Top 3 Multifamily Challenges: How to Navigate Them in 2022

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A panel of experts recently discussed how to overcome the industry’s most pressing issues in the webinar, “Multifamily Top 3 Challenges: How to Navigate Them in 2022.” Moderated by LeaseLock CRO Ed Wolff, the discussion featured Jennifer Staciokas, Executive Managing Director of Property Management for Western Wealth Capital and Terresa Porizek, Managing Director of Talent Development, Property Management, at Greystar.

Below is a recap of the panel discussion in which top operators share the strategies they’ve employed to combat top industry challenges and the solutions they recommend moving forward.

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The Top Multifamily Challenges in 2022

In the 2021 Rental Housing Market Study for Apartment Visionaries, we examined the biggest obstacles facing owners and operators. Designed in a partnership with Grace Hill, the study discovered that the primary asset problems are:

  • hiring and retention
  • rent delinquency and bad debt
  • new and changing legislation

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It’s unsurprising that employment was the problem cited the most — a trend that has plagued nearly every industry. Delinquent rent and bad debt is also top-of-mind for multifamily owners and operators, especially as rent assistance runs out.

“The second [biggest challenge] was delinquent rent and mitigating bad debt,” said Ed Wolff, LeaseLock’s Chief Revenue Officer, who moderated the panel. “No surprise based on the unprecedented time we’ve experienced over the last two years starting with COVID.”

Owners and operators also expressed concern over the ever-changing legislative landscape. Between eviction moratoriums, rent control, emergency rent assistance, and security deposit laws, legislative changes leave operators and their residents exposed to unnecessary headaches and risky financial situations.

New Strategies & Solutions to Combat Age-Old Multifamily Challenges

We know the best way to address persistent issues is letting go of long-held standards, such as a single rent payment at the beginning of the month and security deposits. Only through embracing fresh attitudes and exploring new options can we solve the industry’s problems.

Reducing Delinquent Rent With Flexible Rent Payments

The industry needs tech solutions that protect properties while also reducing the upfront financial burden for residents in order to lower bad debt and reduce delinquency, thus resulting in more revenue for operators. By creating a win-win for both sides of the equation, firms will see healthier financial performance and happier residents in the long-run.

Regarding delinquency, panelists explained the importance of seeking out creative ideas that appeal to residents while still helping operators maximize NOI. For example, a healthy portion of Western Wealth Capital’s portfolio is workforce housing, and Staciokas said their communities found great success in moving residents to flexible rent payments.

“It’s so old-school to think about only paying rent on the first of the month,” Staciokas commented. “We were able to offer a lot of our residents the ability to pay at any point in time throughout the month. It was a win-win. For us, we get the money in the bank on the first of the month. The resident ha[s] the flexibility to pay when it [is] suitable for their schedule, and it [keeps] them there longer.”

Protecting Against Bad Debt With Deposit Replacements

Many communities have changed their perspective on the role and effectiveness of security deposits, which rarely cover the costs of repairs or unpaid rent for which they were created. In fact, of respondents from our survey who reported more expenses tied to unit damage in 2021, 65% said that those expenses exceeded the security deposit amount. This means operators have to spend more money to recover those costs or just eat them if it’s not worth the effort.

As a result, many communities are turning to deposit replacements like lease insurance, which not only eases the administrative and financial hassles of security deposits, but also creates an effective marketing tool for properties to set themselves apart from neighboring communities. Lease insurance reduces bad debt by providing better coverage and drastically reducing the administrative burden and financial risk for apartment communities.

With the economic impact of the pandemic still reverberating across the country, many families may be unable to afford an upfront security deposit. But by eliminating this barrier and replacing it with a small, monthly fee, operators are more likely to attract potential residents, Staciokas said. Further, by combining flexible rent payments and lease insurance, operators can achieve significant reduction in bad debt as well as NOI growth.

Alleviating Administrative Burdens to Tackle Talent Problems

When it comes to hiring and talent retention, operators should prioritize employee appreciation, optimize training methods, and improve hiring protocols to establish a workplace environment that values innovation and creates efficient and consistent processes. This will increase associate satisfaction and engagement, which translates into long-term resident retention.

