VOLUME 7 - ISSUE 7 LEGAL UPDATE

- FINDERS FEE ARRANGEMENTS
- THE POWER OF ATTORNEY
- THE NEW CONDO/HOA LAWS
- DEALING WITH THE UNIT FIRE

 

 

Finder's Fee Arrangements and the Property Manager
By Michael Geo. F. Davis, Attorney at Law

 

Many owners, more so when times are economically challenging, opt to manage their own properties. The inexperienced owner's failure to comply with the law can result not only in the loss of his resident but also considerable financial liability to the resident. The owner may feel "“ rightly or wrongly "“ that his manager, being the licensed professional in the rental transaction, should have provided him with more basic information on the landlord/tenant relationship, or at least provided sources to obtain such information. A disgruntled owner may file a FREC complaint and potentially a legal claim against the manager. This is not to suggest that every owner will pursue administrative or judicial remedies, or that the owners will be successful. However, even if the manager prevails in such a scenario, it would have been better to have avoided the time, hassle and expense.

Aside from the legal risk avoided, a manager can generate some good public relations from the repeat business or referrals from the landlord who feels that his manager left him adequately informed and prepared to protect his valuable rental investment.

The Agreement

The obvious beginning to a successful relationship is the Finder's Fee Only Non-Management Agreement itself. This document will set the level of the owner's expectations. The agreement must clearly outline what the manager's duties are, and perhaps as importantly, what the manager's duties are not. Note that one of the most common initial noncompliances by the tenant is the failure to transfer the utilities out of the owner's name. The agreement should contain language addressing the agent's level of involvement concerning this issue. The agreement should not contain ambiguous or overly broad language that can give rise to unwarranted assumptions. Most importantly, the agreement should unequivocally state when the manager's obligations are fulfilled and the Agreement is completed. It is advisable to obtain the owner's written acknowledgement that the Agreement has been completed to avoid any misunderstandings.

The manager should understand that the safe harbor of a completed agreement is lost when he enters into oral arrangements with the owner to "follow-up on one more thing" or "handle one last snafu". It is incumbent on the manager to have any modifications in writing, because the most innocuous follow-up item can expand expectations and expose the agent to liability. In the era of emails, there is almost no excuse for a confirmation of exactly what additional work is being done.

The leasing documentation

When the agreement is completed, the owner's documents should be sent to him. The owner is the owner of, and has a right to, all information or copies of the file, excepting only the credit report, redacted social security numbers in the application and any manager personal notes. Under the law of agency, since the manager is the agent and the owner is the principal, the owner has a right to the information in the file, including the resident's application. Social security numbers should be redacted from the application to prevent potential liability for misuse. The Fair Credit Reporting Act prevents giving the credit report. The owner is not entitled to any personal notes of the manager, as they are the property of the manager. Returning the owner's documents would be evidence that the parties have concluded their business arrangement.

The information sheet

A manager should now consider sending the owner a standardized information sheet. While the manager may not be under any legal duty to do so, it is worth remembering that the owner who can find answers to his questions on his own will be less inclined to need the manager's assistance. A word of caution is in order: include appropriate disclaimers that the sheet is offered for informational purposes only, is not a complete reference regarding landlord/tenant law, is not offered as legal advice, and that the owner should always consult his own attorney.

Another advantage of the information sheet is that it may now dawn on the owner as to how much more will be involved in managing the rental than simply collecting rent checks. This may give the manager the opening to discuss a continuing management arrangement.

Items to include in the information sheet

Consider including on the sheet: 1) A link to the Florida Residential Landlord/Tenant Act, Part II of Chapter 83 of the Florida Statutes located at The Florida Legislature On-Line Sunshine Note that the On-Line statutes will not reflect any changes by the most recent legislative session.

2) The most common landlord/tenant dispute probably revolves around the security deposit. An owner who fails to comply with FS 83.49 will try to say that the manager did not inform him of the statutory requirements. It is crucial that the manager have solid proof regarding the owner's indication of a Florida bank and that the manager sent the owner the information on complying with FS 83.49. The manager should keep a detailed paper trail. For this reason it is a good idea to attach to the information sheet a copy of FS 83.49 and a Notice of Intention to Impose Claim on Security Deposit.

