What responsibilities do North Carolina landlords have regarding bedbugs?

Unfortunately, bed bugs are becoming a common issue, not just here in North Carolina, but across the United States and around the world. Landlords in the Charlotte area should take necessary precautions to limit their risk to bed bug related lawsuits. 

Treatment for bed bugs generally requires cooperation from the tenant (removing items from around the walls, washing all bedding, clothing, etc. in very hot, soapy, water...) and multiple treatments from a qualified extermination company. Costs can regularly exceed $1,000 for an occupied residence (costs on a vacant home by comparison can be a few hundred dollars).

"The home didn't have bed bugs when it was initially rented, so the tenant must have brought them into the house and they need to deal with it." 

This is the initial reaction from many landlords and, unfortunately, could end up costing the landlord thousands of dollars. Each municipality has its own laws, but in North Carolina a property owner is required to provide leased premises in a fit and habitable condition. 

If a landlord is notified of a defective condition, such as bed bugs, and the landlord fails to take immediate corrective action, a landlord is faced with more than the possibility that their tenants may receive a rent abatement or credit. A tenant may also: (a) declare a constructive eviction and vacate the premises; (b) file an action to recover the rents paid; (c) seek treble damages under our States unfair and deceptive trade practices statutes; and (d) seek to impose the cost of the resident's attorney's fees from the property owner.

Property owners who fail to take the necessary steps to eradicate bed bugs from a multi-family home may experience a situation in which the bed bugs existing within one unit may migrate throughout the entire building, thereby allowing multiple tenant claims for breach of warranty of habitability, exposing the owner to rent abatement damages and an inability to effectively lease a building with a bed bug stigma. 

So what should a landlord do? 

Once bed bugs are discovered, the landlord needs to take immediate action. Landlords should have a pre-determined plan coordinated with a qualified extermination company. The plan should provide a landlord with a step by step method to treat for bed bugs. Once a landlord is notified of the existence of bed bugs within a unit, a landlord should maintain a detailed chronology of the facts concerning the bed bug complaint and note each step that was undertaken by the landlord to eradicate an infestation. These records would be vital to an attorney in the event a tenant brings a claim against a landlord for damages associated with a bed bug infestation.

Additionally, the lease should explicitly address bed bugs, how they will be treated and who is responsible for the costs. This is a key component of a landlord's risk management program.  Alarca Realty's lease contains a two page bed bug addendum that clearly explains the procedures that must be followed and the consequences of non-compliance if bed bugs are identified. 

Professional Property Management Significantly Increases ROI

A recent survey by All Property Management of 300 property managers form around the U.S. demonstrates just one way that hiring a well-run property management firm is a good investment decision for most income property owners.

The following information comes directly from that survey and All Property Management:

"According to the US Census Bureau, the national average rental vacancy rate hovers around 9%, while our survey reveals that the average vacancy rate for professionally managed companies is about half that, coming in at 4.5%.

To calculate what this reduction means for the average rental property owner's bottom line, we took a look at what it would mean for the owner of a property valued at $150,000, with a monthly rent of $1,250, assuming a 10% monthly property management fee. We found that, when you take into account both lost rent and turnover costs, each 1% drop in vacancy rate saves the property owner about $1,900 over the course of a five-year period. Thus, a reduction of 4.5% equals a savings of about $9,500 over five years. Meanwhile, at 10% per month, professional property management would cost only $7,500 over the same period, resulting in a $2,000 profit, which represents a 30% ROI.


All Property Management's survey also confirms that average turnover costs total about $2,000---double that when there is an eviction, or similarly challenging tenant situation, involved. Pair this with other advantages of hiring professional property management, which include time savings, the ability to command higher rents, and improved maintenance at lower costs---just to name a few---we think payoff from using a professional property manager is clear. It's the best investment for making a solid real estate investment."

Contact Alarca Realty and find out how our property management processes and systems provide world-class customer service while also delivering industry-leading investment returns to our clients.

How do lead paint regulations impact landlords?

Many of our clients have been caught by surprise by the cost of renovating a home that was built prior to 1978. Why? Lead paint.

The EPA now requires that all contractors performing renovation, repair and painting projects (“RRP”) that disturb lead-based paint in pre-1978 homes be certified by the EPA and that they use certified renovators who are trained by EPA-approved training providers to follow lead-safe work practices.

The following activities are subject to the RRP – remodeling, paint prep, plumbing, electrical, door or window replacement and any other activity that disturbs paint in pre-1978 housing.

