Options for Approaching Tenants With Short-Term Needs

Temporary or short-term tenants have very specific needs, but they can be a gold mine for landlords.

Short-term leases often carry premium pricing and, depending on local laws, the rates can jump significantly at the end of the lease term.

The trick is finding these tenants to keep your short-term vacancy rates as low as possible.

Add these simple amenities and follow these three strategies to help keep all of your short-term rentals full, all year round.

Adding Amenities
Short-term renters might be in town for a season or even six months with a contract job.

The shorter term of their leases often means that they will need a furnished apartment.

Working with a furniture rental company can give you the flexibility to offer an apartment furnished or unfurnished, on demand.

If you want to avoid the added expense, you can always furnish the apartment yourself.

Keep in mind that better furnishings can help draw in higher-end tenants.

Another major amenity to keep in mind is connectivity.

If a tenant is traveling for business, they may be working virtually around the clock. Make sure all temporary units are already wired for Internet service and include the cost in the monthly fee. This helps your tenants avoid wait times for installation.

Consider rolling all monthly expenses into the rental fee for short-term leases. Some companies pay the living costs for temporary housing, so a rental agreement that builds in electricity, heat, hot water, and any other utilities can be worthwhile to business tenants.

How to Attract Temporary Tenants
Once you have the unit ready, it is time to start lining up prospects.

There are many ways to connect with short-term tenants, and here are three that can boost your existing campaigns.

1. Contact companies
Start any search for temporary tenants by touching base with local companies that often use seasonal or contract workers.

You can set up an agreement directly with the company for a specific number of units.

This has several benefits, not the least of which being that even if the unit is not filled, you still collect rent. If something does happen to a unit, it might take longer to collect damages from the business, but you are much more likely to be paid without spending time in court in order to collect.

Other benefits of renting directly to the business is less time and money spent acquiring tenants. You won’t need to run multiple tenant applications or advertise as long, or at all.

2. Add “short term” to your ads
The easiest way to connect with short-term renters is often just adding the keyword to all of your materials.

Make sure that prospects see that you offer these types of leases, so you can leverage all of your advertising toward filling any type of vacancy.

3. Post on job boards
If you don’t want to work with companies directly, you can still take advantage of their hiring practices by advertising in the same places they do. If a local company routinely advertises for jobs on a specific board, add your own materials in the same place.

This will make sure every new contract employee also sees a place where they can go to find temporary housing.

When adding materials designed to attract seasonal or temporary renters, be sure to distinguish between short-term and month-to-month leases.

A month-to-month may not offer enough security for prospective tenants, but they may want to have the option available at the end of their longer term.

Offering both options can be a bonus when working with those who can’t say for sure how long a job will take.

Should You Ever Accept Cash from Tenants?

Many landlords wonder about which types of payment options they should accept from their tenants.

What if your tenant doesn’t have a bank account or use checks?

Is it safe to accept cash from tenants?

Every type of payment option has its benefits and downsides, so it’s critical to assess what’s most important to you, whether it’s transaction fees, security or convenience.

Here’s a look at the pros and cons of different payment options:

Cash
Many landlords prefer cash payments for several reasons.

Unlike a check, you don’t have to wait for it to clear, and there is no risk of a bounced check. While cash is a safe option, it’s extremely important to provide your tenants with a receipt (make sure to keep a copy for yourself) so you have a clear paper trail if any discrepancies arise in the future.

The main drawback to cash is that you or someone who works for you has to meet with the tenant in person to collect the money, a time-consuming task if you have a lot of tenants.

It can take even longer if you’re driving to different properties. Even if you ask your tenants to come to you, they may accidentally or purposefully miss the meeting time.

For all of these reasons, cash typically works best if you have very few tenants, and the tenants live close by.

If time isn’t an issue, however, collecting cash payments gives you a good opportunity to check in with your tenants.

Money Orders
If your tenant does not have a bank account, you may also consider accepting money orders.

