REDBOOK Blues – Resident Misconceptions

by Michael Payne, Allmark Properties, 2018-2019 Government Affairs Committee Chair

Most of us have encountered residents that believe with all their heart that:  1) there is a legal cap on the amount rent can be increased upon renewal; 2) they have three days after signing a lease to void the contract, or 3) landlords cannot require renter’s insurance.

Generally, the resident is basing their claim on their super-reliable, family-friend who is married to a cousin of an attorney. Following is fact-based information to help you overcome their misconceptions.

When it comes to rent increases, there is no cap on rental increases in the Lone Star state. In Texas, the free market, aided by modern software, still sets rents. Unlike New York and the Peoples’ Republic of California, Texas does not have rent control except under extremely limit circumstances on natural disasters.

Unfortunately, many onsite employees fall victim to this myth. They have been told that rent can only increase $50 or less but no more than 5% or only on odd Thursdays in leap years ending in twenty-two.

If you are using a revenue management software package, be sure your onsite and corporate folks understand how it works. More importantly, ensure they know how to successfully sell a rent increase to renewing residents.

Times are good. Tarrant County’s economy continues to expand.  Rents continue to rise.  It’s is simple supply and demand. Bottom-line, the market dictates rent.

Stop me if you have heard this one: “I’m giving you my keys back and moving out of my new apartment that I moved into over the weekend because it is too __________ (fill in the blank) and I was told that it had _________ (fill in the blank) and I’m returning my new pillow covers to Target because they no longer match where I’ll be living.”

A common wrong perception in our industry is that the resident has a statutory right to change his/her mind and back out of a lease or an application agreement within three days after signing.

Not so. The resident is signing a contract, not buying a pair of pants.

Texas law defines a “consumer transaction” as goods or real estate sold to a consumer in the consumer’s home by a door-to-door salesman. The definition does not include residential dwelling unit leases and does not include sales contracts signed outside of the consumer’s place of residence at the time of signing. Therefore, residential leases are not subject to any three-day right of rescission.

As owner/operators, we need to emphasize to our onsite employees that they do not pressure a prospect into committing to a financial arrangement that they cannot meet. Closing the sale is important, but not at any cost.  An unhappy, regretful, and resentful resident will make it known to current and future residents. We want residents that want to live at our properties. Our assets are their homes. We desire residents who look forward to being in their home. We do not want miserable residents carrying a grudge against our staff and our company.

Your rental criteria help mitigate any potential financial risks. While a prospect’s income is a merely snap-shot of current ability to pay, they’re previous rental history informs us if they historically met their obligations. Past performance does not equal future performance, but it does enlighten owners/operates to a prospect’s integrity. They either pay their bills or they don’t. They do what they say, or they don’t.

The resident can return the pillow cases to Target but not the keys to their new apartment.

If you work in this business long enough, you’ll have a resident cause a fire in the kitchen that spreads to several units. You’ll also experience overflowing, second-floor toilets or sinks that cause water damage to first floor units. This fire or flood will cause thousands of dollars’ worth of damage. Even worse, neither the offending resident nor offended resident has renter’s insurance. Neither one has enough personal assets to pay for the damage, even if, you are even able to recover a judgment against the resident in court.

The National Fire Protection Association estimates that there are approximately 100,000 fires in multifamily buildings each year, and that 70 percent of all fires are caused by a resident’s negligence. Rain has fallen in DFW for forty-days and forty-nights this fall. Fire and flood (sometimes blood) happens. The solution: requiring renter’s liability insurance.

TAA’s “Lease Addendum for Requirement of Renter’s or Liability Insurance” is a tool that you can use to help limit your liability and manage your risk by requiring residents to purchase renter’s insurance, which also includes liability coverage to cover your out-of-pocket expenses in the event of resident negligence.

While some jurisdictions in some other states, such as New York and Massachusetts, have enacted restrictions on the ability of a property owner to require renter’s insurance, Texas has not done so.

Operational tip: research various renter insurance provider company premiums. Share this data with perspective residents. Do the work for the resident upfront – it’ll save you time and effort in the future.

Michael Payne, Allmark, is the AATC Government Affairs Committee Chair.