Alarca now requires all of its vacant homes under management built prior to 1978 to be tested for lead paint.

Why do costs increase when you have to follow RRP procedures?

• The State of North Carolina and the EPA require registration fees for firms involved in Lead Paint RRP.
• Firms and employees must attend education classes and become certified by EPA.
• Pamphlets must be distributed to owner and occupants BEFORE work starts and must be retained for 3 years by the contractor.
• Signs must be posted in work areas.
• Work areas must be contained. All objects must be removed all doors, ducts and openings in the work area must be covered with plastic. The floor surface must be covered with plastic. All personnel and equipment must be free of dust when leaving the work area.
• Specific tools, vacuums and filters must be purchased and maintained by the firm.
• Waste must be contained before leaving the containment area.
• Work must be thoroughly cleaned and verified to be free of lead dust upon completion. A HEPA vacuum must be used to vacuum all surfaces in the work area.
• Dust samples must be taken and clearance testing performed to ensure results are below applicable standards.
• Documentation of compliance upon completion must be provided to owner AND occupant and retained by firm for 3 years.

Can an owner do the work themselves or hire their own contractors? 

• In a nutshell - NO. Renovations performed by landlords or their employees must comply with the program. Only an owner-occupant may perform repairs themselves (although it is not recommended).

What are the penalties?

• EPA fines of up to $37,500 per violation per day.

Why is Alarca requiring testing?

• Many homes built before 1978 do NOT contain lead paint. We want to identify these homes to reduce costs.
• It is easier and less expensive to test a vacant home and, generally, we are more likely to encounter situations requiring RRP when we’re preparing a vacant home for a new tenant.
• If we don’t test, and a repair is required when the home is tenant-occupied, we will need to assume the home contains lead, or get it tested at that point in time. This is an inconvenience to the tenant and more costly than completing the test upfront.
• We need to know which homes contain lead so that it may be disclosed and we can flag the property to ensure that proper procedures are being followed.

When it is all said and done, we believe we are providing better service and value for our clients and residents through the application of our testing policies. In many cases the cost of the testing is more than offset by the fact that most or all of the home is discovered to be lead-free. 

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What's up with Freon prices and why does it cost so much to re-charge your A/C system??

Some of our clients have been shocked at the recent prices of re-charging their air conditioning systems. This is a direct result of a dramatic increase in the price of the most common Freon refrigerant in older air conditioning systems, known as R-22.  In some cases, prices for R-22 Freon have more than doubled this year. Since January 2003, the price has increased by more than 500%!

Why have the prices increased so much?
In January, 2010 the EPA banned the manufacture of new air conditioners using R-22 because of its ozone-depleting effects. The use of R-22 was not banned, but R-22 can only be produced or imported for the servicing of existing equipment. The reductions were designed to reduce consumption by 75%. 

By January, 2015 consumption must be reduced by 90% and by January 2020 consumption must be reduced by 99.5%. Production of R-22 will be banned in January 2020.

In January, 2012, the EPA proposed a significant reduction in the production and distribution of R-22 by as much as fifty percent, apparently to expedite the reductions. This is why pricing has increased so dramatically this year. And owners of systems containing R-22 should expect to see costs continue to rise dramatically over the next five to ten years as supplies diminish.

As R-22 is phased out, non-ozone depleting alternatives have been introduced. One of the EPA approved alternatives is R-410A which is sold under various trade names, including GENETRON, AZ-20®, SUVA 410A®, Forane 410A® and Puron®.  Another alternative is R-407C, which is allowed in retrofits of existing R-22 systems.

How does this effect the cost of recharging a system?

A typical system will hold 7-11 pounds of refrigerant. Prices of R-22 have been as high as $80-$90 per pound,  whereas a few years ago pricing was closer to $20 per pound. So on a typical unit, pricing could be as high as $900 or $1,000 just to replace the freon! Typically, however, Alarca's vendors have been providing this service in the $400-$500 range.

Replacing or retrofitting your A/C System

R410A refrigerant costs about $25 per pound. The difference in pricing versus R-22 has made it worthwhile to consider retrofitting or replacing your unit the next time it needs a significant amount of Freon.

The transition to systems using the new refrigerants required redesign of heat pump and air conditioning systems.  Systems using R-22 are NOT compatible with the R410A but are compatible with R-407C.

If your system needs replacement, you should insist in a system that uses R-410A. These systems will be more efficient and will save the cost of a retrofit down the road.

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