Landlords typically include language in the lease that prohibits subleasing without permission. But what exactly is subleasing, when and why would a tenant want to do it, and how should landlords proceed?
Subleasing is different from transferring a lease to another party. In the latter situation, another tenant takes over a current lease and the original tenant is absolved of any responsibility for its terms.
In subletting, the subtenant is granted the rights contained in a sublease, but the original tenant is still responsible for the terms of the original lease. In essence, the subtenant is renting from the original tenant, who is still bound by the contract with the landlord. For example, a subtenant is allowed to live in the unit but must pay rent. If they do not, the original tenant is still liable for the missed rent.
Tenants might be interested in subleasing if they are going away for an extended length of time, but wish to return to their apartment. It wouldn’t make sense to go to the trouble of subleasing for a trip of a few weeks. But if your tenant were planning on traveling through Europe or South America for three months, subleasing is a way to cover the rent without having to break the lease and start over when they return.
Tenants who are interested in subleasing may ask permission, even if the lease states you do not allow it. Remember, it’s always up to the landlord whether or not to allow the sublease. If you decide to allow a tenant to sublease your property, follow these tips for a more successful outcome:
- Write up a Consent to Sublease agreement between yourself or your company and the two parties.
- Include elements such as effective date, the tenant and subtenant’s names, the property address, and the monthly rent.
- Be sure to state that the tenant is still responsible for his or her duties under the original lease.
- If you decide to allow subleases, be sure to create a policy. Don’t let one tenant sublease, and forbid another from subleasing. This could lead to charges of discrimination.
- Be sure your tenant also has a sublease agreement with the subtenant. This is a different document from your Consent to Sublease agreement, and covers the legalities between those two parties. If expectations are not made clear, you could find yourself stuck in the middle of their disagreements.
- Keep in mind that if the subtenant damages the unit, leaves before the lease expires or breaks any other condition of the lease, you may hold the original tenant responsible. He or she can will have to get satisfaction from the subtenant.
- Just as you screen all your prospective tenants before signing a lease, you should make it clear that any subtenants will also be required to undergo tenant screening.
Subleasing can be a hassle, but if you have good tenants whom you want to keep, allowing them to sublet while they’re away can make sense. Remember, it’s completely up to you!
Start your tenant relationship off right by knowing who you’re leasing to. Protect your rental property and assets with tenant background checks. Proper tenant screening will ensure you are leasing to the best possible tenants.
As the economic recovery slogs on, tenants continue to double- or triple-up in rental units. In many cases, landlords are not aware of roommate situations; in others, property managers approve one roommate, only to find out he moved out months ago and has been replaced by two others.
Tenants often think that once they sign a lease, they can have anyone they want move in to help pay the rent. For many reasons, this is a bad idea. First, landlords alone get to decide who lives in their properties. Second, tenants don’t always make the best choices in roommates. Third, it’s potentially dangerous to have unknown people living in your apartment building or single family rental house.
That’s why most landlords insist that everyone living in a unit must apply and be on the lease. The property owner may then conduct thorough tenant screening, check credit reports and verify employment and income.
Tenants may think it’s easier to just have a friend move in and hope the landlord doesn’t notice. But it’s actually better for tenants if the new roommate is vetted and approved. Who wants to find out a month or two into the new living arrangement that their roomie is actually unemployed, has poor credit or has a felony record?
Smart landlords will stipulate in the lease that no roommates are allowed without the permission of the owner, and that all residents of a unit must be on the lease. To facilitate good roommate relationships and establish legal responsibilities, you might want to provide tenants with a Roommate Agreement for all to sign and keep with the lease.
- Include language that each tenant/roommate is liable for all terms of the lease or rental agreement. Have your attorney review it before providing to your tenants.
- Include things like the lease term, start date and lease renewal procedures.
- Have a place for each roommate’s name, Social Security Number, and emergency contact.
- List some roommate rules, stating which share of the rent and security deposit each is liable for, which rooms are designated shared and private, and how damages will be handled.
- State the procedure for paying utilities: who gathers the funds and pays the bills, when the bills are due and consequences for late payments.
- Cover parking, garbage and recycling, and other details.
- Determine how guests will be handled, where they may stay and for how long.
- Include guidelines for quiet hours, pets, cleaning, food and other details.
Putting agreements in black and white can go a long way to reducing tension and improving relationships between roommates. And helping your tenants have better roommate relationships can only be a good thing for you as a landlord or property manager.
