Thursday, February 26, 2015

Warranty of Habitability - HB1486


In the legal realm of landlord-tenant relationships, Arkansas is unique among the states: there is no explicit or implicit Warranty of Habitability.  While the vast majority of landlords are good people who take care of their properties, there are some landlords who do not, and who allow their rentals to fall into disrepair. 

On February 26th, 2015, House Bill 1486 was filed.  This bill creates a Warranty of Habitability for residential rental properties in Arkansas.  This bill was drafted by a working group of both tenant and landlord advocates, with both sides respecting the needs and experiences of the other.  This bill is common-sense legislation, which will protect tenants, while not impacting the landlords who already take care of their properties.

The Landlords Association of Arkansas was actively involved in the bill’s drafting, and we proudly support this bill.  

Howard K. Warren, Legislative Director
Landlords Association of Arkansas

Link to the bill:

Tuesday, February 10, 2015

More thoughts on evictions in Pulaski

It’s been a busy few weeks since the Failure to Vacate law was struck down in Pulaski County.  I’ve read through the decision, and I follow the judge’s reasoning: even though the original law had been declared constitutional in two separate cases, the Legislature changed the law in 2001.  This change required a tenant to post all rent with the court registry, but before a trial had taken place.  As such, the law was ruled unconstitutional.

I’m not going to delve any deeper into the whys of the ruling.  The fact is, unless it is appealed to the Arkansas Supreme Court and overturned, the Failure to Vacate eviction procedure is no longer available to landlords in Pulaski County.  The question is: what do we do now?

Evictions are now going to be a very expensive proposition.  And as landlords, we’re in business to make money, not be a social entitlement.  Like any other form of theft, such as shoplifting, the legal expenses to evict and reclaim our rental have to be added into the cost model.  Let’s look at an example:

Assume I have a two-bedroom, one bath apartment that rents for $550 a month.  Taxes and insurance will eat up about $100 of that a month.  Vacancy and repairs traditionally are 25% of the gross rent, thereby subtracting another $135.50.  So now, our $550 apartment is bringing in $312.50.  If there is a mortgage, then the mortgage payment has to be deducted, too.

So far, the various attorneys I’ve talked to are giving me a ballpark figure of $1000 for legal fees.  In my example, that’s three months’ profit… a quarter of a year… gone just to evict.  And at this point, I haven’t added in the lost rent, nor any cleaning and damages the evicted tenant leaves behind.

This money has to come from somewhere.  And as any business owner will tell you, it will be the good tenants who will pay for it.  Rents will go up to cover the new costs and losses.  Screening criteria will tighten up, because landlords will want to minimize their risks.  Security deposit requirements will be higher, especially for the tenants without good rental history.

The good but “borderline” tenants… those who work hard but have low-wage/low-skill jobs… are going to find themselves priced downwards into lower quality rental units. 

The bottom line?  It’s going to cost tenants more to rent.

Friday, January 16, 2015

The Lawsuit to Overturn Failure To Vacate

A lawsuit has been filed in Pulaski County seeking to have the Failure To Vacate eviction law (18-16-101) declared unconstitutional.  This law is also known as the “criminal” eviction because if a tenant refuses to pay the rent AND refuses to vacate, they are committing a misdemeanor crime.

As a landlord, my income comes from tenants paying me for the privilege of using my property.  Let me say this again: the house is mine, not theirs.  So when a tenant refuses to pay for the use of my house, and refuses to get out (so somebody else can use it) they are denying me my rightful income. 

In short they are stealing from me. 

And to be honest, most of my friends who are tenant advocates understand this is a business, not a freebie entitlement.  What they object to is the “criminal” nature of the eviction.  They object to a tenant taking my property being accused of a crime.

We disagree of course; if a person rented a car from Avis then refused to return it, Avis can have them arrested for grand theft auto.  But for a number of reasons, residential rental law doesn’t seem to accept this idea.  And that debate is beyond the scope of this blog.

So let’s look at the lawsuit.  If the Failure To Vacate law is overturned, what will the results be?

First, I will have to hire an attorney to start an eviction.  That costs money, anywhere from $600 and up in Pulaski County.  I have to file in Circuit Court, the fee being $165.  I have to hire a process server at $50 or more.  The total can easily come close to a thousand dollars.  And now I have to wait for a slot in the Circuit Court calendar, which may take weeks. 

And all this time, the tenant is sitting in my house, not paying rent.  I still have taxes and insurance to pay.  In the cases of apartments I may be paying utilities as well.  There may be a mortgage payment, and there may be repairs to make.

This money has to come from somewhere.  And like any theft (such as shoplifting) the other customers have to pay for it.

Statistically, low income tenants are more likely to be evicted.  Going forward, those same low-income tenants can look forward to the following: rents going up to cover the costs of evictions, security deposits going up, and stricter acceptance criteria by landlords.  Tenants who were marginal before will now find their choices in housing limited.  It will be harder for a tenant working low-income jobs to find safe, affordable housing.