These are considered safer than personal checks because they are backed by a third party.

Tenants will have no trouble obtaining one, as they’re available at the post office, big retailers and many drug stores. In addition, money orders can be mailed to you, so you don’t need to waste time and energy personally meeting with all of your tenants every month to collect payment.

The downside is that, even though it’s difficult to cancel a money order, it’s still possible.

Also, your tenants will have to pay for the money order each month, which they may not be happy about.

Money orders are a good option if you have several tenants and want the convenience of having payments mailed to you.

Just make sure your tenants understand that they need to purchase one every month.

Credit Cards
If you’re dealing with tenants without bank accounts, you can also accept credit card payments.

It’s very simple to set up a basic merchant account with PayPal.

The site is completely secure, and you don’t have to worry about checks or money orders getting lost in the mail.

Tenants find it very convenient and easy to use, as most people are already accustomed to paying their bills online. You can also send invoices electronically.

Just be aware that PayPal will charge you a small transaction fee, so this option is best if you don’t mind paying a little extra for convenience.

If your tenants don’t have bank accounts or don’t want to write checks, you can still find a payment option that works for everyone.

Just make sure you carefully consider the benefits and costs of each method before deciding which payment options to accept.

Top 10 Things to Make Sure Your Lease Covers When it Comes to Tenant Responsibility

A good lease is the foundation for your success as a landlord.

When tenants understand your expectations, they are more likely to live up to them.

Furthermore, if tenants disregard some aspect of your agreement, a solidly written lease will give you firm legal ground for pursuing your rights.

Here are 10 elements to include in your lease to ensure that it covers all the essentials:

1. Names of every tenant
If you rent to several people, you should not allow them to decide among themselves whose name will go on the lease.

Every adult in the dwelling, married or not, should be included on the lease.

This is helpful to you because it makes every person on the lease financially responsible for the entire amount owed to you.

It is also helpful to list children’s names, simply as a way of being specific about who is occupying the dwelling.

Occupancy should be limited to those people whose names are on the lease, and the issue of subletting should be specifically addressed.

2. Local landlord-tenant laws
Each state, county, and city has its own set of landlord-tenant laws, so you need to make sure that your lease follows local requirements.

These laws cover many topics, including the amount of notice that you must give before you enter the property, how you must handle security deposits and what rules you must follow if you need to evict a tenant.

If you have purchased a boilerplate lease, it’s essential that you change the parts of it that don’t comply with your local laws.

3. Rent payment expectations
Your lease should spell out exactly when, how, and where your tenants are supposed to pay the rent.

These specifics should include:

  • Amount of rent
  • Due date for rent payment
  • Form of payment: Will you accept cash? Money orders? Checks? Electronic payments? You may have a preference for a certain form of payment — for example, you may not want to accept checks because they can take a long time to clear — and it’s important to let your tenants know what you expect.
  • Place of payment: To avoid disputes related to a tenant’s unsuccessful effort to submit payment, it’s helpful to state the location at which payment must take place.

 

4. Utility responsibilities
This section of the lease is highly variable from one residence to another.

In some cases, tenants may establish their own personal accounts with city utility companies.

In other situations, landlords may set a flat fee for utilities and ask tenants to keep their usage within certain limits.

For example, you may pay the trash removal bill, but limit your tenants to a certain size of trash can.

If your tenants will have responsibilities such as putting trash cans out or calling for a new oil delivery when the heating oil level is low, it is very important to spell these out.

5. Pet Policies
Your lease should cover which types of pets (if any) you allow. It should also specify quantity.

If you allow cats, does that mean you would permit a tenant to keep eight of them? Also, do you allow snakes? Parrots and other exceptionally loud birds?

Be sure to clarify your pet deposit policy, including any situations in which you find out about a pet after the fact.

6. Lease-breaking criteria
If your tenant wants to move out before the lease is expired, will you require them to pay for the full lease period? Or would you ask them to pay until you find a new tenant?

