VOLUME 5 - ISSUE 6 LEGAL UPDATE

- HB 1489: FAA's Early Lease Termination Bill Enacted Into Law
- Dealing With The Chronic Late Payer
- Computer Disaster Preparedness
- Exclusions from the Tenancy
- No Social Security Number- No Problem

 

 

HB 1489: FAA's Early Lease Termination Bill Enacted Into Law
by Jeff Rogo, Florida Apartment Association Governmental Affairs Director

 

For over 20 years, many lease agreements had clauses which imposed a penalty in the form of a flat amount in the event the tenant skipped. This flat amount was variously known as an early termination fee, re-let fee, or liquidated damages charge. The purpose of these charges was to help compensate the landlord for damages, including the additional turnover costs.

A Circuit Court's decision in the Yates vs. Equity case in Palm Beach County brought these charges into question. The Circuit Court held that when a tenant broke the lease, only the specific remedies provided in Florida Statute 83.595 could be used by the landlord against the tenant. These remedies included holding the tenant responsible for rent until the unit was rerented, but did not include charging a flat amount. The Court's decision was based in large part upon the market conditions at that time. Vacancy was extremely low, and units were rented as fast as they became available. The Court failed to take into account the non-rent damages incurred by the landlord. The Court reasoned that if the unit was re-rented quickly, the liquidated damages or termination fee was a "double rent" windfall. We know this is not true, but when case law is established, the industry has to be mindful of such decisions.

Since the Equity decision and the many lawsuits that followed, landlords have stopped charging a flat amount. Landlords simply hold the tenant liable for rent until the earlier of the lease expiration date or until the date the unit is re-rented. The unit may be re-rented quickly, and the tenant is responsible for only a small amount of lost rent. The unit could stay vacant for a long period, at which point the tenant may be responsible for a significant amount of lost rent.

The Florida Apartment Association Jumps Into Action

In response to the needs and wishes of its members, the Florida Apartment Association in 2005 began advocating for a change in the Landlord/Tenant act which would clearly permit this common industry practice. The change would allow the landlord and the tenant to agree to a flat amount in the form of "liquidated damages" or a "termination fee". This flat amount could be charged to the tenant if he skipped ("liquidated damages") or if he honored the lease, gave the required notice and paid a fee ("termination fee"). The goal was two-fold: (1) to permit the tenant to terminate lease obligations early if he gave the required notice and paid the required termination fee, and (2) to permit the landlord to recover as liquidated damages some of the many costs incurred if the tenant skips, even if the landlord was able to quickly re-rent the unit. Even if a unit was quickly re-rented in a very strong market, the non-rent expenses such as marketing, apartment preparation, and administration were still being incurred by the landlord.

In 2007 the Florida Legislature passed a bill which would have accomplished the apartment industry's goals, but the bill was vetoed by Governor Crist. The FAA persevered and reintroduced the bill in 2008. By necessity, the bill underwent some changes, and compromises were made in order to gain the support of the Governor's office. The result? House Bill 1489 was passed unanimously in both legislative chambers. Governor Crist signed the bill into law on June 10. Now, the landlord can use a separate addendum at lease signing that will give the tenant a choice: either pay liquidated damages or a termination fee amount of up to two months' rent in the event of a skip or tenant early termination, OR pay rent until the unit is re-rented, and gamble that the unit will be re-rented quickly. The tenant must make the choice. The landlord does not have to use such an addendum. It is an optional new remedy available to a landlord if he wishes to take advantage of the new law.

How does this affect leasing practices?

If the landlord does not wish to make the liquidated damages or termination fee option available to the tenant, the landlord may simply choose not to offer this addendum to the tenant. If the tenant vacates prior to lease end, the landlord can continue to charge the tenant rent until the unit is re-rented, as the landlord did under prior law. If the landlord wishes to charge liquidated damages or a termination fee, the landlord MUST use the addendum and present this to the tenant at the time of lease signing. The tenant will then have to CHOOSE the liquidated damages or termination fee option. The following wording must be placed in a separate addendum and must be in substantially the following form, with the tenant signing the addendum and checking or initialing the choice that is made.