So as a result of a lawsuit trying to "protect" tenants, the tenant's costs will go up.  And we know the economy is not getting better for low-skill, low-income people.  Tenants will have to choose between what bills to pay, and we'll see more evictions.

There has to be a better eviction system, one that is fair to both sides.  As a landlord, I don't care about the "criminal" aspect.  I just want my house back quickly.

Next time: thoughts of a warranty of habitability law and why it makes sense for landlords.

Friday, November 7, 2014

The 2015 Session is coming!

The 2014 mid-term election is behind us.  We know the results: a Republican sweep.  As a landlord, I honestly didn’t care which party the candidate was in: I voted for the person who I believed to be the most qualified to support my business.  I voted for candidates from both parties.  But the Republican sweep doesn’t mean our laws should stay static: there is a place in Arkansas for common-sense change. 

While many people think immediately about evictions, I think about the condition of housing.  Most landlords are very good at taking care of their properties.  The units are safe, in good repair.  We never hear about these rental relationships.

Unfortunately there are a minority of landlords who make all landlords look bad.  Their properties are falling apart, nothing is repaired, crime flourishes and as a result, the neighborhood values fall.  These “landlords” are a disgrace to us all and we need to do something about it.

In the past, well-meaning people tried to run bills to take on the bad landlords.  Unfortunately these bills were not well written.  There were unintended consequences that would have badly hurt the good landlords as well.  These bills have been defeated in the past, which perpetuated the “us vs. them” attitude.

It should not be “us vs. them.”  We have laws to protect our water and our food.  I believe it is VERY possible to have a common sense law to protect housing as well.

The Landlords Association has stated publicly that we’re willing to work together with tenant advocates to find common-sense, fair and balanced laws to protect tenants from bad landlords, while not impacting the good landlords.  That is still true, no matter what party has control.  It will take time: there is no overnight solution.  But if we work together, we will find common ground and we will improve our state.

I look forward to the coming session!

Howard Warren
Landlords Association of Arkansas

Monday, March 25, 2013

Why Don't You Make the House Energy Efficient?

Since the Christmas blizzard, my tenants have been cringing at their natural gas bills.  All of my properties have central heat and air with a gas-fired furnace; in Arkansas, this is the cheapest way to heat.  Also, many of my homes were built in the 1950s, and have aluminum frame windows.  These windows are not energy efficient. 

Over the weekend a tenant asked me “In 2009, there was a tax credit.  Why didn’t you put in efficient windows?”  The answer is pretty simple: landlords weren’t allowed to take the credit.  But to be honest, our messed up tax system makes it almost impossible for me to update my houses in a manner that makes financial sense. 

The rest of this blog post is to illustrate how stupid our tax system is.  Feel free to pop some popcorn and laugh at my frustration.   

I’ll use one of my houses as a real example.  I have a 3 bedroom, 1.5 bath house in the Broadmoor area of Little Rock.  The windows are aluminum frame, single pane.  They’re not energy efficient.  When the weather gets cold, the windows sweat a little and even though they’re caulked and sealed perfectly, the frame and glass get very cold, and the house's heater has to run longer. 

How much money are we talking about?  Window World sells vinyl frame replacement windows at roughly $200 each.  If I want the argon E-series glass, that’s another $65.  There are 10 windows in the house to be replaced, for a total of $2650.  But remember, landlords didn’t get the energy tax credit so I have to pay for those windows out of immediate cash flow, after paying the mortgage, taxes and insurance. 

“But wait,” you say.  “Don’t you get to write that off your taxes?”  Well, not the way you think. 

If the existing window was broken, I could write it off the entire amount as a repair the same year.  But if the existing window is NOT broken, the IRS considers the new window an “improvement” and requires me to depreciate the cost; in other words, I can only deduct a little part of the cost each year for a fixed number of years. 

“How many years?” you ask.  Well, it depends upon how many years I’ve owned the house, subtracted from 27.5.  In this example, in 2009 I had owned the Broadmoor house for 4.5 years.  That means that I would have to spread the $2650 out over 23 years.  Each year I would only be able to deduct $115.22 a year off my house’s taxable income.   

$115.22 is not much at all, especially as prices keep going up.  To add insult to injury, my accountant would charge me more to keep up with the paperwork on my tax forms! 

While this will sound harsh, it’s a fact that rent for most areas is market driven, not feature driven.  Having vinyl windows will not let me raise the rent to cover their cost, and having aluminum windows doesn’t lower the rent.  To me, with such a bad tax system in place, I am actually encouraged by the tax code to NOT spend money improving my houses. 

With our current tax system, the real loser is the tenant who continues to pay higher utility charges.

Thursday, February 28, 2013

Thoughts of Eviction, Part II

As discussed last week, Arkansas has a patchwork of eviction laws that change county by county, and sometimes even judge by judge.  Evictions are a no-win: the tenant has stolen the use of the property from the landlord, and the landlord almost never sees the money owed. 

