Establishing transfer policies for multi-unit properties

Transfer policies are a detail that’s often overlooked by landlords and property owners who own or manage multi-family properties. A tenant requesting a move from one unit to another presents challenges and can add unnecessary and unexpected costs for property owners. Ignoring these requests or not addressing them properly can open landlords up to potential resentment from tenants and even legal liabilities if not properly documented.

There are a lot of reasons why a tenant might request a transfer to another unit within the same property, and there are positive and negative impacts resulting from this type of request. In my experience, the most common reasons for these requests are:

• Problems or issues with current neighbors
• Maintenance issues within their current unit which they feel were not addressed
• Lack of upgrades due to extended tenancy (newly remodeled units are obviously more desirable)
• Preference regarding location within the property (different floor, closer to parking, better view)
• Moving from one unit type to another, such as moving from a 1-bedroom apartment to a 2-bedroom

Regardless of the tenant’s reason for the transfer request, there are both positive and negatives that you should consider.

The Pros of Allowing Residents to Transfer Units

• Your tenant obviously likes the property enough to want to stay
• You have a history with this tenant, so you know what to expect regarding care for the property and rental payments
• You have the opportunity to make a tenant happy who otherwise may be dissatisfied with their current situation
• There may be an opportunity to raise rent and extend the lease term, guaranteeing more income from that tenant

The Cons of Allowing Residents to Transfer Units

• You have just incurred the expenses necessary to prepare a unit for rent, which will now produce little to no additional monthly cash flow as you will lose the rent from the renter’s original unit
• There are now likely additional expenses necessary to prepare the old unit for a new tenant
• The old unit may be less desirable that the one the tenant is moving to due to location, layout, lack of upgrades, etc.
• This existing tenant may be a risk—for example, they could be just making the current rent and may be stretching themselves to pay a higher price for a larger space
• You may have this new unit committed to another applicant

In almost all cases, we have found that the negative impacts outweigh the positive financially. The exception is in properties with high vacancy rates. In those cases, we can’t afford to lose any good tenants, and it is in our best interest to accept any reasonable move request.

The issue comes when dealing with high-occupancy properties. As soon as we have a tenant vacate, we expect some level of cost and effort to prepare the unit for a new renter. However, that cost will be offset by the income generated by a new tenant paying higher rents. When we are forced to move an existing tenant, we double our preparation cost and generally double our vacancy time. This is a bad business model which many owners/landlords will avoid by implementing a strict ‘no-transfers’ policy. Tenants must complete their full lease term and can only transfer by applying for a new unit at the end of the existing lease. This is likely the strongest and most profitable stance to take if you have no problem with vacancy whatsoever. However, you will lose good tenants who will resent the fact that their request was not considered prior to lease expiration.

I am not recommending one policy over any other, as there are many factors and variables that should dictate your position on the matter. However, no matter what policy you subscribe to, it is in a landlord’s best interest to put this policy in writing and make it part of your lease. I have spoken to several landlords who have responded to formal Fair Housing complaints arising from this issue, and every one of them has told me that the first question that they are asked is, “What is your transfer policy, and is it in writing?” If a current tenant has asked to be moved to another vacant apartment in the same building and you ignore this request to place a new applicant, there is nothing to stop a tenant from claiming that they were unfairly rejected or discriminated against during your selection process. Those complaints can result in fines that can make your head spin if things don’t go your way.

An even bigger issue is that the precedent that is set. If you allow willy-nilly transfers to a few tenants, then every tenant in the property will expect the same flexibility when they make a request. This could be a crushing expense over time.

No matter what your policy is, as a landlord of a multi-unit property, it is best to determine a very clear policy by which you will operate and allow someone to move within a property. Once your idea is in place, it must be put into writing. All of the possible variables need to be included, such as when these moves are allowed (any time, only the last 90 days of the lease, never); when will they be rejected, and why (late payments, damage to property); if you will maintain a waiting list for units not currently available; and how security deposits will be handled. Having a clear and concise policy virtually eliminates any variables and can help minimize your liability stemming from a possible complaint.

Here is a sample policy that a client of ours has utilized for some time. It is thorough and he has not had a single issue since implementing it two years ago. This was a constant issue prior to his addition of this clause to his leases.

TENANT TRANSFERS. Tenants may request transfer to another unit within the property during the term of their tenancy. Unit transfers will only be considered within 60 days of the expiration date of the current tenant lease. Each request will be considered based upon unit availability, rental payment history, positive (complaint-free) tenant record, and current occupancy plans (pending move-ins, deposits held, repair plans, etc) at the time of the request. Lessor will make a tenant transfer determination based upon any or all of these factors. Rental pricing for the Lessee’s previous (current) unit will have no bearing upon the rental amount charged for the new (transfer to) unit. Lessor has sole discretion to set rental prices as they see fit. Lessee will be required to sign a mutual release from the current lease (if one is in effect) and sign a lease for the new unit with a minimum term of 1 year. Transfer to another unit does not relieve the Lessee of their responsibility regarding security deposit within their original unit. Upon approval of the move, Lessee will be assessed a damage bill for the current unit and a charge will be entered into the tenant ledger to reduce the security deposit amount held by the Lessor to offset the cost of repairs. Upon signing the new lease, Lessee will provide payment in full for any security deposit shortfall required per the new unit lease. Lessor has sole discretion to set security deposit requirements as they see fit. Lessor may relocate tenants based upon need due to damages, repairs, or remodeling from time to time. These moves will be considered necessary and temporary relocations and will not be considered “tenant transfers” and do not fall under these guidelines. Necessary and temporary relocations will take precedence over any tenant transfer request and Lessee agrees to hold Lessor harmless in the event that a necessary relocation supersedes a tenant transfer request or otherwise makes a tenant transfer impossible. Lessor reserves the right to amend this policy at any time upon written notice to Lessee.