Portland Tenant Screening and Security Deposit Laws
Here's a transcript of the video:
Chris: Okay. We were talking about the new City of Portland rules. These were just passed on March 1st and there are two pieces to it; one is tenant screening and the other is security deposits. The security deposits are going to affect us the most.
Chris: So the new security deposit requirements require that you charge no more than 1x the rent unless a tenant does not meet the initial screening criteria and then you can charge up to 1 and 1/2x the rent. Or, if you are charging for last month's rent, you can charge for last month's rent but then you can only charge 50% of one month's rent. So if rent's $1,000 per month either $1,000 security deposit, or if it's a conditional approval (they don't meet the initial screening criteria) then $1,500 is the max. Otherwise, you can charge last month's rent for $1,000 and then a security deposit of $500.
Chris: Pretty much. And you have to allow the tenant to do a payment plan if they have to pay the additional 50% due to conditional screening approval.
Female audience member 1: When does that take effect?
Chris: It took effect this weekend. So it's in effect. The other piece of the security deposit legislation is that we have to finalize a condition movement report that lists all personal property and fixtures and ages of those items in a moving condition report within two weeks of moving. Otherwise, if we don't do that then we're in violation and it's at 2x the rent penalty or 2x the security deposit penalty.
Male audience member 1: This is only in Portland though?
Chris: This is only in the City of Portland. And then if something gets replaced during the tenancy the move-in condition report has to be updated. So if we put in a new refrigerator we have to update that move-in condition report. Otherwise, if they damage it we can't charge them for it. But the move-in condition report is the Bible when it comes to charging a tenant security deposit. Male audience member 1: So would you be updating the same original one or do you have to do a brand new one?
Chris: You would have to do an amendment. You would just amend it. And then part of the move-in condition report is you have to provide digital photos to the tenant.
Female audience member 1: So, online can you just send an email attachment?
Chris: You could probably just give them a Dropbox link.
Female audience member 1: Yeah.
Chris: So then you also have to give the tenants 24 hours notice when you're doing a move-out inspection. And then we have to make sure that we're providing the City of Portland depreciation schedule or fixtures and personal property. The City of Portland's put out a useful life of...whatever-it-is. But we're pretty cognizant of those useful lifes' when we're charging security deposits anyway - we've kind of already looked into that but now there's a rigid rule that we have to apply.
Chris: So that is the moving condition report. And then moving on to what is specifically not allowed to be charged to a tenancy security deposit. So the main one that we have been charging for is cleaning. So you get the unit back to the rent-ready condition that is specifically not allowed to be charged anymore unless there is an excess of ordinary wear-and-tear. So...
Male audience member 1: That's pretty great.
Chris: Yeah. Interior painting is not allowed to be charged either unless it's specific damage caused by the tenant. So we're pretty good about this when we're not charging tenants to do full paints.
Male audience member 1: So for excess or ordinary wear-and-tear that's pretty much just like staining and animal urine, or like ripping up the carpet?
Chris: So when it comes to the carpet I want to say that the City of Portland has deemed that it has a 5-7 year useful life. So if it's beyond that useful life it's worth nothing and so you can't charge for it. But anyway you're only allowed to charge for damage to fixtures, appliances, equipment or personal property itemized in the rental agreement. If the damage is due to a tenant act or omission, and you're allowed to charge for actual costs, repair and commit to the condition at the beginning of the lease.
Female audience member 1: So what about if that garbage disposer that just was replaced - do we charge tenant damage? Is that okay? But that's after this weekend. Are you saying we cannot because we don't have a move-in report on that?
Chris: There is some grey area on what to do with leases prior to this. I want to say that this only affects new leases and lease renewals that have occurred after this. So for any lease renewal, we have to create a condition report and Kimberly and I are going to be creating the template for the condition report. It really focuses on the move-in condition and the move-out condition, which we're pretty good about that right now. We just have to make some tweaks to it so that we comply with the rules. This is something that's going to increase tenant satisfaction and it's going to bring clarity to something that's a big grey area. I see this as an opportunity to become a better company and to be great and add value to our owners and our tenants and increase tenant satisfaction and get more by star reviews because we're so clear and we dot our I's and cross our T's when it comes to putting in the work to these condition reports. That said, this is going to be more work.
