SELLING A RENTAL PROPERTY? KNOW THE TENANT’S LEGAL RIGHTS.
Question: I am a licensed real estate broker. I have a client property owner who wants to list their rental property with me for sale and it is occupied by a tenant under a rental agreement. As is standard procedure for handling a listing, I am preparing to have a lockbox put in place on the property, but I just heard there may be some question about the legality of doing this because of the tenant occupancy. Is there, and is there anything else I should know about how to deal with the showing of the property, the conduct of open houses, and so on, given the tenant occupancy?
Answer: Very good questions, and from what I have heard about supposedly standard practices being followed by real estate brokers in showing homes with tenants, it may be that such standard practices may not be in accord with Oregon law, including in particular the placement of lockboxes on rental properties.
Showing a rental property occupied by a tenant is generally a difficult matter. As the broker, you don’t want to invade the privacy of the tenant. On the other hand, in order to do your job properly in marketing the property, you need to have access to the property, and sometimes potentially on fairly short notice. You may also want to hold open houses, which generally last three to four hours on a weekend.
And of course we all have heard of the scenarios where, no matter how polite you are, how much notice you give, the tenant simply refuses to cooperate with the marketing process. What are you to do?
Any analysis has to start with the Oregon statute which is directly on point, which is ORS 90.322. What does it say?
A. A landlord, and the landlord’s agent, has an absolute (subject to specified conditions) right to access the property in order to show the property to prospective or actual purchasers. Note that this presupposes that the tenant has not negotiated special terms conditioning access on satisfaction of conditions which are more restrictive than what is provided by the statute, so the first step for the broker should always be to review the existing rental agreement.
B. Except as otherwise specifically agreed in writing between the landlord and tenant (more on this below), in order for the landlord or landlord’s agent (more below on who is a landlord’s agent), to access the property and show it to a prospective or actual buyer, at least 24 hours “actual” notice must be given to the tenant of the intent to gain access, and even then the access may only be at “reasonable times”. Note the words in quotes. “Actual” notice is defined in ORS 90.150, and provides a number of specific methods for accomplishing delivery, including verbal notice given personally to the tenant, or written notice personally delivered to the tenant, or posted on the door of the main
entrance of the dwelling unit on the property. Generally, I would never recommend that you rely solely upon verbal notice, as then it becomes a potential “he said/she said” argument. Other methods are provided in ORS 90.150.
And what are “reasonable times”? There is no definition in the statute, so my advice is to use common sense. There are times which are probably well within the boundaries of reasonable: say between the hours of 9 am and 5 pm on weekdays. Weekends are more problematic – think the tenant who sleeps in late on Saturdays and Sundays. I would think that afternoons on weekends are probably safe. I don’t believe I need to tell you what would clearly be unreasonable.
C. Note that the conditions imposed by the statute do permit immediate access without advance notice in emergencies, but I can conceive of no scenario in which having to show a property to a prospective buyer would constitute an emergency for purpose of this statute.
D. Even if you give the appropriate “actual” notice, the tenant can still deny access, by either giving the landlord or the landlord’s agent “actual” notice of denial, or by posting a notice of denial on the door to the main entrance of the dwelling unit prior to the proposed time of access by the landlord or landlord’s agent. This does not mean that the denial of access has to be legitimate. Whether it is, or is not, is irrelevant. If such denial of access is given, then the landlord or the landlord’s agent should not attempt to access the property.
In such an event, it is probably a good idea to bring a lawyer into the picture, and it may be that the only remedy for the landlord is to consider taking legal action against the tenant, with the threat of rental termination if the issue is not resolved (ORS 90.322(7) specifically provides that if the tenant refuses to allow lawful access, the landlord may elect to terminate the lease, and is also entitled to recovery of actual damages). But in the meantime, there is no self-help remedy permitting the landlord or the landlord’s agent to ignore any denial of access by the tenant.
On the other side of the coin, ORS 90.322 (8), provides, among others, that even if the requests for access are lawful, repeated demands for access which have the effect of unreasonably harassing the tenant could lead to claims by the tenant, which could include a termination of the rental agreement and recovery of actual damages, but not less than one month’s rent for any arrangement other than a week to week lease. Again, a term such as “unreasonably harassing the tenant” is not defined, but common sense should play a role here as well.
SEPARATE WRITTEN AGREEMENT TO SHOW
ORS 90.322(1)(d) also provides a specific mechanism for a landlord and a landlord’s agent to avoid the 24 hour advance notice rule. The requirements are:
1. There must be a written agreement between the landlord and tenant separate and apart from the rental agreement, and it can only be entered into at a time when the landlord is actively engaged in attempts to sell the property. In other words, the arrangement can not be incorporated in advance in the rental agreement. The written agreement must be signed by both the landlord and tenant.
