Can I Say No to Pot in My Apartments When it is Legal in my State? – by John Triplett

With permission from AOA (Apartment Owners Association)

California just became the world’s largest legal marijuana market. When pot is legal in a state, what issues does this present to property managers and landlords of rental properties? Property managers are often confused and seeking to better understand how to handle the issues of legal marijuana and medical marijuana when it comes to tenants and rental housing in their states.

Laws are changing all the time in many states, just as California did on January 1, 2018, as voters approve different levels of permission when it comes to marijuana. This leaves property managers trying to figure out what should be in their leases around the issue.

You may be able to ban smoking, but do you really know what your tenants are eating or growing in their apartments? Do you really want to know if they are good paying tenants?

Rental Housing Journal did a recent interview with Seattle, Washington attorney Bret Sachter, an expert in tracking the progression and transformation of marijuana laws, to discuss some common questions property managers have about marijuana and tenants.

“I’ve been asked this a lot,” Sachter said, “but it does not come up as often as you might think. The overarching issue here is that, with few exceptions, people can do what they want to protect their property, even if the prohibited behavior is not illegal. You can prohibit smoking, prohibit pets, but with marijuana it’s much easier because it is federally illegal. So you can pretty much prohibit it if you want to no matter what, even medical marijuana,” Sachter said.

4 Questions About Pot, Tenants and Apartment Leases

Sachter says in terms of Fair Housing issues, and the U.S. Department of Housing and Urban Development (HUD) it is a situation where HUD wants it in the lease that marijuana is illegal but enforcement is another issue, he said. It is not so much that HUD wants landlords to evict over marijuana, but that you have something in the lease language that allows for eviction in the instance of marijuana use on the property. “So it is pretty clear as far as HUD is concerned,” he said. Here are his answers to four questions on pot and apartments.

  1. 1.     Tenants With a Disability and Medical Marijuana

Question: If a tenant comes in and says I have a disability, here is a note from my doctor, I use medical marijuana, which is legal in this state, and I want to rent your apartment. Can a landlord prohibit that?

Answer: “A landlord can absolutely prohibit that because marijuana is illegal under federal law.” The landlord can say, “I understand our state allows medical marijuana but it is still a Schedule 1 drug and I prohibit it on my premises.”

  1. 2.     Marijuana is Legal in My State – But What Does the Lease Say?

Question: What if a tenant says marijuana is legal and they should be allowed to use it?

Answer: “If your lease prohibits smoking and prohibits use of illegal drugs, then the legality of marijuana at the state level is irrelevant because under federal law marijuana is illegal. If your lease does not have those types of clauses, you should talk to an attorney in your state or city to find the best solution for your lease.” There is no law about reasonable accommodation for marijuana users, federal laws do not require it. As far as the federal government is concerned it is not ok.

“One thing I would say, and it is important, I would encourage landlords just to make everything clear,” in the leases, he said. “Clarify in a lease that you must abide by all laws both state and federal.” That is the case in residential. He said it can be different in commercial.

“But in residential it is not as tricky, and I am speaking very generally here,” Sachter said. “The states may have their own thing going on with legal marijuana laws, but it is still federally illegal. Make it crystal clear in your leases is my best advice,” he said. “How can you attract tenants in a state where it is legal yet protect the owners of the property? You cannot have it both ways.”

“I know in Seattle there are Airbnb bed and breakfasts that specifically market themselves accordingly, as part of marijuana tourism to come and stay in our place where it is legal.” But if a property manager doesn’t want that going on, then they have to be up front in the lease.

“If your tenant is Airbnbing to a tenant who is then using marijuana – well if you can’t catch them you cannot do anything about it. You have to prove they are doing this.  They are going to be using marijuana regardless of what the lease says.”

  1. 3.     What if the Tenant Using Marijuana is a Well-Paying, Good Tenant?

“Landlords can certainly put a no-waiver clause in the lease. If I say, ‘Here is a list of prohibited things’ and if you do these prohibited things in the lease, you are subject to eviction,” he said.

“However, any time I waive any of these things does not constitute an overall waiver. It basically means you should not ever do it again,” he said. “Just because you get away with it once, does not mean you get away with it every time,” Sachter said.

  1. 4.     Can I say ‘no pot in my apartment

“Usually if you say, ‘No pot in my apartment’ and you find a tenant using marijuana and you haul them into court, more than likely the judge is going to say, ‘Have you stopped?’ to the tenant and ‘Are you going to do it again?’ and the tenant is going to say ‘No.”  And then judge will say, ‘Ok, dismissed.”

To put a more legalistic term on it, usually a court will be in favor of “allowing the tenant to cure the defect,” rather than evict for most things like that, Sachter said.

Technically, in Washington, a landlord would serve a 10-Day notice to comply or vacate with the terms of the lease.  This process, therefore, gives the tenant a chance to “cure” the violation before the landlord can evict. Check your local state laws on this.