Landlords have various opinions on this matter, so you need to clearly communicate your expectations.

Likewise, you should spell out your right to terminate a tenancy if the renter breaks certain clauses of the lease.

Don’t forget to check your local landlord-tenant laws to see if there are guidelines you’re required to follow.

7. Maintenance responsibilities
What is your tenant responsible for maintaining the property? Are they expected to water the lawn, replace fire alarm batteries, or shovel snow off the sidewalk?

You can’t hold a tenant responsible for doing work that you never put into writing.

Furthermore, you should mention that they must notify you if any household system stops working.

In most cases, you will be responsible for keeping the heat, hot water system, and basic safety elements in functional condition, but you should spell out what manner of collaboration you expect from your tenants.

8. Security deposit details
Security deposits create fertile ground for landlord-tenant disputes.

To head off trouble, spell out exactly what the security deposit may be used for.

Be sure to check your state and local laws before setting the amount of the deposit, and clearly state the fact that your tenant may not use the deposit for the final rent payment.

Likewise, clarify which part of the deposit is refundable, and how soon you will refund it, following tenants’ departure.

9. Tenant alterations
Although a lease cannot foresee every potential alteration a tenant might make on the dwelling, you can create categories of changes that require your permission.

Do you want tenants to be able to paint interior walls as they wish? Can they install shelves, burglar alarms, or overhead light fixtures?

10. Emergency notification procedures
If the washing machine floods the basement, or there is a fire, the tenants need to be able to reach you right away.

Be sure to include your emergency contact number, and describe the nature of emergencies that would give you permission to enter the tenant’s dwelling without notice.

 

3 Tips to Verify Tenants’ References Are Real

Almost all rental applications ask for references.

Unfortunately, references are maybe one of the easiest things for an applicant to fake.

Some tenants will just put down the names and contact information of friends and family on the application, so that their loved ones can vouch for them.

Many landlords and property managers go as far as to essentially disregard references during the screening process, or they at least put minimal weight on positive recommendations from references.

But if an application is marginal, or if you’re investigating a previous eviction or other black mark on the tenant’s record, you may not have that luxury. How can you, as a landlord, distinguish between a real rental reference and a fake one?

Make Sure the Consequences of Falsification Are Clear
As you put together the rental application, make it clear to your tenants what the consequences of lying on the application are.

Most landlords handle this by making it clear that if a tenant is caught lying on an application, the application will be rejected outright and no subsequent application will be considered.

You’ll still get applicants falsifying information, of course.

But with this warning, you’ll discourage the more honest applicants from embellishing their application, or adding a false reference.

Research the Reference
Before you get on the phone with a reference, don’t hesitate to check the Internet for information about the reference and the property they (supposedly) manage.

Does the individual have any other properties in the area? Are they in a line of work that implies that they have the money to own and maintain a rental property? Can you determine whose name it’s under, and does that information line up with what you’re seeing on the application?

If you see any discrepancies or suspicious information, that doesn’t necessarily mean that the applicant is lying.

The property may have changed hands recently, for instance, or the owner may have undergone a name change, or may be doing business as a different entity.

But keep these in mind as you contact the reference.

Interview the Reference
Talking with the reference is one of the most important steps you can take in this process.

Call them up and start asking them some basic questions, including: what were the start and end date of the lease? How much rent was the tenant paying, and was it paid on time? Does the tenant have any complaints? Would they rent to the individual again?

Listen carefully for hesitation.

That doesn’t necessarily mean the individual is lying — plenty of people feel uncomfortable talking on the phone, after all – but if they’re hesitating and their details are vague, you may be dealing with a falsified reference.

Remember that you can always bring up any discrepancies you’re seeing.

Don’t accuse the reference of lying, but you might choose to make casual mention that you’d seen that the property was owned by someone else, or you might ask them if they own any other properties and where they are.

