Renting Out An ADU
People build ADUs for a variety of reasons. It can be a place for a relative to live, or just extra room when you need it. However, if you find yourself in a position that you want to rent out your ADU, the following section gives you some tips.
Following is a list of ways you may be able to find potential tenants or have them find you:
- Place ads in the newspaper.
- Use a property management company.
- Post notices in places which authorize such postings.
- Word of mouth from friends, co-workers, relatives.
Screening For Good TenantsFollowing is a list of some of the things current ADU owners consider when assessing potential ADU tenants.
Credit Report History
If you plan to ask potential tenants for a copy of their credit report, let them know they can obtain a copy at one of the following three main reporting agencies:
1. Trans Union LLC- phone: 1-800-888-4213 Web site: www.transunion.com
2. Equifax - phone: 1-800-685-1111 Web site: www.equifax.com
3. Experian - (was TRW) phone: 1-888-397-3742 Web site: www.experian.com
NOTE: Potential tenants can request a copy of their credit report either by phone or at the web-site of any or all of the three reporting agencies noted above. Normally, if they have been denied credit within the last 60 days, the report is generally free of charge. Otherwise, they will be charged for the report.
If you feel uncomfortable trying to assess a potential tenants credit information on your own, you could elect to have an outside company screen the credit history of potential tenants for you. For listings of available agencies, look in the yellow pages of your phone book under 'Credit Reporting Agencies'.
- Rental history/references
- Ability to pay deposits or non-refundable fees
- Are they a smoker?
- Do they have a pet?
How many persons would reside in the ADU?
(This would be a question about potential overcrowding if too many persons wanted to live in a small ADU.)
Choosing A Form Of Rental Agreement
A common type of tenancy is month-to-month. The month-to-month type of tenancy is a 'period' tenancy. Generally, a period type tenancy is automatically renewed unless either the landlord or the tenant gives written notice to end the tenancy. Under state law, the tenancy cannot be terminated in the middle of any month unless the landlord agrees to the earlier end of tenancy. The landlord cannot terminate the tenancy, except at the end of the month, and only after twenty 20 days' written notice to the tenant. This can be an oral or written agreement. However, oral agreements may lead to misunderstandings or possible dispute about what has been agreed to. For example, written agreements can formalize your agreement with the tenant about any of the 'shared matters' identified below. Standard rental agreements can be obtained in office supply stores, some bookstores, or from a real estate agent. The standard form may need to be modified, or additional conditions attached to it, depending on the arrangements that you and your tenant agree to. It could also be a custom rental agreement prepared by your legal advisor.
A lease is a tenancy for a specific period of time (for example, a lease for one year). This type of agreement must be in writing and, if for longer than a one-year term, the signatures of the landlord and tenant must be notarized. The lease automatically terminates at the end of the specified time period. Neither the rent amount nor the other rules of the lease may be changed during the lease, except by agreement of both the landlord and the tenant. While there are exceptions, generally, the tenant cannot break a lease, and vice versa. A standard lease form is also available from office supply stores, some bookstores and real estate agents. Again, you may need to modify the standard form, or add attachments to it, to cover the actual arrangements you make with your tenant. You could also have a custom lease agreement prepared by your legal advisor.
Most cities do not allow ADUs to have separate meter connections for sewer and water. Therefore, in most cases, you will need to decide how you and the tenant will share sewer and water costs. This could be a fixed monthly amount (a flat fee that remains the same each month) or it could be a formula (such as a percentage of the utility costs for the main house).
Unless the ADU has its own washer and dryer hookups, you will need to decide if you will share your laundry facilities with the tenant.
You will need to consider what outside spaces the tenant will be able to use. Such spaces might include: outside storage areas, use of outside recreational items (such as hot tubs and basketball facilities), outside relaxation areas (such as patios and lawn areas), and gardening areas.
Will the ADU have its own parking space or share a parking area with the main house.
You will need to consider whether you will share these or provide separate services.
Privacy ConcernsPast experience from some ADU owners suggests that privacy may be a potential issue for you. Some actions you might consider for increasing your privacy might be:
- Consider discussing your privacy needs or feelings early on with your tenant, establishing your expectations for when or how often you want to interact with them.
