Ep005: The Springfield Ohio Landlord Registration and Licensing Ordinance

The ordinance is designed, according to the city, to promote health, safety and welfare in the rental housing market, and the reason this is applicable to almost every residential real estate investor. In Ohio. These ordinances are coming up all over the state and in several states these are already up and running. I don't know of any that's exactly like Springfield, but there's a lot of similarities, so I thought it was important that we get this out on a podcast. I also want to say right up front that I am not an attorney. I'm not here to offer legal advice, but I am happy to tell you my thoughts and plans personally for not just our property management company, but also for my personal investment company. So good morning, lacey.

Laci: Good morning, another one where I am happy to kind of play devil's advocate and learn right alongside the folks listening, because this is not something I'm super well versed on. But what I immediately thought of was, if it's happening in Springfield, if it's happening in Ohio, it's happening everywhere, right? So you know, if you're listening and you're not from Ohio, that doesn't mean you should shut this one off. Actually, this is probably one of the ones you should listen to because to be prepared for these, to know what your kind of course of action might be If it is harming your business, I think that's valuable.

Chris: So what happened was last summer I think it was still July I got an email from Tina, our lead property manager in Springfield, and she had gotten an email from one of our longest clients that we've worked with one of the you know for years and he happens to be a local attorney and he also owns properties and we manage for him. He also handles our evictions. So you know, I've known Dennis for years and years. He's a friend and a great long-term client. He had an email that he sent to Tina and I didn't even know this existed. So he said he took some time and got a copy of this ordinance. He found out about it because one of his clients, who we don't manage with, had heard about this ordinance that had passed. And he said you know, there is no. I think there technically is a Springfield paper. I think it's based out of Dayton. You know there's no more. It's not like it goes to everybody's house every day. You know there's no real local radio station or anything. It's a smaller town. So many people don't know this ordinance was enacted and I certainly didn't.

Anyway, dennis went down to the city building, he got a copy of the ordinance and he talked to the gentleman that's actually, I guess, managing the effort by the city to put this ordinance in action. And it was interesting because when he talked to the city, you know, the response was to Dennis well, they didn't think this was a big deal, right, this was just about livability issues. And Dennis dug into. The part that you know we're going to talk mostly about today is that it involves the self inspection. And the guy at the city basically said well, you could probably have the tenants do the self inspection, which you know was a non starter at the beginning. So and then. So the whole idea is that they have information about, you know, the owner and they have some testament from the owner that the property is in good condition. If the tenant has a problem, they're more likely to help get it fixed.

They also told Dennis that they weren't going to enforce this, at least until June of 2020. So after June 1, 2024, what he told Dennis was that if a property is not registered, the city could issue a penalty of $50 day for each unit that was not properly registered and that the penalty would be added to the real estate taxes if it wasn't paid and, as that builds up, the house could conceivably be sold at a tax sale for closure. So, like I said, I didn't really dig into this for several days. It's obviously something that doesn't make money for myself, it doesn't make money for our clients, it's nothing I want to spend time on and, to be honest, things like this have come up over the years and they've never gone anywhere, and it seems like this time I just had a sense that there was more to it, so it was a good thing that I dug in. So that make any sense at all Lacey so far.

Laci: Yeah, I think it'll make more sense once we know what the ordinance is all about. But I do think that you know again, my life is very real estate adjacent in a lot of ways, and so I do hear about this stuff and that's exactly what my like, my nana and my family usually talk about as well. You know, this happens all the time. There's not really anything that we can do about it and there's not anything to it, you know, and they never enforce this stuff because they just don't have the manpower to do so.

So what makes this one different? What is this?

Chris: And there's already. There's already a vacant property registration form in place. You know, we don't feel like we're the bad guys because you know, I like to think I take good care of my properties and we're at the neighborhood standard and things like that, but we don't manage for people who don't take care of their properties, quite frankly. So you know, I always sort of felt that our values and business philosophy has always carried today and when something did go wrong code enforcement you know, has Gretchen cell phone. You know who was our you know our lead director of property management. They can get on the phone with her and she fixes it and we always had a great relationship with those people. And what I, what I ended up finding out, was that this wasn't just bad policy, but there's a. It's an infringement on property rights, but it's also ultimately an infringement on tenant rights and it also interferes with our legal obligations to our clients as licensed real estate brokers and property managers. So I'm trying to do a quick summary of the ordinance and then we're going to include the ordinance in the show notes so people can go ahead and download it and take a look if they wish. But the purpose of the ordinance is, and I'm going to read a lot of this, but the ordinance aims to increase transparency and accountability in the rental housing market in the city of Springfield. Seeks to protect the public health, safety and welfare, eliminating lighting conditions and enhanced property values. I think we could all get on board with that. Applicants, the ordinance applies to all rental dwellings within the city of Springfield, with certain exemptions. Now here's what's interesting Units buildings that have more than three units are exempt. So this ordinance is only for people who own rental property that are one to three unit buildings. So that is an interesting case that these buildings are the focus and not literally thousands of other units in town.