Solutions like flexible rent payments and deposit replacements are useful in improving resident retention by giving renters more freedom with their money while also protecting a community’s reputation. Staciokas said that some of the biggest complaints she has seen with resident reviews are associated with the return of a security deposit. By eliminating this requirement, communities can reduce the chances of one-star reviews fueled by deposit disputes. This helps alleviate stress in the leasing office, which can in turn relieve the hiring and talent retention issue.

Eliminating Deposits to Mitigate Legislative Headaches

With legislation changing constantly, operators need to invest in strategies and solutions that help their firm maintain compliance, reduce administrative headaches, and mitigate regulatory risk.

For instance, there’s been a major shift away from deposits in which legislators in various states and municipalities have either pledged support, proposed, or passed deposit legislation which seeks to provide residents more options in the form of deposit alternatives. However, these “Renter’s Choice” laws ​​mandate that apartment operators offer an alternative to a security deposit, adding complexity to the deposit administration process as well as risk.

On the other hand, deposit replacement laws like the bill passed in Texas go a step further than Renter’s Choice laws by giving operators a secure way to choose a deposit solution while also creating more affordable move-ins for renters.

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Staciokas encouraged operators to look at companies that will handle credit reporting on lease payments. This offers an incentive for residents to make payments, and community managers can market that as a reward for current and future residents, which assists with risk mitigation.

New deposit laws continue to crop up, signaling that the current system of traditional deposits doesn’t work. By rethinking the problem as a way to empower both renters and operators alike, the industry can begin to finally eliminate the growing risk of deposits.

Reframe Today’s Challenges As Tomorrow’s Opportunities

As the industry tackles the top challenges in 2022, it helps to view each one through the lens of opportunity. This attitude, combined with other impactful strategies and technology solutions, has the power to help operators address all three of the top multifamily challenges.

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The Growing Risk of Deposits and Deposit Alternatives

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In our last blog, we discussed how operators are reducing bad debt by insuring leases instead of taking security deposits. The bad debt that we discussed in that post ought to be enough to motivate any operator to rid themselves of deposits for good — but it is not the only reason to do it.

For operators, security deposits are becoming more burdensome and risky. For residents, some of the alternatives to security deposits are introducing new types of risk. Below, we will seek to understand these risks and how to avoid them.

Security Deposits Are Getting Less Secure

An increasing number of state and city legislatures are adopting laws that mandate that apartment operators offer an alternative to a security deposit (nicknamed “Renters Choice” laws). The intent of these laws is to make rental housing more affordable, which is, of course, a good thing. As with most legislation, however, the devil is in the details.

The laws implemented by states and municipalities apply multiple restrictions to security deposits and vary substantially from legislature to legislature. Some limit the maximum size of a deposit or restrict the window in which deposit refunds must be distributed. In some cases, the laws require operators to offer deposit installment plans. We will not go any deeper into individual laws in this post, but visit the deposit laws section of our blog for more details.

It is not hard to imagine how quickly the rules pile up for a multifamily operator with communities in more than one city. Each new law creates a need for a policy change by the operator, and each policy change adds complexity to the process of deposit administration. The added complexity costs time and increases the likelihood that a property may fail to comply with a new law, resulting in potential lawsuits. As one senior leader of a major multifamily operator recently told us, “we are now being sued every week over $500 deposits.”

The growing risk and administrative burden of deposits is a concern already on the radar of most operators. A growing number are looking to find deposit alternatives, often because the laws say that they have to. But what relatively few operators understand is the new risk associated with some popular forms of deposit alternative.

Read the Fine Print!

A recent article in urban development publication Shelterforce summarized the developing story of deposit alternatives. It’s a story that multifamily operators should take the time to understand. “Renters Choice” laws have been becoming more frequent but are still relatively new (Cincinnati’s was the first, dating back to April 2020).

Because the legislation is recent, the level of understanding about how some deposit alternatives work is still relatively low. For example, only the most diligent renters will spot that the products being marketed directly to them as “insurance” actually leave them exposed to substantial risk. The article points out how most security deposit alternatives do not provide renters with protection from claims, adding “tenants using products like Rhino remain fully liable for any claims paid to their landlords.”