Finally, listen for any bad information.

If a reference presents their information in vague, glowing terms, that may indicate that they’re falsifying.

Conclusion
Unfortunately, you don’t necessarily have any indication that a tenant’s reference is a real one, so you may want to place less weight on that part of the application than other, arguably more important ones like credit score and income verification.

But if you need to determine that a reference is legitimate, these tips, plus your intuition, may help.

 

What to Do If Your Tenant Shuts Off Communication

Not even the best landlord on earth can avoid running into a situation where a tenant refuses to respond to your requests or won’t answer the phone or even the door.

It can be a very sticky situation for you, especially if the matter that needs to be resolved is not necessarily a breach of the rental agreement that allows you to begin the eviction process.

If you find yourself trying to communicate with a tenant who you think is trying to avoid you, try these methods of getting in touch before you start stressing out.

1. Give Them the Benefit of the Doubt
Just because the tenant didn’t return yesterday’s text or phone message, don’t jump to the conclusion that they’re avoiding you.

They may be on vacation, busy with personal affairs, or even experiencing a medical emergency.

If you don’t hear back from a tenant after a couple of days, stop by the property or send an employee/official personnel — such as a custodian or property manager — to check on the tenant.

If there’s still no answer, check to see if the mail has been collected and ask neighbors if they’re aware of any travel plans or other things that may be causing the tenant to ignore your attempts at communication.

2. Document Your Calls
It’s always a good idea to record any message you leave on voicemail or an answering machine via a method that can time and date stamp it.

This provides a record of your attempts to contact the tenant in case a situation arises where you have to take the tenant to court over an issue that they claim they weren’t informed about.

If the situation leads to an eviction, the fact that you can prove that you tried to contact the client and they didn’t respond to you will be favorable for you.

3. Send Registered Mail
If you’re sure that your tenant is completely avoiding you but you still need an issue to be resolved — like trash in the yard or a noise complaint — the best way to notify them is by certified or registered mail.

This forces them to provide their signature when they receive the piece of mail or package — in this case, your letter informing them about the issue.

Give them notice of all lease violations and let them know that the eviction process will start on a specific date if they don’t remedy the situation.

If the tenant still refuses to accept your communication via registered mail, at least you still have an official record of the event that can later be used in a court of law to prove that you could not contact them by any means.

4. Start the Eviction Process
If the tenant is refusing to correct the issue and will not communicate with you, it may be time to start the eviction process.

Make sure that you take steps to publicly notify the tenant, including pasting a copy of the note on their door where it will be obviously visible when they come home.

Photograph it with a time and date stamp for your records.

Make sure you know the laws and familiarize yourself with the Residential Landlord and Tenant Act before you begin the eviction process.
It can certainly be frustrating to deal with a tenant that simply won’t get back to you, but don’t let it get your goat.

There’s a chance that they may be going through a hard time in life and, while that is not an excuse for bad behavior, it is a reminder not to take things personally.

Keep all interactions on a business and professional level and chalk up even the bad experiences to learning new things!

Setting Minimum Application Requirements for Tenants

When you first put together your minimum requirements for a tenant, it’s important to have rules and stick to them.

Fluctuating vacancy rates can make it tough to stick to your guidelines, but just a few false steps will make you remember why you put them in place to begin with. Before you sign an agreement with any tenant, you should have a fairly stringent application process.

Decide on the application requirements, including the minimum credit score accepted, whether you’ll do a background check, the maximum household number, income requirements, and more.

Be sure to know ahead of time what’s acceptable to you and what’s not when you screen prospective tenants.

Set a Minimum Credit Score

A credit score is often the first and primary criteria in deciding whether to accept an applicant as a tenant.

A high credit score usually indicates an ability to pay financial obligations on time. While a lower credit score doesn’t always indicate financial irresponsibility, you should always look for tenants with a credit score of at least 700.