3) Most owners find that attempting to wade through the Landlord/Tenant Act is a confusing and daunting task. For that reason the landlord may wish to list the websites of one or more attorneys whose area of practice is residential landlord/tenant law, such as the website of our firm, the Law Offices of Heist, Weisse & Davis, P.A., located at www.evict.com.

Websites such as ours contain a wealth of articles on all aspects of landlord/tenant law and numerous forms designed to meet most landlord needs, with the assurance that the forms are current. This is not always the case with forms purchased off the shelf at office supply stores. At our website the owner will have the option to register his email to receive our monthly newsletter. The newsletters provide information on legislative and administrative proposals, on statutory and rule changes, on the focus of current enforcement policies, as well as various legal articles. Among the more common topics to be found in over 175 legal articles are: three day notices, seven day notices, unauthorized occupants, unauthorized pets, abandonment of the premises, noise disturbances, notices from the tenant of an intent to break the lease or withhold rent, bankruptcy notices, timeline for evictions, partial rent payments, accumulation of late charges and utility bills and numerous fair housing issues.

4) The website of the Florida Apartment Association (FAA) and the National Association of Residential Property Managers (NARPM) both contain links to local Florida chapters. The wealth and experience of the members of these associations are invaluable. Many phone calls and emails that would be directed to the managers will be easily answered by association members.

5) Managers should encourage their owners to attend a landlord/tenant seminar including a segment on how to set up a proper eviction action. These seminars are offered by several individuals and entities. Many apartment associations and residential property manager associations offer the classes. They usually vary in length from 2-6 hours, and the cost is quite reasonable. Most classes, such as our firm's seminars, offer form books, which are invaluable for use in preparing the statutorily required legal notices. In evaluating your choices for seminars and their presenters, you may wish to consider if the presenter or its organization would be available to represent you in court in a landlord/tenant lawsuit.

The unrealistic owner

Even after all that the manager has done to prepare the owner, the manager will on occasion meet the owner whose unrealistic self-serving expectations will make it impossible to reach a compromise. At this point it may be advisable for the manager to consult an attorney to discuss a possible FREC complaint and owner lawsuit. The lengths that manager has taken to assist, educate and protect the owner will serve to demonstrate the manager's good faith, professionalism and genuine concern for the welfare of the owner.

 

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Dealing with the Unit Fire Part 1
by Harry A. Heist, Attorney at Law

 

Experiencing a unit fire is inevitable in a property manager's career. Most often in the early morning hours and due to a cooking incident, a unit fire results in chaos, and decisions are often made hastily by the property manager who has little experience with such an event. Since a unit fire is fortunately not an everyday occurrence for the manager, preparation needs to be taken now for the time when a fire will occur. There are a myriad of issues that have to be dealt with under the worst of conditions. After the fire, the next day and days to follow will hold even further surprises and challenges that the manager has absolutely no experience in dealing with. What seems to be the best thing to do at the time, or using common sense, will most likely result in the wrong decision. This article will examine the preliminary problems that arise at the time of a fire and shortly thereafter.

The Night of the Kitchen Fire

Your parking lot is filled with fire trucks, all the residents are outside, and the fire department is using its usual massive amount of water to put out the kitchen fire, cut holes in the walls and break all the windows in the unit. Seems odd, but we will leave that alone. It just seems to be the way it is done. The fire is out, and now you are dealing with one or more units that are uninhabitable due to fire, smoke or water damage, and along with that are the displaced residents who have no idea what is going to happen next. But wait! You have 2 vacant furnished corporate units and a model unit. So what do you do? Nothing, right yet.

Calling your water extraction professional while the fire is burning!