Although deposit alternatives are marketed as “insurance products,” in reality, they are “surety bonds,” i.e., they guarantee the bonded party’s contractual obligations (the renter’s financial obligations to their landlord). Unlike insurance products, the premium paid to the provider does not guarantee a level of coverage. Rather, if the landlord files a claim, the bond company pays the landlord but may then seek repayment from the renter. Given that the product is marketed to the resident as an “insurance” product, this comes as an unpleasant surprise, especially since it can impact their credit score.

Why Partial Solutions Don’t Help

The best way for operators to avoid the problems described above is to replace deposits with insurance. Replacing deposits, rather than just offering an alternative, means driving the highest possible participation in a true insurance program. High participation minimizes the number of leases subject to deposits and the associated risk and workload. Deposit alternative products tend to have relatively low, usually less than 50% adoption rates, which leaves most leases unchanged.

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Insurance exists to shift risk from the policyholder to the carrier, and this is not how surety bonds work. In considering deposit alternatives, many operators misunderstand that it is their risk that is being covered (not the renter’s). Therefore, the correct way to replace security deposits is for the operator to insure their leases, effectively taking the renter out of the equation.

As we mentioned in our last post, operators can recoup the cost of the insurance from the resident by offering them an insurance waiver product (usually a small monthly fee that covers the cost that the operator is paying to insure the lease). The critical difference with this arrangement is that the fee is a transaction between the renter and the landlord, and does not make the renter liable for claims in the way that surety bonds do.

Through true lease insurance, rather than surety bonds, operators can maximize coverage while removing the possibility of the provider collecting on a resident after move-out. This has important implications for resident experience, which is a topic to which we cover in our next post.

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Texas Security Deposit Law: Why the New Deposit Bill Is a Win for Multifamily

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With legislation around the eviction moratorium, rent relief programs, and security deposits constantly evolving, Texas property owners and operators need to stay up-to-date on the latest rental housing laws. What are the biggest challenges facing both operators and their residents, and what do multifamily experts in the region have to say? What does the newest security deposit bill passed in May 2021 mean for the industry?

States continue to roll out rental assistance programs, and a wave of security deposit legislation is sweeping across the nation, so we invited esteemed industry experts from AMLI Residential and Madera Residential to discuss key concerns, including:

  • How to navigate federal and state eviction moratoriums
  • Tips for accessing rent assistance
  • Analysis of state security deposit bill
  • Options to replace security deposits
  • What this legislation means for multifamily operators and what’s required to be compliant

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Disclaimer: The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any subject matter. You should not act or refrain from acting on the basis of any content included in this article without seeking legal or other professional advice. The contents of this article contain general information and may not reflect current legal developments or address your situation. We disclaim all liability for actions you take or fail to take based on any content on this site. This article contains links to other websites. We are not responsible for the privacy practices or the content of such websites, and we do not endorse such sites.

Texas Eviction Moratoriums & Rent Assistance Program

The CDC eviction moratorium is set to expire June 30, 2021. As of March 31, the Texas Supreme Court’s 34th Emergency Order, which applied the provisions of the CDC moratorium to Texas courts, has expired. This means eviction proceedings can take place, barring where local government protections apply.

To help make sense of the various regulations, we hosted an educational presentation and expert panel to help inform apartment operators in the state of Texas — below is a recap of the webinar.

Federal Rent Assistance

The CAA and ARPA bring a combined total of $45 billion in federal funding to cover rental arrears. Based on population, the program allocates $1.3 billion in funding for Texas.

Note: For the full letter of the law, access CAA here and ARPA here.

CAA & ARPA Funding Eligibility Requirements

The eligibility criteria for both the CAA and ARPA funding programs require that:

  1. Combined household total gross income cannot exceed 80% the area median income for the location where the property is located.
  2. Household must demonstrate a risk of homelessness or instability.
  3. Household has experienced loss of income due to Covid-19.

Texas Tent Relief Program

The 2021 Texas Rent Relief Program (TRRP) — which is intended to distribute the $1.3 billion in federal funding available in Texas — is currently available and being distributed. Those interested in applying should visit texasrentrelief.com.