Always run a credit check and try not to waiver on what you consider an acceptable score.

If you do want to make an exception, remember that the number is not the whole story.

Be sure to look at the credit report as a whole, and address issues like unemployment or health problems that may have impacted an applicant’s rating.

To Do or Not To Do a Background Check

Currently, you’re allowed to do a background check for tenant screening and use the information discovered to make a decision about a lease agreement.

For example, if you’re uncomfortable renting to someone with a felony conviction, you can refuse based on that information.

If you choose to use background checks, be aware that the law may change at any time. Keep up-to-date on changes to privacy laws to avoid discriminatory rental practices. If you are unsure about the legality, it’s a good idea to seek legal advice before making a decision.

Check on Household Size

While it’s illegal to discriminate based on marital or familial status, you can set up occupancy restrictions.

For example, you may limit the number of people living in a three-bedroom home to a maximum of seven tenants.

Placing limitations on the number of people living in a unit is simply a way to meet fire codes and not the same as discriminating against families with children.

Set Firm Income Requirements

A credit score is one of the easiest things to check about a tenant, but income may be even more important.

How much money an applicant earns will directly affect their ability to make rental payments on time. Typically, you want someone who earns at least three times the rental amount.

You might even be more flexible on other criteria if they earn four or more times the rent.

The more money they earn, the less stress there should be on them to get you the rent payment by the due date.

Ask for References

Be sure to ask for references on any rental application.

If a prospect doesn’t have any previous tenancy to list, that can be a warning sign.

If they do, make sure to call the references and follow up. One phone call might save you thousands in lost rent and property damage.

Advertise Your Requirements to Avoid Issues

Sob stories and sympathy might make you more likely to bend some of your rules. Avoid this whenever possible by letting applicants know your guidelines ahead of time.

If you tell prospective tenants that they need a 700 credit score to be approved, they’ll be less likely to pay the rental application fee if they don’t have confidence in their credit score.

The more information you give applicants, the less likely they are to apply if they don’t make the grade.

How Much Should You Disclose in the Tenant Screening Process?

When you’re trying to fill a vacancy, you need to do a lot more than simply run a credit check.

One problem tenant can eat up hours of your time (and cost you a lot of money in some cases), so it pays to put in some extra effort during the application process to weed out as many problems as possible.

The clearer you are about your expectations, the less likely you are to run into problems after the lease is signed.

Start With the Application

Before you start narrowing down your list, let applicants know about your scoring process that you will impliment on the tenant screening and how everything works.

If they know you expect excellent credit, solid references, and a strong income, under-qualified applicants may not choose to pay the fee.

The more information you provide about the application process, the less likely you are to waste time sorting through poor risks.

Be Clear About Lease Terms

Instead of risking the loss of a perfect tenant due to a specific lease issue, offer prospects a copy of a sample lease when they first express interest.

This allows them to ask any questions about terms and possible negotiations.

If they have a pet, you might be willing to be flexible.

If they need a specific time frame but otherwise have a strong application, you might want to be flexible about the duration of the lease.

If you offer them a sample document, you can clear up many potential problems from the start.

Discuss Payment Options and Fees

Tenants who want to pay their rent in cash may not be the best option.

You’ll want to clearly state the available payment methods ahead of time, so prospects know what your expectations are.

If you only accept payments at the office during specific hours, tenants need to know.

If you have an online system for payments or accept automatic payments, tenants can set it and forget it.

By clearly stating payment options and terms, you may avoid late payments and arguments about late fees.

You’ll also want to be open about bounced-check fees and any other costs associated with payment mishaps.

Lay Out Renewal Terms

Many leases contain an automatic rental increase from year to year.

Others switch to a month-to-month commitment at the end of the original term. Let your tenant know how your lease terms work and what to expect from a renewal.

By giving tenants an overview of the expected increases, you increase your odds of landing a long-term tenant.

Assign Maintenance Responsibilities

As a landlord, many maintenance tasks fall to you.