If you’re like many landlords, you often have more than one qualified tenant wanting to sign a lease. Let’s assume you’ve already gone through your standard process: application, application fee, tenant background screening and tenant credit check, verifying employers and income, and checking references. Now you have two or more approved prospects, and only one vacant unit.
What do you do? Here are a few guidelines to help you decide:
- Who wants to move in first? Each day your unit is empty, you’re losing money. We give extra points to the tenant whose move-in date comes first. How do you know? Hopefully, you’ve either had this conversation at some point in the process, or your lease application contains the question, “When do you want to move in?”.
- Who has the security deposit and first month’s rent ready? Obviously, it’s a good thing to have all your prospective tenants ready to pay you rent and deposit, but this isn’t always the case. If any approved prospects need some time to come up with the money, move on. And cash is always nice. Let all your applicants know that you will continue accepting applications and showing the unit until the first month’s rent and security deposit are paid.
- Don’t give in to your emotions. You may hear that a prospect can’t pay the security deposit until they move out of their current place. You may hear that they need a week or two to get the rent and deposit together, but they definitely want the unit. They might be nice people, and excellent tenants, but… don’t let them get the upper hand. Don’t forget that he or she may not get the deposit back for awhile, and may not get it all back. So they need to be able to come up with full rent and security deposit for you.
- Be realistic. If a good prospect is looking at your vacancy on the 25th of the month, and want you to hold it until the 1st, it’s not likely you’ll have anyone else ready to move in before then. You can always ask for a deposit to hold the place, and convert it to the security deposit. Adjust your procedures when it makes good business sense.
You may not realize it, but you could be facing competition from an unknown entity. All over the country, scam artists are posing as landlords of buildings they don’t even own and preying on unsuspecting would-be tenants. One elderly woman in Maryland lost $5,000 to con artists.
In a tight rental market, people are more anxious about finding affordable rental housing. Scammers take advantage of their desperation—and willingness to let their guard down—to steal thousands of dollars that victims think is going to pay rent and security deposits. Soon, they discover that the “landlord” to whom they handed over their money is nowhere to be found. Typically, they have little recourse for recovering their funds or getting justice. The phony landlords simply vanish into thin air.
Scammers like this affect everyone. Most tenants have limited funds for rent and security deposits—so, when that money is gone, it won’t be replaced for months. Legitimate landlords miss out on the chance to lease to new tenants, and the victims are left scrambling to secure new housing—or become homeless.
How can this scam happen? Con artists search for homes for sale or rent online, and copy the information and photos to create “For Rent” listings on Craigslist and other websites, using their own contact information. When someone inquires, they say they are relocating and need to immediately rent out their home. If the house is for sale, they tell interested parties to ignore the sign in the front yard—they’ll be taking it down soon. Some even find ways to change the locks on the house so they can show it to unsuspecting victims. Others tell tenants they will get the keys after the security deposit is received.
These con artists are creative and convincing. It might be hard to understand how anyone could fall for a scam like this, but they do. Maybe some of your tenant applicants have fallen for these scams. Or maybe they’re getting ready to. As a responsible landlord, you can help prevent these con artists from getting away with their schemes—and help your future tenants save money so they can rent from you!
First, check Craigslist in your area to see if any of your rental properties are showing up under phony listings. And, when showing your rental properties or talking to applicants, be sure to mention that there are scam artists out there. If they are considering other properties, let them know that they need to do their due diligence:
• If there is a For Sale sign out front, call the agent on the sign and ask if the home is for rent.
• Never mail a security deposit to a random address or PO Box if you haven’t met the landlord and determined that they do indeed own the property.
• Check public records to see who owns the property.
• If the rent seems too good to be true, it probably is.
• If the “landlord” is in a hurry or pushing hard for a rent check or security deposit, something is probably wrong.
Going to a little extra effort could help stop these con artists from victimizing another innocent would-be tenant, so they can rent from you!
If you’re thinking of joining the millions of real estate investors who either make a living or add to their income by leasing property, we’ve got some basic tips for you, suggested by our clients, or based on our own experiences.
Think about your goals: Do you want to secure your retirement by creating wealth or income-producing investments? Are you in it for the short term, or the long haul? Do you want to buy property locally, or wherever the deals and returns are the most favorable? How much time and effort are you willing to put into this venture? Do you want to be a hands-on or hands-off landlord?
