Know this Before Renting To Co Tenants
Can there be any more safe haven for a landlord than having multiple tenants to fulfill the financial obligation on the same lease? Well, if you are renting to co-tenants and assuming it is a safe move. Then wait and hear me right. Renting to co-tenants is more of a pain than gain.
Imagine a situation where you have rented to a couple and they decide to split. What will happen to the existing lease in this case? Have you thought of it?
Or for that matter, if one of the co-tenants wants to move out for maybe some other reason. Whether your other tenant will be able to pay the complete rent? If not, who will?
And what if the two co-tenants living at your property have wrangles with each other every now and then?
Whether are you ready to give your special attention to situations like these? All such situations can create chaos for a landlord and if you want to protect your business, here is what you need to know.
When Renting to Co Tenants, clearly specify your expectations and duties of co tenants in your lease to avoid future conflicts. Include a Joint and Several Liability Clause to make every tenant on the lease jointly responsible for any claim related to the lease.
Do You Know, Renting to Co- Tenants is a different arrangement from when you rent to Roommates.
When you are renting to co-tenants. It means you are renting out to more than one person and that every person will be named on the lease. Co-Tenants share Joint liability and are jointly responsible to comply with the terms enforced in the lease. A roommate is more of a subtenant who is not on the lease and has no direct agreement with the landlord.
Tips For Landlords When Renting To Co Tenants
When renting to co tenants, there are certain dos and don’ts, you must take into consideration to protect your interests and business.
1. Screen Each Prospect Individually
You rented your apartment to Tenant Sam and Tenant Mike. Sam has a good rental history, has a stable income, and good credit history as well. Tenant Mike is also good with a stable income, and decent rental history, but has a low credit score. Mike`s debt to income ratio is 50%.
Tenant Sam and Mike together can afford to pay rent and you even have no issues receiving rent so far. But imagine for some reason, if tenant Sam wants to move out. Will Tenant Mike be able to afford the rent all alone?
If you think, at this stage Tenant Mike will have a hard time paying rent. Then this is the sole reason, you need to ensure each and every applicant on the lease should individually fulfill your rental criteria.
Even if, each tenant is able to pay their share of rent and thus satisfy your rental criteria. You shouldn`t rent to them in a co-tenant arrangement as if one moves out, you will have a hard time collecting your money.
2. Specify Your Expectations
When you are renting to multiple tenants on one lease, it is important to specify certain expectations beforehand. It can really help you avoid future mess from the co-tenants. No matter how much Co Tenants in their best interest try to live peacefully. And, keep the environment harmonious for each other. But still, issues can arise.
The two areas where most conflicts arise between co-tenants are paying rent on time. And, getting security back if any of the tenants move out.
Tenant Sam being a responsible renter always pays his share of rent on time. But, tenant Mike mostly gets late on paying rent. As a landlord, you have trouble collecting rent from Mike always. No matter, you are receiving rent from Sam on time but due to Mike, you are getting delayed in receiving complete rent all the time. Are you ready to deal with this hassle? (Read: How Landlords Avoid Late Rent Payments?)
Then, clearly state your expectations in the lease as
- No matter who pays what and when. The rent should be received in full on or before the due date in a single transaction only.
- The Security Deposit should also be collected and refunded in one single check only. Also, the deposit shall be refunded only after all the tenants on the lease have vacated the premise entirely handing over a peaceful possession.
3. Including the Joint and Several Liability Clause
As a landlord, you need to protect the interests of your business and your rental property. You need to ensure every tenant on the lease should comply with the enforced lease terms. How will you do it? Simply, add the joint and several liability clause in the lease.
The Joint and Several Liability Clause will hold each tenant liable and responsible for adhering to the terms and conditions of the lease. No matter which tenant violates the terms, you can hold everyone liable when anyone enters into a joint and several liability agreement.
As a Landlord, its common to encounter situations like these when you rent to co-tenants
- Tenant Mike having a party at your property and his guests damaging your property. Now, which Tenant is responsible for damages? Sam or Mike??
- Sam and Mike want to move out after the lease term. After inspection, you find damages. On confirmation, you found Mike to be responsible. Now from whose`s deposit will you deduct for these damages? Sam or Mike??