Sample wording:
_______I agree, as provided in the rental agreement, to pay $__________ (an amount that does not exceed 2 months' rent) as liquidated damages or an early termination fee, if I elect to terminate the rental agreement, and the landlord waives the right to seek additional rent beyond the month in which the landlord retakes possession.

_______I do not agree to liquidated damages or an early termination fee, and I acknowledge that the landlord may seek damages as provided by law.

What did the law change accomplish?

The law change allows the landlord to give the tenant an option of 1) limiting his damages if he skips (liquidated damages) or giving the required notice and paying a fee to terminate early (termination fee) OR 2) paying rent until the unit is re-rented or the end of the lease, whichever occurs first. The landlord benefits, because if the tenant skips, the landlord can charge the liquidated damages. The tenant benefits, because if he gives the required notice and pays the termination fee, he can leave without breaching the lease.

If I offer this addendum to the tenant and the tenant chooses the liquidated damages or termination fee option "¦ What can I charge?

You can charge:
a) the liquidated damages or the termination fee,

b) any rent through the end of the month when you retake possession, and

c) any accrued charges through the end of the month when you retake possession, for example, any utilities through the end of the month.

Can I require notice from the tenant?

You may require the tenant to give you up to 60 days' notice in cases where the tenant wishes to terminate the lease early and pay the early termination fee. Your lease or addendum must clearly state this notice requirement. If the tenant gives you notice but fails to remain on the premises and pay the rent through the notice period, the tenant is in breach of the lease, and you can charge the tenant the liquidated damages amount.

Can I charge a penalty for failure to give notice if the tenant leaves BEFORE THE END OF THE LEASE?

You cannot charge a penalty for any failure to give notice if the tenant leaves before the end of the lease. Liquidated damages are the total damages that have been set for the breach of the lease. You cannot charge any other additional penalties.

Can I charge a penalty for failure to give notice if the tenant doesn't give the required notice AT THE END OF THE LEASE?

Failing to give the required notice at the end of the lease is governed by a separate Florida Statute (FS §83.575).

What about damage to the property at the time the landlord retakes possession? The tenant will still owe these amounts regardless of the law change.

Action Plan:

If you wish to take advantage of the law change, you MUST place the "choice" language (see Sample wording: above) in an addendum and present it to the tenant upon lease signing. When explaining the choice to the tenant, you can tell the tenant about market conditions if you wish. This will better allow the tenant to make an educated decision as to whether he should choose the liquidated damages or early termination option.

 

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Dealing With The Chronic Late Payer
by Harry Anthony Heist, Attorney at Law

 

It is inevitable that you will have a chronic late payer. Every excuse in the book is given by the tenant for the tardy payment, but the payment always comes, sometimes with the late fees, sometimes without. You may inherit a later payer from a self-managed property or a prior management company. Is a tenant always allowed to pay late? Can you evict a late payer? Is there any way to tell a tenant to shape up or ship out, or will you be destined to always accept late payments?

Is a tenant allowed to pay late?

The short answer is "yes". There is nothing in Florida law that allows you to evict tenants because they pay late. You can evict a tenant if she does not pay at all, but paying late is not prohibited. Regardless of what your lease may provide, if a tenant wishes to pay late, she may. There is a built in grace period under Florida law of three days, not including Saturdays, Sundays or legal holidays. If a tenant fails to pay the rent according to the due date of your lease, you must serve the tenant with a Three Day Notice which gives the tenant the opportunity to pay you within that period of three days. This is in essence a "grace period". Without serving the tenant that Three Day Notice, there is nothing you can do to terminate the tenancy for nonpayment of rent. No provision in your lease can override the fact that a tenant is entitled by law to receive a Three Day Notice from you, and is allowed by law to pay you the rent if the notice has not yet expired.

We want to get the chronic late payer out!

My usual response to this request is to tell the landlord to be glad to have a tenant who pays, albeit somewhat late. Times are tough right now, and anything a landlord can do to keep a tenant is advisable. However, there will be times when the landlord does not want the uncertainty of getting the rent late, or is tired of having to serve a Three Day Notice on the tenant every single month, and wants the tenant out. If the tenant pays the rent within the Three Day Notice timeframe, no matter how angry or frustrated the landlord is, the tenant can stay and pay as long as the notice has not expired. The landlord's only recourse is to non-renew the tenant at the end of the lease, or if the lease is currently month to month, non-renew the month to month tenancy.