Applicants are eligible for up to 15 months of assistance, covering past due rent from the previous 12 months and future rental assistance for three months. While there is no maximum grant allowance per household, rent may not exceed $4,600 per month. Units that exceed the limit are not eligible for assistance from the Texas Rent Relief Program.

Operators can begin the process of applying for funds themselves, but renter participation is required in order for an application to be accepted. For a list of program FAQs, visit here.

Texas Eviction Diversion Program

The Texas Eviction Diversion Program (TEDP) is a voluntary program that allows eligible landlords and tenants to mutually agree on a resolution to an eviction case before displacing a resident. The program was created to prevent evictions that are already on court dockets, as a last resort to keep renters in apartments.

TEDP is a program specific to Texas, and is designed to encourage mediation to resolve past-due rent issues between operators and their residents, rather than evict or displace renters. Applicants are given funding priority over those utilizing the Texas Rent Relief Program, making this an attractive option for operators. For a full list of program requirements, visit here.

SB 1783: The New Texas Security Deposit Law

In May 2021, new security deposit legislation was passed in Texas, marking a big win for both operators and renters in the state. Effective September 1, 2021, SB 1783 codifies the current practice of utilizing a small monthly deposit waiver fee instead of a large upfront deposit upon move-in. The bill outlines the following:

  • If the property requires a security deposit, operators can instead choose to offer the renter an option to pay a fee in lieu of a security deposit, however there is no mandate that operators offer such an option
  • The fee must be memorialized in an agreement and signed by both the property and renter (this requirement could be covered through a lease addendum)
  • The fee can either be recurring monthly or payable on any schedule so long as it’s agreed to between the renter and property
  • The statute also specifically states that an operator may use the fee to purchase insurance covering renter defaults like unpaid rent and physical damage to a unit under the lease (otherwise known as lease insurance)

SB 1783 specifically says that the fee collected under this section is not a security deposit, meaning the fee does not need to comply with the security deposit statute.

What the New Texas Deposit Law Means for Multifamily

A Move Away From Deposits

Considering today’s economic climate, it’s increasingly important for operators to meet the needs of renters who are dealing with financial strain. Most Texas operators understand that renters prefer not to pay large upfront deposits. In the great state of Texas, we’ve seen more and more operators try to address affordability by charging, sometimes, only $100 for deposits.

What’s the issue with this approach? It doesn’t mitigate risk. So, what happens when these security deposits aren’t enough?

Lately, we’ve seen a trend to move away from deposits toward risk fees. But these fees do not always provide sufficient coverage for operators in relation to the risk they’re taking on. Operators need better backend protection, which is why across the country, we’re seeing rapid movement toward deposit replacement solutions, like Zero Deposit lease insurance, to protect against rent loss.

In fact, since the start of 2020, there’s been a 58% increase in Zero Deposit properties across Texas.

How SB 1783 Is Different From Renter’s Choice Laws

Legislation like SB 1783 takes Renter’s Choice laws — which require deposit alternatives like surety bonds be offered — a step further in eliminating the issues associated with deposits and their alternatives. In other words, deposit replacement laws provide apartment operators true deposit replacement solutions while leaving it up to the operator to determine the best deposit replacement option.

Ultimately, deposit replacement laws like SB 1783 enable operators a secure way to choose a deposit solution like lease insurance while also creating more affordable move-ins for renters.

SB 1783 marks an important victory for the multifamily industry. LeaseLock supports legislation that gives operators a true — and secure — choice in selecting deposit solutions that they determine is best for their properties and which, at the same time, can make renting more affordable for their residents.

Top Operator Concerns With Security Deposits & Deposit Alternatives

More operators are seeking out deposit solutions more than ever before. Some key concerns operators are looking to tackle include:

  • Administrative burdens for both onsite staff and accounting teams
  • Increased risk exposure if the renter defaults prior to having paid the full deposit amount
  • Complexities that slow the leasing process due to administrative burdens and compliance issues
  • Compliance issues for owners with properties across several states and cities — each with its own legal requirements.

The Security Deposit Solutions Market

Operators should understand the key differentiators between the deposit solutions available: deposit replacements and deposit alternatives.

Security Deposit Alternatives

Deposit alternatives (i.e., surety bonds) create operational complexity as they require onsite training, third-party applications, and background checks and/or FICO scores. Because they’re out-of-workflow, deposit alternatives often lead to low adoption.

