VOLUME 3 - ISSUE 9 LEGAL UPDATE

- Avoiding Practices Which May Get Your Company Sued
-
Correct Use of the Promissory Note and Past Due Amounts Workout Agreement
- Lease Breaks Due to Medical Reasons
- The Importance of the “Little House”

 

 

AVOIDING PRACTICES WHICH MAY GET YOUR COMPANY SUED
by Harry Anthony Heist, Attorney at Law

 

For over two years, property management companies have been sued in huge class action lawsuits for practices that most property management companies have engaged in for years. Common practices and agreed upon terms are under attack, and as a result of a judicial decision, have caused property management companies to incur millions of dollars in fees, costs and loss of the ability to collect sums owed to them. Most property manager companies have not revised their leases or procedures, and as a result, are a huge target for the lawsuits. Currently, the attorney filing these lawsuits is not taking the cases to trial but quickly entering into class action settlements. While this may lessen the effect of a huge, drawn out trial, the companies being sued are still paying small fortunes to settle the suits. Each one of these suits and settlements are costing the companies in excess of $1,000,000. There is no indication that the attorney filing these suits has any intention whatsoever of stopping. Our firm is recommending that you take action immediately to avoid becoming a target. Our recommendations are not our interpretation of the law, and we do not agree with the outcome of the lawsuit which started this incredible chain of events, but we feel that until the law is changed, property management companies need to take heed immediately and change their leases and practices.

IMPORTANT:

If your company has already been sued and is currently under a class action settlement agreement, please follow the advice of your attorney, as special conditions apply per the settlement agreement.

REDECORATING CHARGES

Current Law: Florida Statutes says absolutely nothing about redecorating charges, but are they legal? Are they being disclosed?

Cases: Other states have begun interpreting these fees as a way landlords are making tenants pay for ordinary wear and tear.

Recommendation: Cease charging redecorating charges. If you still insist on charging them, make sure they are disclosed in your advertising and in the first contact.

ADMINISTRATIVE FEES

Current Law: Florida Statutes say absolutely nothing about administrative fees. We fear that they may be challenged as anti-consumer or in some way in violation of Florida’s Unfair and Deceptive Trade Practices Act. Florida Statutes include a provision allowing a judge to strike down “unconscionable” provisions in a lease and award damages to the tenant. Often these administrative fees are not being disclosed on first contact with the applicant.

Recommendation: Cease charging administrative fees. If you still insist on charging them, make sure they are disclosed in your advertising and in the first contact.

TERMINATION FEES

Current Law: Florida Statutes gives specific remedies to a landlord when a tenant breaks a lease or gets evicted. Termination fees for a lease break, voluntary or involuntary, are nowhere to be found in Florida law. Common practice for years has been to charge these fees to cover the costs incurred due to the tenant’s lease break.

Cases: Recent court cases have held that these fees are unlawful, as they can result in the collection of double rent if the tenant breaks the lease, a new tenant moves in right away, and the termination fee exceeds the actual lost rent. Ridiculous? Yes, but some courts feel otherwise.

Recommendation: Cease charging termination fees

INSUFFICIENT NOTICE FEES

Current Law: Florida Statutes says absolutely nothing about insufficient notice fees for tenants who break their lease.

Cases: Recent cases have stated that these are completely unlawful UNLESS specifically allowed by Florida law for notice prior to lease end.

Recommendation: Cease charging insufficient notice fees UNLESS they are those specifically authorized by law for notice prior to lease end. Click here to see an article on the insufficient notice fees you can legally charge if a tenant fails to give proper notice prior to lease end

AUTOMATIC FORFEITURE OF SECURITY DEPOSITS

Current Law: Florida Statutes do not state that security deposits are automatically forfeited when the tenant breaks the lease. It has been common practice and makes good sense. After all, a security deposit is for the full and faithful performance of the lease.

