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Do I need a business license for rental property?

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Last updated: January 3, 2025

Understanding Rental Property Licensing Requirements

Investing in residential rental properties—whether single-family homes, duplexes, triplexes or quadplexes—requires navigating a host of regulatory requirements. Among the most common questions from landlords is not knowing whether they need a business license to operate their rental property. While the answer depends on local laws and the specifics of your rental operations, understanding licensing and related certifications is crucial for compliance and avoiding penalties.

General Business Licenses

Some municipalities require landlords to obtain a general business license to rent out properties. This requirement typically applies to those who operate multiple rental units or manage their properties as a formal business. However, even landlords with a single rental property may need a license in certain jurisdictions.

Local Variations: The need for a business license can vary significantly by location. Check your city or county's regulations to confirm if a license is required. This can be done by Googling for the contact information of the local housing authority. Call the office and ask to speak with someone who handles rental property licensing and requirements. Ask questions, ask for clarification, explain your situation, double verify exactly what you need in order to be in compliance. If, after researching to this extent, you are not confident you have a clear understanding, contact local property managers and landlords. Many markets have investor groups on Facebook and real estate investors associations that can help you understand exactly what you need, if anything.

Use and Occupancy Licenses (Rental License)

A Use and Occupancy ("U&O") license, sometimes called a rental license, ensures that a property meets local housing standards. This type of license may be required before you can legally rent out a property. Not all local jurisdictions require a rental license, so it's important to do the above-mentioned research to make absolutely certain you understand you are in compliance.

Renewal Requirements: U&O licenses typically need to be renewed annually or biennially (every two years), depending on the jurisdiction.
Inspections: Many municipalities require property inspections as part of the licensing process to verify that the property is safe and habitable.

As a matter of leasing best-practice, we recommend including your rental license in your leasing package so you tenant can review it at the time of lease signing. This shows you are organized, professional and offering a quality rental product.

Certificate of Occupancy

A Certificate of Occupancy (CO) certifies that a property complies with building codes and is suitable for habitation. This document is often necessary when converting a property to rental use or after significant renovations.

For example, if you're an investor using the BRRRR method and you purchased a home with cash or hard money, rehabbed it and not you're in the process of renting out the property and refinancing, you will likely need a certificate of occupancy.

Renewal Requirements: Unlike U&O licenses, COs are generally issued once and do not require renewal unless substantial changes are made to the property.
Local Differences: The need for a CO may vary by location, with some areas requiring one for every rental unit, while others only require it for newly constructed or extensively renovated properties.

Lead Inspections and Certifications

Lead Inspection Requirements

For properties built before 1978, lead-based paint hazards are a critical concern. Many jurisdictions require landlords to conduct lead inspections before renting to ensure the property is safe for tenants, especially families with young children.

Lead-Free Certification: A lead-free certification confirms that no lead-based paint hazards are present.
Limited Lead-Free Certification: This certification indicates that all areas accessible to tenants and children are free from lead hazards, but some non-accessible areas may still contain lead paint.
Renewal and Validity: Lead-free certifications are typically permanent, while limited lead-free certifications may require periodic re-inspection.

Local Variations in Lead Requirements

Local and state governments often have stricter lead inspection requirements than federal guidelines. For example, some states mandate annual inspections, while others only require certification at the start of a new tenancy.

How Licenses and Certificates Impact Your Financing and Insurance

DSCR Loans

A DSCR loan ("rental loan") is a mortgage for a rental property where the loan amount is based on the debt service coverage ratio of the property. DSCR loans are popular among rental property investors because they assess the property’s income potential rather than the borrower’s personal income, require limited documentation and generally faster to close than bank loans and conventional financing.

Surprisingly, DSCR lenders rarely require proof of a rental license or certificate of occupancy as part of their underwriting process. Major institutional investors who purchase DSCR loans from lenders typically do not cite rental licenses as a requirement in their guidelines.