Security Deposit Replacements

Deposit replacement solutions (i.e., lease insurance) totally eliminate deposits. Lease insurance eases administrative burdens, streamlines back-office workflows, and provides significantly more protection for rent and damages compared to traditional deposits and deposit alternatives.

Texas Rental Housing Laws Expert Panel Discussion

LeaseLock hosted an educational webinar and expert panel session on the many legislative challenges facing owners and operators in Texas. Moderated by our very own Ed Wolff – Chief Revenue Officer, the panel featured industry thought leaders, Jeffery Lowry – Chief Operating Officer at Madera Residential and Traci Hall – President – West Region at AMLI Residential.

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Below is a preview of the panel questions covered:

  1. As the pandemic ends and eviction moratoriums are lifted, how can operators properly prepare for eviction filings?
  2. Renters and operators are feeling overwhelmed and confused about applying for rent relief — what can operators do to help direct residents to rental assistance?
  3. How should operators think about risk mitigation in today’s economic climate?
  4. Renter fraud has become a more pressing issue across all asset classes — how are operators addressing this?
  5. What types of tools should operators have in their tech stack that integrate into the workflow to maximize efficiency and reduce disruptions?

To access a recording of the of the rental housing laws presentation and panel, fill out the form below:

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Illinois Rental Laws: The Guide to Rent Assistance & Deposit Legislation

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Illinois property owners and operators are constantly navigating ever-changing rental housing laws. With new legislation around rental assistance and security deposits, what do these policies mean for multifamily in the Chicago region and Illinois as a whole?

In light of new rental assistance programs, as well as a wave of security deposit legislation sweeping across the nation, we pulled together an expert panel to discuss key concerns and challenges facing Illinois owners and operators, including:

  • How to navigate federal and state rent assistance
  • State and local security deposit laws
  • The right options to replace security deposits for apartment residents
  • What this legislation means for multifamily operators and what’s required to be compliant

Note: Download the full webinar recording by filling out the form at the end of this post.

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Disclaimer: The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any subject matter. You should not act or refrain from acting on the basis of any content included in this article without seeking legal or other professional advice. The contents of this article contain general information and may not reflect current legal developments or address your situation. We disclaim all liability for actions you take or fail to take based on any content on this site. This article contains links to other websites. We are not responsible for the privacy practices or the content of such websites, and we do not endorse such sites.

Illinois Rental Assistance Programs & Security Deposit Laws

From complicated rental assistance programs to tightening security deposit laws, keeping up with ever-changing legal landscape is no easy task. To help, we hosted an educational presentation and panel to help inform apartment operators in the state of Illinois — below is a recap of the webinar.

The Letter of the Law: Federal Rent Assistance

The federal funding sources include the Consolidated Appropriations Act (CAA) and the American Rescue Plan Act (ARPA). The CAA provides about $25 billion while the ARPA brings roughly $20 billion for a combined total of $45 billion in federal funding to cover rental arrears. Funding is provided to states based on population, meaning Illinois will eventually receive a combined $900 million.

For the full letter of the law, access CAA here and ARPA here.

CAA & ARPA Funding Eligibility Requirements

The eligibility criteria for both the CAA and ARPA funding programs require that:

  1. Combined household income must not exceed 80% the area median income for the location where the property is located.
  2. Household must demonstrate a risk of homelessness or instability.
  3. Household has experienced loss of income due to Covid-19

Illinois Rental Payment Program

So, what are the next steps for operators and residents who need access to rent assistance? The 2021 Illinois Rental Payment Program (which is intended to distribute the ~$900 million in federal funding allocated for Illinois) is not yet available as the state is not currently accepting applications. Those interested in applying should check back here in May for updates.

In the meantime, we know that applicants are eligible for up to 15 months of assistance, covering past due rent from the previous 12 months and future rental assistance for the next three months, with a maximum grant amount of $25,000 per household.

Operators can work together with renters to start the application process, but renter participation is required in order to qualify.

Illinois Security Deposit Law

The Illinois Security Deposit Return Act does not put a limit on the maximum security deposit amount that operators can collect. When making deductions, operators have 30 days from the date of move-out to return it and written notice is required. When returning the full amount, operators have 45 days from the date of move-out to return the funds and no written notice is required.

