When the World Health Organization (WHO) declared the novel coronavirus (COVID-19) a global pandemic on March 11, 2020, our world changed in every imaginable way. The economic fallout in the United States has been astronomical, including but not limited to over 30 million people being laid off. Suffice it to say that the full implications have yet to be seen.
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In any event, one of the pandemic’s economic impacts is that more families and individuals have been forced to share housing in order to afford ordinary living expenses. As new living arrangements are created, landlords are renting to more co-tenant renters and roommates. Consequently, there are further legal considerations that both landlords and roommates must consider before entering into a lease agreement.
Landlord Tips for Co-Tenancy
Below, we will discuss the best practices that landlords should follow when renting to roommates.
Roommates Should be Jointly Liable Under the Lease
Landlords should avoid naming one tenant as the primary tenant. Notably, giving the task to one tenant to manage the others is a huge mistake. You must consider if the primary tenant leaves or is not good at handling this task.
Avoid this issue by making each roommate jointly liable. This means that each roommate is equally responsible under the lease for all things, including the monthly rent, lease violations, and property damage. To accomplish this, each tenant should be named on the lease and should sign it.
Related: Ask a real estate pro: Who has to pay for window broken by stray golf ball?
Run a Background and Credit Check on All Tenants
Each roommate should be subject to a credit and background check. This screening is important for financial and safety reasons. Sometimes, tenants with undesirable backgrounds or poor credit may move in with a roommate to hide those issues from unsuspecting landlords. Therefore, all tenants or replacement tenants should be treated the same in the screening process.
Whether a roommate is being replaced or a “guest” has transitioned into a roommate, a comprehensive background and credit check should be executed. If a landlord doesn’t insist on conducting a background check for each applicant or roommate, they may end up having tenants residing in the apartment that they know nothing about.
Prohibit Subleasing and Subletting
In general, sublessees are not jointly and severally liable under the lease agreement because they are not a signatory to it. As such, if you want to ensure that all occupants living in your rental property are obligated to follow the lease agreement’s terms and conditions, you should prohibit subleasing.
Additionally, with the rise of Airbnb and other platforms, it’s important to prohibit subleasing, especially short-term leasing, so that your tenant can’t profiteer off your rental unit. Likewise, you don’t want to have to deal with a constant stream of strangers residing at your property.
Related: MORTGAGE CONSULTATION
Have a Guest Policy
Every rental agreement should have a provision that provides for a comprehensive guest policy. A guest policy addresses the issue if someone stays past 30 days and therefore becomes a tenant in the apartment. Landlords should draft a provision that states that the new occupant must be screened like any new tenant.
Alternatively, the landlord can make it a lease violation if they are not notified about any new occupants.
Don’t Divide Security Deposits
Don’t make the mistake of returning any portion of the security deposit when only one tenant moves out. Instead, the security deposit should only be returned if all of the tenants are moving out of the apartment. Even then, you should only return the security deposit once the landlord has had a chance to inspect the unit for any damage beyond normal wear and tear. In other words, the onus should be on the tenants to figure out how to divide the security deposit if one tenant moves out, etc.
Accept Only One Check for the Monthly Rent
It’s a tedious administrative task to receive several rent checks for one apartment. As such, it’s best to require one check from all roommates. Additionally, this keeps everything jointly and severally liable between the roommates. This is also another way to limit your involvement with the roommate’s financial issues.
For example, if one tenant cannot pay the rent, they will be forced to deal with the other tenants to come up with a solution before submitting the check to the landlord.
Encourage Your Tenants to Draft a Roommate Agreement
Roommate situations sometimes end up getting ugly. As such, you should encourage tenants to create legally binding arrangements to address common issues that arise amongst roommates.
New Occupants Equal New Lease
Legally, the original lease agreement is terminated or void if one of the original tenants moves out. It is best practice to have all the tenants execute a new lease agreement whenever the occupants change. This ensures that all tenants remain jointly and severally liable.
Just because you are executing a new lease doesn’t mean that the lease can’t be identical to the original lease agreement you drafted. Additionally, since it’s technically a new lease agreement, this is an opportunity to change any other lease provisions, as necessary.
Landlords should have complete updated contact information for each tenant if the landlord needs access to the unit or some other emergency happens. It’s likewise essential to obtain emergency contact information for each tenant whenever you execute a lease agreement.
The Bottom Line
While renting to roommates can be a bit labor-intensive, it also fills a niche in the market and can be a very attractive option for young, single tenants. Plus, it can be quite profitable for investors—as long as you take care in executing the above correctly.