Landlord Insurance

Most landlord insurance policies do not explicitly require a rental license to be furnished during their underwriting. Since landlord insurance policies are commercial policies, you should always review the policy in detail with your landlord insurance agent to understand what business licensing is required. Some insurers may ask for proof of compliance with local laws, including licensing and inspections. Failing to comply with licensing requirements could void your policy in the event of a claim.

Penalties for Non-Compliance

Failing to obtain the required licenses and certifications for your rental property can result in significant penalties, including:

Fines: Many municipalities impose steep fines for operating without the proper licenses.
Legal Action: Persistent non-compliance can lead to lawsuits or the forced closure of your rental business.
Tenant Protections: In some jurisdictions, tenants may have grounds to withhold rent or terminate their lease if the property lacks the necessary licenses.

Additional Considerations for Landlords

Regular Rental Property Inspections

Regardless of whether regular inspections are required to maintain compliance with local housing standards, they are certainly a best-practice that you should implement as you grow your rental property portfolio. These inspections may include:

Annual Safety Inspections: To ensure the property remains habitable.
Move-In and Move-Out Inspections: To document the property’s condition and address potential damage claims.
Specialized Inspections: Such as fire safety, HVAC systems, or structural integrity assessments.

As the saying goes: an ounce or prevention is worth a pound of cure. Inspecting each property quarterly, semi-annually, or at the very least annually will allow you to catch issues early. This can save you thousands of dollars, time and dramatically reduce stressful situations. Many rental property investors would tell you that regular inspection can be the difference maker between success and failure as a rental property investor.

License and Certificate Renewals

Frequency: Renewal timelines vary widely. While some licenses require annual renewal, others, like Certificates of Occupancy or lead-free certifications, may not need renewal at all.
Fees: Renewal fees also vary and should be factored into your operational costs and paid on-time.

Best Practices for Rental Property Compliance

Research Local Requirements

Use city and county government websites to determine what licenses and certifications are necessary for your property.

Keep Documentation Organized

Maintain a file with all licenses, certificates, and inspection reports for easy access.

Schedule Renewals and Inspections

Use a calendar or property management software to track renewal deadlines and inspection dates.

Work with Professionals

For day-to-day operations and ongoing rental property licensing compliance, hire a trusted property manager well-versed in local regulations. Ask other rental property investors for referrals. Interview more than one prospective property manager to understand their management style and gauge their understanding of local licensing requirements.

Work with a local account that specializes in serving rental property investors. As with property managers, it will help to ask several experienced landlords for recommendations. Accountants generally have a sound understanding of business license requirements, especially if your rental properties are held in a business entity such as an LLC, Corporation, Limited Partnership or Trust.

If you find yourself on the receiving end of a penalty for non-compliance, consider hiring a local real estate attorney. Unsurprisingly, this is where we encourage you to ask fellow experienced rental investors for referrals.

Requirement	Description	Renewal Frequency	Local Variations
General Business License	License to operate rental properties as a business	Varies by location	Check city or county regulations
Use and Occupancy (Rental) License	Ensures compliance with housing standards	Annually or biennially	Required in some jurisdictions only
Certificate of Occupancy	Confirms property complies with building codes	Generally issued once	May be required for new or renovated properties
Lead-Free Certification	Certifies no lead-based paint hazards	Permanent	Stricter requirements in some states
Limited Lead-Free Certification	Accessible areas free of lead hazards	Periodic reinspection may be required	Frequency varies by jurisdiction
DSCR Loan Requirements	No rental license typically required	Not applicable	Applies to institutional DSCR lenders
Landlord Insurance	Compliance with local laws may be required	As specified in policy	Depends on insurer

Conclusion

Whether you need a business license for your rental property depends on where the property is located and how you operate your rental business. Beyond business licenses, landlords must also navigate requirements for Use and Occupancy licenses (U&O), Certificates of Occupancy (CO), and lead safety certifications. While these regulations can seem overwhelming, understanding and complying with them is critical to running a successful rental property business. By staying informed and organized, you can avoid penalties, protect your investment, and provide a safe and legal living environment for your tenants.