Any reputable water extraction and drying company will have an emergency number and will be out to your property immediately, usually within the hour. This is their job. It is your job to have such a company set up far ahead of time, have their number on speed dial, and take the drying of the affected units as seriously as possible. You cannot let the most heavily destroyed unit overshadow the other units which may have experienced flood damage. The sooner these units are attended to with proper drying and water extraction, the less money you will have to spend later on mold remediation or major replacement of drywall, cabinets and carpeting. More importantly, if you end up experiencing mold growth, or it is discovered later that you have to replace more carpet and drywall, you increase the odds of having legal problems when residents try to withhold rent, claim damages to their personal property or complain of health issues. If your company has tried to take the dangerous shortcut and bought a bunch of blowers, understand that using these blowers could dramatically increase your liability and legal exposure. Blowing around mold spores is not the way you dry out carpets or walls.

The Big Mistake

Your water extraction/drying company is on their way, so that potential problem is addressed. Naturally, you are feeling extreme sympathy for the displaced residents and want to make them as comfortable as possible and as soon as possible. After all, it is all about customer service and resident retention, correct? So you get the keys to the corporate units and the model unit and tell the residents that they can temporarily use the units, units which by the way are nice, clean and filled with beautiful rental furniture. What's the problem here? The problem comes a little later.

Allowing the residents who caused the fire in their unit to occupy a corporate unit or model

Although your residents caused the fire due to their own negligence, you have placed them in your corporate unit. The unit where the fire occurred turns out to be badly damaged; the rehab of the unit will be thousands of dollars, and the residents will NOT be able to move back in any time soon. Then, there becomes a dispute about how the fire started. WHAT? The residents say that the stove was defective. You know that they just had a grease fire that was their fault. However, the Fire Marshal cannot make a proper determination, since the stove has been so badly damaged by the fire, and the firefighters who pulled it from the wall pretty much tore everything up in the process. The residents' family now are comfortable in the corporate unit with the rental furniture and wide screen TV's, and even though you have other vacant units for them to move into, they have decided not to leave. It is now a full week after the fire. You call your attorney, and he tells you that the eviction may be extremely difficult if there is no lease agreement, or if it is unclear what type or arrangement has been created. Without a true landlord/tenant relationship, the Landlord/Tenant Act does not apply, and you cannot file an eviction. Possibly a wrongful detainer action will need to be filed if the residents refuse to vacate.

Allowing other, innocent residents affected to occupy a corporate unit or model

Often, other units have been affected by the fire, smoke and most commonly water that has cascaded down the walls. Again, you decide to help the affected residents out the night of the fire, and you put them in your nice model unit. After all, it will just be a couple days, right? Now comes the fun part. The affected unit below the unit that had the fire was flooded pretty badly, still smells like smoke, and within 3 days mold is already growing on the walls and furniture. The residents refuse to move back in until you replace their furniture, or if they do move to another unit in your community or elsewhere, they want moving expenses and money that they believe is owed, as much of their furniture needs to be replaced and is covered in mold. The fire was not their fault, and they feel that you should do something about it and make them whole. You just rolled into the next month, and the residents are refusing to give you a dime, all the while using your model unit and all the utilities. Again, you call your attorney and he gives you the same story: no lease, and possibly no tenancy under which an eviction is possible.

Avoiding the problem

When there is a fire or any other natural disaster for that matter, the Red Cross is well equipped to deal with the immediate needs of individuals. They are prepared and equipped to assist the person whose unit had the fire and others who were affected by the fire. The Red Cross will give the individuals vouchers for hotels, clothes and food. Hundreds of Red Cross volunteers throughout Florida respond to fires and disaster every single day, and they are the ones to whom you need to leave the task of housing the residents. While this may seem harsh or cruel when you have empty units, models or corporate units just sitting there, please trust us on this. We see this all the time, and we know what we are talking about. While you may deal with a fire once every 5 years, we deal with them every single week, due to the sheer number of property managers we represent. Just resist the temptation and don't house the displaced residents. If for some reason the Red Cross is not there and the residents have absolutely nowhere to go, call a local hotel, pay for a specified number of nights, and make it clear that you will absolutely not pay for one more night. You do not want the resident for whom you are paying to fail to leave the hotel room and have your company stuck with the bill. If the hotel serves food, place reasonable limits on what can be spent. Florida law does NOT require you to house, clothe or feed a displaced resident. It only requires you to abate the rent for the period of time the resident cannot occupy the unit.

