VOLUME 6 - ISSUE 5 LEGAL UPDATE

- Move-In Inspection Procedures
- Click2Mail Certified Mail
- Chinese Drywall and the Landlord
- Forfeiture of the Security Deposit

 

 

 

Move-In Inspection Procedures
by Harry A. Heist, Attorney at Law

 

One of the biggest mistakes a landlord makes often occurs at the time the tenant moves into the unit, and this mistake has major ramifications when the tenant moves out. The condition of a rental unit must be documented when a tenant moves in. This is crucial, as when the tenant moves out and there are damages found in the unit, the landlord needs to prove that the damages were not pre-existing and were indeed caused by the tenant. Tenants routinely say, “It was like that when I moved in”, and often, “I left it better than when I moved in”. Every landlord has heard these comments made by the tenant. When the tenant makes these allegations, the landlord must be able to prove that the damages did not exist at the time the tenant moved in to prevail. How does the landlord do this? A really thorough landlord will have taken pictures and maybe even a video tape of the unit prior to or at the time of move in. While this may seem excessive to some landlords, it is indeed the best approach, but unfortunately, we all know this is only done by a small percentage of landlords. The usual method of documenting the move in condition is the Move In Inspection Form or Condition Report, and for this article we will call it the Condition Report. A thorough landlord will have a detailed Condition Report which lists just about anything inside and outside of the unit that the tenant could be responsible for or potentially damage. Now here is the big question: who completes the Condition Report? The landlord or the tenant?

The Tenant completes the Condition Report?

Probably 50% of all landlords, especially those who manage multifamily housing units, give the tenant the Condition Report and ask them to take the report, write down anything that is wrong with the unit, and get the report back to the landlord. The landlord then tells the tenant that if they don’t get the Condition Report back to the landlord, it will be assumed that there is no pre-existing damage to the unit. Sounds reasonable enough right? Wrong. It is not only the lazy way to get the unit inspected, but it can have grave legal consequences.

What will the typical Tenant do with the Condition Report

1. The Picky Tenant Some tenants will take the condition report and go over the unit with a fine tooth comb, marking down every possible little thing wrong with the unit. When you receive it back, you would think the unit was in terrible condition, and your receipt of the Condition Report from the tenant has put you on legal notice of deficiencies. All you wanted the tenant to do was mark down any cosmetic issues, but NOW you have a report from the tenant which you requested that makes your unit look awful.

2. The Wish List Tenant Some units are not perfect, but are legally sufficient to rent out. The carpet may not be perfect, and there may be cosmetic issues in the unit. No big deal to the landlord, but the “wish list” tenant uses the Condition Report to not only tell you about the damages in great detail, but expects you to deal with everything on the list. The tenant’s assumption is that you are giving them the Condition Report to fill out, so YOU will know what to fix or change. You have no intention whatsoever to replace the carpet or the countertop, but now the tenant feels you should, and by filling out the Condition Report has made the request. Now the tenant has an expectation that you are going to have the carpet cleaned again, replace the carpet or give them a new counter top.

3. The Sloppy Tenant Possibly the carpet has a couple small stains, the walls have a few scuff marks, there is a chip in the countertop and some deep knife grooves when the last tenant used the counter top to chop vegetables with his Ginsu Knives. This is how the “sloppy tenant” writes it up on the Condition Report. “Carpeting Stained”,”Marks on walls”, “Chipped Countertops” “Damaged Countertops”. This sounds reasonable to the tenant and is in fact true. Now, let us suppose when this tenant moves out that there are severely stained carpets, the walls have been marked up so badly that they must be repainted, and that the tenant has completely destroyed the countertops. You want to charge the tenant for the damage. The landlord then goes ahead and charges the tenant on the Notice of Intention to Impose Claim on Security Deposit. The departed tenant NOW responds back and says, “It was like that when I moved in! Just look at my Condition Report! I told you about these problems a year ago!” The landlord is dumbfounded, because while it was true that there was some damage to the carpets, walls and the countertop when the tenant moved in, it certainly wasn’t THAT bad. The tenant takes the landlord to court, the tenant shows the judge the Condition Report, and the landlord LOSES.

