WHAT’S IN A BASEMENT? Adventures in Licensing Basement Rentals in Maryland

Regulatory requirements for basements converted into rental apartments are nothing new.  But, until recently, operating without required government approvals was of little to no consequence.  Non-compliant units existed quietly under the radar of zoning inspectors, and chances of citation for failure to obtain required permits were slim to null so long as the property was kept in good condition.  This is no more.

Landlords are now required to present a valid rental license before using Maryland’s landlord/tenant courts to evict a tenant for failure to pay rent or swear that no license is required.  This requirement effectively shifts the burden of compliance oversight from the government to the property owner.  If the owner wants to reap the benefits of being a landlord (i.e., quick eviction and court ordered payment), then the owner must approach the government for a rental license to ensure compliance, as opposed to the other way around.

What is the Licensing Process?  For most owners who offer an entire townhouse or single-family home for rent, the process of obtaining a rental license is fairly simple.  The process varies from county to county but usually includes submitting the license application and fee, waiting for an inspection to ascertain whether health, safety, welfare, and/or code violations exist, and issuance of either a license or a citation stating required repairs or alterations.  For single family homes or townhomes with separately rented basement apartments, additional legal obstacles may be present.

Licensing and the Special Exception.  Renting a basement apartment to a non-family member converts a single family home into a multi-family home, and such a conversion is unlawful under certain zoning laws unless the conversion is approved by “special exception.”  The process of obtaining a special exception can involve some or all of the following:  a) submitting a request and paying the required fee, b) being prepared to address whether or not the multi-unit home fits with existing and future plans for the community or presents a health, safety, or welfare concern for the community, c) affording the community an opportunity to support or oppose the request, and d) a public hearing on any issues raised by the request.   The special exception process can take from a month or two to over a year.  In the interim, the rental license will not be issued, and failing to comply with zoning laws can result in penalties that range from fines to imprisonment for a misdemeanor offense.

Avoiding Surprise Violations.  Most jurisdictions have a zoning or planning office that can be contacted to determine the requirements for a basement rental.  Taking proactive measures to ensure compliance with licensing and zoning laws before purchasing a home with a basement rental unit and before performing alterations to convert a basement into separate living quarters is the best defense and can save time and money in the long run.  Knowing the property’s status also affords owners an opportunity to make certain that the property presents acceptable value for any proposed financial investment. In sum, the best defense is almost always a good offense.

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Landlords and management companies usually sail through each month with no problems whatsoever with renters. However, when problems arise, a renter can be the landlord’s or management company’s worst nightmare.  Trying to go it alone to save money can be a huge mistake.  This is especially so when a court appearance is necessary.

Tenants are surprisingly crafty at figuring out how to buy more time to stay in the tenancy and escaping without paying rent.  When this occurs, things can quickly get out of hand, and legal counsel may be necessary. Here are five (5) reasons why hiring an attorney may be worthwhile.

1)      Having attorney representation boosts credibility and sends the message that the landlord means business.

2)      Attorneys have a legal and ethical obligation to thoroughly investigate facts presented to the court, so a judge may give more weight to arguments presented by an attorney.

3)      Attorneys have a duty to be knowledgeable in the area of law in which they practice, and this involves anticipating and preparing for any defenses (excuses) a tenant may present in court and being prepared to fire back on the spot to avoid unnecessary court date continuances.

4)      It is the attorney’s job to present argument to the judge, so attorneys are not so quick to back down when the judge questions a situation or leans toward siding with the tenant.

5)      Consulting with an attorney from the outset can save countless hours of time and aggravation, and ultimately limit the landlord’s and management company’s exposure to costly lawsuits and preventable liability.

When the lost rent and profits that go hand in hand with delays in evicting a non-paying or nuisance tenant and the potential for liability are considered, hiring an experience attorney to get the job done may be well worth the money.

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For an investor or homebuyer looking to purchase a tenant occupied property, a constant issue of concern is whether the tenant will leave in time to coincide with plans to live at the property, re-rent the property, or satisfy potential resale purchasers.  This concern is compounded when the property is purchased at a foreclosure sale, and an August 2012 Maryland Court of Appeals ruling might have just made matters worse.

With passing of the Protecting Tenants at Foreclosure Act in 2009 and the Maryland state law equivalent in 2010, federal and state lawmakers decided that when the foreclosure purchaser is entitled to possession, residential tenants must be given at least ninety (90) days written notice to vacate.  Ok, fair enough right?  At the end of the ninety (90) days, the new owner gets possession, and life goes on.  Well…not so fast!  What if the tenant does not leave?

The first issue that arises in this situation is the fact that in most instances, short, summary ejectment proceedings in Maryland’s landlord/tenant court do not apply, and the foreclosure purchaser must go through a different and potentially longer court process to get possession of the property.  To get a head-start on the court process, some foreclosure purchasers would start the eviction process before expiration of the ninety (90) day notice. The Maryland Court of Appeals holding* made it crystal clear that the head-start filings are unlawful in Maryland and purchasers must wait until expiration of the ninety (90) day notice to commence a legal action.  Furthermore, the notice cannot be given until the deed is transferred to the foreclosure purchaser.

So, what does this mean for foreclosure purchasers?

First, any plans to live at the property or flip the property should take into consideration the fact that the tenant might not leave when asked and the fact that it could take weeks or months after expiration of the ninety (90) day notice to gain possession of the property.

Next, as a preemptive measure, as soon as possible, the tenant should be given clear and concise notice of the intent to evict.

Finally, foreclosure purchasers must comply with all statutory requirements for notices to tenants, including requirements for content, timing, and delivery.  Failure to abide by such requirements may result in more delay.

*Curtis v. US Bank National Association, No. 96, September Term, 2011. RecordFax No. 12-0820-22, 18 pages


LaVonne O. Torrence is a real estate attorney with Torrence Law Office, LLC.  Her practice focuses primarily on leasing transactions and extends to delivering solution oriented counsel and representation in connection with regulatory and operational issues as well as landlord/tenant disputes.  She can be reached at:  301-825-5655.  For more information, visit:  www.torrencelegal.com and www.marylandevictionlawyer.com.

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