VOLUME 9 - ISSUE 4 LEGAL UPDATE
- Security Deposits
- Fictitious Names
- Releasing a Resident
- Statistical Lease Scoring
by Harry Heist, Attorney at Law
How to properly handle the security deposit, advance rent and other deposits is probably one of the most important skills that the property manager must acquire. Beside evictions, deposit disputes are the most common sources of disputes and litigation the property manager will encounter. Not only is litigation common, but as with any other type of landlord/tenant dispute, the prevailing party can be awarded attorney's fees, which raises the potential stakes of a simple dispute immensely. Partially losing a deposit dispute in court could result in a substantial attorney's fee award against your company. This article predominantly addresses the security deposit, although advance rent is also referenced.
Why Are Deposits Important?
The security deposit belongs to the resident. The deposit is the resident's money, plain and simple, no matter what the resident does or how much the resident may owe you. The deposit belongs to the resident from the moment the resident places it in your possession and will continue to belong to the resident until it is property "disposed of" or "claimed" through the claiming process using the "Notice of Intention to Impose Claim On Security Deposit". Any advance rent collected can be claimed as it becomes due under the terms of the rental agreement. Both the security deposit and advance rent are addressed in detail under Florida Statute 83.49, and the security deposit in particular is heavily regulated. This statutory section governs exactly how escrow money is to be held and disposed by the landlord. Failure to follow the law can result in the entire deposit being returned to a resident who owes a significant amount of money, or litigation in which you may have to return all or some of the deposit AND pay a significant amount of money to the attorney representing the resident.
What Are Deposits?
Deposits are any money paid to you and held for the resident. Most commonly, it is the security deposit, but may include pet deposits, key deposits, or advance rent. There is no such thing as a "nonrefundable deposit"; that would be called a fee. A deposit by its definition is a sum of money that potentially will be returned. The exception to this analysis is advance rent, which by definition is earmarked for some future rent period.
The Notice of Intention to Impose Claim on Security Deposit
Probably the most common misconception is that the Notice of Intention to Impose Claim on Security Deposit is to show what the resident owes. THIS IS 100% INACCURATE. The Notice of Intention to Impose Claim on Security Deposit is to inform the resident how much is owed FROM THE DEPOSIT. The resident may owe you more money now or in the future. The Notice of Intention to Impose Claim on Security Deposit is NOT a FINAL STATEMENT of amounts owed. It is a tool or form to officially inform the resident what is being claimed against the deposit, nothing more and nothing less.
When Deposits Are Collected
The deposits should be collected in full prior to the resident being granted possession of the premises. Allowing a resident to take possession of the unit prior to the deposit being paid or clearing the bank is a risky, but common, practice. Often deposits are paid in the form of a personal check, and company policy will dictate whether or not the resident will be granted possession until such time as the check has cleared the bank. However, once the lease is fully executed, many judges are going to find that the prospective resident has a possession right. If for some reason your company does not wish to wait, or the resident is moving in prior to the time period in which a check can clear the bank, a policy should be in place that a money order or cashier's check is required, although it should be noted that stop payment orders can be placed on both of these instruments. While somewhat better than personal checks, there are no guarantees.
Partial or Delayed Deposit Payment
Occasionally a resident will not have paid the full deposit by the time of move-in. The manager is then faced with a tough choice of denying occupancy rights or taking a chance on allowing the resident to move in with the promise by the resident to pay the deposit in payments or in full at a later time. Extreme care must be taken here. Ideally, the manager would tell the resident that the deal is off and not go through with lease execution, but economic times dictate a need for the rules to be bent to accommodate a resident who may have incurred a legitimate, unexpected expense resulting in that prospective resident not having the necessary deposit funds, in full or in part. If you are going to allow the resident to move into the unit without having paid the deposit in full, a deposit payment plan should be signed by all the residents. The deposit payment plan clearly states what deposit money is owed and under what schedule it will be paid off. If the resident signs the deposit payment plan and misses a payment, it is CRUCIAL that the resident be given a Seven Day Notice to Cure, depending upon the advice of your legal counsel; no more rent should be accepted, and the noncompliance of not paying the deposit is dealt with swiftly. If the landlord accepts rent while the resident is delinquent in paying according to the deposit payment plan, this can create a large waiver problem. Best practice dictates that if the resident does not have the full deposit prior to move-in, the lease is not executed and the prospective resident is NOT granted possession.
Who Pays the Deposit?
When a deposit is collected it is applied to the resident's account. If there are multiple residents, it is applied equally to the account. Each person owes the deposit jointly. It does not matter who paid it or who did not pay it. The total is applied to the account of all the residents unless otherwise agreed to. When or if returned to the residents, the check should be made payable to "John Doe and Mary Doe", not "John Doe or Mary Doe". It does not matter if John or Mary has disappeared; any refund corresponds to all lease signers.