The tenant does not pay within the Three Day Notice period

This is a different story. If the tenant does not pay within the Three Day Notice time frame, Florida law allows the landlord to terminate the tenancy. This sounds easy enough. The tenant is given a Three Day Notice and fails to pay within the time frame allotted. The landlord then files an eviction, and the tenant is evicted from the premises. It would seem perfectly legal. The tenant is chronically late, the landlord has had it, the tenant does not pay and therefore is evicted. If the tenant is in "new territory" by finally failing to pay within the three-day notice period, the landlord will have a strong case. However, it is often not that simple. The fact that the tenant has paid rent late so many times actually put the tenant in better standing in court, if the landlord has accepted rent after the expiration date of prior Three Day Notices. The landlord could also have problems in court if the Three Day Notice that finally "snares the tenant" is delivered earlier in the month than normal.

The tenant beats an eviction because he has always paid late?

While some judges are extremely strict and will evict a tenant if the tenant fails to pay within the Three Day Notice period no matter what the tenant's excuse may be or the tenant's past payment history, be it prompt or tardy, if a tenant can prove to a judge that he has been paying the rent late, after the expiration of the Three Day Notice, and the landlord has been accepting the rent late, the tenant may be able to prevail in court. This seems to go against logic. A tenant who pays the rent late is certainly not a good tenant. That tenant has blatantly violated the lease terms and caused extra work and worry for the landlord. The issue here is waiver. The landlord, by accepting the rent late time and time again has potentially waived his rights to enforce the terms of the lease. By his own actions, the landlord has modified the terms of the lease.

What is waiver?

If you know that a tenant has a pet in violation of your no pet policy, but you do absolutely nothing about it for months, you will have possibly "waived" your rights. The same would apply if there were unauthorized occupants in the unit and the landlord did nothing. Any noncompliance that the landlord ignores or "tolerates" for some time can result in the landlord waiving his rights. The exact same waiver can occur with late rent payment. The landlord thinks his case is better because the tenant looks "bad" in court, but actually it will be the landlord who will be at a disadvantage in court.

Can "waiver" be overcome?

If the tenant has been chronically late, does this mean you can never evict or must tolerate this late payment forever? Probably not, but you must notify the tenant that late payments, although accepted in the past, will not be tolerated in the future, and the tenant can be subject to eviction if the payments are not made within the Three Day Notice time period. Essentially it is a "shape up or ship out" type of notification. We recommend this type of notification is done in writing, by regular mail and certified mail, and at least 30 days before the next monthly rent payment is due.

Sample Wording

 

 

LATE RENT PAYMENTPOLICY, WARNING AND NOTIFICATION

DATE ________________

TO __________________________
ADDRESS ____________________ Dear Resident:

According to our records, you have not been paying your rent according to the due date which is ________________ (insert date).

While we may have accepted these late payments in the past, this letter shall serve as notification that in the event you do not pay according to the stated due date on your lease, you may be subject to receiving a Statutory Three Day Notice. If the rent is not paid within that notice period, we may opt to refuse your late rent and file for eviction ANY time thereafter. In the event we file an eviction, we may elect not to stop the eviction, or if we decide to do so, you will incur additional attorney's fees, late fees and costs.

It is imperative that you pay your rent according to the lease terms from this point on.

Please feel free to contact us should you have any questions.

Very truly yours _______________________

Name of apartment community, management company etc.

 

Will this "shape up or ship out" letter work?

There is a good chance that this type of letter can overcome a waiver defense by a tenant. There is no solid guarantee, but it is better than nothing. Remember that in order for the tenant to raise a defense of waiver, the tenant first must know that he has this defense, and in most cases must place the rent into the court registry. This minimizes the risk you have, but if you are managing property for others, you will often be inheriting tenants with inconsistent and late rent payments.