You can't control yourself and want to put the resident in the model or corporate unit

We fully understand that some property managers just will insist on putting the residents in their available corporate units or models. It is human nature to want to help out those in their time of need. Is it completely fatal to take this risk? Will things always turn out badly? Actually, chances are that everything will turn out okay, but why take the gamble? The main thing if you do decide to place the residents in the corporate unit or model is to use a Temporary Housing Agreement in this situation. Keep it handy though, because remember, it is 3:00 a.m., and you are not in a condition to have to start up your computers and locate files. The purpose of this form is to create a real legal tenancy with the resident or residents, so that in the event things go bad and they refuse to vacate, you will be able to evict them. Without using the form, it can be very unclear as to what tenancy has actually been created, or it may be that no tenancy has been created. It is up to you how much time you will allow your displaced resident to stay in the unit, and this will depend upon the severity of the fire. At 3:00 a.m., you probably have no accurate information about the extent of the damage, so keep the time limit short; you can always extend later. When you examine this form by clicking here to download, you will see it is simply a miniature, pared down, bare bones lease. Will it create a tenancy? Yes, one that can be terminated by you and will allow for a fairly cut and dry eviction action if necessary. Of course we don't want to have to file an eviction on someone who is occupying a corporate or model unit; therefore, we strongly recommend that even though we have helped you in this situation by providing this form, you will be far better off NOT housing your residents. The Red Cross will find them a place to stay temporarily, or you can take the hotel route we discussed.

What's next?

Ideally in a perfect fantasyland of dragons, wizards, princes and princesses, your resident who caused the fire will admit it was his fault, write you a check for the damage to his unit and the surrounding units, everything will be fixed in a couple days, and everyone will live happily ever after. Keep dreaming, and next month we will examine the post-fire issues, damages and possible actions that must be taken against the resident who had the fire and the residents whose units cannot be quickly repaired. If you are to experience a fire before next month, make sure you call your attorney as soon as you can. Often we find out about our clients having fires by watching the news or reading the newspaper. It is only after they have made a number of mistakes that they call us. It does not have to be this way. There is a better way. Stay tuned for Part 2 next month, when it really gets fun.

 

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The Power of Attorney
by Brian P. Wolk, Attorney at Law

 

One situation which often causes a leasing office to come to a grinding halt occurs when a prospective resident fails to show up to sign the lease, and instead, a person who is not listed on the lease or the application shows up and announces that he has a power of attorney and will sign the lease. At that point, the leasing agent may call the property manager, who in turn may call the regional manager, and still there may be no consensus as to what the proper course of action should be. Issues involving the power of attorney, (hereinafter referred to as a "POA") crop up during a resident's tenancy and even after the term of the lease has expired. Therefore, it is important for property managers to have a basic understanding as to what a POA document is, and how to deal effectively in regard to this area of the law with past, present and future residents along with third parties. This article will help you obtain a basic understanding of the POA process. However, as with other legal issues which property managers must navigate through on a daily basis, it is important that you contact your attorney if there is any doubt on your part as to what you should be doing. Make sure that your attorney is accessible, as POA related issues frequently pop up unexpectedly and require quick direction from your attorney.

What does the legal term "Power of Attorney" mean?

A POA is a legal instrument authorized by law under which one person or entity grants authority to an entity or one or more individuals to make decisions and take actions on the grantor's behalf. The authority that is granted will be contained in the body of the POA. The authority can encompass a wide variety of transactions, known as a General POA, or can be limited to just one use or purpose, known as a Limited POA. The person granting the authority is referred to as the "principal". The individual who is receiving the authority for the conduct or transaction is called the "attorney in fact". In some circumstances a financial institution may be the "attorney in fact". Do not be fooled by this fancy name; if somebody tells you he is an "attorney in fact", that in no way means he is a licensed attorney authorized to practice law. The attorney in fact is considered a fiduciary and is obligated to act responsibly, due to the "trust" bestowed upon him by the principal. The party with whom the attorney in fact conducts a transaction is known as the "third party". That is the role that the property manager or landlord has in these kinds of situations.

