How to keep out of legal hot water: a company operations and procedures manual can save owners from costly lawsuits.

In today's fast-paced, highly competitive world of property management, some independent rental owners (IROs) might not realize that costly potential lawsuits are lurking in the shadows, just waiting for the right moment to strike.

Fair housing discrimination claims, customer service complaints, governmental agencies and employee problems are just a few of the issues that can cripple cash flow, increase insurance premiums and bankrupt or shut down a property completely if not met with a well thought out, written plan of action or policy.

Having a company operations and procedures manual is the answer. Running any business demands that the owner have clearly written policies and procedures that reveal how the property handles matters that are not clearly defined in the lease agreement or other legal documents. In other words, an owner must handle the "what if" situations.

Here are some of the areas that contain potential "hot spots" for lawsuits from current, previous and prospective residents and employees.

Standardized Application Process

Update and regularly revise resident qualification standards that address all areas of qualifications, including verifiable income, rental history, employment, credit, occupancy standards and even criminal background. Also address ally abnormal situations, such as roommates and how they qualify, additional security deposits for those who don't meet the credit criteria and if guarantors or co-signers are allowed for those who don't meet income requirements. Qualifying to live in a community is a huge area for potential discrimination lawsuits.

Either use a third-party, verification company or have a clear, written standard of procedure on how to process an application to qualify. Include what company is used, how many days the process will take to complete and any information regarding application fees, such as if fees are refundable or not, and the application deposit on the unit.

By-the-Book Move-Ins

Along with the lease agreement and any other pertinent addenda that are not addressed specifically in the lease agreement--such as pets, utilities, smoke alarms or other fire and safety issues, security refund upon move out and rental payment policy, including late payments--the new resident should receive resident guidelines or a rules and regulations booklet. This booklet should include information for the resident specific to the property, such as office hours, emergency contact numbers, pest control dates, visitor policies, parking, towing, package delivery, mail, lockout procedure, key cutting and permission to release information regarding the resident's payment history for credit check, mortgage or other approval purposes.

A move-in "condition of unit" sheet should be completed on move-in day. It will be used to compare the condition of the unit upon move out for cleaning and damages that will be deducted from residents' security deposits.

Avoid Eviction Missteps

Rental payment policies should have clearly stated dates for the process prior to eviction procedures. Let residents know that rent is due on the first day of each month without demand and that it is their responsibility to remember to pay each month. Tell them the official late date of all rental amounts not paid in full, and inform them of late fees that could apply. Inform residents of accepted payment for both rent paid on time and for late rent. Let residents know that checks returned from the bank as Non-Sufficient Funds (NSF) will be subject to all late fees, including daily late fees, until the balance has been completely paid Finally, inform residents that any outstanding rental payments will be given a "Three Day Eviction Notice" per paragraph and line of the lease agreement and that any non-payment of current rental amounts will result in the beginning steps of the eviction process. Be sure to include in the policy that the resident will be charged for all filing, court and processing fees of the eviction process.

If a resident transfers to another unit onsite, whether during a current lease agreement or after that lease has expired. be sure to have a clear written policy that includes terms and conditions of that transfer. Include language that states that all payments, including outstanding rent. utilities, late fees and NSF fees must be paid in full before moving into a new unit. Inform the resident that the current unit will be walked for a condition assessment and that any cleaning or damages will be deducted from the resident's security deposit and a new security deposit will be required on the new transfer unit. Give the resident a time frame for transfer, and let the resident know that transfer fees will apply if the resident is transferring during a current lease agreement.

All current files for residents should be kept in locked file cabinets and all previous resident files must be kept in accordance to local or state laws, generally three to five years, for auditing purposes.

Policies for Employees

All employees should have an employee handbook that outlines their job responsibilities; company rules about dress code, smoking and personal conducts; and hiring criteria and process of employment application approval and termination of employment procedures. All applications should be kept up to three years for auditing purposes, or as long as the state requires.

All employees living in the community who, as part of their employee compensation packages, receive either a unit rent-free or discounted rent, must sign all appropriate lease agreements and addenda just as any resident would. Remember to add the following, or similar, language under the "special provisions" section:

"This unit is considered part of this employee's compensation package; therefore, occupancy and the 'rent-free' status is based solely on current employment. Upon termination of employment, occupants of this unit will have 14 days to vacate and pay for any cleaning or damages that go beyond 'normal wear and tear' conditions."

If the employee receives a rental discount, make sure to have procedures for rental payments and policies for late payments and NSFs in writing and given to that employee.

Include procedures for infractions of conduct and for what constitutes immediate termination of employment, including theft of community property, money, files and proprietary legal information.

Where to Start

Begin by purchasing a large three-ring binder with dividers. Separate the dividers into categories, such as those mentioned above. Write each policy or procedure in detail using a "template" format to keep information consistent throughout the manual. Make sure to note the date the policy went into effect and who must receive it. As changes or modifications are made to that policy, change the date to read, "Revised as of [date]."

That keeps all policies in one location, but allows for changes to be made as situations change.

Review the policies and procedures regularly. Search the Internet for the city's or state's legislative issue changes, fair housing updates (www.fairhousing.com). OSHA, EPA, HUD and ADA (Americans with Disabilities Act). The National Apartment Association (www.naahq.org) or a local apartment association also can provide useful information

Attend legal seminars or events to maintain up-to-date concepts to managing a community. Although some policies transcend time, such as ethics, some issues change with the times. Don't be caught running a community with a "1980s mentality" in a 21st century business-savvy world.

The Best Defense

Lawsuits have no boundaries. They happen to IROs and real estate investment trusts alike. Staying out of court begins with good communication and clear, concise information written and posted or available upon request or audit.

The best defense is a good offense. Larger companies have the advantage of entire departments with attorneys and marketing personnel to review their procedures and policies for their assets. But for the IRO, the vest offense is to begin by having everything in writing. This alleviates misunderstandings and clarifies reasons for procedures and policies. It may not save a manager from getting sued, but it can mean the difference between learning and recovering from a mistake and losing a property and an investment altogether.

Jackie Ramstedt, CAS, CAPS, is a Motivational Keynote Speaker, Marketing Consultant and Performance Coach, who has more than 23 years' experience in the industry. Contact Ramstedt at 800/925-5169, [e-mail] or www.jackieramstedt.com.