THE FINE PRINT – February 2013 Issue
SELLING A
RENTAL PROPERTY? KNOW THE TENANT’S LEGAL RIGHTS.
Question: I am a licensed real estate broker. I have a client property owner who
wants to list their rental property with me for sale and it is occupied by a
tenant under a rental agreement. As is standard procedure for handling a
listing, I am preparing to have a lockbox put in place on the property, but I
just heard there may be some question about the legality of doing this because
of the tenant occupancy. Is there, and is there anything else I should know
about how to deal with the showing of the property, the conduct of open houses,
and so on, given the tenant occupancy?
Answer: Very good questions, and from what I have heard
about supposedly standard practices being followed by real estate brokers in
showing homes with tenants, it may be that such standard practices may not be
in accord with Oregon law, including in particular the placement of lockboxes
on rental properties.
Showing a rental
property occupied by a tenant is generally a difficult matter. As the broker,
you don’t want to invade the privacy of the tenant. On the other hand, in order
to do your job properly in marketing the property, you need to have access to the
property, and sometimes potentially on fairly short notice. You may also want
to hold open houses, which generally last three to four hours on a weekend.
And of course we
all have heard of the scenarios where, no matter how polite you are, how much
notice you give, the tenant simply refuses to cooperate with the marketing
process. What are you to do?
Any analysis has
to start with the Oregon
A. A landlord,
and the landlord’s agent, has an absolute (subject to specified conditions)
right to access the property in order to show the property to prospective or
actual purchasers. Note that this presupposes that the tenant has not
negotiated special terms conditioning access on satisfaction of conditions
which are more restrictive than what is provided by the statute, so the first
step for the broker should always be to review the existing rental agreement.
B. Except as
otherwise specifically agreed in writing between the landlord and tenant (more
on this below), in order for the landlord or landlord’s agent (more below on
who is a landlord’s agent), to access the property and show it to a prospective
or actual buyer, at least 24 hours "actual" notice must be given to
the tenant of the intent to gain access, and even then the access may only be
at "reasonable times". Note the words in quotes.
"Actual"notice is defined in ORS 90.150, and provides a number of
specific methods for accomplishing delivery, including verbal notice given
personally to the tenant, or written notice personally delivered to the tenant,
or posted on the door of the main entrance of the dwelling unit on the
property. Generally, I would never recommend that you rely solely upon verbal
notice, as then it becomes a potential "he said/she said" argument.
Other methods are provided in ORS 90.150.
And what are
"reasonable times"? There is no definition in the statute, so my
advice is to use common sense. There are times which are probably well within
the boundaries of reasonable: say between the hours of 9 am and 5 pm on
weekdays. Weekends are more problematic - think the tenant who sleeps in late
on Saturdays and Sundays. I would think that afternoons on weekends are
probably safe. I don’t believe I need to tell you what would clearly be
unreasonable.
C. Note that the
conditions imposed by the statute do permit immediate access without advance
notice in emergencies, but I can conceive of no scenario in which having to
show a property to a prospective buyer would constitute an emergency for
purpose of this statute.
D. Even if you
give the appropriate "actual" notice, the tenant can still deny
access, by either giving the landlord or the landlord’s agent
"actual" notice of denial, or by posting a notice of denial on the
door to the main entrance of the dwelling unit prior to the proposed time of
access by the landlord or landlord’s agent. This does not mean that the denial
of access has to be legitimate. Whether it is, or is not, is irrelevant. If
such denial of access is given, then the landlord or the landlord’s agent
should not attempt to access the property.
In such an event,
it is probably a good idea to bring a lawyer into the picture, and it may be
that the only remedy for the landlord is to consider taking legal action against
the tenant, with the threat of rental termination if the issue is not resolved
(ORS 90.322(7) specifically provides that if the tenant refuses to allow lawful
access, the landlord may elect to terminate the lease, and is also entitled to
recovery of actual damages). But in the meantime, there is no self-help remedy
permitting the landlord or the landlord’s agent to ignore any denial of access
by the tenant.
On the other side
of the coin, ORS 90.322 (8), provides, among others, that even if the requests for
access are lawful, repeated demands for access which have the effect of
unreasonably harassing the tenant could lead to claims by the tenant, which
could include a termination of the rental agreement and recovery of actual
damages, but not less than one month’s rent for any arrangement other than a
week to week lease. Again, a term such as "unreasonably harassing the
tenant" is not defined, but common sense should play a role here as well.
SEPARATE
WRITTEN AGREEMENT TO SHOW
ORS 90.322(1)(d)
also provides a specific mechanism for a landlord and a landlord’s agent to
avoid the 24 hour advance notice rule. The requirements are:
1. There must be
a written agreement between the landlord and tenant separate and apart from the
rental agreement, and it can only be entered into at a time when the landlord
is actively engaged in attempts to sell the property. In other words, the
arrangement can not be incorporated in advance in the rental agreement. The
written agreement must be signed by both the landlord and tenant.
2. The agreement
may provide that the landlord or the landlord’s agent may have access to the
property without advance notice, solely for the purposes of showing the
property to a prospective buyer, but the access must be at reasonable times.