Every owner of a rental dwelling unit must register each unit with the Department of Community Development using the rental property registration form, and that's available online and we'll put that link in the show notes as well. In addition to that, a self-inspection form must be completed with the registration. This form will be included in the application material. So when you register your property, you pay 35 bucks, you fill out the self-inspection form and you're good for three years. As the program is currently structured, either the owner or the owner's representative which would be us with our property management business has to print the self-inspection form, fill it out, sign it and upload it back to the site. So it also includes contact information for the owner or agent, 24-hour emergency details, address of the unit, lease information, identification of trash service provider.

It's very intrusive and, as the you know, I understand the need to get to the ownership of, you know, like a zombie property, but obviously this already starts to be somewhat intrusive. And again, the registration fee is $35 per unit for single unit properties and $25 per unit for two or more units in the same building. It's not about the money. At this point, you know, if the city needs to raise funds, great. You know, if that was the end of it, we would move on.

So the license this isn't just a registration, they're terming it a license. So the license to rent your property is valid for three years from the date it's obtained. Once you sell or transfer the property, the license expires and it becomes invalid, and new owners must apply for a new rental license for each dwelling within five days after they close on the property. Violations will result in civil or class A civil offenses and subsequent violations will be deemed as such. An appeal process is available for owners or managers who wish to contest any order or decision related to the ordinance, and the effective date of this is legally 131-2023. And you have to apply to have your property removed from the registry if it's no longer a rental property. So that's not a very brief outline of what the ordinance says, but what are your initial thoughts on that, lacey?

Laci: Yes, I'm trying to kind of back my way into it because everything they do is for a reason, right, the government. So you mentioned raising funds and I think this is a minimal amount of money, obviously. So if that's not the motivation, then what could be? And really I go back to what the registration must include. So the owner contact information, 24 hour emergency details, address of the unit, lease information, identification of trash, service provider really raised the red flag for me.

So what I feel like and you know, excuse me, I do have some experience in kind of working with the government on housing specific tasks and it seems as if maybe there are properties out there who are not up to the neighborhood standard, right, so not your properties, not your owner's properties that maybe are not following through with these basic services, and I'm just seeing trash piling up or I'm seeing, you know, illegal activity and not being able to contact the right people. So it really feels to me more like a yearbook of rental properties, right, they want to know what a rental property is. And then in the future, where this becomes a real problem is in the future. If you've got folks in a neighborhood or who are not taking care of it.

then I see additional kind of requirements imposed on people, even if they are right, so you're part of a whole at this point right, so they're going to use this catalog of rental properties to determine kind of what legislation or what rules they put in place for all rental properties, and so that's, I think, where we can kind of see where it's starting to impose.

Chris: And then there's another weird thing about Springfield Ohio. As far as I know, springfield Ohio is the only municipality of its size in the state, possibly the country, where we do not have public municipal trash service. So every place else I've ever lived my entire life the city picks up the trash and it gets billed on your water bill. Right, you know you get a bill every month. Like in Columbus, we get water, sewer and trash In Springfield they abolished that decades ago. So, yes, you still get a water bill and sewer bill from the city, but you have to contract with one of I think it's three approved private vendors to pick up your trash. And yes, there's an issue with tenants, you know, signing up right In the single family house. The tenant should sign up and pay for that, and that's problematic globally. Honestly, if the city wanted to fix almost everything, that's wrong is if we would just go back to a municipal garbage service. But that's me spouting opinions. The other thing that's problematic is, you know Springfield is not, you know, high economic status communities, so to speak, right, and the fact is you have just as many owner occupants in houses that aren't well taken care of, you know, as you do rental properties. So that it's hard because the inordinates assumes that all landlords are bad landlords and you know, the fact is that's just not true. So you know I start to get a little worked up about this as I talk about it, so forgive me.

