Some cities and states require landlords to have a license to rent their own property. It's usually not a big deal to get a rental license, but it's one more step landlords in certain locales need to adhere to or face penalties.
What is rental licensing?
Rental licensing is required by some cities and states, making it necessary for landlords to have a license before they can rent out property. Sometimes a standard business license is required instead of a specific rental license, but both work the same way. If a landlord doesn't get a rental or business license in a location where having one is required and the landlord collects rent, that landlord faces penalties. These penalties vary depending on the city or state.
Penalties for not getting a license when it's required
The strictest locales consider it a criminal offense for a landlord to rent property without a license. The penalty for the landlord could be a complete refund to the tenant of all rent collected -- pretty steep; after all, the tenant was living in the rental. By forcing a landlord to return all the rent, the tenant would enjoy quite a windfall. Most times, landlords who rent property without a license in locales that require one only face paying some sort of financial penalty, usually not as strict as a complete refund of all rent paid.
How to obtain a rental license
Each jurisdiction has its own method landlords must follow for obtaining a rental or business license. In Washington, for example, landlords need to get a certificate of occupancy, register with the tax office, fill out an online form, register to get a housing inspection, pass the inspection, register as a rent-control unit or file for an exemption, and then wait for approval. That's a lot. Although the exact process for obtaining a rental license varies, you can expect to jump through some hoops if you need a license to rent property in your jurisdiction.
The pros and cons for landlords
States typically require landlords to get a business or rental licence so officials can track a landlord's business and to protect tenants.
Requiring landlords to have a rental license can benefit the landlord profession by holding landlords to a certain standard. This is particularly true if the property needs to pass inspection before a license is granted.
Regarding protecting tenants, however, federal law already dictates rental properties need to meet the warranty of habitability, meaning the property must offer basic features, such as running water, heat, doors and windows that lock, and meeting local building codes. So whether a rental or business license is required, landlords are always required to provide a safe, habitable dwelling, negating the need in this case for a rental license as a protection for tenants.
How to find out whether rental licensing is required in your area
You can find out if you need a rental or business license to rent property in your city or state by searching online for local landlord-tenant law. You can search something like, ''Do [your state's or city's name] landlords need a rental license?'' You can also contact the office of your Secretary of State to determine whether a rental or business license is required to rent property.
The Millionacres bottom line
One of the main factors that make a state favorable or unfavorable to own rental property is the number of rental laws and regulations landlords must follow. A heavily mandated state that favors tenants against landlords might backfire on the regulators: Too many rental laws, such as requiring landlords to get a rental license, could cause landlords to leave and conduct business in a more landlord-friendly state.