3. "Consideration"
must be given by the landlord. In other words, something of value must be given
by the landlord to the tenant, and this could take the form, for example, of a
cash payment to the tenant, or a credit against rent payable. This consideration
should be specifically identified in the agreement.
PRACTICE
TIP: In the written agreement, specifically address what
the parties agree are "reasonable times". If the parties agree on
this term and say, for example, spell out that "reasonable times" run
from 9 to 6 on weekdays, and 10 to 4 on weekends, then it would be very
difficult for a tenant to argue to a court that a real estate broker showing
the property on a Sunday at 3 pm is an unreasonable time.
PRACTICE
TIP: In light of the statutory language that even lawful
access can get to a point of harassment, permitting a claim for damages by the
tenant and other relief, the agreement should also spell out how frequently the
tenant agrees the property can be shown during any one week period - perhaps
three times, perhaps more. The point is that again, if you have the tenant
agree in advance to this, you minimize the risk of a complaint by the tenant if
you comply with those terms. And note that this does not mean that you can not
do it more frequently, or at other times - it just means you would want to
contact the tenant and get the tenant’s consent for those times or that
frequency outside of the agreed upon parameters.
LOCKBOXES AND
OPEN HOUSES
As a preliminary,
but important point, one has to understand what the term "landlord’s
agent", as used above, means. It is specifically defined as follows: ORS
90.100 (23): "‘Landlord’s agent’ means a person who has oral or written
authority, either express or implied, to act for or on behalf of a
landlord."
It would therefore
appear that the above discussion permits the listing agent, the one who has
entered into the contractual relationship on behalf of the landlord to market
and show the property, to give notice and have access to the property, or to be
provided with the no notice access rights provided in the separate written
agreement to show. Conversely, it would appear it does not permit a broker with
no such relationship with the landlord, such as a broker representing only the
prospective buyer, to enjoy those rights.
Given the
definition of a "landlord’s agent", and discussion above about the
limitations on access, while the placement of a lockbox on the door to the
property occupied by the tenant may not necessarily be per se unlawful, I
believe it does present an unnecessary risk of liability to the landlord, and
from a practical standpoint, in light of the statute, may not even serve its
purpose.
First, as noted
above, the right of access is limited to the landlord or the landlord’s agent.
A selling broker, representing only a potential buyer, has no agency
relationship with the property owner, and therefore, under the statute, unless
the listing broker is also present, a selling broker who accesses the key to
the dwelling unit, and gains entry when neither the landlord nor the listing
broker (or broker in the listing broker’s office), is present, is probably
unlawful, even if within the constraints provided in the separate written
agreement to show. Of course, if the listing broker or an affiliate has to be
present at the showing, doesn’t that defeat the fundamental purpose of a
lockbox?
Second, physical
access to the lockbox is not limited by date or time constraints. Even if you,
as the listing broker, define in the MLS posting the specific limitations on
access to the property, that simply does not guarantee that a selling broker
will comply with those specified limitations. And if that occurs, it will
ultimately be the landlord who will have liability - whether there is any
relationship with that selling broker or not. After all, the landlord’s agent,
the listing broker, put the lockbox on and made access available to all
brokers.
Open houses, in
the absence of a separate written agreement to show, are just as problematic. I
don’t believe that the statute contemplates that a landlord can give a notice
to the tenant, and specify that the landlord’s agent will be showing the
property through an open house to various prospective buyers for, say, a
continuous period of four hours. I believe a tenant could rightfully decline
such a notice of intent to gain continuous access for that period of time. This
is where the separate written agreement to show comes into play.
PRACTICE
TIP: In the separate written agreement to show, negotiate
for the consent to conduct open houses, and provide approved parameters: the
number of permitted open houses per a specified period, the approved length of
the open house, and the time periods during which open houses may occur. For
example: two times a month, on either a Saturday or Sunday or holiday, and only
from the hours of noon to 4pm. You can also negotiate in the agreement to have
all occupants vacate the property during the planned open house, and that you
will give a certain amount of advance notice of the open house. Here’s where
consideration can play a major role: similar to the concept of cash for keys in
connection with foreclosure actions. If you want to have such open houses, and
you want the occupants gone, then offer to pay something for that specific
purpose. This can be separate and apart from the consideration paid for the
tenant entering into the separate written agreement to show in the first place.
You can also
offer to pay the tenant the clean the property in advance of a particular
showing, or in advance of an open house, or to let you have a professional
cleaning service provide the cleaning.
At the end of the
day, your job is to show the property and get it sold. Having an uncooperative
tenant can make this a more difficult task that it already can be, and dealing
with the issues up front, and paying reasonable compensation for the
inconvenience to the tenant of going through the process, can go a long way
towards avoidance of this potential additional hurdle to closing.
Ambrose Law Group LLC
200 Buddha Building
312 NW
Direct Dial: 503.467.7237
Direct Fax: 503.467.7238
drambrose@ambroselaw.com
Disclaimer: this column does not constitute the
giving of legal advice, and your reading this column does not create an
attorney/client relationship. You are encouraged to consult a lawyer or
accountant should you have questions about how this information may be
applicable to your particular situation.