Cases: The class action cases dealing with termination fees can be construed as prohibiting the automatic forfeiture of a security deposit upon tenant breach

Recommendation: Cease automatically forfeiting a tenant’s security deposit upon lease break. Most companies still forfeit the tenant’s security deposit if they break the lease AND charge them rent on top of this. This can trigger a lawsuit.

LATE CHARGES

Current Law: Florida Statutes say nothing about late charges.

Cases: Some states are interpreting their usury laws to apply to rent owed.

Recommendation: Cease charging excessive late charges and cap them at 10%.

A final note

Most readers of this article will go away angry and confused. How could these perfectly fair charges and practices be illegal? Law is made two ways: (1) by statute, in which the legislature enacts a bill which becomes law, and (2) by court cases, in which a judge makes a decision interpreting existing statutes, and under the principal of judicial precedent, it becomes law that other courts will follow. In the current cases which have triggered this entire mess, the result is from a Circuit Court case in Palm Beach County, Florida. This case created law for any company which operates in the 15th judicial circuit, which encompasses a large area. When a judge makes a decision in circuit court, that judge will look to circuit court cases and higher. While a circuit court does not make law in another circuit, judges often will base their decision on that court’s decision, if there are no other cases in their circuit to the contrary or on point.

You have been warned, AGAIN

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CORRECT USE OF THE PROMISSORY NOTE AND PAST DUE AMOUNTS WORKOUT AGREEMENT
by Harry Anthony Heist, Attorney at Law

 

There will come a time when a tenant who has vacated the premises owing you money returns and tries to make payments arrangements to pay what is owed to you. In other situations, a current tenant may fall seriously behind or owe you for something due under the lease, such as an accumulated water bill, a bounced security deposit check or some damages they did to the premises. The form you use will determine the action you can take in the event the tenant fails to pay pursuant to the arrangement you have made. Unfortunately, we always need to be prepared for what will occur when the tenant fails to abide by an agreement. An agreement without consequences is useless, and using a wrong agreement can often be worse than using nothing at all. This article will examine a very common form known as a promissory note and a less common form developed by our office called the Past Due Amounts Workout Agreement. These forms are not the same and are to be used in specific situations.

The Promissory Note

A promissory note is simply an agreement when one party agrees to pay another party a particular past due sum or currently due sum on a particular date or dates.

When should it be used?

A promissory note should be used only with a PAST or departing tenant who owes you money and desires to pay you on a certain date or dates according to the payment arrangement spelled out on the promissory note. Never should it be used with a current tenant. The tenant may vacate owing you past due rent, late charges, unpaid utility bills or anything owed under the terms of the lease or Florida law. This will memorialize the debt in writing and can be used later if the past tenant defaults, and you wish to pursue the debt.

When should a promissory note never be used?

A promissory note should not be used with a current tenant who owes you money. This is a common mistake by landlords. This is the scenario: the tenant will be in default for 2 months’ rent in the amount of $1600.00. The landlord, thinking that the promissory note is the way to go, will write up the document stating that the tenant owes $1600.00 and will pay $200.00 per week beginning on a particular date until paid in full. Now for the problems. First, unless the promissory note clearly states that the amount is “rent” due under the terms of the lease, the landlord may have unwittingly converted past due rent into simply a monetary obligation for which he will not be able to evict the tenant using a Three Day Notice! The second problem is that if the tenant fails to make a payment, what is owed: the full balance all at once, OR only that missed payment? Without an acceleration clause in the promissory note, the tenant will only be in default for that one payment, rather than the whole amount. This was certainly not the intention of the landlord when the promissory note was created.