So anyway, dennis has been an attorney in Springfield for years and years and he knows all the people at City Hall. So what I did was I asked Dennis if he could set up an appointment with the administrator of this program at the city. So on July 26th it was a Monday morning Dennis and I went down to City Hall in Springfield and we met with Jeremy who's in charge of the program, jeremy Least and Randall Stevenson, I believe. This title is assistant attorney for the city, but he's from the city legal department. So they were nice enough to sit down and it was very cordial.

You know they defended their right to pass this ordinance and to enforce it. You know they sort of defended the fact that their process and reason was above board. They also admitted that the owners had not been notified yet formally, but that they would be notified. They also said that, just like they told Dennis, enforcement would not begin until June of 2024. They also suggested I get in touch with the city commissioners and I did get in touch with two of them Mr O'Neill, who's no longer commissioner, and Mr Eastrop. Then Randall Stevenson. He asked that I send him a summary email with my concerns and I want to get to those details here in a second.

But I also want to make it clear I explained to Jeremy and Randall that my primary concern with this is with the self inspection, and I also want to see blight eliminated. I want to see slum lords out of business and I want to see tenants protected. You know we look after over 500 households in Springfield that we're responsible for and you know we're out of business if we don't take care of our tenants, and you know so I'm with them. And you know, like we just said, I have no problem with the 35 bucks and helping track down. You know LLCs holding. You know zombie properties. I'm down with that.

The issue is that the ordinance as it's written, especially the self inspection, has just gone too far. So here's some detail as to why this has taken up so much of my time. The biggest reason is when you download the inspection, the inspection has things on it that I don't even know if those things are perfect in the houses I live in. If that makes any sense and you know it's about, is the porch plumb. Well, you know, houses in Springfield are, you know, average, probably 100 years old.

Laci: You know, I live in a 100 year old mill house. I guarantee you I haven't heard one thing other than is the porch plumb and I would not pass this inspection.

Chris: Yeah, and it goes deeper from there and we're putting it in the show notes as well, and the bigger issue is the way it's set up. And what we asked them to change was you fill out the form and your signature. You sign your name to a phrase that says I attest that my property is up to basic property management standards based on the checklist. I'm not qualified as a property owner and I am not a licensed property. Well, I'm not qualified as an owner or a licensed property manager to perform an inspection like this. Right, you know, as an owner, landlord and as a property manager, we improve and maintain our properties to the neighborhood standard and the market rental rate, but we also have minimum standards for any property that we look after. So we do hold ourselves, I want to believe, to a higher standard than, say, the rest. I don't want to sound holier than Val. We have issues once in a while, like everybody else, but the fact is we don't work for owners who lack the means or the desire to maintain safe, secure and functional properties. But again, we do work, by exception. We fix or replace what's broken when it breaks. We don't run cameras through drain lines, right? We don't check porches for plumb, we don't close gaps or rebuild floors and foundations and 100-plus-year-old homes, which is the bulk of our housing stock. And again it goes back to the phrase I attest. That's a legal term that carries great weight and to attest to something today, excuse me, doesn't mean that something's not going to change the next day. There's the very real crop of the possibility that something on that city checklist may exist and we do not know about it. It will not know until the tenant reports it or we find out after the tenant moves out. That's just common sense.

The suggestion and again these are the key points to the email that I sent to the city, the suggestion that the tenant would do a voluntary inspection on behalf of the owner is problematic as well. It's not the tenant's problem, right? It's not the responsibility, it's the owner. And there's a question of tenants' rights and there's also the practical issue of in many cases in Springfield there's a language barrier between the tenants and us and owners. So I spoke to Kevin O'Neill, one of the commissioners, after the meeting and he told me flat out that he understood that the inspection had the clause in the inspection said, to the best of my knowledge, not I attest, and I sent him a link to the site and I didn't hear back from him and he didn't win the last election. And Kevin also suggested I speak to Dr Eastrop, who's on the commission, and I did speak to him that night and I copied him on this email to the city and I express these same concerns.

Here's the other thing that's deeper for me. So you have to be a licensed broker in Ohio to manage for another, which I am. It's a criminal offense to manage property for another for a fee without having a real estate brokers license. Now, family members can do things, obviously for an owner W2 employees but you can't hire a third party as an independent contractor to manage your properties unless they're licensed. So that means I have to follow state licensing law. Now here's the trick that makes the property management business hard for me with this ordinance, and that is property inspectors in Ohio House and home inspectors have to be licensed now with the state of Ohio.