Florida Statute 709.08 Durable Power of Attorney

Tim, the property manager, made an appointment to meet with three prospective residents, Lucy, Cindy and Dwayne. Lucy and Cindy appear at Tim's office, but Dwayne is nowhere to be found. Instead, Pablo subsequently arrives at the office and tells Tim that Dwayne gave him a POA. Tim asks Pablo where Dwayne is. Pablo tells Tim that he had invited Dwayne to Pablo's 18th birthday party last week. While at the party, Dwayne decided to give Pablo and Pablo's brother, Tommy, a Durable POA, authorizing them to handle any real estate transactions for Dwayne. Pablo displays the Durable POA document to Tim, and it lists Pablo and Tommy as attorneys in fact. Tim is wondering whether Pablo, at just 18 years of age, is old enough to take part in this process. In fact he is suspicious that the POA arrangement exists in the first place. Tim is also perplexed because there are two people who were given POA rights by Dwayne. Finally, Tim has never heard the term "Durable" used in conjunction with the POA process, and so this is further adding to his confusion. Florida Statute 709.08 sets forth the law regarding Durable POA documents in Florida drafted after October 1, 1995. This statute authorizes the attorney in fact to handle real estate transactions. In fact, it authorizes the attorney in fact to sell the house of the principal! Section 709.08 (1) states that a durable power of attorney is a written power by which a principal designates another as the principal's attorney in fact. The section further adds that with the correct wording, the Durable POA can survive the subsequent incapacity on the part of the principal.

Are the Property Manager's concerns addressed by the Statute?

Tim"˜s concern regarding Pablo's age is addressed by Section 709.08(2) which sets 18 as the minimum age to serve as an attorney in fact. Since Pablo is 18, he is old enough to be to be an attorney in fact. It turns out that Tim was right to have concern over there being two attorneys in fact. Section 709.08 (9) (a) requires that both attorneys in fact concur with respect to any exercise of the Durable POA unless the Durable POA document provides otherwise. Therefore, Tommy would need to sign the lease along with Pablo in order to bind Dwayne to the contractual terms of the lease. As mentioned, Tim is clearly skeptical that Pablo is the attorney in fact. The statute authorizes him to request that the attorney in fact sign a notarized affidavit attesting to (but not limited to) the following: that he is indeed the attorney in fact named in the Durable POA executed by the principal, the location of where the principal is domiciled, that the Durable POA is currently exercisable by the attorney in fact, and to the best of the attorney in fact's knowledge, that the principal is not deceased, and that there has been no revocation of the POA by the principal or any outside judicial authority. If the above affidavit is provided to Tim, and both Pablo and Tommy are willing to sign the lease on behalf of Dwayne, then Tim better think twice before he refuses to allow the attorneys in fact to assert their powers. Section 709.08 (11) states that the unreasonable refusal of a third party to allow an attorney in fact to act pursuant to the power could subject the third party to liability for attorney's fees and costs if the third party is sued and loses in court. That dollar amount could be quiet substantial. It is best to call your attorney if there is any doubt in how you should proceed before refusing to allow the attorney in fact to act. As you know, litigation can be very costly! You should also be aware that Florida recognizes the deployment-contingent POA. Section 709.11 of the Florida Statutes requires a property manager to accept a valid power of attorney that is signed in advance by the principal which takes effect once the principal is deployed by the military.