Procedural aspects of the promissory note

Filling out a promissory note incorrectly can be worse than not ever having one. Take your time, and fill out all the dates and amounts carefully, have the document signed, preferably with 2 witnesses. If a person other than the actual debtor is going to give you a promissory note, the signature of that person MUST be witnessed by 2 witnesses per Florida law. It is not necessary to have the document notarized, but certainly will not hurt if the debtor tries to say that he or she did not sign the promissory note. The payment plan, if any, dates and amounts should be spelled out with as much particularity as possible. Having the exact date and amount of each payment clearly listed out is preferable to stating “$200.00 per week”, and not having a starting date can really cause a problem. You will see that the sample promissory note below has an “acceleration clause”. The purpose of this clause is to make the full balance due and owing immediately if a payment is missed. We do not recommend that this acceleration clause ever be used maliciously, but allowing deviation from a payment plan can adversely affect enforceability of the promissory note, much as accepting rent late over and over again can cause a waiver and estoppel issue. You may notice this wording in the promissory note: “In the event the payments are not timely made, the acceptance of the payment(s) late or in partial amounts not according to the above schedule shall not constitute a waiver in any way of the creditors”. While you would think that this would prevent a waiver from occurring, in reality, your course of conduct may still create a waiver.

 

THE SAMPLE “PROMISSORY NOTE”

THE UNDERSIGNED HEREBY AGREE THAT AS OF ___________(DATE) THE SUM OF$_______________ IS OWED TO _______________________________________________.(INSERT NAME OF MANAGEMENT COMPANY, APARTMENT COMMUNITY, YOUR NAME)

THE UNDERSIGNED AGREES TO PAY ABOVE DUE AMOUNT OWED IN THE FOLLOWING MANNER :(INSERT EXACT PAYMENT SCHEDULE)

$________ DUE _________
$________ DUE _________
$________ DUE _________
$________ DUE _________

IN THE EVENT THE UNDERSIGNED FAILS TO MAKE THE ABOVE PAYMENTS IN THE MANNER PRESCRIBED, THE FULL AMOUNT OF THE DEBT MINUS ANY AMOUNTS PAID SHALL BE DUE AND PAYABLE IMMEDIATELY. IN THE EVENT THE PAYMENTS ARE NOT TIMELY MADE, THE ACCEPTANCE OF THE PAYMENT(S) LATE OR IN PARTIAL AMOUNTS NOT ACCORDING TO THE ABOVE SCHEDULE SHALL NOT CONSTITUTE A WAIVER IN ANY WAY OF THE CREDITORS. IN ANY LITIGATION, THE PREVAILING PARTY SHALL BE ENTITLED TO AN AWARD OF ATTORNEY'S FEES AND COSTS.

THE UNDERSIGNED AGREES THAT THIS CONSTITUTES THE ENTIRE AGREEMENT REGARDING PAST DUE AMOUNTS, AND ANY MODIFICATION TO THIS AGREEMENT MUST BE IN WRITING TO BE CONSIDERED VALID.

Dated: ___________________

___________________________ NAME

_____________________________
Witness

_____________________________
Witness

 

The Past Due Amounts Workout Agreement

When should it be used?

This form should be used if a landlord wishes to make payment arrangements with a CURRENT tenant on past or current amounts owed by the tenant. This is a tenant who is currently residing on the premises and intends to stay and pay the amounts owed.

What can be put on the Past Due Amount Workout Agreement

Rent, late charges, bounced security deposit check, damages the tenant has caused, and any other amounts due to the landlord all can be put on this agreement. The major difference here is that the tenant is living on the premises, and the landlord needs to not only memorialize the debt in writing, but also needs to be able to take swift definitive action to REMOVE the tenant in the event the tenant fails to pay according to the agreement. Unlike the promissory note, the Past Due Amounts Workout Agreement converts the amount due completely into RENT. If that “rent” is not paid as per the agreement, the landlord can then put the amount on a Three Day Notice and proceed with an eviction. Again, an acceleration clause is used which will make the full amount owed at once if the tenant fails to make the payments per the agreement. We have seen many situations in which the landlord used a homemade agreement, puts in all the payment amounts and due dates, only to find out that when the tenant defaulted, all the landlord could put on the Three Day Notice was the missed payment, or possibly, was not able to use a Three Day Notice at all, causing confusion and delay.

