Help! My tenant wants to fill our first rental house with daycare kids!

110 Replies

Hello Bigger Pockets gurus!

I've been lurking on Bigger Pockets for months as my husband and I have purchased, renovated, and rented our first two single family properties.  We thought everything was going great until we received a phone call from a neighbor saying that our tenant has started operating a daycare out of our beautifully renovated house!

The back story is a little complicated on this one - we purchased this home as a short sale in early July.  The previous owner decided to walk away from the place after her tenants operated a daycare out of the home and destroyed the place (hence our major renovations).  After advertising our home for rent we got a lot of great interest, and rented to our tenant after a background check and calling all references.  He works for Dora's Daycare (which we thought was quite coincidental) but assured us that his work had him traveling throughout the state helping other daycare centers reach different compliance levels.  I asked both him and his manager at Dora's Daycare if he would be operating a daycare out of our house, and they both said no - LIES!

After receiving the phone call from the concerned neighbor (who was not happy, since I specifically told her her daycare woes were over), I checked with the state and learned that he does have a home daycare permit filed in the county.  

This sucks!  First tenant in our first rental, and it's sure looking like eviction to me.  My question to you bright, wonderful, knowledgeable people is - what the heck do we do now?

We do have a lease, which we got from Bigger Pockets, which specifically states that no businesses may be run out of the home.  Here's the text:

6.USE AND OCCUPANCY:Lessee shall use the premises in such a manner as to comply with all local, county, state and federal laws, rules, ordinances, regulations and codes.Lessee shall not use the premises or permit it to be used for any disorderly or unlawful purpose or in any manner determined by Lessor to be offensive to any of the neighbors.The premises are to be used exclusively as a residence only by the persons named above and their immediate family. NO OTHER PERSONS MAY LIVE THERE WITHOUT THE LESSOR'S WRITTEN PERMISSION.Guests may stay no longer than two weeks. No business or business activity shall be conducted on the premises other than that activity that is customarily considered to be purely incidental to residential use. Lessee may not remove or install any carpet, walls, fencing or flooring without the written permission of Lessor.Red Door Rentals, LLC, reserves the right to perform a visual inspection of the property every 30 days to insure cleanliness and upkeep of home.Tenants, by signing this lease, agree to this monthly inspection. Tenant agrees to perform lawn maintenance for this property.

While that is a disappointment, there might be a chance to renegotiate the rental amount to a higher price, on threat of eviction.  

I would tell them that if they proceed you will file for eviction based on the lease violation.  I don't think you will be able to get enough of a rent increase to make up for the damage that a daycare receives.  Plus it exposes you to a lot more liability.  Your landlord's policy will probably be invalid since it is a commercial operation there now.

Is the family daycare registration filed with your address on it?  I would confront him about the issue and send a lease violation. Give him the allowed time to remedy and evict if needed. Get as much verification as possible by scouting for his advertising  and getting someone who can verify it is in fact a  daycare other then the neighbor who may be totally correct but has a history with the issue.  This is particularly important if you can't show the registration has your address

The bottom line is that the lease governs the use of the property unless it is out of whack with the local  or state ordinances.  The clause you included seems very reasonable so you are in the right.  Something has to change!

The guy has no grounds to go behind your back and file that address as his place of business.  Keep in mind that you may be liable for a child, visitor, or even him getting injurer on site... or for some other damage (kids burn the house down or who-knows-what) that stems from his inappropriate use of the single family home.  I would imagine that your standard rental house insurance package for fire and structural does not include commercial liability / workers comp or umbrella.

If you decide to negotiate higher rent, just be certain that your insurance and the city's current property zoning can handle the change.  You may be liable for non-conforming ordinance violations as well, especially if stated in the lease that you knowingly allowed commercial activity.

Having filed dozens, and never losing a single case, I assure you that evictions are no fun, but a necessary and just tool.  Consider the risk to which you are currently exposed.

Thanks for everyone's speedy replies.  After seeing the kind of a damage a daycare did to this property before we bought it, I'm definitely not interested in having our tenants run one.  I'm guessing an eviction is the way to go, which really sucks since this is our first tenant in our first property, and he's only been renting for a couple of months!  