The Forgetful Tenant The tenant is in a hurry to move in and the last thing on his mind is to complete a Condition Report. He throws it into the kitchen drawer and it sits there for the next year. The landlord never receives the Condition Report. Now the tenant moves out, there are damages, and the landlord has absolutely no Condition Report to form the baseline as to the condition of the unit. The landlord charges the tenant for damages, the tenant objects, disputing the charges, and maybe the tenant claims he did indeed fill out the condition report and get it back to the landlord by giving it to your leasing agent who was fired 3 months ago. Worse yet, the dishonest tenant finds the blank Condition Report in his kitchen drawer upon move out and decides to fill in the CURRENT damages that he caused during the tenancy, keeps a copy and claims he gave you the original 2 days after he moved in! This tenant’s claim, “It was like that when I moved in,” will be hard to beat in court when you don’t have the Condition Report.

The Solution

As you can see by the examples above, giving the tenant the Condition Report is just plain wrong, silly, lazy, and the list goes on and on. The landlord should be the one who inspects the unit and fills out the Condition Report. You cannot give control over such an important aspect of property management to a person who is not skilled in or has no knowledge of inspecting a unit. The landlord knows or should know how to do this properly and will go through the unit marking down preexisting cosmetic damages. Ideally, the inspection and Condition Report will be accomplished with the tenant present, but if not, it will be done before the tenant moves into the unit along with the video taping of the unit and plenty of digital pictures. Our office has been dealing with security deposit disputes for almost 20 years. Many of our clients, especially the large multifamily ones, insist on allowing the tenant to complete the Condition Report. We can assure you that when our client performs the move in inspection and completes the Condition Report, the chance of a security deposit dispute, or in the worse case scenario, losing a dispute in court, is diminished greatly. It is simply the right way to do YOUR job.

 

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Click2Mail Certified Mail
by Michael Geo. F. Davis, Attorney at Law

 

The United States Post Office is offering a new online service called Click2Mail. This service offers users the ability to upload or create a document online and mail it online. Users can send the document certified mail without leaving their computer. Since the mail is certified, it fulfills the statutory requirement of certified mail for notices of claims against security deposits.

Mail date and costs

The mailing date is the next business day for entries before 2pm EST. For those of us who wait until the last day of the thirty-day notice period, it’s too late to use the online service. Off we go to the post office. The cost is the postage plus a service charge (the “production cost”) with a $2.00 minimum. Until the May 11th postage increase, the cost for one certified letter was $5.07 ($3.07 postage plus $2.00 minimum service charge).

How does it work?

I just couldn’t resist driving it around to see how it worked. I start by creating an account. Unlike many online vendors, no payment information is needed at sign-up. This is great. I can go through the entire process, and if I find it doesn’t work for me, I leave behind an unused account without my credit card information.

Build the template and enter the information.

Next I choose a layout or upload my own form. The system will upload Word and Adobe documents with relative ease. Other file formats can be uploaded by following special instructions. I upload the Notice of Intent to Impose Claim on Security Deposit in Word format. Unfortunately, the USPS online editor is not a word processing program. I have to add text boxes to the Notice to prepare it for entry of the information: tenant name, address, security deposit amount, deductions, etc. That’s a lot of text boxes. Once the form is complete, I save it as a template, and it is available in my account for future use.

Enter the tenant information, deposit and deduction information, etc. Preview the information. Enter the recipient’s name and address into the address book, which saves them for future use. Since it is unlikely that I will ever need this tenant’s name and address again for certified mail, saving the name/address in an address book serves no purpose, but is required to use them for mailing. For volume mailers there is an upload mailing list and mail merge option.

Check, confirm, charge, return receipts

Check off that I have proofed everything, and the payment screen is next. Select a return address. The payment address and return address default to the account address. Payment options are prepaid credit account or credit card. Review the charges and the mail date. Confirm my order, and I’m done. My receipt is saved in my account, and a hard copy can be printed out. I can track delivery online.

If I desire a return receipt, two types are available: electronic and the standard green card for additional postage charges of $1 and $2.20 respectively. Note that a return receipt isn’t required by Florida Statutes for the Notice of Claim.

Help

There’s an online knowledgebase, program specific help menus and phone support. The phone help line was a pleasant surprise. I called it twice for assistance, pressed 2 (support), pressed 3 (documents), and real people answered immediately. When was the last time that ever happened?

Summary

My review of the service indicates that the lack of a word processing editor makes the online entry of data difficult. It was quicker to complete the Notice on my computer and upload the completed form each time then to complete the saved template online each time. However, I can see that a template saved on the USPS website, which can be accessed anywhere anytime, could be useful in a pinch. The saving of addresses is unnecessary.