2. The agreement may provide that the landlord or the landlord’s agent may have access to the property without advance notice, solely for the purposes of showing the property to a prospective buyer, but the access must be at reasonable times.
3. “Consideration” must be given by the landlord. In other words, something of value must be given by the landlord to the tenant, and this could take the form, for example, of a cash payment to the tenant, or a credit against rent payable. This consideration should be specifically identified in the agreement.
PRACTICE TIP: In the written agreement, specifically address what the parties agree are “reasonable times”. If the parties agree on this term and say, for example, spell out that “reasonable times” run from 9 to 6 on weekdays, and 10 to 4 on weekends, then it would be very difficult for a tenant to argue to a court that a real estate broker showing the property on a Sunday at 3 pm is an unreasonable time.
PRACTICE TIP: In light of the statutory language that even lawful access can get to a point of harassment, permitting a claim for damages by the tenant and other relief, the agreement should also spell out how frequently the tenant agrees the property can be shown during any one week period – perhaps three times, perhaps more. The point is that again, if you have the tenant agree in advance to this, you minimize the risk of a complaint by the tenant if you comply with those terms. And note that this does not mean that you can not do it more frequently, or at other times – it just means you would want to contact the tenant and get the tenant’s consent for those times or that frequency outside of the agreed upon parameters.
LOCKBOXES AND OPEN HOUSES
As a preliminary, but important point, one has to understand what the term “landlord’s agent”, as used above, means. It is specifically defined as follows: ORS 90.100 (23): “‘Landlord’s agent’ means a person who has oral or written authority, either express or implied, to act for or on behalf of a landlord.”
It would therefore appear that the above discussion permits the listing agent, the one who has entered into the contractual relationship on behalf of the landlord to market and show the property, to give notice and have access to the property, or to be provided with the no notice access rights provided in the separate written agreement to show. Conversely, it would appear it does not permit a broker with no such relationship with the landlord, such as a broker representing only the prospective buyer, to enjoy those rights.
Given the definition of a “landlord’s agent”, and discussion above about the limitations on access, while the placement of a lockbox on the door to the property occupied by the tenant may not necessarily be per se unlawful, I believe it does present an unnecessary risk of liability to the landlord, and from a practical standpoint, in light of the statute, may not even serve its purpose.
First, as noted above, the right of access is limited to the landlord or the landlord’s agent. A selling broker, representing only a potential buyer, has no agency relationship with the property owner, and therefore, under the statute, unless the listing broker is also present, a selling broker who accesses the key to the dwelling unit, and gains entry when neither the landlord nor the listing broker (or broker in the listing broker’s office), is present, is probably unlawful, even if within the constraints provided in the separate written agreement to show. Of course, if the listing broker or an affiliate has to be present at the showing, doesn’t that defeat the fundamental purpose of a lockbox?
Second, physical access to the lockbox is not limited by date or time constraints. Even if you, as the listing broker, define in the MLS posting the specific limitations on access to the property, that simply does not guarantee that a selling broker will comply with those specified limitations. And if that occurs, it will ultimately be the landlord who will have liability – whether there is any relationship with that selling broker or not. After all, the landlord’s agent, the listing broker, put the lockbox on and made access available to all brokers.
Open houses, in the absence of a separate written agreement to show, are just as problematic. I don’t believe that the statute contemplates that a landlord can give a notice to the tenant, and specify that the landlord’s agent will be showing the property through an open house to various prospective buyers for, say, a continuous period of four hours. I believe a tenant could rightfully decline such a notice of intent to gain continuous access for that period of time. This is where the separate written agreement to show comes into play.
PRACTICE TIP: In the separate written agreement to show, negotiate for the consent to conduct open houses, and provide approved parameters: the number of permitted open houses per a specified period, the approved length of the open house, and the time periods during which open houses may occur. For example: two times a month, on either a Saturday or Sunday or holiday, and only from the hours of noon to 4. You can also negotiate in the agreement to have all occupants vacate the property during the planned open house, and that you will give a certain amount of
advance notice of the open house. Here’s where consideration can play a major role: similar to the concept of cash for keys in connection with foreclosure actions. If you want to have such open houses, and you want the occupants gone, then offer to pay something for that specific purpose. This can be separate and apart from the consideration paid for the tenant entering into the separate written agreement to show in the first place.
You can also offer to pay the tenant the clean the property in advance of a particular showing, or in advance of an open house, or to let you have a professional cleaning service provide the cleaning.
At the end of the day, your job is to show the property and get it sold. Having an uncooperative tenant can make this a more difficult task that it already can be, and dealing with the issues up front, and paying reasonable compensation for the inconvenience to the tenant of going through the process, can go a long way towards avoidance of this potential additional hurdle to closing.