I've got a $1000 security deposit from the tenant, he has money and so does the daycare he's working for.  At this point I'm considering just contacting a lawyer and letting them take over.  Do you think I'll be able to cover lawyer's fees with the security deposit and/or suing for damages?  Or do you think an eviction is an easy enough process that I can file it on my own?  I talked to a friend who's managed properties and he's worried that since this isn't your typical eviction for not paying rent that it might be a bit more complicated.

I'd be very afraid of someone operating an illegal daycare out of my place, mostly due to the liability you may be exposed to while they operate a business in your residential property. Especially where there are small children involved, I would want this activity ceased or them out asap to lessen the risk of something happening.

Terrible situation. I can't believe how brazen some people are when it comes to disregarding pretty black and white rules.

File eviction and get you tail thrown out of court. You can also have a counter suit for loss of income, as well as other claims that you'll most likely lose.

Short answer, nothing you can do about it, if there is no zoning restriction law is not violated.

A Day Care only kicks in with a certain number of kids. A residence can be approved by the authorities, leased or owned. If she must comply with day care licensing, then she needs to do so, so long as she is in compliance, it's not up to you.

Nothing in your lease, as posted above, applies to the kids, they aren't living there, they probably aren't breaking any laws, they won't stay for more than two weeks since they don't live there.

What you can do is require an additional security deposit, so long as that is allowed by law due to the business nature of use. That has to be reasonable.

You leased the right of possession and with that goes quiet enjoyment of the property, to use that property for any lawful purpose, had you put no business operation on premises in your lease, you could have restricted that use allowed.

The only way HUD keeps babysitting out of rented properties is by the income earned that must be reported as to the tenant qualifying for any benefit, if any.

If those kids are related and you raise heck, you can also have a suit as to family status applied as their life style may well be to keep family there during the day.

Learn and live and it may not be as bad as you think after you get past the shock, if neighbors really do complain, like in writing or the cops are called or the fire marshal shows up as to over crowding, they have the right to use the property, don't jump to conclusions about damage due to sticky fingers. I assume you got a security deposit.  

have you driven by or parked nearby in the morning or afternoon just to see if he is running a daycare out of your house?  He might have a home office and put the license at that address,,,I wouldn't jump to conclusions until your sure he is running a daycare.

andy

Check with whatever agency regulates home day cares in your state.  In some states, state laws specifically protect home child care providers who live in rented houses, and require landlord "notification" rather than permission.

For example, California's process for licensing a home child care business includes the line:  "Inform your landlord (if you are renting or leasing) of your decision to operate a Family Child Care Home."

@Bill Gulley  

I take it this clause she has isn't good enough because they could argue that it is "purely incidental to residential use" ?

No business or business activity shall be conducted on the premises other than that activity that is customarily considered to be purely incidental to residential use.

Yeah, it's really not.  This sort of activity is protected more places than not.  She really needs to check on what her state's laws allow/require.

Originally posted by @Bill Gulley :

File eviction and get you tail thrown out of court. You can also have a counter suit for loss of income, as well as other claims that you'll most likely lose.

Short answer, nothing you can do about it, if there is no zoning restriction law is not violated.

A Day Care only kicks in with a certain number of kids. A residence can be approved by the authorities, leased or owned. If she must comply with day care licensing, then she needs to do so, so long as she is in compliance, it's not up to you.

Nothing in your lease, as posted above, applies to the kids, they aren't living there, they probably aren't breaking any laws, they won't stay for more than two weeks since they don't live there.

What you can do is require an additional security deposit, so long as that is allowed by law due to the business nature of use. That has to be reasonable.

You leased the right of possession and with that goes quiet enjoyment of the property, to use that property for any lawful purpose, had you put no business operation on premises in your lease, you could have restricted that use allowed.

The only way HUD keeps babysitting out of rented properties is by the income earned that must be reported as to the tenant qualifying for any benefit, if any.

If those kids are related and you raise heck, you can also have a suit as to family status applied as their life style may well be to keep family there during the day.

Learn and live and it may not be as bad as you think after you get past the shock, if neighbors really do complain, like in writing or the cops are called or the fire marshal shows up as to over crowding, they have the right to use the property, don't jump to conclusions about damage due to sticky fingers. I assume you got a security deposit.  