This service is targeted toward mass mailers who will upload a brochure or letter, or design a mail-out postcard online, and mail merge their customer list. That’s food for thought for the marketing people who are tired of lugging mail to the post office. For the rest of us, if we don’t have immediate access to a printer, envelopes, certified stickers or postage, sometimes it’s worth $2.00 to finish that Notice and get it mailed.

 

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Chinese Drywall and the Landlord
by Harry A. Heist, Attorney at Law

 

It is estimated that over 40,000 homes have Chinese made drywall used in the construction of the wall and ceilings. For this article we wil refer to it as CD. If a home was built from approximately 2001 to 2007, there is a possibility that CD is present, with a higher probability if the home was built from 2004 and after. Initially the problem came to light when residents began complaining about a rotten egg or sulfur smell in the units, and air conditioner repair personnel began reporting that the copper coils in the air handlers were turning black, indicating a chemical reaction with gases in the air. Lucky us, the largest portion of the CD is present in homes built in Florida, with many of these homes now rental units that are being managed by property managers. It is still not clear if the gases emitted from the CD are in fact dangerous to a person’s health, but some evidence has been put forth that the gases do in fact aggravate asthma. Many lawsuits have been filed already, both individually and in class actions against the builders, importers, seller and makers of the CD. Since there is potential liability to a property manager who knows or should have known of the presence of CD, the issues need to be examined. Unfortunately, there is no clear direction in the matter, and property manager and landlords will need to decide what actions to take to avoid potential liability. Each property manager should speak with their broker/owner and insurance company to see if in fact there is coverage in the event of litigation.

Do you have CD?

In some cases you will know for sure that CD is present, based on the markings on the back of the drywall. However, not all of the drywall is marked as to origin, and some US suppliers put their own stamps on the imported drywall, making it difficult to determine the origin. If your a/c coils are already black, or the exposed copper wires in the electrical outlets are black, there is a high probability that CD is present. Finally, a strong sulfur smell is indicative of a problem, but should not be confused with a possible sewer gas back up or improper plumbing venting.

Testing

A number of companies are now testing the drywall, using a combination of methods including gas testing, visual inspection of the drywall and inspection of any copper present in the a/c coils and copper wiring. If you suspect that you have a problem, notify your owner in writing, and encourage the owner to have the unit inspected. At this time, there are no “certified” inspectors or standards for checking for CD.

You test positive for CD

If you receive a positive test, we recommend that you notify the tenant in writing after you have notified the owner and with the permission of the property owner, allow the tenants to break their lease if they wish with no penalty. We feel that the liability is too great and that there are too many unknowns to try to hold a tenant to a lease if there is a possible health hazard.

Should you manage homes with CD?

It is possible that the tenant will wish to remain on the premises or the owner will decide to replace the departing tenant with a new tenant. Should you continue to manage the home or cease management? You will need to check with your corporate attorney and insurance company, but in our opinion, since there MAY be a health hazard, we do not recommend managing a home if you have knowledge of the presence of the CD. If you find out there is CD present, it may be time to decide whether you wish to continue with the risk.

Can you force a tenant to vacate?

If your lease has a clause such as the one below, you would be able to terminate the tenancy based upon the presence of the CD drywall, if you needed the tenant to vacate in order to replace the drywall.

CONDEMNATION, DAMAGE TO PREMISES, ACTS OF GOD and TERMINATION: If for any reason the premises are condemned by any governmental authority, destroyed, rendered uninhabitable, rendered dangerous to persons or property, and/or damaged through fire, water, smoke, wind, flood, act of God, nature or accident, or, if it becomes necessary, in the opinion of LANDLORD or its agent, that TENANT must vacate the premises in order for repairs to the premises to be undertaken, this lease shall, at LANDLORD'S option and upon 7 days written notice to TENANT, cease and shall terminate, TENANT agrees to and shall vacate and TENANT, if not in default of the lease, shall owe no further rent due under the terms of the lease.

Suppose the tenant does not wish to vacate and wants to stay and pay?