Now, I don't pretend to be a licensing law expert, but I know enough not to act as a licensed property inspector when I'm not. You know, just as I know enough not to coach a seller filling out a residential property disclosure form or, you know, insert myself in any capacity during a home inspection and honestly, I don't think the city was at all aware of those state laws that I see contradiction with. But if I were to do that, I'm exposed to to potential legal liability. Liability could result in the loss of my license, the loss of the business, my livelihood and everybody who works for us. So I can't just let this go.

I also I checked in over the summer with the Ohio Realtor Association and at this point it does look like they are interested in helping us with this. So I'll get to that here in a minute. But again, my biggest issue is signing my name to a checklist. That is clearly understood to be, the best of my knowledge, is way more easier to get my mind around than signing something that says I attest. That could be legally used against me later when I told them I believe in what the city is trying to accomplish. I want to be a partner, but I can't support this. I can't hear you, lace.

Laci: Sorry. I think this raises a much bigger kind of issue, a well known issue, and a non political one at that. Doesn't matter about politics, but at the city level, when they pass these types of laws and ordinances and regulations, you know, there's just not, in most cases, a lot of input from affected parties. So it's done, you know, by a board or by, you know, a room full of representatives and legal, but there's not a realtor in the room, there's not a broker in the room, there's not a property owner in the room or a manager in the room, and I think that's this is commonly what happens with this type of stuff is it goes out that you know they formulate it, it goes out, and then all of this feedback is given after the fact. And you know, typically there are some changes made to the original ordinance or law or whatever the case may be. So I'm interested to see how that happens, or, if that happens here, what's your plan?

Chris: Well. So they did have some owners, or a handful of owners that came to the public commission meeting, but they did not have they didn't have us, right, they didn't have Bruce Drill estate. Then they didn't have any other property managers either. I did receive an acknowledgement from Mr Stephenson a few days later that he got the email, and then in August I sent an email sort of outlining what I just talked about to all of our owners. So here's what's happened since then. In October, notice is starting to go out from the city and their title rental registration obligation and we'll put that in the show notes as well. And notice is here by given that your property is in violation of the codified ordinance of the city of Springfield, your order to rent a property in 30 days, unspecified legal remedies will be pursued and you know you have five days to appeal.

Laci: So not so much a notice as a warning. Yeah, yeah On the hand already for something that you haven't even been notified about.

Chris: Correct and it's frustrating because we want to be able to help our owners with this and you know, practically we can't. I mean, I'd like to think I am helping by doing this and getting involved, but my original plan and I said this to our owners and that email last summer was the personal plan for my property was to download the inspection form, strike out any problematic language. I was going to disclose anything that I was working on at the time you know if it was in rehab or whatever and sign my name and say to the effect of to the best of my knowledge on this date, you know Chris McAllister and my LLC, and then I would upload the form back, I'd pay the 35 bucks and move on. That was my plan. That's what I shared with our owners. Again, I'm not an attorney, I'm not giving anybody advice, but that's what I was going to do for myself. But now that things have escalated, here's where we're at. I was hoping that, having a productive dialogue, we would have the opportunity to influence this ordinance right or how it was finalized or was going to be enforced. So I got two letters, one for two properties in an LLC I own, and what I've done is now that things have gotten to this point is I've chosen to appeal each of the notices I received and all I did was I took the one page what do we call it? The one page rental registration obligation and I simply, I simply wrote, hand wrote I choose to appeal, sign my name as a member of the LLC holding the property and then date, made a copy of it for myself, but the original back in an envelope, and send it to the city. I haven't heard anything. I have no idea what the appeal process will look like, but what where things have gone now is. I've and I hope it doesn't come to this but I have retained counsel and I am prepared to have my larger personal investment LLC sue the city and there's actually a couple of owners that are joining me, and then I'm the only property management company slash owner doing this. Now, I shouldn't have said property management company. So I want everybody to know that roost real estate company, the company that you know does property management, sales houses et cetera in town, is not a party to the suit, but I do hope that you know my personal involvement is seen as a meaningful step towards advocating, you know, for the rights and interests of our clients. So you know we're prepared to file a suit.

The grounds are that you know the suit is unconstitutional. The biggest piece of it is having to attest to something is something legally called compelled speech. So you know, again, I'm not going to get into the details, I don't understand them. That's why we have a great attorney. There's also issues with the technical side as to whether the city decided Springfield had the authority to do something like this and a couple of other things. But the key thing is compelled speech is it's unconstitutional. It's I don't know how it gets into the Fifth Amendment, rights or whatever. But again, to attest to something for which I'm not qualified to do so or have no knowledge of is a violation of all of our rights. So again, I don't understand.