 @BillG - We do have language in the lease restricting business use on the property it's outlined here in bold: 

6.USE AND OCCUPANCY:Lessee shall use the premises in such a manner as to comply with all local, county, state and federal laws, rules, ordinances, regulations and codes.Lessee shall not use the premises or permit it to be used for any disorderly or unlawful purpose or in any manner determined by Lessor to be offensive to any of the neighbors.The premises are to be used exclusively as a residence only by the persons named above and their immediate family. NO OTHER PERSONS MAY LIVE THERE WITHOUT THE LESSOR'S WRITTEN PERMISSION.Guests may stay no longer than two weeks. No business or business activity shall be conducted on the premises other than that activity that is customarily considered to be purely incidental to residential use. Lessee may not remove or install any carpet, walls, fencing or flooring without the written permission of Lessor. Red Door Rentals, LLC, reserves the right to perform a visual inspection of the property every 30 days to insure cleanliness and upkeep of home.Tenants, by signing this lease, agree to this monthly inspection. Tenant agrees to perform lawn maintenance for this property.

There's also a part in there about using the premises in a manner determined by Lessor to be offensive to the neighbors - and I've already received two phone calls about the daycare!  Surely both of these items should be enough for eviction?

Not necessarily.  Check with your state's licensing body or with a lawyer.  

Sounds like, from all the different opinions that a lawyer is the way to go.  Anybody know how much it typically costs to get a lawyer involved in eviction proceedings?  If I have fees in excess of the security deposit, can I sue to recover these costs?

@Jessica Hinman  

I have this happen all the time to my clients. 

You have an issue with the insurance company.  The insurance company has the right to cancel a policy if there is a strong enough "Material Change"  Meaning, I am assuming the policy was underwritten as a SF rental, not as a Lessor of commercial/retail space.   

Worst case scenario, you have a bad claim with a child and your insurance company denies coverage due to "Material Change".  They would have a strong case if you know about the change in exposure and are not notifying them.

There are companies that can provide coverage for a daycare, thats not an issue.   But it is probably an increase of 50%-100% of what you are currently paying.

Average is $400 around here.

Your lease should hold up in court if it makes it that far. I would confront him immediately and give him the option to vacate in 7 days (have him sign a typed agreement on the spot) or court with a judgement, his choice.

I would go confront the tenant and tell them that they may have "forgotten" what the lease said and that no daycares or businesses of any kind are allowed on the premises.  Give them a written notice and tell them they can choose to continue and face eviction, or they can shut things down and continue to live there as long as they abide by the lease.  It's THEIR choice.

Apparently all of these other people are very confident of the relevant law in Indiana, LOL.

Check your state laws. You might have to give written notice of violation of the lease terms and time to cure. Start today! If something bad were to happen on the property you could find yourself being a defendant. Stand your gound now. If you fail to, and then something bad were to happen, some lawyer would claim the tenant had your permission to operate the daycare even though your lease says otherwise. This is why landlords must routinely check on their properties both inside and out. Also, thank the neighbor for keeping an eye out for you.

This is a far more complicated issue than non payment of rent so I wouldn't advise you to do it yourself, especially if you have no prior eviction experience.  Consult a local attorney that specializes in landlord tenant law.  

I would be tempted to turn this lemon into lemonade somehow. I am thinking of the longterm tenancy here. These day cares stay around for 10 years on average I am guessing. If there was a away to adjust insurance and void lease for new terms it could be a homerun instead of eviction. They should be willing to pay more. If not go with it til lease is up and adjust accordingly. You might not have to rent this out again for a long long time. 

I don't know if it is even possible to do a 5 or 10 year NNN type lease. They pay all the maintenance and insurance in this case. Understood this is not what you wanted originally.

thanks,

Matt

Jessica,

Your first instinct was correct. Spend some of your own money consulting with a local Lawyer about this issue.

I have no idea what Indiana law says and you better be sure. Bill G. did not approach his advice with much tact, but you need to get good facts from a reliable source.

The folks here on BP have good intentions and tons of experience, but none of the comments I have seen so far deal with anyone who is in your situation in your state.

You may not have a choice as to whether they can operate the day care or not, but you can get good advice from a Lawyer to make sure you cover yourself and can ensure that the tennant runs his operation "by the book".

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