Keys to survival include sweating the small stuff

Owning and managing apartments is an increasingly complex undertaking. >From complying with federal regulations to positioning a property for success in an unknown future, any number of issues can derail a firm's best-laid plans. The staff of the Washington, D.C.-based National Multi Housing Council (NMHC) has identified the top 10 threats, in no particular order, that apartment owners and managers need to focus on to stay ahead of the curve.

* Know who owns the wiring on your property - Does the local phone company have access to the property through an easement or a licensing agreement? On older properties, neither you nor the phone company will know the answer with certainty. But apartment owners should take the time now to determine who controls the telecom access to the property so that you will know what you can negotiate when competitive providers come calling. Owners and managers should also make certain that the phone company does not have an automatic right to provide the property with any and all telecom services, as that will impact the ability to control the deployment of high-speed Internet service on the property.

* Confirm and then reconfirm your compliance with lead-based paint regulations - Federal regulations require that prospective residents of pre-1978 apartments be informed of any known lead-based paint (LBP) on the property. Once they are residents, they must also be notified any time that renovation or repair activities will disturb more than 2 sq. ft. of paint in common areas or their apartment unit. However, despite their good intentions, some owners have failed to fully understand their compliance and record keeping obligations under these and other LBP laws. As a result, they have found themselves facing steep fines for inadvertent noncompliance.

For instance, many owner/managers assume that as long as they have not hired a certified inspector to determine the lead status of their property, they can say on disclosure forms that they are unaware of the property's lead status. However, the U.S. Department of Housing and Urban Development (HUD) and the Environmental Protection Agency (EPA) argue that if data on lead paint was generated in the process of securing financing or insurance, and is in other corporate files, then checking off the "status not known" box is a violation of the law leading to hefty fines. While these environmental site assessment reports cannot be used to certify a property as lead free, HUD claims they can be used against the owner in an enforcement action.

* Develop an Internet strategy - Like it or not, every business is ultimately an e-business in today's high-tech world. For those who resist, the Web creates tremendous risk. However, it can present a competitive advantage for forward-thinking leaders. Several of the largest apartment firms are already taking advantage of this medium, some through investments in third-party companies and others by developing new products and internal systems. To succeed in this virtual environment, a comprehensive Internet strategy for both consumer and business applications is a must. The most effective strategies are well-thought-out, well-financed and implemented by senior management.

* Exercise due caution with ancillary services contracts - In the race to grow ancillary income, many firms have been surprised by the complexity of the contracts for these new services, particularly in the area of telecommunications. Be sure to avoid overly broad contracts and excessively long terms. Failure to do so could seriously hinder your firm's ability to bring in alternative telecom providers as future technologies improve.

Avoid contracts that allow for unrestricted assignment should your current provider be bought out. Part of your job in controlling the quality of customer service on your property is retaining control over who provides services to your residents. Accurately defining the scope of services covered by your contracts is also important. For example, if your intent is to contract for telephone service, avoid contract language that requires you to market "telecommunications" services. That term could easily be construed to include broadband Internet and video services as well. Even simple terms like "revenue" and the "services to be offered" need to written in clear, unambiguous language. Know in advance how you want to relate to your service provider and make sure it is clear to all parties before the contract is signed.

* Know whether accepting Section 8 vouchers is truly voluntary in your jurisdiction - Although participation in the Section 8 voucher program is considered "voluntary" at the federal level, a growing number of owners have been sued for refusing to participate because such refusal allegedly violates state and local statutes that prohibit discrimination based on the potential resident's source of income. The outcome of these cases has been mixed, but courts in New Jersey, Connecticut and Illinois have required owners to consider Section 8 subsidies when evaluating prospective residents. These rulings effectively make the Section 8 program mandatory in those jurisdictions.

Make sure you know the laws about source-of-income discrimination in your jurisdiction. NMHC and National Apartment Association (NAA) member firms can also request a copy of a members-only publication that details legal developments on this issue and offers owners advice about using minimum income-to-rent ratios or Section 8 status to make lease determinations.

* Minimize your human resources liability - Human resources-related liability grows every day, and apartment firms are strongly encouraged to develop and implement an effective H.R. risk-management program. Equal employment opportunity claims are increasing in number and in settlement size, as are sexual harassment lawsuits.

Implementing company-wide training and verifying course completion for all employees at the beginning of employment - and on a regular basis thereafter - is one way to protect yourself.

Finally, if you offer "free" or "reduced" rent to employees, make sure you are in compliance with the Fair Labor Standards Act and the Internal Revenue Code before the Department of Labor or IRS decides to audit you.

* Do not give away the rooftops - Wireless technology has become a crucial part of our national telecom infrastructure. Wireless providers are racing to build their networks. Do not allow a wireless telecom provider onto yourrooftop for what sounds like a reasonable fee before you determine the true valu e of your space.

What may at first seem like a reasonable compensation offer may actually be totally inadequate. Value in this case is not necessarily the market value of that space, but the value assigned to it by the person who wants to install an antenna or reception device. An independent consultant can help you determine your roof's real value. Do not assume that your rooftop is not as valuable if it is not a high-rise building. Location is just as important to the wireless industry as it is to the real estate industry.

* Sweat the small stuff when it comes to environmental liability - When was the last time you thought about mold and mildew? Several property owners who failed to repair leaky roofs or defective bathroom plumbing have recently been held liable for exposing residents to mold and fungi that turned out to be toxic substances, and have been ordered to pay huge amounts in damages. Indoor air quality and the environmental conditions found on a property are also becoming important compliance issues for housing providers.

The best advice: Pay attention to those seemingly minor things. Take quick action in response to complaints about mold and dampness. Consulting with trained environmental professionals can further protect you from future liability.

* Participate in the local building code adoption process - In February, the International Code Council (ICC) released a new set of international building codes. These codes are intended to replace the previous regional codes. They were specifically developed to work together as a set and are the only codes designed to serve as a safe harbor standard for federal fair housing accessibility standards. And thanks to NMHC's and NAA's involvement in the development process, they are very favorable to the multifamily industry.

However, the National Fire Protection Association recently announced that it intends to produce its own competing set of codes. These alternative codes, not yet drafted, are likely to be more restrictive and will not include many of the benefits the industry won in the ICC codes. Therefore, apartment developers are strongly urged to actively oppose the adoption of anything but the ICC codes.

* Be rigorous about resident security - More and more property owners are being held responsible for criminal activities conducted by third parties on their premises. Develop loss prevention strategies with regard to residents, employees and management before a crime or claim occurs, and have a claim/litigation management process in effect after a crime occurs.

Apartment professionals need to anticipate that child molesters who are required to register under a state's Megan's Law may be disclosed in community mailings and on the Internet. These persons may seek to rent from you or may already be residents. Strategies for handling the public disclosure of these persons need to be established. Many owners are requiring all resident applicants to disclose criminal convictions and are making any falsification of information grounds for eviction.

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