Maintenance

Introduction
      The upkeep and improvement of rental property is vital to continuing economic viability. Property that is not regularly repaired and refurbished is not able to compete effectively for new tenants, except with discounted rents.  Taken to an extreme, a practice of deferring maintenance, and lowering rents, leads to a downward spiral that is hard to reverse.
      Many mom and pop landlords estimate and allocate 5% of gross income for maintenance and repair. However, national studies indicate an average real cost of $700 per unit in a large complex, to $1,100 for single family homes.  If you are not spending that much, perhaps it's because Pop or Mom, are not being paid for their labor.
      There is a tremendous quantity of information available regarding maintenance, in both book and Web formats.  Home Depot and Links to some of the available Web sites are found on RHOL's Maintenance Online page.
      Not staying on top of needed maintenance and repair, and/or failing to make repairs when requested, is one of the most shortsighted and costly mistakes that property managers make. If the property is not kept in good repair, the tenant may have the right to withhold rent, sue for any injuries caused by defective conditions, or move out without notice. And who could blame them?
      Furthermore, poorly maintained property does not attract the best tenants.  Prospective tenants who must accept such property often do so because they do not qualify to rent better quality properties where landlords use adequate screening and selection procedures and the same landlords who do inferior maintenance usually also do inferior screening.
      As a result of shoddy and improper maintenance by nonprofessional property managers, American courts began to hold that there is an "implied warranty of habitability" in housing that is offered for rent. Many states have even codified that concept by statute and landlords can now be held criminally responsible for neglecting maintenance in some states.
     An RHOL landlord member from the UK, Matthew Gibb, recently emailed us the following: "Our action group managed to successfully lobby parliament recently on some impending legislation. It was proposed that if a repair notice was served on a landlord of a house in multiple occupation, the landlord would be immediately criminalized.  Now, a warning notice must be served first."
     As Matt's note from the London suggests, the evolution from "as is" to the concept that rental property must be guaranteed safe and sanitary is becoming accepted world wide. You may want to review our pages on the Warranty of Habitability to get a better understanding of what is now expected of property owners and managers and why.
      In addition to the new legal requirements, timely and preventive maintenance is a income property manager's best investment in both the property and in attracting the best tenants. You may want to also see Maintenance FAQs, Talk About Maintenance and our Maintenance pages elsewhere on this site.

Hiring Someone Else

      Selecting and hiring the right maintenance people can be as important as selecting property and the tenants. But that alone is not enough, an owner has both a legal responsibility to provide adequate supervision as well.

Independent Contractors
      Selecting independent contractors to do your maintenance is an important issue that can have both financial and legal implications far beyond the task at hand itself.  Issues include  (1) whether to use licensed or unlicensed vendors, (2) whether a vendor is really an independent contractor or instead an employee, and (3) how to find qualified vendors. 

Licensed or Unlicensed
       Most landlords probably use unlicensed vendors more often than they use licensed contractors.  The reason for this is simple - they're often cheaper.  There is probably nothing inherently wrong with using unlicensed vendors for many routine non-critical tasks so long as you are aware of the risks and take the necessary precautions to protect yourself.
      Many states that license contractors set maximum dollar limits for which a license is not required.  For examples, in Arizona, a license is not required for work performed where labor and materials total less than $750 dollars, for which a building permit is not required, and the work is not part of a larger project.  An unlicensed vendor doing work not meeting the conditions of that exemption is in violation of Arizona law.  In California, the limit is only $500.
      There are certain advantages to using licensed contractors.  Sometimes these advantages outweigh the one major disadvantage - cost.  However, sometimes an initially perceived lower cost turns out to not be lower after all because the unlicensed vendor may also be less skilled and less experienced.
      Although not every advantage applies in every state, the advantage of using licensed contractors usually includes the following 

• Provides access to a state Recovery Fund in the event of poor work done by the licensed contractor

• Provides assistance to consumers in resolving conflicts with the licensed contractor

• Provides procedures for filing complaints, with penalties of license suspension when the licensee is found in violation of laws and regulations

• Requires that licensees be bonded

• Requires that licensees carry liability insurance

• Requires that licensees carry workers compensation insurance for employees

• Requires that licensees obtain required permits

• Require that licensees do the work per building codes

      In many states, the vendor cannot file a mechanics lien against your property, or, in some states, even sue you if he performed work that requires a license without being properly licensed.  Other than this unique circumstance and the fact that unlicensed work is often cheaper than licensed work, a licensed contractor should usually be preferred over an unlicensed vendor.