Female audience member 2: The itemized list and the rental agreement. Chris, is that separate from the move-in condition report that we'll be sending them?
Chris: It should be all contained in one. It's all going to be contained in one except that what we have to do is we have to finalize the report within two weeks of their move-in. So if they haven't filled out the move-in condition report or their move-in inspection then we have to publish ours to the tenant portal with digital photos so that they have access to it and they can see it.
Female audience member 2: So it doesn't necessarily have to be sent on the lease that I'm sending out after they get approved, right? The itemized list.
Chris: No, the itemized list does not have to be on the lease. It needs to be on the move-in condition report.
Female audience member 2: Okay.
Chris: The security deposit though can no longer be owner-held. And that's because we have to list on the lease which the security deposit is held at. And that has to go on the lease. So we need to update our lease to show that the security deposit is being held at our Bank. But it says that we need to, in the rental agreement, "provide a name and address of the banking institution where security deposit for a pre-payment of last month's rent or security deposit will be held".
Male audience member 1: So if you're a self-managing landlord now how do you do that?
Chris: You have to have a separate account before the security deposit. That's a new requirement in the City of Portland. But what's nice is that you're not in the City of Portland.
Male audience member 1: That helps.
Chris: So that is the rule regarding the security deposit. This is going to require the most change.
Male audience member 2: Hold on one second. As a property management company aren't we allowed to hold funds in escrow since we couldn't in a banking institution? Or we could just do the first part of it?
Chris: So this just states we have to tell them which bank it's being held at.
Male audience member 2: But we could just say, "it's listed with us".
Male audience member 2: But comes out of a bank, right? We are an institution that holds money. I don't think we need to say exactly where, what bank it's in, but we're holding it.
Chris: The rule states that we're supposed to list the banking institution. It's a pretty clear rule.
Chris: Okay, back onto the application and screening. This one is a little more detailed - uh-huh, 13 pages, yes. So, a couple of changes that we need to make. First is that we need to have a notice of availability, period. So when we list a property for rent, when it goes live, we have to wait 72 hours before receiving applications. So essentially... Male audience member 2: So people have a fair chance.
Host alongside Chris: So if we know it's going to be available, we can list a day in the future so the notice can start once we know it's going to be available. So the best practice is after you do a scope of work inspection, we get that marketing up and say, "it's going to be available on this date. Please keep this as our message. It is going to be available."
Female audience member 1: No sooner than 72 hours.
Chris: So if an application is accepted prior to the 72 hours then that application is early and that application has an eight-hour penalty. So, if somebody applies the moment that a property is listed and then somebody waits the 72 hours till exactly when the application period is live, that person's application is received on minute one. And then the person who applied early is...
Male audience member 2: Eight hours behind that.
Chris: Eight hours behind that. So potentially there could be a wave of applications that come in.
Male audience member 2: So the other best practice is to list before the rent is available and list high. So you try to get the highest price and then when it is available you drop the price.
Chris: Honestly, I don't think that this affects us. Yes, we have to comply with the notice of availability, but I don't think it affects our pricing. When it comes to us listing something generally it's taking a few days for applications to come in. People need to go see it. I don't see this as a problem. We're not having really difficult, multiple application situations. And if we do, we probably need to take that property down and list it for more. Yeah, you can still rent it out for whatever you want. So this all needs to be attached to our application. Yes. So Kimberly and I will work on getting a link to all of this stuff in our application. We don't really have any vacancy waitlists so that's something that doesn't apply to us. But essentially it says names must be added in the order received. Open application period: it actually states "it's first come, first serve". We're already doing first come first serve and AppFolio records the time and the date that each application is received so AppFolio already complies with this. There's a new limit on screening fees. So we're in the "all-screening done by landlord". This is just putting in the limit on screening fees but we're fine in that. So, moving on to screening criteria. There are now two options with the screening criteria. There is something called "the low barrier", which we are not going to use, and "the landlord choice". Right now we're in "the landlord choice" and essentially what it says is we're allowed to create our own screening criteria, which we have. But what we have to do is after an attendant doesn't meet the screening criteria we have to send them a written assessment, which we do already with our adverse action letters, stating why they didn't meet the screening criteria.
