By: Jacob Ryder
While there are significant advantages to investing in real estate, like the ability to use leverage and real estate’s low correlation to the broad stock market, there are also disadvantages. Possibly the most daunting to a new investor is the risk of legal liability and the seemingly unending world of laws in which the investor doesn’t know what she doesn’t know.
This blog post will highlight federal, state, and local laws that impact real estate investing in Pennsylvania. Real estate investing can take the form of an investor acting as a landlord, so this post will include laws applicable to the landlord-tenant relationship. While not a complete list, the information below will help highlight some of the biggest ‘red flags’ and provide links to additional resources. Having an idea of the legal framework and significant issues can transform the unknown and daunting risk of legal liability into manageable management practices and necessary costs.
Federal Regulations
While property ownership rules are typically found at the state level, several federal regulations apply to landlords and real estate investors.
The Fair Housing Act prevents landlords from discriminating based on race, color, religion, sex, disability, familial status, or national origin when renting homes. These protections apply to most residential property with certain exceptions, including owner-occupied buildings consisting of four or fewer units.
The Fair Credit Reporting Act protects consumers’ sensitive information within the credit reporting system. Unlike the general public, landlords are entitled to review ‘consumer reports’ (which include credit reports and rental histories) to screen prospective tenants. Importantly, landlords engaging in this screening method must comply with the Act’s requirements and use limitations, including providing adverse action notices to applicants. For more information on the requirements, visit the Federal Trade Commission’s page on a landlord’s use of consumer reports.
Possibly the most impactful federal rule is the eviction moratorium recently created by the Centers for Disease Control and Prevention (CDC) in response to the global health crisis caused by COVID-19. On September 4, 2020, the CDC issued an order temporarily preventing evictions. The moratorium has been extended at least through March 31, 2021. The CDC’s order prevents residential landlords from evicting certain individuals, including those who have suffered substantial income loss. Tenants must provide a signed declaration to their landlord before the restrictions are imposed. Importantly, landlords who violate the order are subject to criminal penalties. To learn more about the moratorium, visit the CDC’s answers to frequently asked questions.
Federal environmental law administered by the Environmental Protection Agency (EPA) requires landlords renting most buildings built before 1978 to provide lead paint disclosures. The landlord must provide the tenant an EPA-approved brochure, any known information about the building’s lead paint status, and a ‘lead warning statement’ as an attachment to the lease.
State Regulations
In Pennsylvania, the Landlord and Tenant Act of 1951 serves as the statutory basis for the landlord-tenant relationship. The Act covers many landlord obligations and rights, including rules regarding security deposits, notice and entry, licensing (when applicable), subleasing, and the prohibition of retaliation and recovery of possession. For a summary of Pennsylvania’s landlord and tenant law, read a Housing Equality Center (HEC) of Pennsylvania’s publication here.
In addition to statutory landlord-tenant law, there are judge-created laws that can apply to landlords. The most relevant of these judge-created laws appear below:
-
-
-
- The implied warranty of habitability imposes a burden on landlords to provide every tenant with a safe, sanitary, and reasonably comfortable living space. This requires that the property be fit to live in, not aesthetically pleasing. Significantly, parties cannot modify this by contract.
-
- A landlord’s failure to comply with this minimum standard gives the tenant several options: terminate the lease and leave, reduce monthly rent, or remain in the property and sue the landlord for damages. For more on tenant remedies, read HEC’s report.
-
- The implied covenant of quiet enjoyment restricts the landlord’s ability to use or access the tenant’s property. Landlords cannot unreasonably or excessively intrude on the tenant’s right to possess the property. Usually, this requires the landlord to give advance notice and to enter during reasonable hours, but parties can modify this obligation by contract. Breach of this rule can act as a breach of the lease agreement.
- Landlords must also refrain from using ‘self-help’ to effectuate evictions. Self-help is when a landlord takes certain steps outside the court system to get a tenant to move out, like changing locks, turning off utilities, or removing the tenant’s personal property. A landlord engaging in this type of illegal eviction can expose himself or herself to significant liability.
- The implied warranty of habitability imposes a burden on landlords to provide every tenant with a safe, sanitary, and reasonably comfortable living space. This requires that the property be fit to live in, not aesthetically pleasing. Significantly, parties cannot modify this by contract.
-
-
Landlords should also be mindful of state tort laws. Generally, tort laws give relief to people harmed by intentionally bad conduct or negligent conduct – when an individual does not exercise ‘reasonable care’ in actions, meaning they fall short of doing what a reasonably prudent person would do.
Local Regulations
Most significant at the local level are zoning rules and ordinances covering rent, noise, and other health and safety standards.
Zoning: While getting zoning ‘right’ during the rental purchase may seem straightforward, landlords must continually ensure that tenants do not violate the zoned purpose. A home business run by a tenant could easily contravene zoning ordinances, which could cause big headaches for the landlord. Read this blog post by Movoto Real Estate for more.
Other ordinances: There are many other regulations local governments can pass that would impact landlords. Rules like rent control, noise limitations, and health and safety standards can affect a landlord’s ability to operate.
A landlord may already have a lot on their plate with property management on top of a full-time job. It is likely not worth the trouble to learn each rule’s ins and outs. It would be sufficient for the landlord to know how to spot issues, research further when necessary, and know when to use legal counsel.
This post has been reproduced with the author’s permission. It was originally authored on February 11, 2021, and can be found here.
Jacob Ryder, at the time of this post, is a 2021 graduate of Penn State Dickinson School of Law. Prior to moving to Carlisle, Pennsylvania to attend Dickinson Law, he was a resident of Olney, Maryland. He attended Towson University in Baltimore, Maryland where he earned his bachelor’s degree and played four years of Division 1AA football. Jacob was a comment editor for Dickinson Law Review and a research assistant for the professors who work in the Law Library. Following graduation, he will be pursuing his interest in business law as an associate at Morris, Nichols, Arsht & Tunnell in Wilmington, Delaware.
Sources
Pugh v. Holmes, 384 A.2d 897 (Pa. Super. 1979).
Weighley v. Muller, 51 Pa Super. 125 (1912).
Minnich v. Kauffman, 108 A. 597 (Pa. 1919).
Lenair v. Campbell, 31 Pa. D. & C.3d 237 (Phila Comwth. Ct. 1984).
Smith v. Wells, 212 A.3d 554, 557 (Pa. Super. 2019).
Photo Sources
https://bit.ly/3m3xMUD
https://bit.ly/2PdFH5S
https://bit.ly/39oNiFx
https://bit.ly/3u6NZeJ