Tag Archives: property management

Renting Apartments to Multiple College Students? Lodging House Requirements No Longer Apply

By on August 23, 2017

Massachusetts law distinguishes rented dwellings from lodging houses with regard to the requirements, rights, and remedies for the landlord or owner of the property and the tenants or lodgers. By statute, when a dwelling unit is occupied by “four or more persons not within second degree of kindred” to each other, that unit is considered “lodging,” and not a rental unit. In order to legally operate a lodging house, the owner of such units must obtain the necessary licenses, subject to fines or imprisonment for failure to comply.

The lodging house act was enacted during World War I as a reaction to concerns over immoral conduct and the spread of sexually transmitted infections. The Act divided persons who reside with their nuclear families, or are related within a second degree to the person owning the premises, from other, unrelated individuals who reside with each other. The Act applies to fraternity houses and dormitories for educational institutions, with the exception of dormitories for philanthropic institutions or nursing homes. Lodging houses have separate standards for complying with Massachusetts law, which are separate from standards set against apartment buildings and units. In addition to the licensing requirement, lodging houses must comply with the applicable building codes, they must provide kitchen facilities equal to or greater than 150 square feet in area and include a gas or electric plate or stove, a refrigerator, and hot and cold water, unless the city or town where the building is located has contrary regulations or bylaws. Lodging homes are also subject to the requirement that they not be used for any “immoral purpose” and the owner of the lodge must keep a register of all persons occupying units in the premises.

More recently, the Massachusetts Supreme Judicial Court (“SJC”) addressed the implications of the act in City of Worcester v. College Hill Properties, LLC, relative to private rentals to college students. In that case, the defendant property owners owned several two- and three-family properties and leased each unit to four unrelated college students under annual lease agreements. After investigating the units, the City of Worcester cited the defendants and ordered them to cease and desist from operating unlicensed lodging houses. The defendants refused to comply with the order and the City filed suit in the Housing Court. The Housing Court held that the units, as occupied, constituted “lodgings” under the law and ordered injunctions against the defendants. This ruling was upheld by the Massachusetts Appeals Court and the defendants ultimately appealed to the SJC. The SJC reviewed the historical differences between “lodgings” and apartments and analyzed the plain dictionary definitions to determine whether the defendants’ buildings were apartments or lodging. The SJC overturned the Housing Court’s ruling, finding that the City of Worcester’s interpretation of “lodging” (that the plain meaning of “lodging” and “let” suggested that the statute applies to “any place to live in any house”) was myopic and would “lead to absurd results and selective enforcement.” The SJC therefore refused to adopt the interpretation put forth by the City of Worcester and followed by the Housing Court, holding that the defendants were not operating “lodgings” within the meaning of the act.

The SJC’s interpretation in College Hill Properties has created a logical standard for distinguishing lodging houses from apartment buildings and has helped to facilitate the increased need for housing for college students in Massachusetts. If you are a property owner who rents to multiple unrelated persons or are considering renting in Massachusetts you should contact an experienced attorney to ensure compliance with all laws regulating rental apartments and lodging houses.

Want Out? Prove It: Enforcing Termination Options in Massachusetts Commercial Leases

By on May 22, 2017

A recent Massachusetts Appeals Court decision made clear that the burden of proof relative to the operation of lease option clauses falls on the party seeking to exercise the option regardless of which party moves to enforce their rights pursuant to the lease. In Patriot Power, LLC v. New Rounder, LLC, et al. (2016), a commercial landlord initiated an action for declaratory judgment and breach of contract against a tenant alleging that the tenant did not properly exercise its contract option to terminate its tenancy.

At trial, the jury was instructed that the landlord bore the burden of proof relative to the claim that the tenant had not properly exercised the lease termination option. The landlord objected to the instruction and subsequently lost the case. On appeal, the court sided with the landlord and reversed the ruling on the grounds that the jury instruction regarding the burden of proof was erroneous and prejudicial.

The court held that the fact that the landlord initiated the action for declaratory relief did not shift the burden to the landlord on the underlying action. The court cited a line of cases supporting the proposition that, “one relying on a condition to avoid contractual obligation has the burden to prove the occurrence of the condition.” A proposition made stronger when the facts are such that, “the contractual obligation actually requires an affirmative act by the party seeking to end the obligation.”

As applied to the facts in Patriot Power it is clear that the tenant bore the burden of proof. The lease termination option required the tenant to mail timely notice of such termination in order to relieve the tenant of further contractual obligation. Thus, the tenant needed to prove it had, in fact, complied with the terms of the lease rather than the landlord needing to prove non-compliance. Lease termination option clauses are common in many Massachusetts commercial leases. Both commercial landlords and tenants should read their leases carefully in order to fully understand the obligations and provisions contained within.

When Should Property Management Companies Contact An Attorney?

