How to deal with tenants who have done more damage than deposit

Question

I just purchased a duplex with some tenants in one half that have been there for approximately 5 years. During the walkthrough, it's clear they have damaged all the carpet even though it was new when they moved in. They are also hoarders and garage, house, and especially the basement are full of piles of cloths and junk. The kitchen cabinets are 25% broken, so they will definitely need replacing, and kitchen vinyl flooring is in bad shape. Also, the supended ceiling in the basement clearly is wrecked from water damage, although during inspection no source could be found and above the ceiling everything looks good. The "bones" of the unit seem solid though so no real structural damage.

A couple of questions now regarding how to handle the tenants. Their lease comes due in March 2019 (7 months from now). If they pay on time and don't cause any major damage, should I keep them and renew their lease? Or should I just plan to evict them no matter what because hoarder tenants who don't take care of the place are better off somewhere else? I'm thinking if they keep paying reliably, up their rent by $50 at renewal time and then they'll either stay or decide to self vacate? This would allow me to put off renovations until later when eventually they do move out. Or again, is it best to just not renew the lease, renovate, and rerent?

Also, once they do leave, I know the damage will have exceeded their deposit. Since they've been there 5 years at least, it's borderline if I could deduct from their deposit for the extensive carpet damage right? By comparison though, the other half had its carpet replaced at the same time and looks like its in really great shape. The cabinets in the kitchen though, and the ceiling tiles in the basement will all need replacing, which will definitely exceed the deposit...

So here's my second line of questions. Can I proactively ask them to start paying additional deposit funds now in anticipation of the extensive repairs? Or is that not something I can do until the current lease comes due? Do I offer to fix things now but explain that I will be billing them because the damage is clearly caused by them and well beyond normal wear and tear?

Another issue, they have two cats. Their current lease allows them to have one cat. Should I issue a notice to them telling them they need to go down to one cat? Other options are: 1) Ignore it 2) Send them notice of extra pet deposit and fees if they want to keep second cat 3) Tell them they will be evicted for breaking the rules of the lease which states one cat?

Stephen Jeffers · Answer

@Jason Bilbrey I did Property Management for about 6 years, our policy probably was a bit proactive to situations like this.  We did quarterly walkthroughs.  During these walkthroughs we determined items that are in disrepair and fixed them.  No questions.  Now after they were repaired if the cause of the disrepair was the tenant they were charged.  Depending on the tenant and the issue we would let it be paid over the course of the lease.  To back up a bit, all of this is defined clearly in the lease.  That is the starting point, what the tenant agrees to with regard to these things as long as they are not unlawful is where to begin.  I would say being more proactive, whether it is stating the house must stay in a 'habitable' condition, or with regards to walkthroughs and repairs is mandatory.

Now as far as moving forward, I'd agree that you would likely want to keep the tenant, BUT and a big but you start to advise them that some changes with regard to the cleanliness and repairs of the property are coming.  I'd start slowly introducing the idea, and perhaps shape it as beneficial to them as well.  They grey area becomes after 5 years how much is normal house repairs vs tenant caused issues.  This could be a sticking point if you try and put it all on them and they push back, if their repairs exceed the deposit does your lease speak toward litigation for damages, are you prepared to go to court?

In summary

1. Review your lease agreement to counter these situations and be more proactive

2. Consider walkthroughs and repairs immediately

3. Introduce idea and see how the tenant responds to repairs they caused being paid of remaining lease, or potentially carried into new lease.

John Underwood · Answer

@Jason Bilbrey

I have 2 thoughts and options on this.

1. You are going to have to do a bunch of repairs when they move. If they are doing even more damage and pay on time you raise the rent $50 as you mentioned and renew their lease and put off the rehab. If you get rid of them you have to spend a bunch of money to just get back to what you are making now.

2. Do you want someone that lives like this and cares so little for taking care of your property?

You could get rid of them spend the money to fix it up, endure some vacancy while you are doing this,  and have someone just like them move in and you start over. You could also get the perfect tenant who really takes care of your house.

From a purely business perspective. I would be inclined to keep renting to them, but have several inspections per year to make sure things are getting worse and try to get them to clean up their act some and address the extra cat.

You could make it a requirement that they clean up their mess (or at least organize it) before you will renew their lease. If you decide this route let them know now of the requirement to clean up the house.

Jason Bilbrey · Answer

@Stephen Jeffers - Thanks for sharing your real world experience as a PM. Definitely will be updating the lease with more comprehensive language when renewal time comes around. Also like the idea of starting to prepare the tenants for the new management approach and expectations I'll bring compared to the previous owners.

Jason Bilbrey · Answer

@John Underwood - I am leaning toward continuing to rent if they pay on time for the reasons you mention about knowing that I knew eventually I would have to returb. I like your idea of increasing inspections to something like quarterly to ensure no serious damage is being done. Also, letting them know now that I expect the place to meet certain “cleanliness” standards for health and fire safety reasons.

Anyone else have thoughts on this situation? Also, anyone ever “raised” the deposit because you knew it would be needed, or is that something I just have to deal with after the move out by trying to bill them for any damage that exceeds their deposit?

How to deal with tenants who have done more damage than deposit

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