TX Prop Code Seems To Kill L/O Viability...
You may have seen the post that I made earlier claiming that I had read the ENTIRE Texas property code, and well...here's a question that I came up with regarding L/O viability in Texas. This question may read more like I'm pointing something out...
Texas Property Code § 92.006(e) states:
A landlord and a tenant may agree for the tenant to repair or remedy, at the tenant's expense, any condition covered by Subchapter B if all of the following conditions are met:
(1) at the beginning of the lease term the landlord owns only one rental dwelling;
(2) at the beginning of the lease term the dwelling is free from any condition which would materially affect the physical health or safety of an ordinary tenant;
(3) at the beginning of the lease term the landlord has no reason to believe that any condition described in Subdivision (2) of this subsection is likely to occur or recur during the tenant's lease term or during a renewal or extension; and
(4)(A) the lease is in writing;
(B) the agreement for repairs by the tenant is either underlined or printed in boldface in the lease or in a separate written addendum;
(C) the agreement is specific and clear; and
(D) the agreement is made knowingly, voluntarily, and for consideration.
If the conditions set forth in this portion of the TPC are NOT met, then legally the normal rules for required repairs during a typical landlord/tenant relationship apply, i.e. if the heater goes out and the tenant maintains his/her lease payments YOU could be forced to
repair/replace the heater, in addition to incurring the costs that were required for the tenant to litigate the matter.
Subsection (1) is worded pretty strangely when you consider that many creative RE
investors create entities (trusts, LLC’s) which ‘own’ only one property. This is perhaps a loophole and a little credence to those who I had previously considered a little wacky for going through all the expense of creating a new entity for EVERY property that they
acquire. (Or don’t acquire, as it were)
Subsection (2) probably contains some good language for those of you who are willing to tinker with the ‘stock’ contracts that you buy, adding a specific statement for the tenant/buyer on a lease option contract which reads, “Tenant agrees that no condition currently exists which materially affects the physical health or safety of an ordinary tenant.” and having them sign it or something similar.
Subsection (3) is one of those infuriatingly vague criteria that cause so much damn litigation in this country, since all one must do to win a judgment vs. the defendant is whine and cry enough for a jury to believe that you the “big bad banker type who tried to
force my toddlers into the snow” should have known that something bad was going to happen. Maybe you can use this statute to claim your ‘1-800-dial-a-psychic’ charges as a business expense on your taxes.
(4) (A) is easy enough, though I’ve run into a few properties where the occupant had no written contract.
(4) (B) is just one of those requirements that create loopholes for a frivolous plaintiff’s Hawaiian vacation if the poor investor somehow was unaware of it.
(4) (C) oh great another infuriatingly vague criteria, ironic since the statute requires you to be ‘specific’ and ‘clear’. Tell me, does this mean that you must be ‘specific’ and list every part of the house that the tenant/buyer is responsible for repairing? Can you image the size of that contract? It would read like a developer’s shopping list. When the legislators say
that the statement must be ‘clear’ what they are really saying is, “HEY PERSONAL INJURY ATTORNEY, IF YOUR CLIENT IS DEAF, DOESN’T SPEAK ENGLISH AS HIS OR HER FIRST LANGUAGE, OR JUST PLAIN LOOKS DUMB TO THE JURY,
ALL YOU HAVE TO DO IS SAY THAT THE CONTRACT WASN’T ‘CLEAR’ TO
YOUR CLIENT AT THE TIME OF SIGNING.”
(4) (D) is the standard language for the executory contract, nothing worth noting.
So what’s my question, or what’s my point you ask? How many of you have Lease/Option contracts (calling for the occupant to make repairs) that would ‘leak’ if they were tested in
court? Here’s a warning, if they do ‘leak’ in court, you could be liable for court costs, attorney’s fees, punitive damages at the discretion of the judge, and you can read the code yourself if your interested in the rest.
Furthermore, the code goes on to list specifically what can be the responsibility of the tenant, does this mean that no other responsibilities can be laid on the tenant to make
repairs? Did the legislators truly mean for this to be an exhaustive list?
(f) A landlord and tenant may agree that, except for those conditions caused by the
negligence of the landlord, the tenant has the duty to pay for repair of the following conditions that may occur during the lease term or a renewal or extension:
(1) damage from wastewater stoppages caused by foreign or improper objects in lines that
exclusively serve the tenant's dwelling;
(2) damage to doors, windows, or screens; and
(3) damage from windows or doors left open.