Common Mistake Scenario #1 (Improperly signed lease)

Marta, the property manager, is under the belief that she is leasing a one bedroom apartment to Chester Turnkey. Chester did not sign the lease. Robert Jones executed the lease on behalf of Chester instead. It turns out Robert was given a Durable POA by Chester. Robert showed the paperwork to Marta, and she sincerely believed the POA was valid. Marta handed the lease to Robert, who "signed" the lease by simply writing Chester's name. Big mistake! The written lease was executed incorrectly. If Chester did move into the apartment, then there may be other legal grounds to evict him. However, if there is some unknown third party that moved into the unit other than Chester, there is no way Chester would be held responsible for the lease, and a more complicated legal procedure than an eviction may be required. Life would have been a whole lot easier for Marta had she made sure that Robert signed the lease properly as displayed below: The principal's name (Chester Turnkey) By__________ Robert Jones Attorney-in-fact

Common Mistake Scenario #2 (Third party access)

It is very common for a property manager to receive paperwork from a resident, who for one reason or another, is located out of town. The resident will grant a POA to a friend to help manage his personal affairs. Why do you need to be careful in this type of situation? Massive liability for the property manager and/or Owner can follow if you allow the attorney in fact into the resident's unit without proper documentation. A good property manager will read the POA that is presented to her with caution, and if need be, check with her attorney. It is very easy for the property manager who is in a hurry to make errors. For example, the POA form is often a pre-printed form which lists a number of different potential powers to be checked off. If the specific power governing disposition of personal property is not checked off, and you let the attorney in fact into the unit, you can be sure that the resident will sue you if anything real or imaginary is missing!

 

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The New CONDO/HOA Laws and the Property Manager
by Harry A. Heist, Attorney at Law

 

Condominium, cooperatives and homeowner's associations, hereinafter "Associations" for this article, have been suffering greatly due to the failure of the unit owners to pay their fees and assessments. These fees and assessments are due monthly, quarterly or yearly according to the Association's documents; they are not optional payments, but rather a legal, contractual obligation of the unit owner. The inability of the Associations to be able to collect these monies owed from the unit owner, many of whom are also not paying their mortgage payments, have caused the unit owners who are indeed paying to sometimes have dramatic increases in the assessments and fees owed to their Association, and some Associations have to make tough choices like cutting pool hours, no longer including cable, no longer including water, no longer manning the access gates, and cutting staff, clubhouse hours and activities, among many other things. In the past, the only recourse an Association had when dealing with a delinquent unit owner was to file a foreclosure action against the unit owner, which would then often trigger a foreclosure action by the bank against the unit owner, and in the end, the Association would frequently get nothing but a bill from their attorney. Things were quite different in the past, when very few unit owners would simply cease paying the dues, fees and assessments. It happened, but not nearly to the extent of what is going on today. Further, when it did happen, the unit owner usually just sold the property, and the amounts owed were usually recouped by the Association at the closing.

To add insult to injury, many of the unit owners today are renting their units out, and although not paying their mortgage, taxes, insurance, assessments or dues, they have been regularly collecting rent from their tenants. Many property managers are completely aware of this and currently are managing properties in this position, while some managers are not aware of the financial situation of the owner, who really has no incentive to disclose this to the property manager. As can be imagined, this has not sat well with the Associations, and on July 1, 2010, Florida law has been amended to now gives Associations the incredible power to demand that the tenant of the delinquent unit owner pay the Association DIRECTLY, bypassing the owner and the property manager, if there is one in place.

The Rent Demand Letter

In order to have the right to collect the rent from the tenant, the Association must make a written demand upon the tenant in the case of a condo association and a co-op. No written demand is necessary by a homeowner's association, but this is probably due to a legislative oversight. Without making a written demand, the homeowner's association would most likely never get paid, so let's assume that a written demand is necessary or at least will be given for homeowner's associations as well. This written demand is for the tenant to pay all "future monetary obligations" related to the Association directly to the Association. Does the demand have to be by certified mail? Does it have to be through the use of a Three Day Notice? The law states that the Association may issue notices as per Florida Statutes 83.56, which means that they must follow the same procedure of either posting, hand delivery or mailing of the Three Day Notice. Suppose the Association does not even know the name of the tenant, or that tenants have switched out since the initial approval process. This is just the beginning of many unanswered questions. If the Association makes the demand, the tenant must comply. DO NOT try to override this by collecting the rent and remitting to the owner, or you could have some liability.