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Computer Disaster Preparedness
by Harry Anthony Heist, Attorney at Law

 

Every property management company should have a plan to deal with man-made or natural disasters. Having a business continuity plan in place is crucial for any business, and especially important in property management. Property managers are asset managers who manage many millions of dollars in assets for other people with little regulation or legal requirements. The property owner hands over an asset which is of substantial value to a property manager who is not required to have any experience or property management knowledge. This property manager then places tenants in this valuable asset, collects rent, remits funds and deals with repairs. It is somewhat scary how unregulated property management really is. A mutual fund manager or any type of money manager has to undergo vigorous training, education, bonding and licensing, but a property manager does not even need a license to manage property. The only time a license is necessary is if the manager is engaged in leasing, and even then, a real estate broker's or sales person's license suffices. Needless to say, the responsibility is huge, and potential liability is great for a property manager and the broker of the property management company. All property managers should immediately begin planning for a natural or manmade disaster, and there is something they can and must do immediately to reduce their liability, protect their business, and protect the information concerning the asset that they manage. This first step is protection of computer data.

The typical property manager

The typical property manager does engage in some sort of data protection, be it an external back up hard drive, tape drive, CD or DVD burner, or some sort of simple means to copy data from a computer to something else for later use. Some managers take the tape or CD home, some place it in a safe in the office or simply on a shelf. In most instances, if there is data loss on a server or a desktop, the property manager has a back up available and can be up and running quickly with little to no downtime. Is that back up recent? Probably not. Most property managers who engage in some sort of backing up only do so once a week if that. Since backing up often requires the computer file not to be in use at the time of back up, you would most likely need to be the last person working in the office in order to back up that important data file in your property management or accounting software.

The problems

What happens if your office burns to the ground, is swept away in a flood or a thief decides he want to take all your computers, your safe and your server? None of this happens in Florida, right? Well, many property managers have insurance for their equipment. Computers can be easily replaced, and you will probably end up with better equipment than you did before the incident. The problem though is your data. Your financial data, move in and move out inspections, photos, file notes and everything pertaining to the relationship between the tenant, owner and you may have disappeared or been destroyed. Sure, you can reconstruct all the financial records to a large extent, as your bank certainly has the information, but at what cost in time and money? How can you replace the file notes? What about all your digital photos of the properties you manage? They may all be gone.

The simple solution

Off-site back up, also known as remote data storage, is the simplest and most economical solution to these problems and the first step in a disaster recovery plan. Hundreds of companies exist now that provide safe, inexpensive storage of all your data in a remote safe location. Your computer is simply hooked up to them through the internet, and they keep all the data that you send them safe, secure and accessible to you when you need it.

What to back up?

Have your technical support person help you with deciding what information should be backed up. Most programs are useless when backed up, plus take a load of space in the back up, but data, scans of your file, photos, property inspection reports, emails and anything you can think of that you would need to refer back to should be backed up. You should have a plan for safekeeping of your program files, because many programs can only be installed once in one computer to avoid piracy problems. Convincing your software company that your office burned down and you need to reinstall the programs is possible, but can take hours on the phone.

How often do you back up?

Your first back up will be your largest, and then you back up changed and new files on a regular basis. Our office backs up data every single night. Since the nightly back ups are new and changed files, each nightly back up is fairly quick. It is set to back up at a specific time, and nothing is necessary on our end to accomplish the back up. The back up occurs when the office is closed, and no one is using any of the databases or computers.

Making sure you are really backing up

It is easy to assume that you are backing up each night and that the information is going to the offsite data storage company. After all, you set it up, tested it, and it worked. The problem is that often there are network, internet, software or hardware problems which could result in your back up never occurring. Installing a firewall, changing a setting or installing that new anti-virus software could result in your back up not working. Some companies email you a report each morning showing that your back up was successful, but many do not. Remember that you only need to retrieve backed up data when you really NEED it. That is when you might find out that you have not really been backing up for weeks or months. Always confirm that your off-site back ups are in fact occurring as you expect. When restoring data, always call your technical support person if you have any doubts. You may have a corrupted data base and then restore another corrupted database, or ruin files in the restoration process.

Should you discontinue your usual in-house back ups?

We don't. We back up to an external hard drive connected to the network on a regular basis just to have that one additional back up. This back up is done once a week on the weekends. Paranoia is a good thing when it comes to data!!