And of course let’s not forget that:
This subsection shall not affect the landlord's duty under Subchapter B to repair or remedy, at the landlord's expense, wastewater stoppages or backups caused by deterioration, breakage, roots, ground conditions, faulty construction, or malfunctioning
equipment. A landlord and tenant may agree to the provisions of this subsection only if the agreement meets the requirements of Subdivision (4) of Subsection (e) of this section.
This last part seems to me to be a list of things that specifically cannot be the responsibility of the tenant to repair, how in the world can you get around this? And furthermore, if you have a tenant/buyer sign a lease option contract which calls for an unlawful action to be
taken, is that a violation of the Texas Fair Trade Practices Act ( as a contract calling for late fees so hi that it would violate usury laws ) or would it not apply simply because that is not specifically mentioned in the Property Code? Any answers from anyone are appreciated.
[ Edited by bpntx1 on Date 11/15/2003 ]
The lease is only one piece of the L/O.
Could part of the option consideration be the maintenance and repair of the property? That shouldn't fall under the landlord/tenant laws.
I don't see where these albeit heavily tenant favored laws, have any bearing on the viability of a Lease option. It may change the wording of your leases, but what do repairs have to do with the future option to purchase? You should always figure your expenses when figuring the lease payment anyway. Depending on the condition of the property, you adjust the monthly payments, the option consideration, and the future selling price accordingly.
Good Luck,
Shawn(OH)
It's all in the wording of the agreement. If the maintenance and repairs are a portion of the option consideration then it has everything to do with the future option to purchase.
Assume that you have just spent all your money on a L/O course and don't have a reserve account set up yet. The tennant should have been explained at the point of sale that they were responsible for the cost of repairs and they agreed to this before they signed. If they have come to this point, it's more likely that they are unable to pay the rent and are litigating vs. you with an attorney being paid on contingency. They don't care about losing the option to purchase because they can't pay the lease payment anyway, they just want to sue you for as much as they can for as long as they can and stay in your house without paying you. The Tx prop code goes on to describe additional penalties and liabilities that are created if you try and end their occupancy during this period. This is a serious matter and I'm surprised that so many take a 'blose' attitude about it. WAKE UP!!! AMERICA IS SUE CRAZY!!! THEY DON'T CARE WHAT THEY ORIGINALLY AGREED TO!!!
We all face similar issues when repairs need to be made and the t/b can't make them. There is nothing blase' about my attitude in this situation. I make the repairs and evict the sucker for non-payment.
Actually I try to work a way to get them to leave without eviction. Eviction is costly so it's easier to thow some money at the tenant to leave.
Obviously you are not paying attention. By wrongfully evicting your tenants, you are violating Texas Property Code and creating liability for yourself if the eviction is challenged by competent legal representation. Just because you have gotten away with it before does not mean that you shouldn't take it into consideration and begin to comply with the law, if for no other reason than for your own best interest.[ Edited by bpntx1 on Date 11/15/2003 ]
So if I make the repairs that they agreed to pay for but cannot pay for.
They do not pay the lease payment because they cannot afford it.
Then it is against the law to evict?
Heck, I am moving to Texas and become a tenant. No need to pay rent because they cannot evict me.
Quote:
On 2003-11-15 15:33, bpntx1 wrote:
Obviously you are not paying attention. By wrongfully evicting your tenants, you are violating Texas Property Code and creating liability for yourself if the eviction is challenged by competent legal representation. Just because you have gotten away with it before does not mean that you shouldn't take it into consideration and begin to comply with the law, if for no other reason than for your own best interest.
<font size=-1>[ Edited by bpntx1 on Date 11/15/2003 ]</font>
I am curious as to whether you have ever evicted a tenant personally. In my experience it goes one of 2 ways. They either don't show up, in which case you win automatically. Otherwise they show up with legal aid who makes all kinds of motions to dismiss, etc... at which time you ask for a continuation and then offer $$$'s to the tenant to make the problemm go bye bye. This isn't rocket science, but there is a certain art form to avoid sticky situations. What have your experiences been?
As far as a blase attitude, what I was attempting to convey, was if you plan ahead for repairs, then when they come, you won't be surprised, and remember that sometimes you can lose a battle but still win the war.
Good Luck,
Shawn(OH)
Uh huh. Let's see, 180 days of non-compliance with Texas Fair Trade Practices Act at $250.00 per day equals $45,000.00 plus "reasonable" attorney's fees equal $3,000.00 plus actual damages awarded equal to $5,000.00 plus 5% interest until date of payment equals losing the battle? Ouch some battle.
Oh I forget, you still have to pay your own attorney.
I still don't see how you are running against the law by evicting someone who isn't paying.