What are "Future Monetary Obligations"?

You may or may not have caught that upon your first read. If this applies only to "future monetary obligations"; what about the past monetary obligations which almost certainly are owed by the unit owner? At this moment in time, we do not know the answer to this burning question, but will assume that the legislative intent was to cover all unpaid monetary obligations, past, present and accruing. What will happen once the past amounts are collected from the tenant? Will the Association continue to make demands upon the tenant? How will we know when the Association is "done"? According to the law, the Association will "release" the tenant as some point, but the law provides no such mechanism or form, so most likely it will be in the form of a letter to either the owner, tenant or both. You as manager will probably be the last to know, which will increase the confusion of who paid what to whom and when.

What is the tenant to do?

According to the law, the tenant now must pay the rent or whatever amount of money the Association demands, not to exceed the rent amount due to the owner, each month, directly to the Association. In reality, the typical tenant will receive a letter and will not know what to do; many will decide not to pay anyone, as is often the case in the event the tenant is served with a lis pendens or a foreclosure lawsuit. Tenants who sense uncertainty or get conflicting demands upon their rent often sit back, pay nothing and try to use the confusion as a successful defense later in an eviction action, or at least live rent free and ride it out. After all, for 6 months they have been paying your company, and now they get notice from an Association or their management company with whom they never had prior contact or knowledge, demanding the rent. Upon demand by the Association, the tenant MUST comply and pay the Association directly, or presumably through the association's management company, if one is being used. If the tenant receives the demand letter and has already paid the rent to the unit owner or the property manager that month, the tenant must provide proof of payment to the Association within 14 days after receiving the demand letter from the Association. This is crucial for the tenant to do. Otherwise, credit will not be received for that payment, and according to the law, the Association can exercise their ultimate power against the tenant, which is an eviction action.

How the rent is applied

The unit owner must give the tenant credit for the money the tenant pays to the Association; thus, the owner cannot evict the tenant for nonpayment if he now receives partial or no rent, as long as the rent is being paid to the Association. It will be up to the owner or property manager to investigate and try to figure this out. The law provides no reporting requirement or communication requirement from the Association to the owner or property manager. A tenant who acts in good faith and pays the Association is immune from any claim by the unit owner. Will the Association demand the full amount of rent or a partial amount? We assume that they will demand the full amount of rent to pay the outstanding amount the unit owner owes until such sums are paid in full. Hopefully once paid, they will properly notify the tenant so the rent is then paid to the owner.

Eviction by the Association

If the Association files an eviction action against the tenant, the cost of this will be further assessed to the unit owner, who will go deeper into debt, as now his tenant will be evicted from the premises. You can be pretty well assured that the Association will not approve the next tenant who may be presented to them. Suppose the Association accepts a partial rent payment from the tenant, which they almost certainly will. How will they then proceed? The tenant receives the demand from the Association, is told to pay the full $800 to them, but tenders a lesser amount of $500. We can almost guarantee that the tenants will begin to pay partial amounts to the Associations, as they often do anyway, and many Associations will continue to accept whatever they can, resulting in a tenant who is partially paying each month and an owner who does not know what to do. This will become a complete mess, as the Association is now becoming a "residential property manager" or "rent collector" by default, with absolutely no responsibility to maintain the unit, make repairs to appliances, and which has no obligations to the tenant as if they were the actual landlord. The new law clearly states that the Association does not have to comply with Florida Statute 83.51, which section provides for the landlord's duties under the Landlord/Tenant Act. A tenant may be legitimately withholding rent because of the failure of the owner to comply with the lease or Florida law. The A/C could be broken, there could be a mold issue, or perhaps an infestation of insects is present, and the Association has no obligation to do a thing, while the tenant has the obligation to continue to directly pay rent to the Association. This could affect an eviction action by the Association if the tenant has legitimate defenses, complicating the eviction, and resulting in higher attorneys fees and costs to the Association, which will be passed onto all the other unit owners, as the delinquent unit owner most likely will not have the money to pay this either. Another interesting issue arises if the tenant fails to pay the Association and the unit owner wants to evict the tenant so he can sell it, but the Association is dragging their feet and decides against filing an eviction because they are low on money. Since the Association is the one who is owed the money, and the owner must provide a credit to the tenant in the amount that the tenant pays, does this mean that the landlord will have a right to file an eviction if the tenant is not paying the Association, or will this exclusively be the right of the Association? Who will coordinate this mess?