- Have a long-term view. Buying and flipping houses for profit is generally a thing of the past. Today’s real estate investors have a long-term plan for growing their portfolios slowly over time. They save money to build up a cash reserve, in case of emergencies. And they plan for making bigger improvements, such as painting, roof replacement and structural repairs.
- Keep it local. Sure, there are bargains to be had in Arizona, Nevada and Florida, just to name a few areas. But unless you already live in these states, it will be difficult to manage your rental property. Hiring a property manager is viable option, but it will cut into your profit. Besides, there is nothing like being able to drive past your property to check on it.
- Do the research. Find out the history of the property you’re interested in. Become familiar with the zoning laws in the town and neighborhood. Find out if there are any plans for development, road construction, or commercial building in the area around it. You don’t want to buy a property on a quiet street, only to find out that it’s been zoned for a strip mall.
- Find out what the local rental market needs. If you invest in three-bedroom, single family homes, but the demand is for one-bedroom condos, you’ll have a problem.
- Keep emotions out of the equation. Don’t fall in love with a rental property. Keep it strictly business. Figure out your costs, including mortgage payments, taxes, interest, upkeep, licensing, etc. Determine the market rent for the unit/s. And then determine if the asking price is a good deal. Don’t pay more than your monthly costs, or you’ll be losing money. That’s not the idea behind investing in real estate!
- Screen every tenant applicant. We can’t stress enough the importance of tenant screening. Too many landlords have regretted the decision to skip this important part of the process. Conducting a background and credit check on a prospective tenant is the best way to protect yourself. Make sure you know as much as possible about the person you are renting to.
The contents of this article are intended for general information purposes only, and should not be relied upon as a substitute for obtaining financial advice applicable to your situation.
landlords have faced one of these situations:
- You’re doing a routine maintenance inspection and discover an occupant in the rental whom you’ve never seen before. You ask who he is and he replies, “Oh, I live here.”
- You sign a lease with one tenant. A few months in, she mentions that the rent will be late because her roommate hasn’t paid her share yet. Roommate?
- You live upstairs, your tenant lives downstairs. You notice he hasn’t been around lately, but someone else is clearly staying in the apartment. You ask questions and find out your tenant is away for three months, but he sublet the place to a friend.
- Tenants who live next to one of your rental units call and complain about the three cars that are taking up all the available parking. You reply that only two people live in the unit, but they assure you that three people have been seen regularly coming in and out.
What’s going on? Most likely, your tenant has brought in a roommate or sublet part or all of your rental property to an additional person. If your lease agreement states that no subletting is allowed without your authorization, then the tenant is in violation of the terms of the lease.
The problem with subletting, or adding roommates without your knowledge, is that you have no idea who they are, where the work, if they’ve ever been evicted or convicted of a crime, or if their credit history meets your requirements. Without a chance to perform due diligence, including tenant screening and credit checks—the same tenant screening you do on all prospective tenants—you are at risk of liability for the actions of an unknown person. Plus, your property and business are at risk.
Why would tenants deliberately violate the terms of a lease?
- Maybe they don’t thoroughly read the lease, or forgot what the lease said.
- They may think you won’t catch them in the act, as long as they pay their rent on time.
- Perhaps they think the lease terms don’t actually apply to them.
- Or they simply cannot afford their apartment or house without a roommate.
In any of these cases, you likely have cause to send a cure or quit notice. Of course, check your local and state laws concerning eviction notices. You may want to send a reminder to all your tenants that subletting or adding roommates without your authorization is strictly prohibited. If they want roommates, they must undergo the same application and tenant screening process as everyone else. Explain that this is for the safety of all residents. Keep in mind that treating one group of people differently than others could put you at risk of discrimination charges, so make sure the same rules apply to all of your tenants. Finally, notify tenants that violations are grounds for eviction.
If you do agree to a sublease situation, be sure to put everything in writing. A sublease agreement should be signed by all parties and place in your tenant’s file.
How do you say “no” to tenants who don’t meet your lease qualifications? Some landlords have a hard time doing so, especially when the applicants are persistent. Here are a few examples:
- Don denied an applicant based on weak credit. The applicant offered a bigger security deposit. Now Don is thinking of approving his application.
- Karen is a landlord in a similar situation. Her non-qualifying applicants offered to pay an entire year’s rent up front. Karen decided to accept the deal and signed the lease.