Laci: I mean, that's pretty basic at the outset and then you know. Also problematic are all these things you outlined about not knowing how to appeal, really, the unspecified legal remedies that happen if you don't do what.

Chris: You've been asked to do so in such a compelling manner, and I don't want to be overly dramatic about this, but this is, this hits home and you know I, you know, as we close this out today, I want to, I want to send a message to you know, all of my you know realtor friends and colleagues. You know I'm not doing this because you know I am trying to protect property rights and I'm trying to protect our clients. That's the main thing. But I think it's important that all of my realtor friends and colleagues take an interest in this, because you know this is about advocating for fair and effective regulation. Right, you know, I'm a realtor and I'm licensed right? Two different things. I'm committed to ethical and responsible real estate practices and we all have to advocate for regulations that are fair, effective and then the best interest of all stakeholders, and that includes the city, includes the owner, includes the manager and, most of all, includes the tenant. So I want an open and productive and collaborative dialogue.

This also is an undue burden of property owners. The current form it introduces administrative complexities and financial obligations that you know. We don't even know what those could be, but I guarantee you they could potentially hinder the ability of property owners to manage their investments effectively and, quite frankly, if they can't do it in Springfield, they're going to move on to other areas to invest their cash in, and that's only going to be bad news for tenants at the end of the day. We also have to balance right the idea of tenants rights versus owner property rights. You know, I understand the importance of safe and habitable living conditions for tenants, but it's also crucial to strike a balance that respects tenants rights and property rights, and this ordinance does not do that. There's no equilibrium there and there's also the potential impact on the real estate market. I'm not putting too fine a point on it. I know many owners that have liquidated several properties in Springfield over the last year, and I personally liquidated a handful of properties I still have. Most of my holdings are in Springfield, but it's not like this. The last six months that we've been looking at this has made me want to invest any more money in Springfield. That's but that way.

My analysis, you know the indicates the ordinance would have unintended consequences on the local market. You know it's going to affect property values. It's going to affect the attractiveness of Springfield, you know, for real estate investments and the overall dynamism of the real estate market. Instead of having choice, instead of having fair market competition instead of being able to, you know, take care of tenants one on one. That's going to be impacted, and so this is in the other thing.

You know, again, as realtors, as licensees, it is my intention to engage constructively with the city, right, but I am going to voice my concerns. I want to contribute to improving, refining the ordinance. I believe in proactive collaboration. I need the city to listen and, quite frankly, if they're not willing to talk to us, then you know we will have to file suit, and as much as I don't want to do that, spend the money or the time, I feel like this is a big enough deal that I don't have any choice.

The nice thing is, or potentially good thing is, I've been in contact with the legal department at the Ohio Association of realtors and we had a zoom call with them a few days ago.

We have another one coming up next Wednesday. So the Ohio Association of realtors has looked at the ordinance, they've looked at our draft of our lawsuit and it sounds like that they're willing to, if not formally engaged, to at least informally collaborate with us. But whatever way they can behind this, we will see where that goes. But again, my message to our realtor is you know, our collective voice is a powerful tool and I think we have to stand united and we have to get involved to contribute to the development of local and state regulations, quite frankly, that are going to foster a thriving you know real estate business in Springfield. Anyway, I get a little worked up, lacey, forgive me, but you know, to you and to our owners and anybody else listening, I'll continue to update everybody on how this plays out, and then we've got some stuff in the show notes that hopefully will clarify a lot of this.

Laci: Yeah, well, I think it's. This is right in line with what you stand for and you know, I know this is a will say, a private venture or adventure, that you're going on with this but it's also right in line with what Ruth stands for, and it's that balancing of everybody's rights, wanting the best for everybody involved, being in the shelter business, if you will, and I do think that's how I mentioned it before. This is how this process works. There's a give and a take and sometimes you know, maybe it could be better if this involvement of all effective parties was done, you know, prior to creating these ordinances and all of these things. But you know, in so many cases it has to happen this way and it has to be done after.

So I apologize for standing up for yourself, for your. You know the people who are involved here and the fact that you know everybody that you've spoken with is really kind of is must be a nice indicator that this is a path worth pursuing. And you know there's a point where undue diligence can really hinder it's. You know there is a cost of doing business right and we have to expect that, but this is undue diligence, this is excessive and a lot of ways and you know the liability is just not. It's a big risk, so it will stay tuned.

Chris: Alright. Well, thanks for listening, and if anybody has any questions out there, feel free to get in touch with me and we'll put some good stuff in the show notes so you can see the detail if you'd like.

Laci: Thank you, thanks, Chris.