Plumbing, electrical and other home systems are usually the responsibility of the landlord, but outdoor spaces may be negotiable in some states.

For example, you might have the tenant assume responsibility for clearing snow or keeping the grass cut.

If you do, make sure to draw the tenant’s attention to that lease clause and any consequences for failure to comply.

Be Clear and Concise for a Better Tenant Relationship

The more information applicants have about how you handle your rentals, the less likely you are to have problems with a tenant.

If they know that you respond best to phone calls during the day and prefer text messages for evening emergencies, you may face fewer midnight interruptions.

Build a relationship with your tenants and they might stick around, without hassle, for a lot longer than the first year.

Conclusion

Keeping good tenants and weeding out problem tenants during the tenant screening process usually starts with communication.

The more clearly you describe the process and your expectations, the less likely you are to deal with problems in the future.

Tenants who know about lease terms, understand renewal options and have emergency contact information in hand spend less time fighting with you and more time enjoying their stay.

How Private Are Tenant Screenings? (Part 1)

When you are performing a tenant screening, you’re going to come across plenty of sensitive information.

This includes full names, dates of birth, previous addresses, employers, social security numbers, financial histories, and other information that is considered private and protected.

This can end up being a concerning ethical and legal problem if handled incorrectly.

When a tenant hasn’t authorized information to be handled by a third party (such as an office manager or another landlord working with the same company), what can be shared?

How does this vary from place to place?

We’ll be answering these and other questions in this two-part series.

As usual, privacy laws vary from place to place, and can change quickly.

Always corroborate any information you read online elsewhere, and if you have any questions it’s always a good idea to hire a lawyer.

Best Practices

Matters of the law aside, there are certain ethical best practices to take into account when collecting and using an applicant’s personal information to run a tenant screening.

First, don’t take any information you don’t need to conduct the screening.

This may seem obvious, but many companies use applications from other rental companies, or that they find online. They may not actually need all of the information they’re requesting.

If you’re disseminating information through your office, consider what’s actually needed.

If someone is performing an employer verification, for instance, they don’t need the individual’s social security number, so you can remove that from the application before passing it on to the employee.

Finally, always make sure any files containing confidential information are locked away securely, or encrypted if they’re digital. This will help protect you from prying eyes, burglars and hackers.

Use the Need to Know Rule

In the healthcare industry, medical files are made available on a need to know basis.

If you don’t need the information, you shouldn’t have access to it.

Applying that same rule to your tenant screenings is a good idea. If a file contains information not needed to make a rental determination, remove it from the file.

The Federal Housing Administration has guidelines that protect certain classes. Any discriminatory rental practices could have you facing serious financial penalties.

That makes it important to reduce the associated risks by eliminating access to information that could be considered prejudicial.

In addition to using unverified sources, some companies have an application process that could expose them to liability.

If you ask one applicant a few questions and ask a second applicant different questions, that could be problematic.

Before you start background checks, be sure you collect the same information from every person applying.

Then, keep the different documentation separate.

The person handling the credit check will need an applicant’s social security number, but the person doing a reference check will not. Unless you are handling everything personally, you will want to put strict controls in place regarding the spread of personal information.

Handling personal information is a necessary part of the property management business — you need to conduct thorough tenant screenings – but you’re engaging in an act of trust.

To handle this information irresponsibly is to do your tenants a grave disservice.

Always make sure that you take all the necessary steps to protect your applicants’ sensitive information.

Not only is it the law, but it’s what you’d want them to do for you.

Read Part 2 for more information about certain state-specific legal issues.

Help, My Tenant Filed for Bankruptcy! (Part 2)

In the first post of this series, you learned more about the bankruptcy process and how it can affect your relationship with a tenant.

Filing bankruptcy can be a challenge for you and your tenant, and you owe it to yourself to know what you can expect during the process.