- Another landlord reports that a non-qualified couple is pleading with her to rent to them, saying they have not found another rental that meets their needs. The woman has good credit; the man has terrible credit. The landlord is thinking of putting only the woman’s name on the lease, with a substantial cash security deposit.
What is wrong with each of these decisions?
- In the first example, Don is allowing a larger security deposit to cloud his judgment. First, he lives in Massachusetts, where landlords are limited to charging no more than one month’s rent for a security deposit. Next, he is bending his own rules, which is a slippery slope. If a tenant knows he’ll cave on one aspect of the tenancy, they may be likely to push other rules, as well. Is the rent really due on the 1st? Wouldn’t it be okay to move some extra family members into the rental unit? Finally, treating every applicant equally is important to avoid charges of discrimination. Let’s say the next applicant also had bad credit and Don refused to sign a lease with them. They might charge that Don showed preferential treatment to the first tenant and that they are being discriminated against, due to their race, religion, family status, gender, age, etc.
- In Karen’s case, one might think that paying a year’s rent up front would erase any worries about the tenant’s financial situation. However, most strong tenants don’t offer prepaid rent—especially a year’s worth—because they can’t afford it. Karen should ask herself why an applicant with bad credit has that much cash laying around. Have they been scamming other landlords and living rent-free? Have they been evicted? Or are they involved in an illegal cash enterprise? The offer of a year’s worth of rent up front should be a red flag.
- In the third example, this landlord is asking for trouble. All adult residents should be put on the lease and held liable for the terms of the lease. What guarantee does the landlord have that the female will always be responsible for the rent? What if the couple breaks up and she moves out? The landlord will have a resident living in the rental unit without a lease.
Experienced landlords know that sticking to your standards and leasing only to solid tenants who meet your criteria are important steps in building a successful rental business. If denied applicants don’t hear your “no,” just say it again. And louder. And then, hold out for well-qualified tenants. Tenant screening on every applicant, with minimum qualifying credit scores, is a landlord’s best practice.
Most experienced landlords will tell you that tenant screening is the most important aspect of renting property. Failing to screen prospective tenants causes more problems than just about anything else. After all, each tenant is a potential liability to a landlord.
Thoroughly checking up on tenants’ identification, credit history, criminal background, work history and previous rental situations can give you a clear picture of the tenant you are about to trust to live with your property and among your other tenants.
Here are some basic tenant screening tips from real landlords:
- Don’t skip the tenant screening process, no matter how nice or trustworthy a prospective tenant seems.
- Treating each applicant equally will help you stay within the law. This is another good reason to screen every tenant.
- Look at credit history, criminal history, evictions, judgments, bankruptcies and sex offender status.
- Fake IDs are easy to buy or make, so check the applicant’s Social Security Number and identity to be sure they are who they say they are.
- If the applicant is local, drive by their current address to see how they live. Is there a beater car parked in the yard? Garbage strewn about? Or is it neat and clean? How it looks is a good indicator of how they will treat your property.
- Don’t judge a prospective tenant by his or her clothing, car or jewelry. A hard working, honest tenant could be dressed in dirty work clothes, while a flashy car and fancy watch could indicate someone who has plenty of money, or is simply living above his or her means.
- Beware of tenants who want to move in fast and have plenty of cash to cover rent and the security deposit. Take your time and conduct your screening process.
- Talk to previous landlords. If a tenant specifically asks you not to contact the current landlord, find out why, and talk to former landlords. Conduct the rest of your screening process and if the tenant is approved, let him or her know, and then contact the current landlord.
- Don’t base your entire approval on the landlord’s reference. Some will be anxious to get rid of a bad tenant (and give a good reference). Others will be honest.
- Take notice if the prospective tenant is late for appointments without apology or is unhappy about paying an application or screening fee.
- Ask why they’re moving.
Using these tips, along with a professional tenant screening service, can help insure that you lease only to qualified tenants. Good luck!
Across the country, college students are gearing up for a new school year. That means securing housing, and for many of these kids, campus housing is not an option. Whether their school is short on housing, their parents are looking for ways to save from ever-rising room and board fees or they simply prefer to live off campus, they’ll choose renting a house or an apartment.
For landlords, student tenants can be lucrative. Many college towns have limited housing available, so vacancy is rarely a problem, and getting market rent—or above—is not unusual. In addition, mom and dad are often paying the rent, so that’s not a problem, either.