Independent Contractor or Employee
      Whether you are hiring a licensed or unlicensed vendor, it is very important that the vendor be legally considered an independent contractor rather than your employee - unless you do in fact intend for him to be an employee.  There are times when it is an advantage for the person to be an employee, primarily because an employee can be fired, whereas, firing an independent contractor can leave you owing him for a job not done.  The fact that a vendor possesses a contractor license does not per se make him an independent contractor.
      The fact that the vendor might be considered an employee, even though that was not what you intended, can become an issue in a number of ways.  Among those ways are the following three scenarios:

• IRS or State Equivalent - The vendor is audited for non-payment of income taxes and to protect himself, claims that he was your employee and he thought that you were withholding payroll taxes on his behalf.

• Workers Compensation - The vendor is injured, on or off the job, and makes a claim for worker compensation, stating that he was your employee and he thought that you were carrying workers compensation for his benefit.

• Unemployment Benefits - Business falls off, and the vendor makes a claim for unemployment benefits, stating that he was your employee and he thought that he was covered.

      In the above scenarios, there is a real chance that the associated government agency will find in the vendor's favor and that you will be liable for the following:

• IRS or State Equivalent - You could be found liable for taxes that should have been withheld, penalties for failure to report and withhold, and interest and late penalties until paid.

• Workers Compensation - If you had a policy in force at the time of the alleged injury, you may be covered as to the vendor, but the insurer may seek penalties and cancel your policy because you failed to report properly, making it more expensive to find replacement coverage.  If you did not have a policy at that time, you could become liable for all costs related to the injury if it were decided that the injury occurred while working for you..

• Unemployment Benefits - You could be found liable for the cost of his unemployment benefits as well as be assessed significant penalties for failure to report and pay the tax.

      So, how do you avoid this risk?  First, understand the legal definitions of an employee and an independent contractor as defined by these agencies.  The twenty things that the IRS looks at to determine status are discussed in detail on our Determining Employee or Independent Contractor Status page.  Second, if there is any doubt about the vendor's status, require that he sign document regarding his independent contractor status.  Two samples of Independent Contractor forms are provided on our Forms Web.
      In many cases, there is no need for concern about this issue.  For example, if you ask Sears to send out a repairman because your 4-year old Kenmore washer isn't working right, the serviceman drives up in a Sears truck, and he hands you a bill on a Sears billing form, it's very unlikely that there is any reason to even think about the issue.  The same would apply to most licensed contractors that you called out of the yellow pages.
      However, if you call an unknown unlicensed vendor out of the local Penny Saver newspaper, he drives up in an unmarked pickup, and he doesn't give you a written invoice, you should be somewhat concerned.  In this case it would be smart to have him sign the appropriate document before he begins work.  Two samples of Independent Contractor forms are provided on our Forms Web.
      How can a  vendor possess a contractor license and be considered an employee?  One example is if you hired one, currently laid off from his regular employment at a large contracting firm, to be on site 4 hours each day and take care of all maintenance in you 100-unit apartment complex.  Depending upon the details of the relationship, it may be impossible to make this person a legal independent contractor.

Selecting a Contractor
      Selection of qualified contractor can  require a certain amount of time and energy.  You cannot simply go to the largest ad in the yellow pages.  If you know people who have utilized a contractor for the type of work you need done and they were ecstatically happy with the results, the job will be easy.  Try to find recommendations from friends, real estate agents, lumber yards, hardware stores, supply stores for the type contractor needed.
      Ask the referral source who was a previous client of the contractor the following questions:

•  

• Did the contractor show up on dates and at times promised?

• Did he do the contracted work for the agreed price?

• Was the quality of work acceptable?

      However, if you have no such contacts you will need to spend considerable effort to maximize your chance of having good results.  Depending upon the complexity and size of the job, this effort can include some or all of the following tasks:

• Understand licensing requirements of your state (gives some idea of the value to put on the license)

• Find potential candidates

• Interview candidates

• Verify credentials

• Check references

• Visit current work sites

• Select 2 or 3 best

• Obtain bids

• Review contract carefully

• Verify liability insurance and workers compensation

      These issues and others regarding hiring contractors are discussed in more detail on RHOL's Selecting A Contractor page.  Additional discussion regarding hiring vendors is found on our Maintenance Madness page.  Finally, the Federal Consumer Information Center provides information regarding hiring contractors and filing complaints.