Quote:
On 2003-11-15 21:47, bpntx1 wrote:
Uh huh. Let's see, 180 days of non-compliance with Texas Fair Trade Practices Act at $250.00 per day equals $45,000.00 plus "reasonable" attorney's fees equal $3,000.00 plus actual damages awarded equal to $5,000.00 plus 5% interest until date of payment equals losing the battle? Ouch some battle.
Oh I forget, you still have to pay your own attorney.
OK Hard head, I am not talking about breaking the law. I am talking about charging enough to cover most contingencies.... like making a repair for my tenant. I do not ever propose letting a tenant, whether or not they have an option or not, do a serious repair on my property. I still need to protect my investment. Besides, most of the time, if you are doing something wrong, law enforcement will normally allow you a certain period of time to correct the problem without levying penalty, unless you are a habitual offender. Now let's get out and help somebody instead of arguing technicalities. That law is not designed to stop a lease option from happening. Lease options have been around for a long time, and it started out in the commercial arena, where, I believe, both parties are a little more adept at Real Estate than your normal residential buyer. I find it difficult to believe that a net net lease is illegal in Texas. That said, I can almost guarantee that the statute that you have placed before us was enacted to keep the hard nosed, yet unknowledgeable and inconsiderate investor, from taking complete advantage of the even less knowledgeable home buyer. To be a truly successful debator, negotiator, attorney, etc... you Must be able to understand and even predetermine what the strategy of both sides of an issue will be thinking and doing.
Good Luck,
Shawn(OH)
To thomasgsweat: under some circumstances, tenants are allowed to withold lease payments as a result landlord's non-compliance with TX state property code provisions regarding "conditions affecting the health and well-being of a normal tenant."[ Edited by bpntx1 on Date 11/16/2003 ]
“OK Hard head,”
Interesting reaction, phallic deficiency perhaps?
“I am not talking about breaking the law.”
“I make the repairs and evict the sucker for non-payment.”
§ 92.0563(b) . Tenant's Judicial Remedies. A landlord who knowingly violates
Section 92.006 by contracting orally or in writing with a tenant to waive the
landlord's duty to repair under this subchapter shall be liable to the tenant for
actual damages, a civil penalty of one month's rent plus $2,000, and reasonable
attorney's fees.
This section just covers the penalty for CONTRACTING with a tenant to waive
landlord’s duty, this is IN ADDITION to civil liability for VIOLATION OF THE TEXAS
FAIR TRADE PRACTICES ACT, under which a WRONGFUL EVICTION IS
PUNISHABLE. Of course, when you say that you are not breaking the law you are
correct in one sense, which is that it is not criminal law which you are breaking.
“I am talking about charging enough to cover most contingencies.... like making a repair
for my tenant. “
This post wasn’t for the Kings and Emperor’s set, if you have the cash to make the repair
then congratulations to you. I believe, however that part of the appeal of the L/O contract
is the lure of very low or no money down deals. As a point of fact I would like to take this
opportunity to say that I believe very highly in the power of creative real estate to create
wealth where there was only hard work before. I began this post as a heads up, and a poke
in the eye. For those who do not have the CASH to cure the deficiency, this scenario
potentially creates a very dangerous mix where you could end up being sued for any
number of reasons. For those of you who do have the cash to repair the deficiency, use it
to by another liability policy.
“I do not ever propose letting a tenant, whether or not they have an option or not, do a
serious repair on my property.”
Not everyone is as diligent as you and I when it comes to protecting the assets which
belong to you and I.
“I still need to protect my investment. Besides, most of the time, if you are doing
something wrong, law enforcement will normally allow you a certain period of time to
correct the problem without levying penalty, unless you are a habitual offender.”
Yes well here we come back to the idea that you are not breaking the law. Since you are
in fact not breaking the law, law enforcement, who enforce criminal law, have nothing to
do with the scenario which you and I are debating. The civil trial attorney sitting over
there with your tenant on the other hand is ready willing and able to dip into your wallet
the FIRST LAST and EVERY time s/he get’s the opportunity, especially if you are a
habitual offender.
“Now let's get out and help somebody instead of arguing technicalities.”
That’s the problem with the American legal system today is that it most certainly IS about
sitting around and arguing technicalities, jeeze don’t you ever watch the news? You know,
a guy just got off of a murder wrap scot free on a technicallity after shooting his neighbor
and chopping him into little bits.
“That law is not designed to stop a lease option from happening.”
