Tenant paid capital improvements

[bigwavedave]

Question regarding tenant capital improvements.

So I’m a new landlord and have a rental property with a new tenant just moved in two weeks ago.

At the first lease signing appointment tenant initially backed out upon learning there is no central air conditioning. The last few weeks have been the hottest and most humid and since the rental was vacant and shut up all day it was uncomfortably hot at the lease signing meeting. Property is a 2000sf 4/2 SFR on a hill ~1 mile from the ocean, unobstructed ocean view. It usually has a nice ocean breeze, but not that day.

A week went by and the same tenant came back and said she had reconsidered and would like to rent if she could install a window airconditioner (at her expense). I explained that I did not want any window air conditioners installed due the eyesore factor and possible need to attach supporting shelves to the house, but that she could get a protable airconditioner. I also explained that during the 18 years I lived in the house I never considered airconditioning a necessity, that there were only a few weeks a year that were uncomfortable. Told her I thought adding central airconditioning would be a waste of money.

We signed a lease and tenant moved in. Tenant purchased a portable air conditioner. The second week of occupancy we had another hot spell. Tenant clains her portable airconditioner is inadequate. Worries about her kids being uncomfortable and the effect on their schoolwork. She has offered to pay to have central air conditioning installed.

What might the legal ramifications be if I allowed her to install central air? I kind of feel like having a tenant make capital improvements of this nature is wrong, also fear that tenant may be able to claim some property rights to the central ac if some dispute arises in the future, and possibly get a judgement – if for example I don’t renew her lease after the first year.

I don’t think she can make contract since she is not the property owner. I wouldn’t want her to stiff a contactor and then me get a mechanics lien put on the property. If I did this I would have her pay me in advance, then I would hire the contractor. Not sure how to set this up so we are both protected. Not sure if her payment to me would count as rental income, or if I would just not claim the depreciated capital improvement on Schedule E (or could I?)

Another option I would consider (hasn’t been discussed with tenant yet) would be to modify the lease agreement with an increased monthly rent, with the agreement that airconditioning would be installed at my expense. Makes my Schedule E easy. I did get a couple of bids of $5K & $7.5K respecively. I’d be happy doing this for an extra $200/month if I was sure she continued renting for at least two years. I’m not convinced that any other renters would consider central air to be that valuable, to demand the higher rent so I’d also probably ask for a longer term lease too.

Third option would to be tell her not now. Let’s revisit this next year – by then I’ll have better feeling of how flakey she is.

Any advice would be greatly appreciated. It’s going to be a hot weekend.

-Dave

[Coronita]

Lol….

Are you sure you’re not the landlord to this person?

http://piggington.com/sad_updateon_aclandlord_balkshelp

[paramount]

I know a lot of people in San Diego wear the “I don’t need A/C” as a badge of honor. Particularly when speaking to someone from lowly Temecula, they’ll often go out of their way to remind you that they supposedly don’t need A/C.

But with global warming it seems A/C has become a nicety or a necessity even on the coast.

Don’t fight it: A/C is one of the greatest inventions ever invented.

I think the obvious answer here is: let’s revisit this next year.

Although it’s supposed to get really hot this weekend and into next week.

Maybe she could add an additional portable unit or two.

Personally I’d probably add window units.

[scaredyclassic]

a/c is for the weak.

take a cold shower.

regulate your own internal temp. go to a mall if you’re really dying.

it’s not that hot.

[paramount]

[quote=squat250]
take a cold shower.

[/quote]

Cold showers are for those who bought a house they can’t afford.

It is that hot, the artic polar cap is melting at an unprecedented rate….

[Hobie]

Option3. “…takes time to research for such a large project.”

key word- ‘flakey’. Too hot for homework?? Maybe she is on to an easy way to boost your kids SAT numbers, cool ’em down. They are overtemping!!

Hot flashes 😉 Frame of referance. We had lived in San Francisco for a while. Wife was always cold. One season and she put away her parka! lol

[NotCranky]

I wouldn’t let this person push the issue. She knew what she was getting into. Maybe she needs a better portable. Where there is a will….

That she brought up her kids is a red flag. Now you are the dirty landlord that doesn’t even care about her kids… Almost any amount of heat doesn’t phase reasonably tough healthy kids…sounds like a personal problem. My kids live in east county and have never ever been the first ones to ask to put the air conditioner on.

There are options for cooling off and getting homework done that people all over the county choose for themselves, instead of putting it on the landlord. Don’t let her be an irresponsible problem child.

[SD Realtor]

It is really tempting to let the tenant pay for the capital improvement but I agree that this is a major improvement and there could be some issues or claims down the road… In short it just may not be worth the hassle. I would give the tenant the opportunity to get out the lease and simply get a new tenant. If they want to stay in the lease then that is fine. You may want to draw up some additional documentation that states you have given the tenant the preceding options and the tenant declined them.

[JBurkett19]

Or, you could gather your quotes for the A/C, then get the money from your tenant in cash. Once the A/C is installed, pay the note, and take the capital improvement deduction over time as the tax code demands.