- You found out that Mike is violating the lease by subletting your property to one of his friends. Now whom should you evict for this violation? Sam or Mike??
Mike is certainly giving you a hard time as a landlord?
And if you are thinking it’s Mike, who should be evicted, or imposed penalties. Sam has even come to you for sparing him of the associated costs. Then, you are wrong. Even though Mike is the one who is troubling you. But it’s a joint tenancy and everyone on lease is responsible for the liabilities occurring from the failure of complying with lease.
4. No Subletting Clause
Subletting must be a big no when you are renting out in a joint tenancy arrangement. In most cases of joint tenancy, one of the co-tenants moves out for some reason by subletting their apartment to another tenant. This way, the tenant can cover the rent of the remaining term and become sure of not violating the lease.
But is it good from the viewpoint of a landlord? Who knows to whom the tenant has sublet the property? And what if this new tenant poses a threat to your business? After all, you have not performed any background check on this new tenant.
Moreover, this new tenant is a sublessor and is not jointly and severally liable to lease terms. If any liability occurs, this sublessor is not going to be held responsible in any case. As a landlord, you don’t want to land into such tricky spots.
5. Require Renters Insurance
I make it mandatory in all my leases for tenants to have renters insurance. And when you have multiple tenants, it becomes absolutely important that you encourage your tenants to buy renters insurance. Renters insurance protects the landlord in case any liability arises due tenant’s personal property.
Imagine tenant Mike`s electrical appliance got burnt due to a short circuit while Sam was using it. Now Mike wants reimbursement from Sam. But Sam assumes it to be your responsibility to reimburse Mike. This situation can quickly turn into never-ending disagreements. And, having renters insurance not only saves you from such unwanted liabilities but also helps you avoid disgruntled tenants.
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Other Considerations When Renting To Co Tenants
Use Roommate Agreements
Roommate Agreements explicitly details the expectations, rules, and responsibilities of the co-tenant when sharing a place together. Though it is not a legally binding document and a landlord has no involvement in this. But suggesting your tenants sign one can encourage a peaceful living environment for all living at your property. A Roommate Agreement basically outlines
- How will Rent be split between Co Tenants?
- Cleaning Responsibilities among Tenants
- Limit to Overnight Guests
- Quiet Hours (No Noise)
Avoid Having Unrelated Co Tenants
Even if you have to rent to multiple tenants, always avoid having unrelated tenants in a co-tenant arrangement. Because it might seem like no issue renting to unrelated tenants at first. But later, issues can arise when one tenant realizes that it’s not working out anymore with this stranger tenant. Two known persons still may work out their issues much easier.
Never Favor One Tenant
Not all tenants are equally likable and sometimes, we make the mistake of favoring one over another. Stay away from such favoritism especially in a co-tenant setup. Always include all the tenants in the communication loop. Furthermore, if the co-tenants were having issues with each other. Let them solve on their own and never get in between taking anyone’s side.
FAQ`s When Renting To Co Tenants
Landlords often face trouble and stay confused in certain situations that generally arise in co-tenant scenarios.
What if Co Tenant Not Paying the Rent?
If one of the tenants is not paying rent, then as per the joint and several liability clauses; it is a joint responsibility of tenants to make rent payments on time. No matter if one is not paying, you can hold every tenant on lease liable.
Two Tenants on Lease But One Leaves
When in a co-tenant arrangement, if one tenant leaves before the lease term ends. He is breaking the lease. In this situation, both these two tenants are liable for actions. And it’s their joint responsibility to meet the obligations of the lease.
Unsafe Co tenant and other Tenant Got Restraining Order against him
There can be instances when tenant Mike harms Tenant Sam and Sam gets a restraining order against him. If this happens, should you make Mike move out? But what will happen to his share of the rent?
Even in this case, it’s a joint and several liability. So technically either both or tenant Mike is still obligated to pay his share of the rent. And if the judges even order Mike to move out, then will usually make Sam pay Mike`s share of rent also.
Can a Landlord evict a Co Tenant?
If a Co tenant is breaching the terms of the lease by either harming another tenant or damaging the property, you can do an eviction. The interesting case here is both co-tenants who are on the lease will get evicted as they are under a joint and several liability.
Read: How to Evict a Tenant?