On the other hand, student tenants don’t always work out. Some are on their own for the first time and don’t yet realize the impact their actions have on others. Others don’t have mom and dad to back them up, so paying rent on time could be a problem. Students can be noisy, messy, and disrespectful of you, your property and the neighbors. They may not understand the terms of the lease or think that certain rules actually apply to them.
In other words, student tenants are just like the rest of the population. Some are good, some are not so good. So is it worth the hassle to rent to students? Many landlords say “yes!” Renting to students can be a sound business decision when approached from a business standpoint, with firm management, enforcement of the terms of the lease, as well as your rules and regulations.
Ten Tips For Renting to Students
- Never rent without a lease. Go into more detail than you think you need, and review it with your prospective tenants.
- When setting rents and security deposits, take into consideration the potential for higher repair and maintenance costs.
- Get each student tenant’s parent to co-sign the lease, making them responsible for late rent, damages, etc.
- Reinforce to student tenants that unauthorized guests or roommates are not allowed. Each occupant must be on the lease.
- Screen each potential tenant. Even though the students may be young, they could have criminal histories or be a poor credit risk. Tenant screening is a must.
- Determine whether your lease will run for 12 months or for the school year, which could be fewer then 12.
- Be sure the lease states that all tenants are responsible for the entire rent. If one student moves out, his or her share is still due and payable by the remaining tenants.
- Offer online rent payment for the convenience of your tenants and fewer hassles for you.
- Contact the parents or co-signers at the first sign of trouble, whether it’s property damage, noise problems or late rent.
- Enforce your rules. When students know what to expect from you, as well as the consequences of their actions, they are more likely to behave.
No matter if you’re a long-time landlord or new to the business, you’ll likely encounter a wide mix of tenants. Some will be easier to deal with than others. They pay their rent on time, follow your rules and cause no problems. Other tenants can only be described as problem tenants. Most landlords would probably agree that if they could turn back the clock, they would not have agreed to lease to these tenants in the first place.
Trouble is, you can’t always know if a tenant will be a problem. Experienced landlords know that even those with good jobs, good credit scores and sparkling references can later turn out to be duds—or worse. But there are warning signs that every landlord should know.
Five Warning Signs of Problem Tenants
- They gripe about the application fee. Good tenants realize that running background checks and tenant credit checks, calling references and processing paperwork take time and money. They pay the application fee without complaint. A lease applicant who can’t pay the fee, or complains about it, is a red flag.
- They ask for more time to pay the first month’s rent and security deposit. Sure, it can be tough to come up with that much money at once. But remember, you’re running a business, not a charity. If a tenant cannot pay all of the rent and security deposit up front, you may want to pass on him or her and wait for someone who can. It’s a matter of choice. Let another landlord deal with it.
- They are new at their job. This isn’t always a bad thing. Plenty of people switch jobs because they’re offered better positions that pay more, and they can afford more rent. But if a prospective tenant has had several jobs in the past two or three years, the new job might not last for long. And soon, the excuses for paying rent late will begin.
- They mention relationship problems. Keep in mind that according to the Fair Housing Act, landlords may not discriminate against applicants based on marital status. It’s illegal to refuse to rent to a divorced person, a single person or a married person because of their status alone. But if an applicant mentions boyfriend or girlfriend problems, or that he or she is trying to get away from someone, consider these red flags. Trouble typically follows people around. If you don’t want an upset estranged husband or troubled ex-girlfriend on your hands, pass on this tenant.
- They ask too many questions. There’s a fine line between having a healthy interest in your rental property and showing warning signs of being a problem tenant. Be on alert if a prospective tenant asks about things like:
- The racial makeup of your building or the neighborhood.
- Exactly what the electric, sewer or gas bills will be.
- How to file complaints or repair requests.
- Where they can smoke (if you have a non-smoking property).
- How often you’ll be inspecting the property, and how much warning you’ll be giving.
- The type of questions, the number of them, or the way they are asked can tell you a great deal about the person who’s applying to live in your property.
As a landlord, you get to decide with whom you enter into a lease agreement. Keep your eyes and ears open, trust your gut instinct and always verify everything a prospective tenant tells you.
No matter how competitive your rents are, you need to protect your rental property and assets with tenant background checks. Proper tenant screening will ensure you are leasing to the best possible tenants.