At the local level, both Cook County and the city of Chicago have restrictive laws on how security deposits can be collected, managed, as well and how and when they must be returned.

Cook County Deposit Law
The Cook County RTLO (Residential Tenant and Landlord Ordinance) caps security deposits at 1.5 month’s rent and reduces the time for returning a deposit from 21 days to 30 days.It also requires operators to give renters the option to pay any portion of the security deposit in excess of one month’s rent, in no more than six equal installments no later than six months after the effective date of the lease.

Chicago Deposit Law
The Chicago RLTO (Residential Landlord & Tenant Ordinance) requires that landlords:

  1. Provide a written receipt for security deposit funds
  2. Disclose where security deposit funds are held
  3. Avoid commingling of deposit funds
  4. Pay annual interest on deposits
  5. Provide appropriate evidence of repairs
  6. Return deposit funds in a timely manner

The Rising Tide of Security Deposit Legislation

Deposit laws started cropping up decades ago, primarily in the form of deposit restrictions, as we see is the case in Illinois. Deposit restriction laws regulate the maximum deposit amount and the number of days to return a deposit. But in the last year, lawmakers have begun to shift away from deposits entirely.

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More than one-third of US states have passed, proposed, or pledged support for deposit replacement laws including California, Delaware, Florida, Maryland, Michigan, North Carolina, Ohio, Pennsylvania, and Virginia. This movement is also happening at the local level, including in Atlanta, Baltimore, Cincinnati, Columbus, Philadelphia, New York City, and Santa Cruz.

Deposit replacement laws provide apartment operators true deposit replacement solutions, rather than imposing more restrictive deposit regulations.

To view a full list of state and city deposit laws, click here.

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The Drawbacks of Deposit Laws

The ever-changing legal landscape of security deposits is just one of the many challenges that apartment operators face today. In light of this, more operators are seeking deposit solutions in order to address concerns like leasing delays, administrative burdens, increased risk exposure, and compliance issues.

The Security Deposit Solutions Landscape

It’s important to understand deposit solutions are not all alike, and operators should be aware of key differences between deposit replacements and deposit alternatives.

Security Deposit Alternatives

Deposit alternatives (i.e., surety bonds) can address the legal requirements of new deposit laws, but they also create operational complexity. Alternatives usually require onsite training, third-party applications, and background checks and/or FICO scores. They’re also out-of-workflow which leads to low adoption. This means they’re still subject to the legal restrictions, which defeats the reason why operators are moving away from deposits.

Security Deposit Replacements

Deposit replacements (i.e., lease insurance) eliminate deposits completely and replace them with lease insurance. Through deep property management system integrations, lease insurance eases administrative burdens, streamlines back-office workflows, and provides more protection for rent and damages. No deposits means operators are not subject to the legal requirements.

Illinois Rental Housing Laws Expert Panel Discussion

LeaseLock recently hosted an educational webinar and expert panel session on the various legislative challenges facing owners and operators in the state of Illinois. Moderated by our very own Ed Wolff – Chief Revenue Officer, the panel of multifamily experts included Tom Benedetto – Director of Government Affairs at Chicagoland Apartment Association, Kortney Balas – VP of Information Management at JVM Realty, and Delight Merrill – Director of Property Management at Redwood Capital Group.

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Here’s a preview of the panel questions covered:

  1. How can the apartment industry support innovation and legislative changes that streamline requirements and lower costs for both owners and renters?
  2. What are owner and operators’ most pressing concerns around the tightening of rental housing restrictions like deposit laws?’
  3. What tools should property owners and operators have in their tech stack that integrate into the workflow, especially to maximize efficiency and reduce disruptions?
  4. The pandemic has brought about economic uncertainty — let’s discuss what operators should do to properly manage risk and protect NOI.
  5. What’s the biggest challenge as an owner/operator today in regards to ensuring your residents get rental assistance?

Access a recording of the of the panel session — fill out the form below:

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California Rental Laws: What to Know About SB 91, Rent Control, Deposit Laws & More

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California lawmakers extended a statewide eviction moratorium through June 2021 and passed an emergency measure to deliver $2.6 billion in rent relief. Local jurisdictions in San Diego and Los Angeles counties have also passed their own eviction moratoriums.

