Compliance vs. Liability

As an rental property owner, one of your biggest responsibilities is to make sure your properties are always up to code with safety and compliance standards set by the municipality and state. The safer your property is, the less liability you have as an owner. Compliance comes in all shapes and sizes but generally we are talking about a few key areas — Fire Safety, Environmental Safety and Hazzard Safety. For example, if you had a fire in your building, would everyone get out safely? Do the smoke detectors work properly? Are there fire extinguishers located in the building? Are your windows the proper size for egress in the event of an emergency? These items and more are evaluated when your building is inspected. Environmental safety is properly removing or caring for hazardous materials like lead based paint and asbestos. Hazzard safety protocols are to help prevent slip and fall cases which happens to be the #1 most likely cause for a lawsuit. So how do you prevent these potential hazards?

• Make sure all handrails are secure and located anywhere there are steps.

• Illuminate hallways and exterior building passageways using motion detection lighting for ample visibility day or night.

• Ensure all ice and snow is promptly cleared during winter storms.

• Regularly check your building for safety hazards and take prompt action to address any concerns.

• Repair any lose concrete, curbing or any other trip and fall hazard.

How often should my building be inspected?

There are several different types of inspections as well as individual rules for each municipality and type of occupancy.

Most municipalities require a pre-sale inspection for the purchase and sale of real estate. Whether you contractually agree that the seller or buyer handles the correction of the noted violations really is not a concern to the municipality. Either way, they want to ensure the property meets the habitability standards in place. If a seller does not correct the violations by the time a sale concludes, then the buyer is automatically assuming the responsibility. This inspection, sometimes known a Certificate of Occupancy inspection (CO) or a Buyer’s Notification Inspection (BNI), can help you determine the price you should pay for this investment. I highly advise you either include this detail in your contract or insist the property is sold clear of any violations to reduce your exposure.

Similar to clearing a CO for a real estate transaction, most municipalities require a yearly rental inspection to be completed. This varies from city to city — it could be as often as when occupancy changes or as little as once every five years.

If your occupant is a housing tenant or one that receives governmental assistance, annual inspections are required.

Student housing requires annual inspections for what is referred to as a regulated rental.

Many municipalities require a rental license or business license to operate a rental property. This is a yearly fee and not inclusive of any habitability inspection requirement.

While all these inspections sound tedious, the reality is they all look for the same thing — to prevent anyone from getting hurt, sick, or being trapped in a building in the event of a fire. Keeping your building compliant should be your #1 priority however it starts with you knowing the local ordinance. If the habitability requirements are not published online you can call your local municipality for that information. Either way, get educated!

What will an inspector look for?

What should you, your tenants, and your property management team be looking for? Here’s a list to give you an idea of some of the items city inspectors are trained to inspect:

• Smoke/carbon monoxide detectors — they will check to make sure they are working and in the appropriate locations, including the basement

• Handrails — these must be secured and stable; additionally, they need to be installed if there are three or more steps

• Windows — they will ensure that all windows open, close, lock and are not broken or cracked and additionally do they meet the egress standards for emergencies

• Outlets — are they properly grounded and are they GFI protected in any location within 6’ of water

• Electrical wiring — proper receptacles or covers are used and is no exposed wiring; frayed wires will need to be replaced

• Water damage — obvious signs of damage will need to be addressed

• Plumbing — toilets are functioning, water is not leaking and the correct drain piping with proper pitch and venting is used

• Exterior — cracks in foundation or roofs will be noted in an inspector’s report

• Appliances — all appliances will need to be in working condition

• Paint — make sure there is no peeling paint within your unit or anywhere around the exterior

• Utilities — remember, even if your property is vacant, you will need to make sure all utilities are turned on at the time of the inspection

This list only scratches the surface of what an inspector will look for, but if you make sure your property complies with these most common items, you will be well on your way to a compliant building.

Owning real estate can be a lucrative way to have passive income, but it does come with some costs — you will need to spend money to maintain your properties to keep them safe and up to code. A few dollars here and there will protect your investment and likely give your tenant a reason to stay year after year!

This information may not be used as a substitute for legal advice and you should consult your attorney for legal advice if you have any questions relating to this advisor guide.