By on July 7, 2015

For most property management companies, picking up the phone to contact a lawyer is usually done with a sigh. If you are reaching out to an attorney, that often means that something has gone wrong and you need help in a difficult situation.  So when should property management companies contact an attorney?  The below topics are those most typically encountered by our property management clients. When these issues are addressed early with an attorney, a property management company will save substantial time, money and unnecessary aggravation.

Corporate Matters

Every property management company has some form of company structure (e.g. sole proprietorship, limited liability company or corporation). At the inception of a company, many owners simply ignore their structure while focusing on their expanding business. As the business grows, however, company owners need to look at their company structure and make sure it still makes sense. After all, internal disputes do not arise until there is real money at stake. When a dispute does occur, if the company structure is lacking, the ensuing litigation is going to become expensive very quickly. As such, company owners should ask themselves these three questions: (1) what happens if there is a falling out between the owners or someone passes away; (2) what happens if the company wants to expand; and (3) what happens when another company wants to purchase the existing company? Your company documents, such as your operating agreement, should contain the answers to these questions. If not, you should contact your attorney to make sure these items are addressed before they become an actual issue.

Document Drafting

Running a successful property management company requires careful compliance with a lot of different local, state and federal law. Although there are many “standard” lease and property management agreements available on the Internet, the drafters of those agreements are usually not aware of the local nuances that may govern those documents. For example, unlike most states, it is illegal in Massachusetts to charge tenants certain upfront fees such as application fees and pet deposits. A standard lease from another state like New Hampshire may be unenforceable in Massachusetts. As such, it is important that you have a professional review your tenant lease documents. The same caution is applicable to property management agreements (i.e. agreements between you and your owner-client). Given the nature of their business, property managers are exposed to liability from several parties. Therefore, make sure you review your property management agreement with your lawyer and periodically update it as circumstances change.

Employment Issues

Whether your company is a small operation or a Fortune 500 company, you will likely have employment issues at some point. Property management companies deal with unemployment claims, wrongful termination lawsuits and employee-misclassification. As mentioned in one of our recent articles, simply improperly classifying an employee as an “independent contractor” can be a costly mistake. If a suit is brought under the Massachusetts Wage Act, a company may be liable for triple damages, attorney fees and, in some cases, owners of the company may be personally liable. Unfortunately, many clients contact their attorney after one of these issues arise. To avoid unnecessary litigation, it is best to contact your attorney early to establish best practices for employment-related issues. When set up correctly, proper policies (e.g. employee handbooks, social media policies, etc.) and other preventative measures can minimize the exposure for employment claims.

Evictions

The eviction process, particularly in Massachusetts, is very tenant-friendly. Nevertheless, acting early can greatly increase a property manager’s potential for recovery and reduce the amount of rent loss. The key to an expeditious eviction is ensuring that the eviction notice is sent as soon as possible. In Massachusetts, you generally need to send either a 14-day notice or a 30-day notice, depending on the situation. It is important to remember that the eviction process does not begin until the correct notice is sent. If you fail to send the right notice, your case may be dismissed and you will be forced to start the process from the beginning. The other important aspect of evictions is making sure you have good information about your tenant. Setting up a proper screening process is critical. Too often, we have clients who do not have key information about their tenants (e.g. social security number, employment information and references). Without these critical items, collecting from a delinquent tenant is next to impossible. You should contact your attorney if you are unsure whether your screening process is adequate, or want to confirm that you are following the proper procedures for starting an eviction.

Vendor Disputes

Property management companies of all sizes have multiple trades and vendors at their disposal. In fact, many have multiple vendors for the same services so that they can remain competitive and ensure they are receiving the best service for the best price. Often, these vendors have either (1) their own contract; or (2) no contract at all. Under either circumstance, if a dispute arises, the property management company is at an immediate disadvantage. If the contract was drafted by the vendor, it likely is one-sided. If no contract exists, the parties will be stuck piecing together what they believe to be their agreement. Therefore, make sure you review each and every contract with your vendors to make sure your interests are protected. If you do not have a contract with a certain vendor, contact your property management lawyer to draft one for you.

Proposed Bill Allows Massachusetts Landlords to Collect Application Fees

By on May 11, 2015

As mentioned in one of our recent articles , the United States District Court for the District of Massachusetts ruled that Equity Residential Management violated MGL 186 § 15B when it collected application fees, amenity fees, community fees and pet fees. See Perry v. Equity Residential Management, LLC. In short, the Court ruled that landlords may only collect fees and/or deposits specifically listed under MGL 186 § 15B. Because that list does not include application fees, the Court ruled that it was illegal for Equity Residential Management to collect application fees.