With strict rent control in cities such as Santa Monica, and tightening security deposit legislation across the state, what do these California rental laws mean for property owners and property management companies in the region?

California’s Eviction Moratorium, Rent Relief, Rent Control, Deposit Laws & More

Having trouble keeping up with California’s eviction moratorium, rental assistance, rent control, and security deposit laws? We recently hosted a webinar to educate apartment operators based in California, and below is a recap of what we covered.

Disclaimer: The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any subject matter. You should not act or refrain from acting on the basis of any content included in this article without seeking legal or other professional advice. The contents of this article contain general information and may not reflect current legal developments or address your situation. We disclaim all liability for actions you take or fail to take based on any content on this site. This article contains links to other websites. We are not responsible for the privacy practices or the content of such web sites, and we do not endorse such sites.

The Letter of the Law: SB 91 Tenant Relief Act

SB 91 was passed on Jan 31, 2021, and extends the protections under AB 3088 (also known as the Tenant Relief Act). Originally set to expire on Jan 31, 2021, the eviction moratorium now extends through June 30, 2021.

The Southern California Rental Housing Association (SCRHA) has been proactive in educating housing providers on how to navigate the Tenant Relief Act and provides their perspective on SB 91:

“Housing providers should pay careful attention to all the details of the eviction protection law/SB 91. There are many moving parts and potential pitfalls with mandatory notifications, specific language in pay or quit notices, and the immediate application of just cause protections for most California renters. With anti-displacement a top priority for elected leaders, ending a tenancy has become more complicated. Housing providers should rely on professional associations to help guide them and consult with legal counsel prior to taking decisive action.”

Note: Access SB 91 in its entirety here.

Eviction Moratorium Extension

What does SB 91 mean for rental housing providers? In effect, the moratorium extension prevents properties from evicting renters for nonpayment of rent through June 30, 2021.

However, it is subject to a few exceptions, including any renter default that occurred prior to March 1, 2020.

Under SB 91, properties can’t evict a renter due to nonpayment of rent if:

  1. The Renter provides a declaration of COVID-19 financial impact; and
  2. The Renter pays at least 25% of rent by June 30th, 2021 (for rent amounts due between September 2020 and June 2021)

$1.4 Billion Rental Assistance Program

SB 91 also allocated $1.4 billion in emergency rental assistance, which provides up to 80% of rental assistance to eligible households. It’s important to note that:

  • Operators must waive the full balance due
  • Operators will have to forfeit the 20% of rent

Eligible households must qualify — if they fail to meet eligibility requirements, then the renter must pay 25% of rent by June 30, 2021 in order to avoid eviction. Either the property or renter may apply.

Household Eligibility Requirements

To receive up to 80% of assistance for rent amounts due, a household must qualify, meaning they must meet all 3 of the following criteria:

  1. At least one person in the household must qualify for unemployment or must experience financial hardship, reduced income, or increased costs;
  2. At least one person in the household must show risk of homelessness or instability; This would include past due utility bill, rent demand notice, etc.; and
  3. Household income must be at or below 80% of area median household income (AMI) in the area the property is located.

Operator Participation Requirements

What are operators required to do in order to participate in the California rental assistance program?

1. Properties have a duty to participate, meaning operators must:

  • Make a good faith effort to investigate
  • Provide assistance to renters who may qualify
  • Cooperate with renter’s efforts to obtain rental assistance under SB 91

2. Properties must provide documentation showing compliance with SB 91 when making a debt collection complaint.

3. If a renter owes COVID-related rent debt as of February 1, 2021, an operator must provide a Notice of Tenant Rights no later than February 28, 2021, even if the operator has no intention of pursuing an eviction case at this time.

How Does SB 91 Impact Statewide Rent Control?

SB 91 extends AB 1482 (statewide rent control) by expanding the just-cause eviction requirements and temporarily extending to all types of rental properties. All renters are also covered from their first day of tenancy. Renters who don’t comply with tenant requirements under SB 91 can still be evicted, but operators must adhere to any local government ordinance in place.