Let your owners know how you safeguard data!

One of the selling points of a property management company is to have a disaster recovery plan which includes off-site data back up. Your owners know the risks of operating a business in Florida, and data loss will be one less thing that you and they have to worry about. Let your owners know that you have joined the ranks of the successful professional property management companies who ALWAYS back up their data off-site.

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Exclusions from the Tenancy
by Harry A. Heist, Attorney at Law

 

The garbage disposal breaks, and of course it must be replaced or repaired, as this type of item is the landlord's responsibility, unless the landlord can prove that the repair need is due to the tenant's negligence or intentional misuse. Can it simply be removed and replaced with a straight pipe? Yes, if the lease specifically states this. Tenants have successfully lived for years without a garbage disposal, and in these tough economic times, a landlord just may choose to not have to replace one if it breaks. The key is the lease wording. Garbage disposals are not the only items which can be excluded from a tenancy, and a successful property manager knows what, when and how to exclude items.

Why would you want to exclude items?

Unless excluded from the lease agreement, just about everything in a rental unit is the landlord's responsibility to repair, replace or maintain. When a tenant rents a unit, there is an expectation that the appliances work and will be the responsibility of the landlord. These appliances may be new, old or just about ready to break. The landlord then is constantly spending money to fix these items and suffering a greater economic hardship. If the unit is being managed by a property manager, the property manager is faced with having to make that dreaded call to the landlord, telling him that the washing machine must be replaced. This is the landlord who already is on the brink of foreclosure and is buried in tax and insurance payments. The property manager gets the repairs made, and at the end of the year, the landlord fires the property manager, because "too much money was spent". The next property manager ends up looking great, because you have replaced everything that broke.

What items should not be excluded?

The air/conditioning system, heating system, water heater, pool pumps, plumbing and electrical systems, generally are not the type of items which would be excluded. Clearly these will be the responsibility of the landlord, and should be maintained, replaced or repaired immediately in the event there is a problem. The last thing you would want is the tenant attempting to repair or replace a major system in the home.

What can be excluded?

Many items in a home can be excluded. The most obvious would be appliances. There is absolutely nothing wrong with the tenant agreeing in the lease that the appliances will not be guaranteed, repaired or replaced by the tenant. Instead of the owner taking the gamble that the appliances will continue to work properly throughout the tenancy, the tenant takes that gamble. Why would the tenant take the gamble? If the landlord tells the tenant that this is why the rent is less than what it could be if the landlord were responsible for maintaining all the appliances, the tenant will often decide to take on the risk of having to pay himself for the repair or replacement, or possibly forgo making the repair or replacement. A tenant whose clothes dryer breaks, may just decide to hang dry the clothes rather than make a repair or replacement.

Washer/Dryer: Many tenants will agree to take a home when the washer and dryer are not the owner's responsibility. If the item fails, the tenant can decide whether to replace, repair or go without.

Garbage Disposal : People have lived for years without garbage disposals, and they certainly are not a necessity of life. They will eventually break, sometime due to age, defect or some foreign object that the tenant puts in the disposal (but will adamantly deny once the disposal breaks, with the foreign object conveniently disappearing). Many landlords are now choosing to not have the responsibility of fixing the garbage disposal, or agreeing with the tenant that in the event of a garbage disposal failure, the landlord can remove the disposal and replace it with a straight pipe.

Ice Makers: Besides being a major cause of flood damage when the water supply line breaks, an ice maker is not a necessity of life and does eventually fail. When they break, the expense is often prohibitive and could result in the landlord having to replace the entire refrigerator. This item can and should be excluded. Remember ice cube trays?.

Ceiling Fans: With time, a ceiling fan will fail or become annoyingly noisy. These can be excluded, but you may want to consider the risk that a tenant will be injured when attempting to fix the ceiling fan or installing a replacement improperly, increasing the risk or injury to themselves or others.