Procedural aspects of the Past Due Amounts Workout Agreement

The same procedures should be used as with the promissory note. Specific payment dates and amounts should be listed. If there is more than one tenant on the lease or residing on the premises, get ALL tenants to sign. This is crucial.

 

THE SAMPLE “PAST DUE AMOUNTS WORKOUT AGREEMENT”

The undersigned Tenant(s) hereby agree that as of _____________________(DATE) the sum of _______________ is owed to Landlord for the following
__________________________________(List things like past due rent, bounced check, check charges, utilities etc)

In addition to all other amounts which may become due under the terms of the tenancy or Florida law, Tenant(s) agree to pay the past due amounts owed in the following manner: (insert exact payment schedule)

$________ DUE _________
$________ DUE _________
$________ DUE _________
$________ DUE _________

In the event Tenant(s) fail to make the above payments in the manner prescribed, the full amount of the original debt minus any amounts paid shall be due and payable immediately as rent, and Tenant(s) may be served with a Three Day Notice for these amounts owed. Failure by Landlord or its agent to serve a Three Day notice in the event the payment(s) are not timely made, or the acceptance of the payment(s) late or in partial amounts not according to the above schedule shall not constitute a waiver in any way of the Landlord's rights, and Landlord and/or its agent may still serve a Three Day Notice demanding full payment at any time if Tenant(s) are in default.

Tenant(s) agree that this constitutes the entire agreement regarding the above mentioned past due amounts owed, and any modification to this agreement must be in writing to be considered valid.

Dated: ___________________

__________________________
TENANT

_____________________________
Witness

_____________________________
Witness

 

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LEASE BREAKS DUE TO MEDICAL REASONS
by Harry Anthony Heist, Attorney at Law

 

Every landlord will eventually experience the situation in which the tenant has a family, medical or work issue, and the tenant desires to break the lease. Can the tenant simply break the lease if something either in their control or out of their control occurs? Florida law does not give the tenant any leeway in this area. Unless the lease specifically has a clause or clauses allowing a tenant to be released from the lease obligations if a particular event occurs, the tenant will be held to the lease. In reality, the tenant will most likely walk out on the lease anyway, but may be still obligated to you under the terms of the lease agreement. The question then remains, what will a judge say in court?

The Medical Lease Break

Florida law does not allow a tenant to break a lease due to a medical condition, either preexisting or new, although you may want to allow the tenant to break the lease without penalty in certain circumstances. There are many elderly tenants in Florida who cannot complete their lease terms due to having to be placed in an assisted care facility. Other tenants may have a serious sickness which requires long term care or some condition which does not permit them to reside on the premises on their own. We recommend that with verification from a physician, you allow individuals to break their lease without penalty. If you were to treat the vacating tenant as a typical lease break, and you decide to take the case to Small Claims Court, many judges would probably rule that due to the impossibility of the tenant to perform the lease obligations, through the judge’s equitable powers, the tenant will be allowed to break the lease without penalty.

Disabilities and Fair Housing laws

In a hypothetical situation, a tenant tells you she can no longer climb the stairs in your building to her 2nd floor apartment due to a disability, and you have no 1st floor apartments available. Should you allow her to break the lease without penalty? The law requires that you make a “reasonable accommodation” for the tenant. That might mean agreeing to let them transfer to a first floor unit when one becomes available, but it does not mean the tenant can escape the lease obligations altogether. The tenant is not entitled to break the lease because she has become disabled. Think of it this way: Breaking the lease is not a reasonable accommodation, because it does not aid the handicapped person in living at your property. It does just the opposite! Your decision to allow a lease break will decrease the possibility of potential litigation or a discrimination case being filed against you. Discrimination cases are most often decided in favor of the landlord, but at what cost in wasted time and money?