 

What One Experienced Property Manager Says About Pot

Sam Driver, Product Director for Buildium.com, and an experienced property manager, said as far as marijuana use in apartments, due to the newness of the legislation, the federal laws that supersede state and county laws, and liability concerns, it is not a topic that comes up a lot – yet.

“Generally, the safest solution is to choose the most conservative path-impose a no-smoking policy, which can in some cased cover outside areas, and a crime provision that includes local, state and federal laws. In many states, there are setbacks from doors, and it is particularly important if the building is a place of work which a multi-unit apartment building certainly is. So your lease should contain a provision explicitly banning smoking and illegal activity. Because the feds still outlaw it, this should be sufficient,” Driver said.

“This of course only covers the smoking angle. If a resident consumes it in another way, you’d likely never know,” he said.

 

Growing Marijuana Could Put a Power Load on Your Apartments

“As for growing, that’s less clear. But in general, unless the electrical system is designed for it, the loads grow lights put on the apartment unit could be excessive. I’d consider a reasonable use clause that specifies all high load equipment, including lights, air conditioners and any kind of pump be approved by you.

“This would put you in a position to take action if they are putting too much load, without specifically calling out the use of the equipment. Pumps are a good area for monitoring, because of the intermittent load, they trip breakers, and anyone who is using a hydroponic system would need several,” Driver said.

 

What if I Want to Market My Apartment to Marijuana Users?

“If, however, you wanted to roll the dice and market to this crowd assuming your state laws allow it, remember that the federal laws would cover any bank deposits from proceeds,” Driver said.

“In this case, you’d be able to do it, assuming no federal intervention, in compliance with local laws. No insurer would provide EO&E (errors and omissions excepted) insurance to you, and you wouldn’t be able to deposit any funds into a federally-accredited bank. So you’d have to self-insure, and run an entirely cash business, but you could do it, risking only federal enforcement.

“The big question is, ‘Would the premium rents be worth the risk of forfeiture?’ If you run afoul of the federal drug laws, the asset seizure possibility is a huge risk. You could lose the building.
“If you’re managing other owners’ properties, then you’d be risking their assets even if you used different leases, unless you kept fully separate books, bank accounts, and co-mingled nothing. So I’d say it would be all-or-nothing,” he said.

“The timing is tricky, too. Leases contain a provision that stipulates that the contract is in force in a specific jurisdiction. If they change the laws rendering your lease out of compliance, what happens during the remaining time of the lease? Is it invalidated? Or does the contract remain in force until it expires? “Good questions for your lawyer,” Driver said.

Rich Triplett is a writer for the RentalHousingJournal.com which is an interactive community of multifamliy investors, independent rental home owners, residential property management professionals and other rental housing and real estate professionals. It is the most comprehensive source for news and information for the rental housing industry. Their website features exclusive articles and blogs on real estate investing, apartment market trends, property management best practices, landlord tenant laws, apartment marketing, maintenance and more.  

What’s in Store for California Real Estate? – by Bruce Norris

with permission from the AOA (Apartment Owner’s Association)

California’s median price rose to $550,200 in May. That represented a year-over-year gain of 5.8%. It’s common for prices in the summer to be the highest price reached for the year.

At $550,000, California is now only $44,000 off its peak price in May 2007 of $594,530. In our report, “2% Interest Rates, $40 Trillion in Debt and Other Surprise Endings,” it was my prediction that $550,000 would be the peak price reached for this cycle in California for 2017.

In that report, I also predicted a recession in the second half of 2018 which would be met with the Fed having to drive short-term interest rates into negative territory. I still stand by those predictions.

What’s interesting this time around when you consider median price, is that only two counties have exceeded their past peak price and those are the two most expensive counties. San Francisco County and Santa Clara County have far exceeded their past median price. This does add to the skewing of California’s median price. Most of the lower-priced counties like Riverside, San Bernardino, Kern, and Sacramento have room to increase before they pass their former peaks in price.

Prices have been further skewed as the fastest sales growth has been in the $2,000,000 price range and above. The second fastest category of sales growth has been in the $1,000,000 to $2,000,000 price range. It will be interesting to see how long that can continue.

Despite some healthy price gains, the affordability chart still reads 32%. It has been hovering around the low 30s now for the past four years. One of the telltale signs of an over-priced California market is the affordability number heading to 17%.

We are nowhere close to getting to 17% anytime soon unless we were to experience an interest rate hike that bumped the mortgage rates to about 6%. I somehow doubt the current economy is strong enough to absorb aggressive rate hikes by the Fed. I stated in the report that I doubted California would get to the 17% affordability mark this cycle. I just think there are too many other factors that will prevent either aggressive lending hikes or aggressive price movement.

Sales in California have been steady but not spectacular. It has been a long time since California sales were over the 500,000 mark and we haven’t come close to touching the exuberant days in 2005 when sales reached 600,000 for a short time.

