How Landlord-Tenant Laws May Affect Municipalities

By Paul Sanderson, Esq.

It is no simple matter to manage real property, especially when the property is residential real estate. Owners of this type of property will frequently interact with municipal staff in the areas of planning, economic development, fire inspection, building inspection and code enforcement. This article will focus in on the special concerns that arise when the real estate is owned or rented through the municipality.

Municipalities have the ability to own real estate. Sometimes property is directly purchased for fair market value, but on other occasions property is acquired by gift, by deed of the tax collector following foreclosure of the statutory lien for current or deferred real property taxes, or by execution of statutory liens for old age assistance or general assistance. Sometimes residential property is acquired by purchase or by eminent domain for a large public works project, and is rented temporarily until the project progresses to the point where the residential use conflicts with the public works use. Sometimes distressed or environmentally contaminated property is purchased following foreclosure of a mortgage, or from a bankruptcy estate. In each of these situations, the governing body may seek to rent the property to individuals or businesses to obtain rental revenue, as well as funds to use in maintenance and upkeep of the realty.

Municipal property is managed by the governing body unless management has been expressly delegated by statute to other officials, such as library trustees, conservation commissions, or recreation commissions. In towns, this power is exercised by the selectmen acting pursuant to RSA 41:11-a. Property may be rented when not needed for public use, although if the term of the agreement is for more than one year, a vote of the town is necessary to ratify the agreement.

The landlord-tenant relationship is regulated in New Hampshire through the statutory provisions of RSA 540, 540-A and 540-B. There is nothing in any of these statutes that provides any special protection to a municipality while it is acting as a landlord. Thus, before any realty is rented out, the members of the governing body must become thoroughly familiar with the statutory scheme and the requirements it imposes. Failure to do so can easily result in an error that can have significant financial consequences.

Assuming that the governing body has authority to rent the real estate, the first step is to classify the type of property being rented as “nonrestricted," “restricted" or “shared." These definitions are found at RSA 540:1-a, I, II and RSA 540-B: 1, respectively. If property is being rented for a non-residential purpose, it is “nonrestricted," and the relationship of landlord and tenant is deemed to be “at will," or is based upon the terms of any agreement or contract the parties may have negotiated. If the property will be used residentially, an entirely different set of rules is imposed upon the relationship. The “shared" classification applies to property that is used for temporary residential living arrangements of up to 90 days, hotels and other recreational use, and specialty housing such as student dormitories, hospitals and jails.

If the municipality is renting out a residential structure, the safest course is to assume that the “restricted" property rules apply. Even if this is the only structure rented out by the municipality, it may still become “restricted" property if the municipality subsequently comes to own more than three single-family houses at any one time. This would be true even if those other structures are not rented residentially. See RSA 540:1-a, I (a). As noted above, due to collector’s deeds, gifts and other transactions that are not planned far in advance, it is entirely possible that a property assumed to be nonrestricted at the time of rental could become restricted as time passes.

Recently, the New Hampshire Supreme Court had an opportunity to review the statutory scheme regulating restricted property in the case of AIMCO Properties, LLC d/b/a Royal Crest Estates v. Kasha Dziewisz (slip opinion issued September 7, 2005). In that case, a landlord rented an apartment to a tenant pursuant to a written lease agreement with a term of one year. Approximately 45 days prior to the expiration of the lease, the landlord notified the tenant that the lease would not be renewed, but did not allege that the tenant had failed to pay rent or had engaged in any misconduct.

After the tenant failed to vacate the apartment, the landlord sought a writ of possession, which was granted by the district court. The Supreme Court, on appeal, found that the legislature enacted special rules to regulate restricted property in RSA 540:2 and 3 in order to, “limit... the grounds for eviction of tenants from restricted property…giv[ing] …greater flexibility to landlords to evict tenants for any good reason and at the same time protect[ing] tenants from arbitrarily and/or ill motivated evictions." Id. at p. 3.

The Court refused to uphold the eviction, stating that the mere expiration of the term of a lease did not constitute “good cause" for an eviction from restricted property. Justice Nadeau concurred in the result, but worried in a special opinion, “Under the majority’s interpretation, lease provisions purporting to limit the lease to a specified duration have no meaning." Id. at 6.

A property manager who has conflict with a tenant, or who tires of conflict between tenants, can no longer just “wait it out" and refuse to renew the term of a lease. Tenancies can now be terminated only for one of the five causes set forth in RSA 540:2, II. Of these five, three are straightforward. If the tenant neglects or refuses to pay rent, causes or allows substantial damage to the property, causes or allows a hazard that adversely affects the health or safety of others, or there is a lead-paint hazard that will require more than 30 days to abate, the tenancy may be terminated. The other two causes are less precise, in that they allow termination for failure to comply with a “material term of the lease" or for “other good cause."

No case law is available to explain which terms of the lease are “material" and the expiration of a lease term does not in and of itself constitute “other good cause." The careful property manager now has to create rental documents that define which terms are “material" and which clearly set forth conduct or events that could constitute “other good cause." While there are many terms that could be important in individual factual situations, here are some examples of what might be covered in these clauses:

  • • The number of residents allowed in the unit is a material term of the lease; allowing that number to be exceeded for more than 72 hours might constitute “good cause" to terminate the tenancy.
  • • Property is purchased to be included in a public works project, such as a road widening, and is temporarily rented until the project commences. It is material that the tenancy is intended to be temporary, and commencement of the project might constitute “good cause" to terminate the tenancy.
  • • A requirement that the tenant pay for the cost of utilities is a material term of the lease. Failure to pay for utilities used within 30 days of billing might constitute good cause for termination of the tenancy.
  • • The statutory requirement that selectmen receive a vote of the town to lease property for more than one year is a material term of the agreement, and the refusal of the town to ratify the agreement constitutes good cause for termination of the tenancy.

Therefore, the simple rental agreement or lease form that merely specifies a term for a rental is no longer sufficient if the property is “restricted" property. The consequences of an incomplete agreement extend beyond the inability to regain possession of the real estate at the end of a specified term. Restricted property is also subject to all of the rules contained in RSA 540-A that control the relationship of the landlord and the tenant, the amount of security deposit that may be collected, how the security deposit is held, how the landlord may access the property and what must happen to the tenant’s personal property at the conclusion of the tenancy.

The purpose of the statute is to assure that the tenant’s right to “quiet enjoyment" of the premises is not disturbed and that the landlord’s property is protected from willful or inordinate damage. If either the landlord or the tenant violates these principles, the wronged party has the ability to recover damages and additional penalties of $1,000 per day. See RSA 540-A:4 and the statutes cited therein for a more complete description of the range of remedies that are involved in such a case.

Because of this potential for significant financial impacts, the town’s attorney should review any proposed rental of municipal property for residential purposes and a clear written rental agreement should be created. The terms of these agreements will differ based upon why the municipality owns the real estate, how long it will likely be available for rental and how a future use of the property might cause the municipality to withdraw it from residential use.

In addition, the terms of a security deposit, how it will be held, how repairs will be accomplished and who has a right to deal with the tenant on issues related to the property should be clearly specified in order to avoid unintentional violation of the rules in RSA 540-A.

As we said at the outset, managing residential rental property is no simple matter. Be sure to treat the transaction seriously in order to avoid liability for violation of these rules.

Paul Sanderson is a Staff Attorney with the Local Government Center’s Legal Services and Government Affairs Department.