How do you know? Do you have any idea the effect special interest groups and PAC’s
have had on the Texas legislature lately? Just look at the new changes enacted in
september 2001, do you think it’s a co-incidence that the Texas Association of Realtors’
Political Action Commitee was so heavily involved in creating legislation that makes it
nearly impossible to convey a real property in Texas without the aid of some kind of
professional? (Thereby decreasing the number of individuals that attempt to sell their
house on their own)
“Lease options have been around for a long time,”
So have prostitutes, next invalid argument, please...
“and it started out in the commercial arena, where, I believe, both parties are a little
more adept at Real Estate than your normal residential buyer. I find it difficult to believe
that a net net lease is illegal in Texas.”
Actually you’re right, it’s not illegal, just potentially financially suicidal.
“That said, I can almost guarantee that the statute that you have placed before us was
enacted to keep the hard nosed, yet unknowledgeable and inconsiderate investor, from
taking complete advantage of the even less knowledgeable home buyer. To be a truly
successful debator, negotiator, attorney, etc... you Must be able to understand and even
predetermine what the strategy of both sides of an issue will be thinking and doing.”
My experience has been that there is such a variance in the level of performance displayed
by those in the legal profession that you never know if the guy you hired is going to forget
to file your docs into evidence ( yes this happened to me ) or if he is going to perform like
another Perry Mason.
[ Edited by bpntx1 on Date 11/16/2003 ][ Edited by bpntx1 on Date 11/16/2003 ]
OK, now let's go back to my original suggestion.
Do Not make the Lessee responsible for repairs.
Make the Optionee responsible for repairs.
There should be two different agreements with two different sets of responsiblities. As a portion of the consideration for the option, the optionee has the responsibility for the repairs. Now, as Shawn said, you will hardly ever get the optionee to pay for major repairs so you have to have the cash or credit to handle it yourself. But, in this scenario it is not the tenant that is responsible, it is the optionee. They may happen to be the same person but the tenants lease agreement has nothing to do with the repairs. The optionee's agreement does.
You will not evict for non repairs. However, the optionee will lose his option. Then you talk to the tenant and see what you can work out. Pay them some cash to leave. Otherwise they are stuck paying their agreed upon higher than market lease payments.
If, as you state, your reserves are low or non-exesitant then you shouldn't be doing these types of deals to begin with. You need to build your reserves before you put yourself in the position of a landlord. Landlording cost money.
Good thread, although I'm glad I don't live or work in Texas! Landlord law, Enron, GWB, Sheesh!
Good Luck,
Shawn(OH)
I just remembered that there is a gentleman over in the Law and Legal Forum who may be able to give you state specific information. He is JohnMerchant and I believe that he was an attorney in TX.
[ Edited by thomasgsweat on Date 11/16/2003 ][ Edited by thomasgsweat on Date 11/16/2003 ]
WHEW!
cpifer, you mean you actually followed that whole thread? You have more patience than I do.
I agree, if you're going to own property, you need a reserve even if it's just a credit card.
This is a good argument for having 2 seperate agreements. In reality the L/O tenant will not have the money for the repair and I would not want them to make it anyway ! Trust me on this.
How about if you have to pay for the broken heater or whatever, you go to the L/O tenant and say, geez, if you don't have the money for this, let's re-negotiate the L/O contract. Would that work ?
[addsig]
Great dialog guys! A little heated, for a while, but good stuff!
WOW, I'm an investor in TX with a couple of L/O. One I have the tenant pay the first $150 of a repair the second (was) they pay the entire repair. Well, the second gave me $4,000 as an option fee paid $1,300 a month rent for five months and then abandoned the property. They just left. After reading this thread I'm glad they did. I will never structure my deal where the T/B is paying for repairs. So now I'm looking for new T/Bs
TX sucks if ur an investor.
BPnTX:
Nice to see you are very determined NOT to run a foul of TX Landlord Laws!!!
Here's a TIP:
Forget being a Landlord and Owning Property---CONTROL it INSTEAD.
Get it in a Trust and give your former Tenan-Buyers RESIDENTIAL BENEFICIARY Status...Not covered under Landlord-Tenant Laws
Their Option fee IS ther Buy-in Fee into your Living Trust...in return they get to LIVE-IN and FIX UP Your (excuse Me--NOW The TRUST'S) Property without all those STICKY TX LANDLORD BugaBoos!!!
For MORE INFO go to:
http://www.thecreativeinvestor.com/ViewTopic17254-25.html
And see my Post about a letter I use to MKT (Attract) Tenant-Buyers into becoming Resident-Beneficiaries.
Then every night thereafter you can get a GOOD NIGHT'S REST without worrying about TEXAS BALL-SIZED LANDLORD-BUSTERS breaking down your door to corral your greenhorn butt Bucky!!
LOL!
Best of Good Fortune To You!
Derrick Ali