What’s standing in the way of sales exploding? The biggest problem continues to be lending. On the panel at the “I Survived Real Estate” this year’s event, will be a couple of people who can definitely provide some insight on how lending will evolve over the next couple of years. The event is sold out but we’re working on live streaming options with HousingWire so anyone that would like to watch can do so from the comfort of home.

I’m looking forward to finding out from Doug Duncan from Fannie Mae when he feels investors will be offered more loans. I think the step that makes this possible has to be Fannie Mae becoming a privately-owned company once again.

David Kittle is back with us again this year. He is the past president of the Mortgage Bankers Association and currently the President of The Mortgage Collaborative. I will be very interested in his take on what’s next for regulation in lending. Is Dodd-Frank about to be dismantled? If so, will it be replaced and by what?

One of the problems for sales is the lack of single-family home construction in California. On the panel again this year will be John Burns, author of “Big Shifts Ahead” (the best demographics book I’ve ever read). John will be asked why the builders have moved out of California and are going gangbusters in places like Texas and Florida. Also, what level of participation can we expect from the hedge funds moving forward? Are the hedge funds ready to unload what they bought? If so, what would be the impact on the California market? John Burns is President of John Burns Consulting and his clients are the hedge funds as well as national and local builders.

Two of our panelists will be very helpful in taking us to the future and seeing what’s next for both real estate information and how technology will change how Americans work. I always look forward to the panelists, limo ride every year because I get to ask Sean O’Toole what he thinks about the future. He was the one that introduced me to 3D printing six years ago. “What’s 3D printing?” I asked! Incredibly, he had already purchased his young son a 3D printer the year prior.

Sean was also the one who shared that we would soon be driving next to driverless cars way before it was on anyone’s radar. That’s why I like Sean, he’s way ahead of the curve. Last year, he made this statement: “America’s biggest problem in the future will be how to have a society where 50% of the people don’t need to work.”

I just read an article last month that talked about that very subject related to our specific market. This is the title of the article in The Press-Enterprise dated July 9, 2017: “Automation Threatens More Than 60% of Inland Jobs”.

I’m very interested in Sean’s take on what’s next. Are we going to build houses with 3D printers that significantly lower the cost of construction and greatly reduce the cost of housing? That might just be good to know!

Bruce Norris is an active investor, hard-money lender and real estate educator. A talk show host in his hometown of Riverside, Calif., Norris is a frequently quoted in financial publications and a speaker at investor club meetings throughout California. His latest study, The California Comeback 2, was released in July 2013 and provides the statistics that substantiate his predictions. More information about Bruce Norris, his research and his investment seminars are available at www.thenorrisgroup.com

Electric Vehicle Charging Stations for California Landlords

By Jamie Sternberg in Law,  Reprinted with permission from  propertymanager.com

California law provides a framework for California tenants to request permission from their landlords to install electric vehicle charging stations. AB 2565 added new Civil Code §§1947.6 (residential tenancies) and 1952.7 (commercial tenancies). A summary of the law is below. The full text of these code sections is included at the end of this article.

Residential

For residential leases signed, renewed or extended on or after July 1, 2015, landlords are required to approve a tenant’s written request to install an electric vehicle charging station at the tenant’s parking space if the tenant enters into a written agreement which includes requirements regarding the installation, use, maintenance and removal of the charging station, requires the tenant pay for all modifications, and requires the tenant to maintain a $1,000,000 general liability insurance policy. The charging station and modifications must comply with all applicable laws and covenants, conditions and restrictions. The tenant is required to pay the cost associated with the electric usage of the charging station. The landlord is not required to provide the tenant with an additional parking space in order to comply with this law. This law does not apply: (1) when parking is not included as part of the rental contract; (2) to properties with fewer than five parking spaces; (3) to properties subject to rent control; (4) when 10% or more of existing spaces already have electric vehicle charging stations.

Commercial

For commercial leases executed on or after January 1, 2015, landlords are required to approve a tenant’s written request to install an electric vehicle charging station if certain requirements are met. The tenant is not allowed to install more electric vehicle charging stations than the number of spaces allocated to tenant under the lease. If no parking spaces were allocated, the tenant has the right to convert a number of spaces based on a formula which takes into account the square footage of the rented premises and the total number of parking spaces for the entire property. This law does not apply: (1) to a commercial property with less than 50 parking spaces; or (2) to a commercial property which already has 2 electric charging stations for every 100 spaces. AB 2565 is codified at Civil Code §§1947.6 (residential property) and 1952.7 (commercial property).

HOA

HOAs may not prohibit or unreasonably restrict the installation or use of electric vehicle charging stations in a designated parking space.

Full Civil Codes (PDF)

Kimball, Tirey & St. John LLP is a full service real estate law firm representing residential and commercial property owners and managers. This article is for general information purposes only. Before acting, be sure to receive legal advice from a lawyer. If you have questions, please contact your local KTS office. For contact information, please visit www.kts-law.com.

© 2015 Kimball, Tirey and St. John LLP