Do I Need a License to Landlord?

Becoming a Landlord:

Do I Need a License?

Many Real Estate Investors are choosing to rent investment properties during this soft market.  And despite the fact owners see these properties as investments, the government generally views property renting as a business.  This bears the question: does one need a license to be a landlord?

Need I have a Real Estate License to rent my property?

In most states, one does not need to be a licensed Realtor to be a Landlord, so long as the property you are renting is your own.  All you need is authority to negotiate a lease, which you most certainly have if you own the property.  If you own the property in partnership, it is best to have a written agreement with your co-owners, giving you authority to execute leases on behalf of the group.  But so long as you have an ownership stake in the property, you do not need a Real Estate License. Many states do require a Real Estate License if you are going to manage property you do not personally own though.

Need I Have a Business License to Rent My Property?

In many jurisdictions, you WILL need a business license to rent property. Depending on where the property is located, you may need a State license, a local license, or both.  This is especially true for transient housing, or any type of property rented on a short-term basis.  In most jurisdictions, this means property that is rented for a lease period of six months or fewer.  Some States require just the business registration and license, while others require both a business license and a rental license.

How Do I Find Out What my Jurisdiction Requires?

If you have retained a Real Estate Attorney, s/he will be able to advise you on licensing and registration requirements for your area.  Your attorney will also be able to advise you of the requirements for a short-term (weekly or monthly) rental vs. a long-term (annual) rental.

If you are not working with an attorney, the first place to check is your local municipality's Housing Office.  If your district does not have a housing department, check with the Building Department. Most localities will also list landlord requirements on their local websites.  Often times, the applicable forms will be available on the website too.

Will I Need a Certificate of Occupancy?

In most cases, you will need to have the Certificate of Occupancy (also called a CO) BEFORE you can apply for a business license or a housing license.  Simply put, a Certificate of Occupancy is a document issued by a local building or Zoning authority confirming that the premises have been built and maintained according to the provisions of the building or zoning ordinances, and that the premises is fit for occupation.  In practical terms, it means a unit is safe to live in and meets the local definition of habitability.

In most cases, a CO is issued when a building is first completed or when a building's use changes.  In many localities, converting a unit to rental property requires a new CO, as it is considered a change of use.  In order to get one, you will need to have the property inspected by the municipality to ensure it complies with rental codes.  This is usually done by a representative from the local Building Department.  The Inspector will either issue the CO or a list of violations that need to be addressed. Should violations be found, they will need to be repaired before the final Certificate of Occupancy is issued. Once you have the CO in hand, you may apply for the business or housing license.

What Happens if I Do NOT Get a Business License?

If you rent without obtaining the proper license, you will be the landlord of an illegal apartment. There may be many consequences associated with this.  Your city/state can fine you or even issue a "cease and desist."  Your tenants may withhold rent.  There may be insurance and tax consequences.  And should you end up in litigation, you'll be coming to court with "unclean hands," something that can cause negative decisions.  In addition, you may be charged with tax evasion.  Obviously, we recommend you obtain the proper licenses to become a landlord BEFORE you rent your property.

Do I Need a Separate License for Each Property?

Again, that depends on your specific area's requirements.  Generally, you will need a CO for each individual property.  If there are registration requirements, each parcel will need to be registered. Some jurisdictions will issue a blanket business license for property rentals, while others will require a separate license for each unit.  Most jurisdictions will require a hotel license for any type of short-term rental.

What Steps do I Follow to Become a Landlord?

First, consult with your attorney and/or local officials to determine the exact licensing and registration obligations for your area.  Next schedule an inspection and obtain your Certificate of Occupancy.  Then, if your state requires it, register the property with the with the appropriate division.  Obtain any required State Licenses before you apply for any required local ones.  We suggest you consult with a skilled Real Estate Attorney to help ensure you have followed every step appropriately and you have complied with all State and Local requirements.

Summary:

This week, we discussed licensing requirements for potential landlords.  Although you do not need a Real Estate License to rent property, most jurisdictions require some sort of business license and/or registration before you can legally rent a unit.  Most jurisdictions also require a Certificate of Occupancy (CO.)  Since converting a property from owner-occupied to a tenancy is considered a change of use, you will most likely need to obtain a new CO before applying for any type of housing license.Depending on where the property is located, you may need a State license, a local license, or both.

Here at the Law Offices of Heath D Harte, we believe that real estate is a good investment.  We also believe renting properties that are part of an investment portfolio can be an effective strategy, especially in a soft real estate market.  Becoming a landlord is one way to help your investment property pay for itself while your equity in that property grows.  

However, many investors become landlords without investigating the requirements, leading to negative financial impacts when an issue arises.  Investors must obtain the proper licenses before renting out a property, so that their investment may grow with no negative impacts.  And while they are investigating the legalities of renting, investors need to become familiar with their local landlord-tenant laws as well.  We truly believe this is an area where skilled attorney help is a must.  You really need to develop a relationship with an attorney you can trust before entering the property rental field. Your attorney can be the key to making your rental business a success. Not only can your attorney navigate the licensing process effectively, but s/he can also negotiate leases, hold security deposits, and help when tenant issues turn sour.

If you live in the New York-Connecticut area especially, The Law Offices of Heath D Harte are here to help you with all of your landlord-tenant needs.  We invite you to contact us so we may help you with all of your real estate law issues.