- Consider establishing a fixed schedule for sharing laundry facilities.
- Consider fencing or other site screening to provide physical/visual privacy from tenants.
There are federal, state and local laws which directly regulate or affect landlord practices. You can find the state, federal and some local documents on the internet and in libraries. Local documents are generally available at their respective city halls or, if a King County document, at the county's legal offices.
Federal Fair Housing Act
Makes it illegal for a landlord to discriminate because of a person's race, sex, national origin, religion, etc.
Wa. State Residential Landlord-Tenant Act
The Revised Code of Washington (RCW) 59.18 defines minimum duties of landlords and tenants of residential dwellings. These laws may impose certain restrictions and remedies if the landlord or tenant fails to act accordingly. The remedies include eviction, reduced rent, self-help repairs, the right to sue for money damages, and an award of attorneys' fees to the successful party. Generally, the provisions of the Act may not be waived by the landlord or tenant.
NOTE: The Consumer Resource Center, Office of the Wa. St. Attorney General, has a good booklet on this, called "Landlord/Tenant Law". Call them at 1-(800) 551-4636 to request a copy if it is not available in this packet.
King County and certain cities (such as Bellevue and Seattle) also may have local codes or ordinances, which set minimum standards for living conditions or further regulate landlords' and tenants' rights and duties. Call the City Clerk or Attorneys Office where you live to find out.
What About Deposits And Fees?
If you are contemplating either of these, make sure you know the difference. Please refer to the actual law, RCW 59.18, for more information about deposits and fees.
May be held by you as a security against something related to your tenant renting your unit. Damage deposits and pet deposits are examples of a deposit. If you are planning to charge a deposit(s), there are several steps you are required to take:
- You must have a rental agreement in writing, signed by you and the tenant, and you must give the tenant a signed copy. The agreement must say what the deposit is for and let the tenant know what he/she must do to get the money back.
- You must give the tenant a written receipt for 'each' deposit.
- You must have a checklist or other document, which describes the condition of the rental unit at the time of initial lease. Both the landlord and tenant must sign it and the tenant must be given a signed copy.
- NOTE: the Wa. St. Attorney General's Office offers a free sample checklist for this purpose-you can call them at 1-(800) 551-4636 to request a copy.
- You must put the deposits in a separate bank or escrow company account. You are not allowed to put the funds into your savings or checking account, or to (generally) mix the deposit funds with your own. It is the intent that these funds are and stay separated from your personal funds. You must inform the tenant, in writing, where the deposits are being kept. Unless some other agreement is made, any interest earned on deposits belongs to the landlord.
At the end of the tenancy, you must return the deposit(s) to the tenant within 14 days-less any costs associated with the purpose of the deposit(s), such as replacement or repair of actual damaged items in the ADU.
Deposits cannot be used to replace or repair any item or part of the ADU has worn or worn out some due to use (normal wear and tear).
Fees are generally charged a tenant for some type of expense you expect to have associated with maintaining your ADU. For example, you may charge your tenant a fee for cleaning of your unit at the end of the rental period, to get it ready for the next tenant. Fees are different from deposits in that you plan to actually expend the fees, rather than just hold them as a security against potential need. Typically, fees do not need to be returned to the tenant. However, you must indicate in the rental agreement that the fee is non-refundable. Also, you cannot call a non-refundable fee a deposit.
ADU Maintenance And Replacement Needs
Just like your home, your ADU should be periodically checked to see if any maintenance is required. You should test smoke detectors, check doors and locks for proper operation, check electrical switches and outlets, replace furnace filters…all the things you would regularly do for your primary home. You should consider an appropriate schedule for maintenance checks. Also, check your landlord-tenant rules for appropriate notice requirements to your tenant if you are planning on doing a maintenance check, performing maintenance or repairs, or otherwise entering the ADU.
You will also want to consider how you will provide for replacement of elements of your ADU that will wear out over time. For example, carpets and appliances will eventually wear out and need to be replaced. You will want to determine how long you can expect these things to last (their expected 'life cycle'), and how you want to save funds or otherwise provide for the cost of their replacement.