Some tenants will not wish to vacate the premises, and the issue will become whether they can give you or the owner something holding you harmless for possible health related injury or problems that they might suffer sometime in the future. While it is possible to create a hold harmless clause or agreement, whether such an agreement would later hold up in court is uncertain. If it is determined that you know or should have known that the unit was defective or dangerous to persons, no hold harmless agreement in this type of case will hold up. If you were renting a moped to a tourist, you would have him sign a hold harmless agreement, under which he acknowledges that operating mopeds can be dangerous. An agreement like this would hold up in court. On the other hand, if you knew the moped you were renting had or potentially had defective brakes or steering, and you had the renter sign the hold harmless agreement, this would NOT hold up in court. Do you know or should you know that CD is dangerous to a person’s health? No one really knows right now.

Can a tenant break the lease if there is CD present?

There is no specific law on this, but if it can be proven that there is a health hazard or the unit is rendered uninhabitable for any reason, a tenant is able to break a lease under Florida law. We feel that in the current stage of uncertainty, most judges would allow the tenant to break the lease without penalty if they could show that there is CD in the unit.

Other homes nearby have CD – Do you need to inspect?

This is a tough one. If the home is in a development and you are aware that other homes constructed by the same builders have CD, you can probably assume the home you are managing has it as well. Does this create a duty to disclose? Is there a duty to test? Probably, but no one knows for sure. If the house next door was found to have a severe sink hole present or extremely high radon levels, you would probably be under a duty to test your house for the same. The same logic could be applied to the CD.

The sales arena and disclosures

As the CD is an issue with not just rentals of property but sales, there are a number of disclosures being created for buyers and sellers. A recent disclosure developed in Port Charlotte follows. Please note that our office does not endorse the disclosure, makes no representations as to whether it can or should be modified for rentals and we urge you to speak to your corporate attorney and insurance company. It is provided for informational purposes only.

 

CHINESE OR DEFECTIVE DRYWALL ADDENDUM TO PURCHASE AND SALE CONTRACT

The following provisions are made part of the Contract for Sale and Purchase or Residential Sale and Purchase Contract (“Contract”) between ______________________(“Seller”) and _____________________________ (”Buyer”) concerning Property located at _______________________________________________________________.

1. Defective Drywall Disclosure: If a residence or other improvement on the Property has been constructed or renovated after 2000, the Buyer is hereby notified that such Property may contain drywall containing certain alleged manufacturing defects which drywall reportedly has been primarily manufactured in China (“Defective Drywall”). The presence of Defective Drywall appears to coincide with and may cause corrosion and damage to structural systems in the residence or improvements and may corrode and destroy system components such as air conditioners and electrical wiring. The damages in some residences have been extensive enough to require replacement of damaged components and the Defective Drywall itself at substantial expense. Further, the Defective Drywall sometimes emits a sulphur-like odor or fumes which may cause the residents of the home to experience health problems. The presence of this odor and/or the aforementioned damages may indicate the presence of Defective Drywall, and the homeowner and any purchaser should investigate. The only known way to eliminate the fumes and the health problems and to stop the damage to the structural system and system components is to remove and replace all of the Defective Drywall in the improvements, which can be very costly. Finally, the presence of Defective Drywall, the fumes, and the damaged systems, if not remedied, can impact the value or salability of the property.

2. Drywall Inspection: In the event Buyer elects to conduct an inspection for existence of Defective Drywall or the extent of any remediation required by the presence of Defective Drywall, which inspections shall be done at Buyer’s sole cost, Buyer must do so within the inspection period described in the Contract for other items relating to the Property (“Inspection Period”). Buyer and Seller both agree that if Seller has disclosed that the Property has Defective Drywall or if Defective Drywall is found during the Inspection Period, Buyer may, in Buyer’s sole discretion, cancel the Contract by delivery to Seller of written notice of cancellation within three (3) business days after the Inspection Period and Buyer shall be entitled to the return of the deposit(s). Buyer’s failure to conduct and inspection for Defective Drywall, or if conducted and Defective Drywall is found, Buyer’s failure to cancel the Contract within the Inspection Period shall be deemed a waiver of the right to inspect and a waiver and release of all claims against Seller or Broker arising out of or related to the existence of Defective Drywall on the Property.

3. Seller’s Disclosure: The Seller of the Property hereby provides the Buyer with the following information on the existence of Defective Drywall on the Property, and recommends that Buyer obtain an inspection for the presence of Defective Drywall on the Property prior to the end of the Inspection Period.

