What does the 2013 Charlotte Rental Registration Ordinance mean for Property Owners?

Hopefully, this will be the last time I'm writing about this rental ordinance for awhile. If you don't feel like you need to understand all the details, but want to understand the potential impact, here's the executive summary:

1) Everyone has to register a rental property
2) There's nothing a property owner or property manager can do to GUARANTEE that your property will not make the list of properties In Need of Remedial Action (INRA)
3) The cost of making the INRA list is substantial

If you want more details, read on.

Charlotte City Council approved a new version of the Rental Registration Ordinance on May 29, 2012. Under the new ordinance every Residential Property Owner must register with the Police Department (CMPD) and provide the following:

1. The address of the property
2. The name, business address, personal address, phone number and email address of the owner.
3. The number of units on the property.
4. Proof of registration must be posted in a conspicuous place accessible at all times to the tenant.

Each quarter CMPD shall determine the Disorder Risk Threshold for each Residential Rental Property Category during the previous calendar quarter. The Disorder Risk Threshold is the Disorder Activity Count for the Property that is at the 96th percentile of properties in the Category. The Disorder Activity Count is a calculation that represents the amount of activity occurring within a specified time period in or on the property.

If a property has a Disorder Activity Count that falls above the Disorder Risk Threshold, the Owner will be notified of a Mandatory Initial Meeting. At this initial meeting the police official and the Owner will review:

1. the data that established the Disorder Activity Count
2. Any relevant evidence provided by the Owner to dispute the data.
3. Whether or not the Owner should have known that the Disorder Activity was occurring on the property.

If it is found that the property falls above the Disorder Risk Threshold, then the property will be designated In Need of Remedial Action (INRA). The Owner and police official shall develop and sign a Remedial Action Plan, the Owner will pay an administrative fee ($335 as of this writing) and the property will be set for a 3 month review date. See our blog on the Remedial Action Plan for the requirements of this plan.

As of this writing it is unclear what the penalties will be for non-compliance, although non-compliance will be considered a misdemeanor.

So what does this all mean for Rental Property Owners? In a nutshell, CMPD believes it is the Owner's responsibility to ensure that tenants behave properly and, furthermore, don't call the police when there is a problem at their home. Unfortunately, there is no way for anyone to guarantee that a property won't exceed the Disorder Risk Threshold. A property owner should understand the risks and costs of administering this program and factor this into their investment return calculations.

An experienced property manager can mitigate the risk factors and tell you which neighborhoods are likely to have properties that may fall under this program. Again, this doesn't mean that you shouldn't own homes in these neighborhoods, but you must be aware of the impact of this ordinance and its effect on your returns. Inexperienced owners and managers may decide that the impact of these programs isn't worth the risk. This may create an opportunity for experienced investors who understand the Ordinance and are proactive in working with the local police officers. Please contact Alarca Realty at info@alarca.com if you have further questions.

What is the Remedial Action Plan per Charlotte's Rental Property Registration Ordinance?

In yesterday's post I listed some of the problems with Charlotte's Rental Property Registration Ordinance. If your property is found to exceed the Disorder Activity Threshold (which is currently one violent crime for a single family home), you are required to register the property and follow a Remedial Action Plan. Here's what is involved in this plan:

1. Attend (or have your property manager attend) the mandatory hearing to discuss the activity on the property. Generally, there is at least one "street" officer from the police department at this hearing and I have found them to be very helpful and understanding. 
2. Pay the registration fee ($335 per this writing and it must be paid at least twice).
3. Furnish a copy of the lease, addenda and property rules to the Charlotte-Mecklenburg Police Department (CMPD). 
4. All leases must address eviction as a result of drug and criminal activity and authorized and unauthorized guests.

The following must be adhered to during the 18 month registration period:

1. All lease provisions must be adhered to by both the landlord and the tenant.
2. Landlord must comply with North Carolina General Statutes to provide fit and habitable housing.
3. Property lease and rules must be enforced consistently and promptly and proof must be provided to CMPD.
4. Owners or Property Managers must inspect the property at least quarterly and proof must be provided to CMPD.
5. Current and Prospective residents must be informed in writing that crime is not tolerated on the property and that every effort will be made to remove all residents who break the law and/or rules. Proof must be provided to CMPD.
6. All residents must be screened for criminal history and proof must be provided to CMPD.
7. All existing exterior lights must be working properly.
8. Maps of the property including locations of alarms must be provided to CMPD.
9. Phone numbers of key owners or property managers must be provided to CMPD.
10. Proof of registration must be posted in a conspicuous place accessible at all times to the tenant.
11. Reviews will occur at six month intervals during the 18-month period. 