In an apparent response to Perry v. Equity Residential Management, as well as other Massachusetts state court decisions on this issue, Massachusetts Senator Donald Humason recently sponsored Senate Bill 840, which would amend MGL 186 § 15B to allow landlords to collect an “application screening fee.” The proposed change to MGL 186 § 15B is similar to other states’ laws, like California. S.B. 840 provides that landlords may charge an “application screening fee” so long as the fee is not greater than the actual cost incurred by the landlord. That fee must not exceed $50 per applicant.

On May 12, 2015, the Massachusetts Legislature’s Joint Committee on the Judiciary will review the proposed Bill. Given that S.B. 840 would provide much needed relief and clarification for landlords, Strang Scott will continue to monitor its progress.

Property Managers – Ensure The Property Owner Indemnifies You

By on March 23, 2015

Most property management companies focus their efforts on maintaining the day-to-day operations of their properties and really do try to address their tenants’ requests. Often times, it is a thankless job. A quick Google search of many property management companies will reveal horror stories about tenants’ negative experiences. When something goes wrong at a property, the tenant will make demands on the property manager, often times without including the property owner in those discussions. I have been guilty of this myself. If such a problem ultimately leads to litigation, the tenant will often sue both the property management company and the owner. If the property management company does not have adequate indemnification from the property owner, the property manager may have to defend the tenants’ claims, even if the owner actually caused the problem (e.g. a defect in the building).

As a Boston property management attorney, I recently had a large property management company that had to unnecessarily litigate a mold issue with one of its tenants. Obviously, an allegation of “mold” is very serious. The problem is that most mold is black in color and therefore many people may think they have “black mold” (Stachybotrys) even if they do not. Even so, an allegation of “black mold” is enough to give most people pause and can lead to very lengthy litigation. In my client’s particular case, the tenant sued both the property management company and the property owner when mold was discovered shortly after a flood. Prior to commencing litigation, the tenant gave notice to the property owner who attempted to remediate the mold. Unfortunately, our client did not have any sort of indemnification clause in its agreement with the property owner and, as such, the client was stuck litigating the case for years until it ultimately settled.

Generally speaking, an indemnification clause in the property management context states that an owner will indemnify a property management company (that is, step into their shoes and/or defend the property management company) for damages that are beyond the property manager’s control. Typical situations involve defects in the property, natural disasters and work undertaken by the owner. To be clear, a simple indemnification clause will not relieve property managers of all liability. For example, a property manager cannot refuse to act or to address property issues. In our client’s case, however, the owner was admittedly responsible for the damage as well as the remediation. As such, had our client had a comprehensive indemnification clause in its management agreement, it could have recouped its litigation costs from the owner. Instead, the case dragged on for over a year, several depositions were taken, and it actually reached the point where the parties hired their own professional experts.

An indemnification clause is not a cure-all, but it is a crucial starting point. A clause that is too broad (e.g. one that includes indemnification for gross negligence) may not be enforceable. So, if you are a property management company and do not have an indemnification clause with your clients, change that immediately. If you do have one, make sure you have your lawyer review it to ensure that it offers you adequate coverage and is enforceable. This seemingly simple process could save you thousands of dollars in unnecessary litigation costs.

Application Fees, Move-in Fees and Pet Fees – Landlords Beware

By on February 11, 2015

It is common practice in the property management business for landlords to charge certain move-in fees, such as an application fee or pet fee, prior to a tenant moving in. This practice, however, is illegal in Massachusetts.

Late last year, in Perry v. Equity Residential Management, LLC, the United States District Court for the District of Massachusetts ruled that Equity Residential Management violated MGL 186 § 15B when it collected from tenants an application fee, amenity fee, community fee and initial pet fee. Under MGL 186 § 15B, a landlord is only allowed to collect, as up-front charges to a tenant, (1) first month’s rent; (2) last month’s rent; (3) a security deposit equal to the first month’s rent; and (4) the purchase and installation cost for a key and lock. While MGL 186 § 15B does not explicitly forbid application fees, move-in fees or pet fees, it does state that “no lessor may require a tenant or prospective tenant to pay any amount in excess of” the four permissible charges mentioned in the statute. Noting this restrictive language, and analyzing similar Massachusetts case law, the Federal District Judge in Perry ruled that the collection of these fees violates both MGL 186 § 15B and Massachusetts’s Consumer Protection Act (MGL 93a). A violation of MGL 93a exposes a defendant to triple damages and attorney fees. Thus, something as small as a $50 application fee could expose a landlord to thousands of dollars in damages.

Many property management companies and landlords throughout the country charge additional fees as a matter of course. It is doubtful that any of them think twice about the practice. After all, these additional fees help defray costs and sometimes add additional revenue for landlords. Even so, the collection of application fees, move-in fees and pet fees is impermissible in Massachusetts and given the recent decision in Perry v. Equity Residential Management, LLC, it is likely that this will become a much larger, and expensive, issue for landlords in the near future.