Where does the new law leave the Property Manager?

Basically the property manager will be bounced right out of the management situation unless they want to work for free. Not a happy thought. The property manager who has a valid property management agreement with the owner of the property, under which a percentage of the rent paid each month by the tenant is retained in the form of a commission, will have no control over the rent money paid, as the rent money will presumably be paid in part or in full directly to the Association. Under normal circumstances, the manager deducts the commission and remits the balance to the owner, but now the rent completely bypasses the property manager. The property manager now has a choice to either continue managing the property with absolutely no funds coming in and no commission being paid, or decide to drop the owner and terminate the management agreement.

Possible solutions and opportunities

As our firm primarily works for property managers, we are always looking for ways to assist those managers in their duties, enable them to retain accounts and conduct their business profitably. Many managers will choose to discontinue management in situations when the Association makes the demand, and if the manager has the luxury to do so, we recommend that the management agreement is terminated according to its terms, and that the property manager concentrate his or her efforts at finding owners who are solvent enough to own rental property. In most instances, if the owner owes money to the Association, he will also be in foreclosure or close to being into foreclosure. Ideally, the Association should contract with YOU, the current property manager of the managed units, for YOU to collect the rent and remit this rent to the Association. Of course, unless the property management agreement already addresses this issue, which we doubt it does, a separate agreement will need to be signed by the property manager, the owner and a representative of the Association. We cannot forget that the property manager's loyalty lies with the property owner, and it could be construed as improper if the property manager collects the rent from the tenant and remits it to the Association without the express permission of the owner of the property.

Our office has developed a form which we are testing to use which can be signed by the owner, the Association and the property manager which will accomplish the goal of having the property manager collect the rent, deduct customary commissions, and then pay the Association. Since we are in such an early stage of all this, in order to access this form, we would ask that you call our office first and speak with me directly. There is no charge. Simply put, all parties through this agreement authorize the property manager to collect the rent, and depending upon the terms of the agreement, deduct the usual management fees, THEN remit the balance to the Association. This is by far the smartest way for the Association to accomplish their goals of collecting the money; the tenant does not have to be involved in any way, and the property manager is able to continue managing the property, maintaining the property and receiving payment for the all the property management services that they are rendering. It is the proverbial WIN-WIN, but the Association will have no idea that this is even an option unless YOU let them know.

Taking a Proactive Approach

We receive phone calls almost every day by property managers whose tenants already received the rent demand letter from the Association. Rather than wait for the Association to take action and push the you right out of the picture, we urge you to go straight to the Association or the Association's management company that are connected to the units you manage to see if they will allow you to use our agreement, or a variation with which everyone is comfortable, thus allowing you to stay in the loop. The person best situated to collect rent is you, the current property manager, not an Association, attorney for an Association or even the Association's management company.

Many property managers are caught by surprise by all this, as they assumed that their owners were paying the fees and assessments of the Association. It is time to check each and every account right now, and confirm that the owner has been current in his or her payments, and if there is a delinquency, work with the owner immediately by telling the owner about the new law and doing what it takes to get any delinquent amount paid to the Association before it is too late. Click here for a shortened version of the New Condo/HOA law sections.

Next month we will examine this issue in further depth, as demanding rent from the tenant directly is only the beginning of the powers enumerated in the new law. We urge you to call us at 1 800 253 8428 or email us and tell us your experiences in dealing with the new law, as plans are in place for legislative fixes we may be able to get accomplished in 2011.

 

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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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