Employees
      If an employee does their job improperly, you pay the bill. Unlike using an independent contractor, where you may have recourse when work is not satisfactorily done, the law requires that an employee be paid even for unsatisfactory work   However, you can fire an employee, whereas, dismissal of an independent contractor can more easily lead to a lawsuit.
      Furthermore, if they commit a crime, or someone is injured to improper repairs, you may be held financially responsible as well.  And, your liability may be even greater for an employee than for an independent contractor because an employee is considered to be under your complete control and direct supervision.  Furthermore, insurance protection will come only from that which you yourself carry.
      Verifying education and experience is only the beginning of the screening process. Courts have held that employers have a duty to conduct a thorough background check too. Minnesota recently passed important new legislation that now requires property owners to properly screen employees. See: New L/T Law and Updates.
      Carefully selecting all employees, then clearly spelling out the manager and maintenance staff duties will also help to prevent expensive problems down the road.
      Adequate liability Insurance coverage is even more important when using employees rather than independent contractors because with the latter you usually have a degree of protection from the contractor's insurance, assuming that he had adequate coverage as you should have verified before hiring him.
      Employees require income tax withholding at federal, state, and sometimes local levels, social security tax, unemployment insurance, and workers compensation.  Additionally, returns or reports must be filed for all of items.  However, employees often are often preferable to independent contractors and sometimes absolutely necessary, particularly for larger complexes where resident managers already require employee bookkeeping functions anyway.

Doing It Yourself

      Doing it yourself usually has the following advantages:

• saves money
• not liable for another's actions
• done right - if you know what you're doing
• done sooner

      Doing it yourself can have the following disadvantages:

• need to learn how
• need tools
• takes your time

      There are a number of excellent books on the subject as well as many web sites that provide help.  Most large home improvement retailers, including the following, provide a lot of how-to-do-it information on their web sites. 

      For specific subject, parts and materials manufacturers and suppliers also provide detailed information about their products and how to install or repair them.
      There are also a large number of other sites with useful information, including the following:

Records

      The smart landlord maintains a detailed up-to-date maintenance log.  It should include detailed dated entries for:

• Original complaint
• Any oral or written response to tenant
• Action taken (e.g., called vendor, checked it out yourself)
• Reasons for delays (e.g., parts availability, vendor workload, holiday)
• Reported expected repair date to tenant
• Checked with tenant that repair was satisfactory after expected completion

      The fact that the last item is seldom done sometimes leads to problems when anyone other than the landlord does the repair.  Sometimes the repair performed by the vendor didn't fix the problem complained about and sometimes the vendor didn't show  up to do the repair.  Tenant frustration regarding these events can be avoided by calling the tenant the day after the vendor was to have scheduled the work and asking if the work was completed and did it solve the problem.
      Not only does keeping a maintenance log help to eliminate most problems associated with tenant maintenance complaints, but it is powerful evidence if you end up in court in spite of your efforts.

Tenant Repairs

      Leases sometimes make the tenant responsible for some or all repairs and maintenance, particularly for single-family homes.  Sometimes a tenant repairs items on his own even though the lease doesn't require him to do so, either because he caused damage and doesn't want the landlord to know about it or because the landlord didn't respond to a maintenance complaint in a timely manner.  Many times, tenant repairs are not properly done.  For example, tenant repair of holes punched in walls or doors almost always require re-doing.
      Assigning maintenance to the tenant in the lease can lead to similar problems.  The tenant often doesn't do repairs that are his responsibility because he doesn't have time or doesn't know how.  This can result in additional problems.  For example, a leaky supply valve in an under-sink cabinet, if not repaired, may eventually result in the need to re-build or replace the cabinet, a very costly project.  Accordingly, landlords should carefully consider which maintenance tasks should be done by the tenant and which should not.
      You must also be careful that the tenant does not become an employee, as this can expose you to all the potential liabilities discussed above, unless you are indeed intending to make him an employee and follow all necessary procedures.  In other words, the lease should make the tenant responsible for maintenance of specific items and you should not let the tenant do other work, whether for payment or in lieu of rent, without taking the same precautions to establish independent contractor status as you would with any handyman or you purposely make him a bona fide legal employee.  You should also keep in mind that you must be sure that your insurance covers you against injury to the tenant or others and against damage liabilities resulting from the uninsured tenant's actions.
      You must also take into consideration that most of the risks and liabilities that were discussed above under the "Hiring Someone Else" topic apply to the tenant doing the work.
      Whether you prohibit the tenant from undertaking any repairs or you make the tenant responsible for certain repairs, the lease should also state that "it often costs more to correct a bad repair than for a qualified person to do the repair correctly in the first place," that the "tenant will be charged for correcting a repairs that do not meet professional trade standards," and that the "tenant should contact the landlord regarding repairs that tenant is not qualified to perform in a professional manner."  In response to the latter, the landlord can suggest vendors for the tenant to hire.  Because bad drywall or door repairs are such a common problem, these items should be specifically prohibited in addition to any general prohibitions.  When you chose to make the tenant responsible for repairs and maintenance, it is best to list the specific repairs for which he is responsible and/or those for which the landlord is responsible.