Seller’s Disclosure (check one):

_____Defective Drywall is present on the Property, and Seller has provided buyer with all available records and reports relating to Defective Drywall on the Property as follows:

_______________________________________________________________

_______________________________________________________________

or

______Defective Drywall is present on the Property, and Seller has no reports or records pertaining to Defective Drywall on the Property;

or

______Seller has no knowledge of the existence of Defective Drywall on the Property or any reason to believe that it does.

4. Buyer’s Acknowledgement (check one):

Buyer acknowledges receipt of said disclosure and recommendation and makes the election set forth below:

_____Buyer does not waive the right to inspect the Property for the presence of Defective Drywall during the Inspection Period and has received all information listed above, if any;

or

_____Buyer waives the right to inspect the Property for the presence of Defective Drywall during the Inspection Period and has received all information listed above, if any, and waives and releases all claims against Seller or Broker arising out of or related to the existence of Defective Drywall on the Property.

5. More Information: Further information on Defective Drywall may be obtained from the Florida Department of Health, 850-245-4250 (or search “drywall” at www.FloridasHealth.com ) or any of the county health departments:

IN WITNESS WHEREOF, the undersigned have set their hands on the date set forth below:

BUYER:_________________________________

SELLER:________________________________

____/____/_____
Date

 

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Forfeiture Of The Security Deposit
by Michael Geo. F. Davis, Attorney at Law

 

A common misconception among landlords is that the tenant who breaches his lease automatically forfeits his security deposit as the minimum damages. Some landlords believe the forfeited security deposit is in addition to any other damages. Most landlords bolster their claim to the automatic forfeiture of the security deposit for breach of the lease with supporting lease language. As a general rule we advise that landlords avoid automatic security deposit forfeitures for breach of the lease. There are some exceptions to the general rule and I touch on them at the end of the article.

An invitation to litigation

The automatic security deposit forfeiture is an invitation to litigation. First, the fact that it is an automatic forfeiture doesn’t relieve the landlord of the responsibility of timely sending the notice of claim on the security deposit. Second, the tenant receives a notice of claim that states the deposit is forfeited. It may or may not include additional itemized damages for the lease breach.

Most Florida county court judges will feel that the automatic security deposit forfeiture is inequitable. They will find the lease forfeiture clause unconscionable and refuse to enforce it, citing the Florida statute that permits them to do so. If that is the landlord’s only reason on the notice for claiming the deposit, the landlord’s reason is now invalid, and the notice of claim may be found to be statutorily insufficient. The landlord may lose at this point without any opportunity to present his case.

The judge may allow the landlord to present proof of the damages. Relying on the automatic forfeiture clause, the landlord may not have done an inspection of the premises or obtained any proof of the damage (pictures) or saved any evidence of the cost of repair. Even the fair claims of the landlord can fail for lack of proof.

The lawsuit scenario

Unfortunately for the landlord the scenario in which this happens is the tenant’s lawsuit for return of his security deposit. If the tenant recovers any portion of his security deposit, he is generally entitled to his attorney fees. As we are all too well aware, attorney fees can be astronomical compared to the small amount of deposit money recovered.

A trap for the unwary

If the litigation risk wasn’t enough, the automatic security deposit forfeiture is a trap for the unwary landlord. The legally unsophisticated landlord or the attorney inexperienced in landlord/tenant law may draft an automatic forfeiture clause that inadvertently limits the landlord to the security deposit as the only damages amount.

The rules of lease interpretation provide that ambiguities are decided against the lease drafter. Landlords commonly include lease provisions providing for other damages (rent until relet, cleaning charges, use beyond ordinary wear and tear) or for damages as provided under Florida law. These provisions are in addition to the automatic security deposit forfeiture for breach of the lease. Poorly drafted lease language can result in the court holding that the damages clauses are confusing, ambiguous or even contradictory. The security deposit forfeiture can become the landlord’s exclusive remedy, in spite of actual damages exceeding the security deposit amount.

The exception

As I indicated above there are exceptions to the rule. Security deposit forfeiture clauses may be found valid when used as the damages for the failure to give notice at the end of the lease. This is treated in other articles. They are valid as part of well drafted vacate agreements.

Having read this article I hope landlords will see that the automatic security deposit forfeiture for breach of the lease is a risky method to collect a deposit. If the tenant’s breach results in damages in excess of the security deposit, then the landlord should forego even mentioning any automatic forfeiture and apply the damages to the deposit. If they are less than the deposit, then the landlord should contemplate his explanation to a judge for keeping the “unearned” money, while the tenant’s attorney smiles at his easy attorney fees.

 

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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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