Anticipatory Breaches

If a tenant anticipates prior to lease signing that they may have to terminate their lease early due to a medical condition, wording can be placed in the lease dealing with the terms and conditions of what will be a mutual termination of the lease. We recommend that you ask your attorney to draw up a clause which can be placed in the special stipulation section of the lease to accomplish the wishes of all parties. Ambiguity will cause problems, misunderstanding and potentially litigation. A short statement like “Tenant may terminate the lease early if they must go to an assisted care facility” is not specific enough, as it does not deal with monetary issues, notice issues and is open to interpretation.

The Mutual Termination of Lease

In the event the landlord and tenant agree on a mutual termination of the lease, all terms and conditions should be memorialized in writing and signed by all parties. The security deposit, last month’s rent and any other monetary sums should be completely dealt with to effectuate a clean break with no misunderstandings. Below is a sample which you should have reviewed by your attorney before use.

 

MUTUAL TERMINATION OF TENANCY, AGREEMENT AND MUTUAL RELEASE

TENANT(S)__________________________

LANDLORD: _______________________ ITS OWNERS, MANAGEMENT, EMPLOYEES AND ASSIGNS

PROPERTY ADDRESS: ________________________________

VACATING/MOVE OUT DATE: ____________________________

TENANT(S) AND LANDLORD, HEREBY AGREE AS FOLLOWS:

1. TENANT and all occupants shall vacate the Property and remove all of their personal property and belongings no later than the above date and the TENANT’S right of occupancy shall cease at that time. Any personal property and belongings remaining on the Property after the Move-Out Date may be disposed of by LANDLORD, and TENANT releases LANDLORD from any and all liability for disposal of any items. If TENANT fails to vacate the premises by the Move-Out Date, TENANT agrees that they will be in breach of this agreement, and eviction proceedings will be instituted without further notice.

2. Prior to and after the Move-Out Date, LANDLORD shall have the right to inspect the Property to determine whether any damage exists which LANDLORD believes is the TENANT’S responsibility under the Lease. TENANT shall be responsible for damages to the premises which exceed ordinary wear and tear and any other unpaid charges due under the lease agreement.

3. Within 30 days following the of Vacating/Move-Out Date, LANDLORD shall provide TENANT with written notice by certified mail of LANDLORD’S intention, if any, to impose a claim on the security deposit and the amount and reasons therefore. If no charges shall be imposed upon the security deposit, said security deposit shall be sent to the TENANT within 15 days of Vacating/Move-Out Date.

4. TENANT shall be responsible for paying rent from _________________, (insert date) through _____________________ (insert date). TENANT shall be required to return all keys, access devices, gate cards, garage door openers, and any other property belonging to OWNER no later than the Vacating/Move-Out Date.

5. Except as otherwise stated herein, each party shall bear their own attorneys’ fees and costs, if any, incurred in connection with the Lease and this Agreement. In the event a party is deemd to be in breach of this agreement, the prevailing party in any litigation shall be entitled to an award of reasonable attorney’s fees and costs.

6. The PARTIES hereby release, acquit, and forever discharge each other and their past, present, and future shareholders, directors, officers, employees, principals, agents, servants, property managers, realtors, independent contractors, representatives, parent corporations, subsidiaries, affiliates, predecessors, successors, assigns, attorneys, and insurers from any and all actions, causes of action, claims, counterclaims, demands, damages, fines, penalties, assessments, costs, loss of services, expenses, interest, attorney’s fees and compensation whatsoever, in any way relating to or arising out of the Lease, tenancy, casualty if any, or this Agreement, as long as this agreement is complied with.

7. The original of this agreement shall be kept by the LANDLORD with copies to be provided to the TENANT. Signature by facsimile shall be deemed as original.

8. The PARTIES acknowledge that this Agreement constitutes the entire agreement between them with respect to the subject matter herein. They further acknowledge that they have read it and understand it, and that the terms and conditions of this Agreement were arrived at in arm’s-length negotiations between the Parties.

