Arizona Residential Landlord Follies

So I’m noticing that there’s a lot of folks with second homes or “investment properties” listed for rent in our fair state. Since many of our citizens didn’t count on putting these places up for rent but rather for resale, there are a fair number among us who didn’t read up on the rules in Arizona pertinent to residential landlords. Here’s some things you have to know about--and to do--if you are renting property in Arizona and want to avoid mixing it up with the authorities at the county and city levels:

First, register your property with the appropriate County Assessor’s Office: In Maricopa County, the Assessor will permit registration on-line, at this address: http://www.maricopa.gov/assessor/residential_property_form.aspx. You must do this for the purpose of identifying your property as rental residential (which is Legal Class 4 property, instead of the owner occupied Class 3 designation), and, additionally, so its maintenance condition can be monitored by community authorities if necessary. See ARS Sections 33-1901 through 33-1905. Caution: Yavapai County, to choose one example, is on the prowl to make sure that all residential rentals are identified. There are hefty and recurring fines imposable by the authorities if you fail to register your rental house, be it free-standing or attached. A.R.S. § 42-12052. Don’t forget to designate a statutory agent on that registration form; the community intends to serve that person with a notice in case it decides to land on a landlord for violating building codes or the slumlord legislation.

Second, if applicable in your community (and most cities collect this type of tax), acquire a transaction privilege tax license (and then, get ready to pay tax on your residential rental income). Phoenix, for instance, assesses city tax at the rate of 2% of the gross revenues from residential rentals, if you’re an eligible taxpayer. You’re eligible to pay tax to Phoenix (you lucky dog) on a rental property located within the city limits if you have three or more residential units rented or available for rent within the State of Arizona. (Your registration with the County Assessor enables cities positioned like Phoenix to determine if you own enough residential units to be eligible for taxation.) You can read all about Phoenix’s requirements for transaction privilege tax (amount owed and when due, forms and exemptions, etc.) at this Web address: http://phoenix.gov/PLT/resrent.pdf . You can’t goon the system by describing tenant payments as something besides “rent”; any dollars collected under the residential lease is subject to the 2% Phoenix tax. My hunch is that the other cities around the state that collect this tax have the same view—hand it over, buddy.

Third, while you should read the entire landlord-tenant statutory scheme in Title 33, chapters 10 and 11 of the Arizona statutes, there’s one thing you must be familiar with: How you treat the tenant’s security deposit, if you can get one in these times. A.R.S. Section 33-1321(C) is a provision you want to know backwards and forwards. You have to give the tenant a chance to note what is physically missing or dysfunctional within the premises; and you have to give the tenant written notice that tenant has the opportunity to go through the “exit walk-through” at the conclusion of the lease, if as the landlord you intend to keep all or a portion of the security deposit. (There is an exception to this requirement if you are reasonably in fear of your tenant, for example, if she has threatened you physically or he turns out to be a drug kingpin—then, you can skip the “joint” visit to the premises.) You should use a standard form for the tenant to describe in writing what’s wrong with your rental at the outset of the lease term; then, that checklist can be compared to how the place is surrendered at the end of the term. If you don’t handle this correctly, and follow the process and the timing in subsection 1321(D) regarding the return of the deposit or describing the purposes to which the landlord is applying the deposit, you could be liable to the tenant for twice the amount of the security deposit (subsection [E] of § 33-1321) if the tenant decides to press the issue in court.
Fourth, everyone in the business of renting places will tell a landlord to get a security deposit and the first and last months’ rent from a prospective tenant; that way, if the tenant skips without paying rent for the last piece of a month he/she is in your place, the landlord will get made whole. It’s sounds like great advice; alas, it’s not permitted under the landlord-tenant statute, nor is getting a security deposit that’s more than 1.5 times the monthly rent installment, unless the tenant volunteers to pay an additional amount [see subsection (A) of ARS § 33-1321]. And, if you’re going to charge a cleaning or pet or similar deposit that you have no intention of refunding at the end of the lease term, no matter what, you’d better tell the tenant that in the lease, and in a way that’s unambiguous [per subsection (B)] or the landlord has to give back the deposit that you thought was nonrefundable.
Finally, the landlord has to give the tenant a copy of the lease with all the blanks filled in and fully signed by each of the parties. It’s the biggest folly of all to neglect this simple task, because community property law may make the landlord’s rights unenforceable and because the statues say that you must deliver a copy of the lease.