The California Tenant Protection Act (AB 1482) went into effect on Jan 1, 2020, putting an annual rent increase cap at 5% plus inflation per year or 10% without inflation, whichever is less — making it one of the strongest rent control statutes in the US.

More recently, California Proposition 21 was defeated during the 2020 November election, thus prohibiting rent control on housing that was first occupied after Feb 1, 1995, and housing units with distinct titles.

In Los Angeles County, the Rent Stabilization Ordinance went into effect on April 1, 2020, which limits rent increases above the allowable limit (3%) within a 12 month period, and provides just cause eviction protections for most residential rental units.

California is one of 5 states that has cities with some form of residential rent control law. Many Southern California communities already have rent control laws in place, including Santa Monica, West Hollywood, Beverly Hills, Glendale, Culver City, Inglewood, Los Angeles, and unincorporated neighborhoods of LA County.

Rent control is top of mind in California, and there are also new laws cropping up that further restrict use of security deposits — SB 91 is an example.

Deposit Laws Are Accelerating Nationwide

Deposit restriction laws regulate the maximum deposit amount and the number of days to return a deposit — something the multifamily industry is no stranger to. In the last year, the industry has begun to shift away from deposits.

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About one-third of US states have passed, proposed, or pledged support for deposit replacement laws including California, Delaware, Florida, Michigan, North Carolina, Ohio, Pennsylvania, and Virginia. Cities including Atlanta, Cincinnati, Columbus, Philadelphia, New York City, and Santa Cruz have also taken action.

Deposit replacement laws take deposit legislation a bit farther by giving apartment operators true deposit replacement solutions, as opposed to implementing more restrictive deposit regulations.

View a full list of state and city deposit restrictions and deposit replacement laws here.

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3 Challenges Created by Deposit Laws

Multifamily operators and owners have dealt with an array of different challenges over the years, and changing deposit legislation is only one of them. But in the last year, a growing number of operators are seeking deposit solutions in light of these deposit laws. Some of the key concerns operators are looking to address include:

  1. Leasing Delays – Operators must inform residents of the deposit alternatives options, and renters can shop these options before getting the property’s approval. This can slow down leasing activity significantly.
  2. More Work for Onsite Teams – Properties must review and approve multiple insurance policies while still managing security deposit accounting. Onsite teams will also have to track deposit installment payments for renters who choose to go that route.
  3. Increased Risk – Deposit installment plans increase operators’ exposure to financial risk if the renter defaults prior to having paid the full deposit amount.

Operators Seek Deposit Solutions

As the industry shifts toward total deposit replacement, it’s important that the market understand deposit solutions come in the form of deposit replacements and deposit alternatives.

Security Deposit Alternatives

Deposit alternatives — like surety bonds — can address the legal requirements of new deposit laws, but they also create operational complexity. Deposit alternatives typically require onsite training, third-party applications, background checks and/or FICO scores, and out-of-workflow management. In other words, traditional security deposits are still in place, and therefore still subject to the legal restrictions.

Security Deposit Replacements

Deposit replacements — like lease insurance — replace deposits completely. Lease insurance leverages deep property management system integrations which streamlines back-office workflows and provides increased protection for rent and damages. Operators who replace deposits entirely are therefore not subject to the legal requirement.

What Top Operators Are Saying About Deposit Laws

Several leading operators recognize the need to move away from surety bonds, including Kelli Jo Norris – President of Goodman Real Estate, Michael Roos – Managing Director of Asset Management at ColRich, and Kevin Huss – Vice President of Revenue Management at Harbor Group.

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Navigating the Deposit Legislation Landscape

When operators rely on security deposits and deposit alternatives, they’re subject to the inherent variability of deposit legislation. But when they implement lease insurance software that automatically ejects deposits from enterprise operating infrastructure, they can avoid the legal requirements of the various deposit laws, both passed and pending.

California Rental Laws Webinar for Apartment Operators

LeaseLock recently held an educational webinar on California rental laws, led by our very own Reichen Kuhl – President & Chief of Legal, Ed Wolff – Chief Revenue Officer, and Carl Stockholm – VP of Enterprise Sales for the West Region.

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Fill out the form below to get view a recording of the webinar:

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