9. No modification, waiver, amendment, discharge, or change of this agreement shall be valid, unless the same is in writing and signed by the Party against which the enforcement of such modification, waiver, amendment, discharge, or change is sought.

10. Except as otherwise stated in this document, TENANT and LANDLORD HEREBY remise, release, acquit, satisfy and forever discharge each other, the parties, owners, employees, agents and assigns, for and from all manner of action and actions, cause and causes of action, suits, debts, dues, sums of money, accounts, reckonings, bonds, bills, specialties, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, executions, claims and demands whatsoever, in law or in equity, which any party ever had, now have, or which any personal representative, successor, heir or assign of said party hereafter can, shall or may have, upon or by reason of any matter, cause or thing whatsoever, from the beginning of the world to the day of these presents, if the terms of this agreement are met. TENANT agrees to hold LANDLORD and its employees, agents and representatives harmless from any claims, damages or expenses of any nature in any way relating to the tenancy or this agreement.

11. This Agreement shall be construed, enforced and interpreted in accordance with the laws of the State of Florida. Once the TENANT vacates the premises and complies with the terms of this agreement, the lease agreement TENANT signed when renting the property shall be considered mutually terminated.

12. OTHER AGREEMENTS:

_____________________________________________________________

_____________________________________________________________

_____________________________________________________________ SIGNATURE AREA FOR ALL PARTIES

Consistency and Policy

Feeling sympathetic to one tenant’s situation can result in accommodating that one tenant. The problem is knowing where to draw the line. Another tenant may have a slightly different issue, and you might be less apt to oblige. Can this trigger some sort of a discrimination action? Absolutely. If you are going to allow lease breaks for medical situations, we recommend you decide on criteria and place these criteria in your Procedures Manual. Yes, we know most of you do not have a Procedures Manual, and now is the time to start thinking about having one!

 

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THE IMPORTANCE OF THE “LITTLE HOUSE”
by Cathy L. Lucrezi, Attorney at Law

 

THE LITTLE HOUSE THAT MAKES A BIG STATEMENT

You’ve seen the fair housing symbol so often, you may not notice it anymore. Yet, the little house makes a big statement about your commitment to the fair housing.

The Fair Housing Logo

The fair housing logo accomplishes several things. For one, it creates trust. An applicant will feel more comfortable knowing her application will be judged on a fair basis. Your tenant will be reassured knowing that you recognize the importance of fair housing.

Another benefit of displaying the logo is that it reminds tenants that they have the right to be free of discrimination in housing. To some, that might seem like saying it’s a good thing for a tenant to know they can sue you! But, one should not be so cynical. Once a tenant understands that fair housing laws protect tenants, they may be better able to understand why you are permitting one tenant to have an animal but not another, or why you require an application from every adult who will reside in the unit.

Fair Housing Claims

In the event a fair housing claim is made against you, the presence of the logo in your office, reception area, and other places where tenants may go, will demonstrate to a HUD investigator that the management is committed to fair housing. Thus, the logo helps shield you from the risk of liability.

The logo acts as an excellent reminder. You and your staff will be reminded, every time you pass it, of the importance of fair housing. Being aware of fair housing is the best protection against violating the law.

Where to locate the poster

A fair housing poster should be in the reception area and at least one other place that management does not dominate (the laundry room is a good spot). The logo should appear on all your ads, brochures, and newsletters.

Where to acquire the poster

The fair housing logo and various fair housing posters are available from HUD. Just visit the website at www.hud.gov. Click on “Fair Housing”, and then click on “Library”. You will find a variety of links, including those to a download of the logo and other materials. It is not necessary that you purchase the poster from an expensive private third party supplier.

 

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Law Offices of Heist, Weisse & Wolk, P.A.
Phone: 1-800-253-8428 Fax: 1-800-367-9038

Serving Florida's Property Managers with main office in Fort Myers Beach. Available by appointment in Orlando and Clearwater


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