Female audience member 1: Do those need to be mailed as well, U.S. mail?
Chris: No, they don't need to mailed. So the one thing that we don't do that we will have to do is, if someone asks to appeal and for us to consider the supplemental evidence (this is something that we can do at our weekly meeting) and if we do deem that the attendant can qualify based on supplemental evidence we don't have to necessarily give them that unit. But we have to work with them and try and place them in a unit that is similar.
Male audience member 2: We already do that.
Chris: Yeah. So, denials in general: they need to comply with the rules. Denials with landlord choice criteria. We must conduct an individual assessment and be willing to consider supplemental evidence. This is something that we already do. One thing that we don't currently do is the appeal section and if a tenant appeals then we can just say, "we're going to talk about it. We'll review your appeal within seven days at our weekly meetings and we'll just make sure that it gets added to the weekly meeting". If they don't initially meet the screening criteria it's something that we can talk about in our issues list. So, that is the main piece of the screening criteria. We now have to deal with the landlord choice in the individual assessment, which we already do, but potentially we could have appeals that we're dealing with in regards to marketing. We do have that 72-hour waiting notice period. And then for applications, we need to make some changes to our applications.
Female audience member 2: Are we letting our owners know about these changes as well?
Chris: Kimberly and I are, as we update our processes, we will put out a video and an outline of the new rules. So yeah, any questions?
Male audience member 1: There is if you scroll down just a sec. 'Priorities for People' on the green section. Right there. Apart from mobility and disabilities, I don't have any problem with this whatsoever, but obviously, we're trying to eliminate vacancy. You might not know, I don't know, but if there's someone who wants to move in prior to someone...
Chris: Yes, that's always...
Male audience member 1: They have priority, right?
Chris: Yeah, "this property can be offered to you, but you have to move in on this date..."
Male audience member 1: Right.
Chris: "and pay the rent..."
Male audience member 1: Right.
Chris: "...based on this date."
Male audience member 1: Okay.
Chris: If somebody wants to move-in in six months, we don't have to hold the unit for them.
Male audience member 1: Okay, right.
Male audience member 2: And that only applies to accessible type A units...
Chris: Which we only have a couple of.
Male audience member 2: Is there one on the 72nd?
Chris: There has to be one on the 72nd.
Male audience member 2: So?
Host alongside Chris: Sweet, good work Chris. Do You guys have any questions?
Female audience member 3: Why does Portland have a more specific law when it comes to these things? I noticed that in particular, it's mostly Portland that does that or that has that.
Host alongside Chris: They are a progressive and liberal town, and also currently right now 60-70% of Portland are renters. So the political action is to try and get them more protection so that they keep voting for them.
Female audience member 3: I see.
Host alongside Chris:
Just a side comment: when it becomes more complicated more people need professional management services where we deal with this day in and day out. And us, we're going to be 100% better than someone that tries to do it just by themselves.
Female audience member 3: Mm-hmm.
Chris: So this, although it may be cumbersome for us, in the beginning, to get it figured out, ultimately it's not going to be that big of a deal. And if we find that it does cost us extra money to do it, that's going to get passed on to the landlord or the tenant ultimately. So, unfortunately, what they're trying to do is just increasing rent for the tenants. So that's kind of unfortunate, but that is what happens.
Female audience member 3: Thank you.