How to Decide on and Enforce Your Rental Policies as a Landlord Explore how to simplify deciding your rental policies and what to cover to ensure smooth tenancies down the line.
By Dave Spooner Edited by Chelsea Brown
Opinions expressed by Entrepreneur contributors are their own.
Whenever you set up a new rental unit, you have a variety of decisions to make. From choosing a reasonable rent rate to screening new tenants to reside in the unit, you have your hands full.
Deciding on your rental policies is one important step in setting up your rental. If you have other properties, you may decide to migrate the same lease/policy structure. However, individual properties have individual features and needs, and you may find you need to revise or adjust your policies accordingly.
You might also be wondering: What are the "best" policies for landlords? Which policies are proven to be good for landlords and tenants, and which are a disaster waiting to happen?
If you have any of these questions or others, read on to learn about how to decide on and enforce your rental policies.
Related: The Beginner's Guide to Investing in Rental Properties
Step 1: Know the law
Before you can establish any policies, you need to know which policies are legal. Landlord-tenant relationships are regulated by federal, state and local laws. Why know them? Violations are costly, and it's easy to make one if you don't know the laws that apply in your region.
Before writing any rental agreement contract, your first step should be to review these laws. It's not light reading, but it's complex for good reason — your policies have a real effect on tenants' housing and lives. The key is to know what's illegal in your state and seek the advice of an experienced lawyer if any questions come up.
Step 2: Research and form your policies
After you're clear on how the law will influence your policies, you can start making decisions. Below are some common policy items many landlords include in their leases with commentary about each.
Late fees and grace periods:
Of the several elements included in your rent policy, two important ones are late fees and grace periods. Most landlords establish late rental fees for late payments as a motivation for tenants to pay on time. Late fees themselves aren't consistent revenue for you, but they do encourage consistent on-time payments, which is necessary for the success of any rental business.
Grace periods are another good policy to include in your lease. A grace period allows tenants several days after the due date to pay rent before fees are applied. Grace periods tend to be a good idea because they can prevent unnecessary fees or eviction notices for tenants who simply had a temporary setback with their paycheck.
Both late fees and grace periods are regulated by state laws. There may be a limit on late fee amounts or a minimum grace period set by your state's legislature.
Pets:
Pets are another controversial policy. Should you allow them?
While pets certainly pose many risks to your properties (think clawed furniture, barking, messes, etc.), you should also consider the type of value they could add to your rental community. Pets bring comfort, happiness — and above all — money. Pet owners will pay hundreds more for units that accommodate their furry friends, and appealing to that market is highly lucrative.
If you choose to allow pets in your properties, it's recommended that you include pet fees and/or a pet deposit in your rental pet policy. This way, you'll have guaranteed funds in case of any damages. Then, make sure you advertise your pet-friendly properties in every way you can: Include pet details on your listings, post on social media, or even invest in some pet amenities like park areas or dog-washing stations.
If you decide not to allow pets, just remember that it's illegal to deny a tenant the right to have their service animal or emotional support animal (ESA), regardless of your pet policy.
Subleasing:
What about subleasing? Landlords who might be struggling to sustain tenancies and need long-term assurance might turn to subleasing to ensure rent payments are consistent. But is it a good idea in the long run?
Subleasing isn't for everyone, but landlords who do allow it will benefit from defining clear and strict subleasing policies in their rental agreements. For instance, require that your tenant submit the subtenant's name and information to you before finalizing so that you can screen the person yourself. This way, you'll always know who is living in your property, and you can ensure yourself that they're a good fit. Additionally, retain the final say on all subtenants, and outline all logistics in the lease.
Tenant modifications:
Often, when making a new place home, tenants want to add a personal touch. This is natural, and it's typically not a problem. But what if your tenant wants to make permanent modifications to the unit, such as painting, adding shelving, etc.?
A simple way to handle these requests is to simply establish a blanket "no-modifications" policy, so you don't have to worry about allowing some tenants and denying others. But occasionally, your tenant might have a really good idea.
If you choose to allow it, you want the job done right. It's generally a good idea to establish some ground rules ahead of time. For the painting example, you should specify what can and can't be painted, require a solid primer, and define some standards for the job (as well as any consequences for botched jobs, such as paying for a professional painter to redo the job). It's also best to specify the type of paint you'll allow, not the color — this gives your tenants some freedom while ensuring high-quality materials.
Renter's insurance:
Lastly, requiring renter's insurance is always a smart policy. Your tenants' insurance usually kicks in before yours in case of an accident, so this policy will save you the time and trouble of interacting with your own insurance company. Make renter's insurance a provision of the lease.
Related: How to Get the Most Out of Your Rental Property Investments
Step 3: Define penalties and legal consequences
Your policies aren't effective unless there are distinct consequences for breaking them. If these are clearly spelled out in your rental agreements (and compliant with local law), you shouldn't have any trouble enforcing them.
For instance, you can enforce late fees so long as they do not exceed local limits. Other violations might be penalized first with a gentle reminder, then a stern warning, and finally an official lease violation and eviction notice.
Don't hesitate to enforce severe consequences for severe violations. If any illegal activity occurs, most states allow you to send an immediate and unconditional notice to quit. If you don't respond to these violations quickly and sternly, tenants will lose respect for you and quickly learn they can violate any policies they wish.
Deciding on your rental policies is a tedious — but exciting — step in setting up your property. You're finally going to implement your ideas and see your hard work come to fruition. But early attention to these minute details does make a difference down the line. By investing in creating strong policies now, you can reap the benefits of smooth tenancies later.
Related: 3 Things to Consider Before Buying an Investment Property
