HOW LANDLORDS CAN SHIELD THEMSELVES FROM PROPERTY DAMAGE What can landlords do to protect themselves from intentional and negligent property damages? Well, when you ask me a question like that, my brain lights up with ideas. As I often say to both my clients and students, there are two steps to resolving any problem in our business: 1. Look at the problem through a risk management lens; and 2. Think outside the box! So, how can we change the way a security deposit functions in order to maximize its intended purpose and minimize the risk of property damage costs? First, in order to change the way a security deposit functions, we will have to change some of the terms of our lease agreement, right? Over 35 years ago, when I first graduated from law school and started buying my own rental properties, one of my first challenges was to draft a customized lease agreement. The reason I wanted to draft my own lease agreement was because I thought that the standard lease agreement approved by the local realtor’s association was weak and ineffective. I wanted to inspect my properties quarterly at the minimum. I wanted to deduct far more from the security deposit than “damages beyond normal wear and tear” and so much more. When I read the landlord-tenant law, I realized that there was nothing preventing me from getting creative with my lease terms.
MINIMIZING FINANCIAL RISKS
I didn’t realize until I was much older and wiser that there was a very good reason why these standard lease agreements appeared to be weak and ineffective. They were neutral by design. It would be political suicide for a realtor’s association to appear more “landlord friendly” or more “tenant friendly.” So, here are a few tips that I use to minimize my risk of property damage.
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