On October 31, 2017, the City of Detroit (the “City”) passed amendments to Chapter 9 of the 1984 Detroit City Code, which governs the maintenance of rental properties in the City (the “Rental Ordinance”). By these amendments (the “Amendments”), the City hopes to increase compliance with its registration, inspection and property maintenance requirements already on the books. To accomplish this, the City has increased prohibitions on landlords, imposed new inspection requirements, and has in some cases imposed ten-fold increases in fines for violations by landlords. According to the City, the Amendments were necessary to bring an estimated 40,000 unregistered rental properties into compliance, reduce the presence of lead-based paint in residential rental properties, and crack down on so-called slum lords.
Certificates of compliance.
The Rental Ordinance requires landlords to obtain a certificate of compliance for certain commercial properties and all residential structures (i.e., one and two-family dwellings, multi-family dwellings and portions of residential structures) that will be rented and occupied by persons under an oral or written lease agreement. Excluded from this requirement are single-family homes and the portion of a two-family home (duplex), where in each case they are occupied by the owner and the owner’s immediate family. This certificate requirement applies regardless of the length of the rental.
To obtain a certificate of compliance under this new framework, the rental property must be current (within one year) in its property taxes, and registered with and inspected by the City Buildings, Safety Engineering and Environmental Department (BSEED). Any violations identified by the inspection must be corrected before a certificate of compliance will issue. In lieu of the BSEED inspection, which carries a fee payable to an outside provider, BSEED will accept a HUD or other government agency certification reflecting that the property meets the standards established by the Rental Ordinance. But since a HUD inspection has different objectives, it is questionable whether a HUD inspector would be willing or qualified to evaluate a property to the City’s standards.
All certificates of compliance must identify each owner, partner or officer having an interest in the property, and further disclose whether the property is listed on the Lead Safe Housing Registry. Renewal under the Amendments is required three years for a one or two-family dwelling, and once every two years for other properties. But an owner receiving a blight violation or having a property tax arrearage of more than one year must renew the certificate annually. Likewise, a new certificate must be obtained within 90 days after the property is sold. These Amendments also allow BSEED to request an inspection where an owner has not done so, and the refusal to cooperate within 60 days of receiving an inspection notice gives cause for suspension or denial of the certificate.
Lead-Based Paint Inspections
Under the Rental Ordinance and Amendments, in addition to the BSEED inspection, a lead-based paint inspection must be
performed upon initial registration of the property. If lead-based paint is discovered, an additional risk assessment must be performed, which will identify the abatement measures that must be taken before a compliance can issue. Unless all lead-based paint is removed, this risk assessment must be repeated annually or each time a new tenant moves in to the property.
Rental Ordinance Enforcement
- The most significant impacts of the Amendments are the strict prohibitions regarding unregistered and/or non-compliant properties, and the substantial increases in the civil penalties for violations of the Rental Ordinance. These enforcement measures include:
- Prohibiting a landlord from allowing a residential rental property to be occupied (or collecting rent on it) while unregistered and while lacking a lead-based paint clearance;
- Allowing a tenant to escrow rent with BSEED if the rental property lacks a certificate of compliance or which otherwise has a violation that is not corrected within renting out a property that does not have a certificate of compliance;
- Prohibiting a landlord from evicting a tenant for nonpayment of rent where the tenant has complied with the escrow requirements;
Authorizing BSEED to order occupants removed where there is an imminent danger due to a violation; - Escrowed rent is forfeited to the tenant if the certificate of compliance is not obtained within 90 days, and every sixty days thereafter where the certificate is not obtained;
- Increased fines: from $50.00 to $500.00 for the first offense, from $100.00 up to $1,000.00 for a second offense, and for a third or subsequent offense, from $200.00 to $1,500.00; and,
- Potentially no recourse under the Rental Ordinance against a hostile tenant who causes the violation as an excuse to withhold rent.
Rollout of Enforcement
- Zones and Appeals Process
Beginning in January 2018, the City will designate five “compliance zones” by zip code every 90 days, with the expectation that all zones will be established by 2020. Within six months after a compliance zone is designated and the inspection schedule is announced, all rental properties within it must be brought up to code and have a certificate of compliance. - The process for responding to building code violations generally has not changed. A landlord has seven days from the date of a suspension or denial of a certificate of compliance to request an administrative hearing. Failure to do so waives any right to appeal and the suspension or denial will be deemed final. Upon receipt of a timely request, the City will schedule an administrative hearing within 30 days. A tenant arguably may escrow rent while the matter is pending, although it is questionable whether that escrow may be forfeited to the tenant if the hearing process is delayed for any reason.
Takeaways
Although the City might have had good intentions by passing the Amendments, the impact on property owners remains to be seen in an industry offering an average profit of $100 per month, per rental unit. For some owners, their rental properties are already registered and up to code and thus presumably should not be concerned. For others, the impacts will vary based upon the condition of each property and the number of properties the landlord owns. Landlords who own one or two properties, many of whom are retirees on fixed incomes, might find the costs of inspections and compliance measures to be prohibitive. Larger landlords might choose to sell or abandon properties that do not comply with the Amendments for those same cost reasons. In either case, it is reasonable to anticipate that these costs will be passed on to tenants in the form of higher rent, potentially reducing the availability of affordable housing at a time where renters now outnumber owner-occupants in the City.
Although there is a phase-in period for compliance, we recommend that landlords be proactive with assessing their existing properties for necessary repairs, reviewing lease terms, and pursuing an appropriate exit strategy if it becomes necessary.
For more information, please contact Randolph T. Barker at (313) 496-1200.