The first post covered how to screen tenants to try to avoid bankruptcy situations, and you also learned the difference between Chapter 7 and Chapter 11 bankruptcy.

You learned about pre-petition and post-petition claims, and how the rent you’re owed figures into the equation.

In the conclusion of this two-part piece, you’ll learn about automatic stays, how to terminate a lease if your tenant files for bankruptcy, the tenant’s ability to assume or terminate the lease and re-leasing your property.

As before, keep in mind that laws change quickly, and your state or municipality may have laws that aren’t reflected in this article.

If you have any questions, it’s always best to seek a lawyer who can rule on your particular case.

Can I Still Collect Back Rent?

When a tenant files for bankruptcy, the court institutes what’s called an automatic stay.

This means that most creditors cannot pursue any collection actions against the entity that filed for bankruptcy without the permission of the court.

However, be aware that as the entity’s landlord, you are not subject to this restriction and may still collect back rent as you normally would.

Remember that because back rent is an unsecured claim, it’s considered a low-priority payment and you may never get all of it back.

When the Landlord Terminates the Lease

If you have intimations that your tenant may be considering filing for bankruptcy, you may be interested in removing the tenant before that happens.

Keep in mind that you’re bound by all normal laws surrounding evicting a tenant, if you plan to do so.

What these laws are, exactly, varies from place to place, but generally, if a tenant has failed to pay rent, you may give them notice to quit.

The notice to quit, however, is not the same as an eviction.

An eviction is typically a long, drawn-out court process that may take many months—and by then your tenant may have successfully filed for bankruptcy.

If you’re like many landlords or property managers, you’ve made sure your lease has a clause stating that filing for bankruptcy breaches the lease.

However, most jurisdictions do not permit you to terminate a lease because a tenant has filed bankruptcy, and you also may not put additional requirements on a tenant (such as increased rent or fees, or requiring payment in cash rather than a check) due to their bankruptcy.

When the Tenant Assumes (or Terminates) the Lease

Chapter 7 bankruptcy, in particular, lets the tenant decide whether they wish to assume or terminate the lease.

Essentially, this means that they can reconsider the financial obligation of the lease in light of their current situation.

If they decide that it’s too heavy of a burden in their current state, they may choose to terminate the lease within 60 days without a breach of contract.

If they cannot decide during that period of time, they may file a request for an additional 60 days to decide, so long as they give an explanation of their circumstances and the court accepts this.

In response to this request, you are within your rights to explain to the court the stresses that this puts on you as the landlord or property manager.

It’s distinctly possible that your tenant will decide to assume the lease, so it’s not a good idea to assume that they’ll terminate it and move out without you collecting any back rent.

If the lease is assumed, the tenant is agreeing to pay all outstanding rent within a reasonable time (which may vary by the locality, but is often within 60 days).

If the tenant requires additional time to pay, they’re going to have to make a motion for that with the court.

Re-Leasing

If your tenant gives notice of termination, you cannot stop them from terminating the lease. In this scenario, you should start showing the property immediately. You may have already lost money during this period, and the last thing you want is to have your property sitting empty.

Because of how the re-leasing process works and how long it can take to get a new tenant into the property, most landlords try to block any motions from the tenant to extend the 60-day period of assumption or termination of the lease.

Three months is a very long period of time to not know if you’re going to need to start screening new tenants.

Conclusion

When your tenant files for bankruptcy, it can initiate a period of uncertainty for you, and possibly even create conflict between you and your tenant.

There’s no doubt that it’s going to be difficult, but if you educate yourself about the bankruptcy process and what it means for you, you’ll be able to save yourself and your business potential financial losses—and a lot of headaches.

 

Help, My Tenant Filed for Bankruptcy! (Part 1)

A tenant’s bankruptcy is one of the more frightening things that can happen to a landlord.

You may find yourself suddenly unsure if your tenant can or will pay their rent any longer, and thanks to some of the ambiguities in the law, you may not know if you can (or even should) evict your tenant.