In this post, I am not talking about run down properties needing repairs or long-term tenants who have lost their jobs and just need an extra week or so.  Good landlords keep up their properties, and I know lots of landlords who worked with long-term tenants to get them back on a regular payment schedule.

To recap from last week: most evictions are because:
  • The tenant REFUSES to pay the rent owed; and
  • The tenant REFUSES to vacate the property.
At the point of an eviction, a landlord has given up on the tenant and needs possession of the property back in order to find a new tenant.  Landlords need consistency within jurisdictions, and the top recommendation of the Non-Legislative Commission was to streamline the eviction process.
Below are some thoughts on how I would streamline the eviction process in Arkansas.  These thoughts are my own; they’re not official commentary from the Landlord’s Association, or from the Non-Legislative Commission.  And no, I'm not an attorney.
When the tenant’s rent is late as defined within the lease, the following happens:
  • The landlord posts a three day cure-or-quit notice on the property.  Landlord takes photos with a date stamp as acceptable proof.
  • At the end of the three day period, if the tenant has not paid, the landlord goes to the court clerk and fills out a form to evict the tenant.  The form will be “statutory”, in other words, standardized across the state, with instructions so that an attorney is NOT needed at this point.  A summons is issued to the tenant.
  • The landlord uses any method of service to serve the notice to the tenant.  If the tenant dodges service for 3 days, the landlord can post the notice on the door, once again photographing it.
  • The tenant has 5 days to respond.  A form will be provided with the summons, with simple instructions for the tenant to follow.
  • Upon service, a court date will be assigned no later than 5 business days.  At court, there is only one issue: did the tenant pay the rent? 
  • If the tenant has not paid the rent, the judge will immediately issue the Writ of Possession.  If the judge wishes to give the tenants “extra time” then the Court shall pay directly to the Landlord funds equal to the daily pro-rated rent for the “extra time.” 
  • Once the Writ is issued, the Sheriff’s Department will schedule a lock-out within 72 hours.
  • At the lock-out, the landlord is only required to change the locks.  Any tenant property remaining on the premises becomes the property of the landlord and will be disposed of however he sees fit to recoup the missing rent money. 
Does this seem harsh?  Maybe.  But remember, renting property is how landlords make a living.  When tenants refuse to pay and refuse to leave, they are stealing from the landlord.  When judges “feel sorry” for the tenants and give them “extra time”, they are stealing from the landlord. 

Even if I am not paid rent, I still have to pay mortgages, taxes, insurance.  My children still have to buy food.  My children still need clothing.  When rent owed to me is not paid, my children have to do without.  And in a choice between my tenant and my children… well… what choice is there?

My rental properties are not a free social entitlement. 

Sunday, February 24, 2013

Thoughts of Eviction, Part 1

There has been a lot of news recently about evictions in Arkansas.  The existing Arkansas eviction system is a patchwork of laws, interpreted very differently in every jurisdiction.  Few landlords are happy with it.  In talking to the Landlords’ Association membership, the vast majority of evictions are for two reasons:
·         The tenant REFUSES to pay the rent owed, AND
·         The tenant REFUSES to move out.

The reasons for the first point are not that important, BUT it’s rarely a case of “poor grandma” who has to choose between her meds and her rent.  Sometimes, especially in this economy, it’s because of people who lose their jobs.  BUT, in most of the cases the money has been blown on alcohol, big TVs, iPhones, chrome wheels for ratty Oldsmobiles. etc. 

The tenant's money is blown, and there is no money left to pay the landlord.  But the landlord still has to pay taxes, insurance, repairs and mortgages for that month.  It’s amazing to me how many pro-tenant supporters just blow off this point: LANDLORDS HAVE EXPENSES TOO! 

When the landlord doesn’t get rent, the landlord loses part of his livelihood.  How many pro-tenant people would voluntarily give up a months’ pay from their job at random?  Think about this… you work all month and at the end of the month, your paycheck doesn’t arrive.  In this case, the employer has STOLEN hard work.  It’s no different when the rent is not paid.

Let me give an example: let’s pretend you RENT a car from Avis for a week.  At the end of the week, you REFUSE to pay more rent, and you REFUSE to return the car.  It’s called “theft” (and the police will soon be looking for you.) 

I’ve had tenants forced into breaking their leases for economic reasons.  We all have.  And while it is upsetting, I let them out of their lease, and if they’ve been a good tenant, I still give them a good reference.  Life can be hard at times, after all.  I want them to find a new place they can afford, and let me re-rent the property.

But it’s when the tenant REFUSES to pay the rent owed AND REFUSES to leave that eviction becomes necessary.  Eviction is a losing situation to landlords: the money owed is gone and will rarely be recovered, and the landlord has to start the process of finding a new tenant all over.  Then the landlord has to navigate the waters of eviction, which changes on a county-by-county, court-by-court basis.

Next, how I would change the eviction process...