather than reactive in property management.

by Kathy Berner