Urban Lawyer

Targeted Rental Licensing Programs: A Strategic Overview

by Allison Sloto

Allison Sloto is a joint degree student in her final year at Pace University School of Law ( J.D. and Certificate of Environmental Law) and the Yale School of Forestry and Environmental  Studies (Masters of Environmental Management). She is currently a student law associate at Cuddy & Feder LLP, working in the Land Use and Zoning Practice Group. She would like to thank Jessica Bacher, Executive Director of the Pace Land Use Law Center, for her expert guidance in the preparation of this article.

Across the United States, local governments are experiencing difficulties in ensuring a sufficient stock of safe, well-operated, and well-maintained rental housing. This is especially  so  for  municipalities that struggle with social and economic distress. After the 2008 mortgage crisis, widespread foreclosures left many  single-family homes vacant and falling  into  disrepair.1  At  the  same  time,  the  cost of renting in many cities has sharply increased, leaving low-income residents with few alternatives but to live in substandard housing conditions.2 Although many landlords have continued  to  responsibly maintain their rental properties, this  confluence  of  socioeconomic  events has unfortunately exacerbated the  problems  caused  by  those  who do not.

Local governments, using their delegated powers to regulate property for the health, safety, and welfare of their residents, can ensure that all landlords maintain their properties in a safe and responsible manner.3 The means for municipalities to accomplish this is through the municipal regulatory framework, the “sum of the ordinances, administrative systems, and  operating  practices  the municipality uses to foster responsible landlord behavior and sound, well-managed rental housing in the community.”4 The goal of enacting such regulations is not to eliminate or punish landlords, but rather is to heighten the quality of rental housing stock in the community as well as ensure that landlords are responsible managers of safe and healthy properties. It is useful for municipalities to reimagine the traditionally-held view of renting as a type of residential use. Communities should instead consider rental properties through a business-oriented lens, with the concept of a rental license being analogous to a license to do business. Just as businesses are required to pass health and safety inspections in order to maintain standards, so too should rental properties have a license requirement, in order to assure housing quality within the community. This article will explain how a targeted, or “performance-based” rental license system is the most resource- conserving and effective means for municipalities to regulate the rental property business.

I.  What Is a Residential Rental License Program?

Generally, a residential rental-licensing program is put in place by a local government to require property owners to apply for and obtain  a rental license prior to leasing their properties.5 The principal function of such a program is to protect and promote the health, safety,  and welfare of tenants and to prevent the deterioration of housing stock by enforcing property maintenance codes.6 The program requires property owners to submit an application to obtain a rental license.7 The city or town then inspects the property prior to approving the application. There are three different types of rental licensing programs: (1) no licensing, (2) universal rental licensing, and (3) targeted rental licensing.8  Municipalities operating with no licensing  program must rely on building inspectors and the court system to assess fines for problem properties.9

Under a universal rental licensing scheme, on the other hand, all owners of rental properties must annually re-apply for a license, pay associated fees, and undergo an inspection.10 This is the case no matter how compliant the landlord was in terms of maintenance and safety. There is no landlord rating system upon which to base the renewal of the license.11 The primary benefit of the universal rental licensing scheme is that it guarantees all rental units are subjected to annual inspections and license renewals, precluding the possibility of code violations.12 On the other hand, mandating that all landlords meet the same requirements, regardless of their record of compliance, provides no real incentives for landlords to improve the standard of their property. For example, the City of Milwaukee, Wisconsin, uses a universal rental licensing program, which only encompasses certain portions of the City that are of particular concern (in terms of housing quality/ crime).13 However, the City does run a landlord training program to encourage property maintenance and lower crime rates.14 Similarly, Raleigh, North Carolina has targeted their “bad apple” landlords by adopting a Probationary Rental Occupancy Permit ordinance, which requires repeat offender landlords to obtain a two-year Probationary Rental Occupancy Permit (PROP).15 A landlord in the PROP program is required to pay $500/ year for the two-year permit to cover the cost of program administration, and is further required to attend a residential property management training program during the first year of the permit.16

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