Although the Ordinance states that the review process will end after the first six month review if the Disorder Activity Count is lower than the threshold, CMPD has insisted at each of my hearings that there is an eighteen month minimum.

Although this doesn't appear to be very punitive, the costs of compliance can easily average $100 per month or more during the course of the registration period. 

In terms of the number of properties impacted by the registration, fewer than 1% of the properties we manage have been affected. Please note, however, that Alarca already follows all of the guidelines recommended by the Action Plan and we immediately evict tenants in violation. As noted yesterday, however, it doesn't matter if the tenant no longer lives in the home. The premise is that the house is a problem and, therefore, the owners of the house should be held accountable, even if they evicted the tenant the day the tenant committed the crime. 

All of the screening, monitoring and oversight can't guarantee that a crime won't occur on the property. We also can't screen all of the tenant's family, friends, boyfriends, girlfriends, etc., and it can be very difficult to prove that a person is living in the home as opposed to just visiting.

Let's hope City Council changes the ordinance to not punish those owners who are truly acting in good faith. If not, however, a good property management company can minimize the risks and costs of owning a rental property. 

Active members of the National Association of Residential Property Managers (NARPM) are a great place to start when you're looking for a property manager.

What's wrong with Charlotte's Rental Property Ordinance?

Charlotte City Council passed an ordinance in 2009 requiring owners of certain rental properties to register their properties with the City and pay a hefty registration fee ($335 for a single-family home as of this writing). In theory, this ordinance was supposed to help the police by requiring owners of historically problematic properties to work with the police to help clean up the property. In practice, however, there are several major problems with the ordinance. Here are three:

The owner isn't notified until 12 - 24 months AFTER there has been a problem at the owner's home.
The measurement period was initially supposed to be on a calendar month basis and the owners were supposed to be notified by June of the following year if they exceeded the disorder activity threshold. Somewhere along the line, however, apparently a verbal agreement was reached allowing the measurement period to be from May to June and owners are not notified until the following May. We were just notified in May, 2012 that one of our properties made the list because of one call in November, 2010. The tenant who lived in the home at the time of the "violation" has already moved out of the home!

The owner isn't given the opportunity to correct or address the problem.
The first notification the owner receives is when the letters are sent requiring the owner to attend the hearing regarding their violation status. The owner isn't told in a timely fashion that a violent crime occurred on their property. In contrast, if the grass is more than 12" tall, the City drives by the house, takes a picture and mails a letter to the owner giving them 10 days to correct the problem. Yet they can't send a letter to the owner when someone has committed a crime at their home? Really?

Even if the owner does exactly what the council, police, neighbors, etc desire, the owner is still penalized.
The process doesn't take into account whether or not the owner (or their property manager) has done exactly the right thing. For example, we took over management of a problem property and worked with the police to evict the tenants. A year later we received the letter about the violations that had occurred prior to our management and we were told the owner had to pay the fine and register the home. Imagine the owner's reaction when we told him that not only did he lose rent and pay to have the home re-rented, he still had to pay a fee to the City!

These three examples don't even address the issue that the property owner is being penalized for the behavior of the tenants or tenant's guests.

A good property manager will be able to minimize the risks of exceeding the Disorder Activity Threshold (through screening, monitoring, etc), but will never be able to guarantee that a tenant or their guests won't commit some act that pushes the home above the threshold. Although the registration fee is $335, the annual costs of implementing the entire remediation plan can easily exceed $1,000.

Charlotte City Council is voting on an amendment to this ordinance on Tuesday, May 29 that would require EVERY rental property to be registered with the city. Please email Charlotte's City Council if you are concerned about this ordinance.

Charlotte City Council:
Mayor Anthony Fox
Mayor Pro-Tem Patrick Cannon
Councilman John Autry
Councilman Michael Barnes
Councilman Warren Cooksey
Councilman Andy Dulin
Councilwoman Claire Fallon
Councilman David Howard
Councilwoman Patsy Kinsey
Councilwoman LaWana Mayfield
Councilman James Mitchell
Councilwoman Beth Pickering