Jet type tubs or hot tubs: Jet water type tubs or hot tubs, commonly referred to as Jacuzzis or Jacuzzi tubs, are not extremely expensive to purchase. The expense is usually in the tile work that surrounds the tub, which will invariably have to be removed and replaced in the event of a repair. The plumbing and tiling costs can easily exceed the cost of the repair to the tub itself. A Jacuzzi type tub can be used without turning the tub on and using the jets; therefore, it can be excluded.

All other appliances: The stove, dishwasher, microwave, refrigerator and just about any other appliance can be excluded in the lease, and the owner will not be required to repair or replace any of them in the event they fail. A landlord or property manager needs to examine these items and make the decision if they are going to be the landlord's responsibility or left up to the tenant.

Is it the tenant's responsibility to repair?

Excluding certain items can get tricky. It is one thing about stating in the lease that the owner will not repair or replace and another to say that the tenant MUST repair or replace. Making the repair or replacement mandatory on the tenant can often result in shoddy repairs, no repairs at all, or most commonly, the tenant will replace an item and then take remove it from the premises upon vacating.

The disappearing appliance

If a lease states that the landlord is not responsible for repairing a washing machine and the washing machine breaks, there is a good chance the tenant will go ahead and purchase a new or used washing machine. What happens at the end of the tenancy? The tenant takes the washing machine with them, leaving you with nothing. Did the original washing machine really break? Could it have been repaired? Did the tenant simply steal the washing machine? No one will know. When deciding to exclude items, always keep in mind the possibility and high probability of the tenant taking the replacement item.

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No Social Security Number- No Problem
by Cathy L. Lucrezi, Attorney at Law

 

Social security numbers were never intended to be a form of identification. Yet, every application for credit or a lease or a payment plan asks for the applicant to provide his social security number, so a credit check and a criminal background check can be done in various computer databases. The information is needed to screen the application. What happens when the applicant doesn't have a social security number?

Reasons for not having a social security number.

The most common reason for a person not having a social security number is that he or she is a citizen of a country other than the United States and does not have income in the U.S.

Some visitors to the U.S. have no social security number, because they do no pay taxes here. They may be students or tourists with no need for a U.S. social security number.

Some individuals do not have social security numbers, because they are citizens of another country and are present in this country unlawfully. Such "illegal immigrants" may not obtain a social security number, so they can stay "under the radar".

The problem for landlords.

If an applicant says he has no social security number, do not jump to conclusions about whether he is "legal" or "illegal". Instead, focus on the purpose for the social security number. You need it so you can run the credit and criminal background checks. Are there ways to do this without the social security number? Yes.

Federal Identification Numbers.

Any individual can obtain a federal identification number from the social security administration. Even if the individual is present in the U.S. unlawfully, they can obtain a federal identification number. To obtain one, the individual must go the Social Security Administration and complete an application. It is a very quick process. A person can obtain the number within a few hours.

With the federal identification number, your vendor should be able to run a credit check and a criminal background check just as with a social security number. The reports that are generated might be more "sketchy" than what you are used to, but they are reports nonetheless.

Guarantors.

Because the purpose of the social security number is to ultimately assess how well the person will fare as a tenant, there are alternatives to doing a credit check. A guarantor of the lease may provide all the financial confidence a landlord may need or want. A letter of reference from an employer or a past landlord may provide assurance of the individual's behavior.

Fair Housing considerations.

First, let's be clear on one point "“ A landlord does not break the law if he rents to illegal immigrants. It is not a violation of any immigration law or national security rule.

Fair Housing laws make it unlawful to screen housing applicants on the basis of national origin. Thus, it is wrong to refuse applications because the individual is a citizen of another country. It is wrong to choose to rent only to U.S. citizens. It is not a good idea to ask every applicant if he or she is a U.S. citizen.

A Practical solution.

Ask for the individual to submit a complete application. If the individual claims to have no social security number, ask for one of the alternatives described above. If the individual still provides none of the alternatives, then the application can be rejected for being incomplete. That is a neutral reason that is applied to all applicants regardless of national origin and which has a sound business purpose. The fair housing laws are very clear: It is unlawful to refuse to rent to a person because of that person's race, color, religion, sex, national origin, familial status, or disability. Regrettably, some landlords impose such a condition on single mothers, disabled individuals, and non-citizens who are lawfully present in the U.S.A.

 

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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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