Investing in Cleveland - Two Newer Laws and Their Legal Pitfalls!

Understanding Cleveland’s New Real Estate Laws: What Realtors and Investors Need to Know

Cleveland has enacted two relatively new laws, Lead Safe and Residents First, aimed at addressing safety and accountability in the rental housing market. As real estate agents and investors navigate these changes, understanding their implications is critical for success. Mike Ferrante of the 21 Mike Team at Century 21 HomeStar and Tony Geraci, broker-owner of HomeStar, recently broke down these laws and their potential impact on Cleveland’s real estate market.

1. The Lead Safe Certification Law

The Lead Safe Certification law mandates that all rental properties in Cleveland built before 1978 must be certified lead-safe every two years. The law targets lead poisoning prevention, especially in older homes where lead paint and dust are prevalent.

Key Points of the Law:

Certification Requirements: Rental property owners must hire a lead-safe certified contractor to test and inspect their property. The certification must be renewed every two years.
Cost Implications: The average cost of lead-safe certification is approximately $600 to $800 per unit. However, if remediation is required, costs can skyrocket—turning a $10,000 project into $30,000 when following lead-safe guidelines.
Remediation: Repairs often include replacing windows, encapsulating wood surfaces, and addressing areas where lead paint or dust is present.
Impact on Property Values: Increased costs for remediation and certification could reduce property values, especially for older homes, as potential buyers adjust their offers to account for compliance costs.

Challenges and Observations:

Tony Geraci noted, “Anything that costs investors more money will ultimately cost tenants more in the form of higher rents.” Rental rates in Cleveland have already risen significantly over the past decade and added expenses for landlords could accelerate this trend.

Another concern is the law’s effectiveness. Recent reports indicate that lead poisoning rates in Cleveland have not decreased since the law’s implementation, raising questions about its long-term viability and impact.

2. Residents First Law

The Residents First law introduces additional regulations, particularly for out-of-town property owners. Its most controversial provision requires non-local landlords to designate a local agent in charge, who shares legal responsibility for the property.

Key Points of the Law:

Who Needs a Local Agent? Property owners who live outside Cuyahoga County or its adjacent counties must designate a local agent.
Responsibilities of the Local Agent: The agent must agree to be equally responsible for the property and can be held accountable for violations if the owner cannot be located.
Other Requirements:
- Rental properties must be registered with the city.
- Properties must be lead-safe certified.
- All outstanding fees, property taxes, and violations must be resolved.

Potential Implications:

The requirement for a local agent in charge places significant liability on the designee. For agents and property managers, this presents a high-risk, low-reward scenario. As Tony Geraci said, “This is a responsibility many should avoid unless they deeply trust the property owner.”

Big Picture: Impact on Cleveland’s Real Estate Market

These laws, while well-intentioned, could have far-reaching effects:

Higher Costs for Landlords: The added expenses of lead-safe certification and compliance with Residents First could make Cleveland less appealing to investors.
Potential Drop in Property Values: Properties requiring substantial remediation may see reduced sale prices as buyers factor in the cost of compliance.
Increased Rents: To offset these expenses, landlords may raise rents, potentially impacting affordability in a city already grappling with housing shortages.

Mike Ferrante observed, “We haven’t seen property values drop yet, but there’s a concern that increased regulation could discourage investment and negatively affect Cleveland’s market.”

What Should Realtors and Investors Do?

Educate Yourself: Realtors working in Cleveland should familiarize themselves with these laws to guide clients effectively. Investors must understand the financial and legal implications of buying in Cleveland.
Ask the Right Questions: Agents should ensure that clients purchasing rental properties inquire about lead-safe certifications and compliance with Residents First regulations.
Consider Property Management: For out-of-town investors, hiring a property manager to serve as the local agent in charge may be the safest option.
Do Your Research: While Tony and Mike provided a high-level overview, consulting with attorneys, property managers, and city officials is crucial for full compliance.

Final Thoughts

Cleveland’s new laws underscore the importance of staying informed in a constantly evolving real estate market. While these regulations aim to improve safety and accountability, they introduce complexities for landlords and agents alike.

For those investing in Cleveland or working with investors, understanding and preparing for these changes can help mitigate risks and ensure compliance. As Mike Ferrante noted, “This isn’t about discouraging investment—it’s about helping everyone navigate these new waters effectively.”

If you have questions or need guidance, contact the 21 Mike Team at 21Mike.com. Whether you’re buying, selling, or investing, their team has the expertise to help you succeed in the Ohio real estate market.

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