But, in all seriousness, I would do what the previous post says: Your tenant knew what they were getting in, so tell her NO, and move on. Make her adhere to the lease agreement, then when the lease terms are up, give her 30 days notice to move out.

Your tenant seems like a flake. Besides, I wouldn’t be surprised at all to find that your tenant has not a clue about how much a central A/C system costs.

[EconProf]

You have a foolish tenant on several counts. She rents a place one mile from the ocean and then cannot cope with a rare hot weather spell. (Americans seem increasingly unable to make rational dicisions based on real probablilities, real risk, actual costs and actual benefits.) Then she panics into offering $thousands to fix what is surely a temporary problem. To prove that she thinks with her heart instead of her head, she says this is “for the children”, a phrase that invariably comes from a superficial thinker. Instead, the $thousands she is offering should be put away for her dear childrens’ college fund, or more likely the drug rehab costs.
You have not mentioned that a husband is involved here, so I’ll make the assumption one is not present. If he were, he’d likely bring her down to earth on her spending decisions. OK, a sexest assumption on my part, but I’m sticking to it.
If you take her foolish money for central AC, it will come back to haunt you with guilty feelings. And what if she puts up the money, you schedule the install for early October, in the middle of a cold spell? Thereafter normal San Diego weather kicks in all fall, winter and spring, and she gets bitter for handing you that capital improvement that she doesn’t need after all. Trust me, she will find a way to blame you.

[spdrun]

Money talks. BS walks.

You get an estimate from a contractor whom you like and trust. She puts an amount equal to the estimate +10% for incidentals and your trouble into an escrow account. Contractor does work. Contractor gets paid from escrow account.

She also gets to sign a document that this installation is strictly at her request and expense, and doesn’t alter the terms of the existing lease in any way. Nor does it confer any obligations upon the landlord.

[sdduuuude]

Personally, I’d go with letting her put in a window AC and she can take it w/ her when she leaves. It’s a rental property.

[svelte]

There is no way you’re gonna get a/c installed before the end of this hot season anyway.

And chances are she’ll be on a different tangent in 12 months anyway.

If it were me, I would get the quotes, tell her if she pays that amount up front you’ll have it installed, and wait. I bet she never comes through with the cash. Actually, I’d bet a pretty good chunk of change on it.

[Coronita]

[quote=EconProf]You have a foolish tenant on several counts. She rents a place one mile from the ocean and then cannot cope with a rare hot weather spell. (Americans seem increasingly unable to make rational dicisions based on real probablilities, real risk, actual costs and actual benefits.) Then she panics into offering $thousands to fix what is surely a temporary problem. To prove that she thinks with her heart instead of her head, she says this is “for the children”, a phrase that invariably comes from a superficial thinker. Instead, the $thousands she is offering should be put away for her dear childrens’ college fund, or more likely the drug rehab costs.
You have not mentioned that a husband is involved here, so I’ll make the assumption one is not present. If he were, he’d likely bring her down to earth on her spending decisions. OK, a sexest assumption on my part, but I’m sticking to it.
If you take her foolish money for central AC, it will come back to haunt you with guilty feelings. And what if she puts up the money, you schedule the install for early October, in the middle of a cold spell? Thereafter normal San Diego weather kicks in all fall, winter and spring, and she gets bitter for handing you that capital improvement that she doesn’t need after all. Trust me, she will find a way to blame you.[/quote]

I personally wouldn’t do it myself, but I find this no different than people that lease a car and spend their own money to modify it (like tinted windows, performance mods,etc), only to have to sell everything/take everything off after the lease is done.

But for your reference, I know someone who rented out a house in CarmelV and the tenant spent $25k to change the backyard landscaping….Person is suppose to be a money manager too 🙁

[earlyretirement]

[quote=JBurkett19]Or, you could gather your quotes for the A/C, then get the money from your tenant in cash. Once the A/C is installed, pay the note, and take the capital improvement deduction over time as the tax code demands.

But, in all seriousness, I would do what the previous post says: Your tenant knew what they were getting in, so tell her NO, and move on. Make her adhere to the lease agreement, then when the lease terms are up, give her 30 days notice to move out.

Your tenant seems like a flake. Besides, I wouldn’t be surprised at all to find that your tenant has not a clue about how much a central A/C system costs.[/quote]

I agree with this advice. Maybe she has no clue at all how much it costs but if she is willing to escrow all the funds, and you have solid legal contracts in place that protect you, I see your downside risk very limited plus you will have the central air in the house after this tenant leaves.

I don’t care how close to the coast you are, if you have a summer like this where it’s hot and humid I consider AC a must.

Yes, I know AC is a luxury that close to the coast but if someone else is willing to pay for it and you have all the contracts you need in place to limit your risks, I’d say go for it.

It doesn’t matter that you might think it’s not necessary but it will be a big selling point in the future. I’m not sure about the whole “global warming thing” but I do know that it will be a big selling point in the future, especially if we have more hot and humid summers like this year.

[Author]

Posts