This two-post series goes over everything landlords and property management companies need to know about bankruptcy, how it affects tenants and what a landlord can—and should—do about it.

Be aware that laws may change quickly, and that there may be state- or local-level laws that affect how landlords can handle bankruptcies.

Always check with the most recent version of the law, and you may want to hire a lawyer if you have questions.

Avoid Problems Down the Line

Most landlords and property managers already know this, but it’s never a bad idea to repeat: Always be sure you run a credit check on your tenants before they move in.

The score will give you an at-a-glance description of the client’s credit.

But don’t forget to look at the entire credit report rather than just the score.

The report gives you the full story of your potential tenant’s credit.

Armed with that information, you’ll be able to answer applicable questions like: How long has the tenant’s credit been suffering? Is this a slow decline in their financial health, or is this a sudden, precipitous inability (or refusal) to pay their bills or other outstanding obligations?

If you see a lot of bills that have gone to collections in the credit report, you can assume that there’s a problem.

By looking at the credit score and report, you’ll be able to form a more educated opinion about the tenant’s ability to pay their rent and avoid bankruptcy.

If you have any questions about what you see in the report, but are still interested in having the applicant as a tenant, you may want to ask the tenant questions about what you’re seeing in the credit report before you make a determination about their suitability.

Be aware, however, that they may not want to answer your questions, and they may dodge questions or even lie under pressure.

Kinds of Bankruptcy: Chapters 7 and 11

If you’re not an accountant or a lawyer, or if you’ve never considered filing for bankruptcy yourself, you may not know that there are several kinds of bankruptcy, each with its own considerations.

The first type of bankruptcy is called a Chapter 7 bankruptcy filing.

Chapter 7 bankruptcy is sometimes called a “straight bankruptcy,” and is the kind most commonly filed by individuals (as well as some businesses).

When an individual or a business successfully files for Chapter 7 bankruptcy, the court appoints a trustee who handles the liquidation of the entity’s assets so that all creditors can be paid back as much as possible.

With Chapter 11 bankruptcy, no assets are liquidated, and the entity retains complete and independent control of their finances.

They must pay back their debts in full plus some extra, but they are given additional time to do so.

If they fail to do so, the Chapter 11 bankruptcy may be converted to a Chapter 7 bankruptcy, meaning that the court will assign a trustee and order the liquidation of assets and the payment of creditors.

You may also see some other types of bankruptcy.

Chapter 12, for instance, deals with small-business fishermen and farmers, and Chapter 13 is a rehabilitation program that focuses on regular wage-earners.

But these are more unusual, and most landlords will only encounter Chapters 7 and 11 .

Pre-Petition and Post-Petition Claims

The process of filing for bankruptcy is sometimes called “petition”.

Pre-petition claims are financial burdens put on a tenant before they file for bankruptcy; post-petition claims are those placed afterward.

Rent is considered a claim. If the tenant remains in your property after filing for bankruptcy, any rent that comes due during that time is a special type of post-petition claim called an administrative claim.

Administrative claims are high-priority claims that tenants must prioritize paying off.

By contrast, unpaid rent or fees that were due before the tenant filed for bankruptcy are a type of pre-petition claim called an unsecured claim.

Unsecured claims are typically low priority for tenants to pay off, in comparison with other claims.

As the landlord, you may not be able to get back the entirety of what is due to you, either.

Conclusion

When a tenant declares bankruptcy, their landlord may not be sure exactly what that means, or what procedures to follow.

But if you follow the guidelines laid out in this post, you’ll be prepared for any tenant bankruptcy situation you run into — and you may even be able to take steps to more carefully screen potential tenants, to avoid any bankruptcy problems at all.

In the second part of this series, we’ll go over some more considerations surrounding tenant bankruptcy, and how landlords should best respond when they learn that a tenant has filed for bankruptcy.

 

Check out the second part here.