Security Deposit - One Payer Situations
Sometimes one resident will be the one who has the money for the deposit, while the other resident does not. The resident with the money will advise you that he or she is the one paying the deposit and expects that upon vacating the premises, any refund will be returned solely to that resident. Upon receiving such a request, preferably you will say that this is not in accordance with company policy, and the resident will accept this. This could kill the deal though, and in the vein of accommodating the residents in their request, and if allowed by company policy, you may decide to go along with the wishes of the resident paying the deposit. If you decide to allow such an arrangement, we highly recommend you use the Security Deposit Payer Addendum, which shows who is paying the deposit, states who will receive the refund, if any, upon the vacating of the premises, and is agreed to by all parties, including the resident who has not paid the deposit, with the non-paying resident waiving any claim to the deposit. You should clearly mark on the front of the file some kind of notation, since this is not the normal procedure used when residents pay deposits. You do not want this to be forgotten by you or your accounting department when the deposit disposition occurs a year or more later. This is something that can easily be forgotten.
You may receive a request by two or more residents in which they are each wanting to pay an equal percentage of the deposit, and in the event it is refunded, receive the refund in the same split percentage fashion. As with the one resident payer of the deposit above, we do not recommend this, but if your company allows this to occur, you would use a Split Security Deposit Addendum, which states that each resident has paid a particular percentage of the deposit and in the event it is refunded, will receive this refund in the same split percentage fashion. Since your accounting department usually handles the disbursement of funds, we strongly urge you to avoid such an arrangement, as the accounting department may not be properly set up to handle this. If you do decide to allow split deposit payments, note this clearly on the front of your file.
WHERE AND HOW THE DEPOSIT IS TO BE HELD
Unless a surety bond is posted, deposits must be held in a Florida banking institution, in a separate account and not commingled with any other funds, such as the current rent or operating funds. Most deposits are held in non-interest bearing accounts. This is due to the fact that most companies do not feel it is worthwhile to keep the funds in an interest bearing account, as under current Florida law, the landlord will be required to account for the interest each year and either give this interest to the resident in whole or part depending upon your lease terms.
What Must Be Held In The Escrow Account?
Deposit money must be held in the escrow account. Deposit money is defined by Florida law as "any money held by the manager on behalf of the resident, including but not limited to, damage deposits, security deposits, advance rent deposit, pet deposit, or any contractual deposit agreed to between manager and resident, either in writing or orally." Security deposits as defined by Florida law means "any moneys held by the manager as security for the performance of the rental agreement, including but not limited to, monetary damage to the manager caused by the tenant's breach of lease prior to the expiration thereof." These definitions are word for word from Florida Statutes Sections 83.43 (11) and (12). As you can see, if you collect money from a resident, and that money is not a "fee" but a potentially refundable "deposit" or "advance rent", it must be retained in the escrow account and accounted for by the property manager.
The Non-Interest Bearing Account
Most deposit money is held in a non-interest bearing account for reasons previously mentioned. The bank retains all the interest, and the property manager and resident get absolutely nothing in return. Often banks will not impose their monthly fees if the account is non-interest bearing, as the banks are reaping the rewards of the money held by them.
The Interest Bearing Account
Many companies see these often large deposits building in the bank accounts and are desirous of keeping the interest for their company. If you have 200 residents each paying $500.00 in a security deposit, this amounts to $100,000 sitting in a bank, and potentially $2,000 in interest, assuming a 2% interest rate, being lost to the banks. Unfortunately though, even if the deposit is kept in an interest bearing account, the resident must by law receive at least 75% of the actual interest earned, or interest calculated at the rate of 5%, as Florida law simply does not allow the landlord to keep 100% of the interest. Since you obviously would not pay 5% interest to the resident at current interest rates, you would choose to pay out 75% of the actual interest received, which in our example would equal $1500, leaving $500.00 to be distributed to the landlord, a miniscule amount considering the additional accounting headaches and paperwork. Florida law states that if the deposit money is held in an interest bearing account, the property manager has only two choices when dealing with the interest.
Choice #1 - The resident must receive of that interest paid at least 75% of the annualized average rate payable on such account. For the sake of simplicity, let's say that the deposit was $500 and the interest paid on that money was $10. The property manager must give at least $7.50 of this interest to the resident.
Choice #2 -The property manager must pay the resident 5% simple interest per year.
How Interest Must Be Paid to the Resident if Choice #1 or #2 Is Picked?
While this may come as a surprise to many property managers, the interest must be paid to the resident directly or as a rent credit at least once annually, which means usually at the time of the lease end or renewal of the lease. Many property managers roll over the deposit money into a renewal, forgetting that they must account to the resident for the interest and pay this interest or credit this interest to the rent. This accounting requirement is yet another reason why most companies choose non-interest bearing accounts. While in some states the penalty for mishandling the funds could result in a having to refund the entire deposit or even pay more, there is no specific penalty listed in Florida law for failure to comply.
Disclosures Regarding the Deposit
Florida Statutes Section 83.49 obligates the manager to inform the resident of specific, basic information whenever a deposit is held.
When Disclosures Must Be Made: No later than 30 days after a manager receives deposits, the manager must make certain disclosures to the resident. The notification must be in writing and given in person or mailed to the resident. Most times, the disclosure is in the lease itself. This is the best way to present the information, because later, there can be no dispute that the disclosure was made.
What Must Be Disclosed: The manager must disclose where the deposit is being held. The name of the bank in which it is held and the bank's location should be revealed. It is best to use the whole street address of the bank, not just the name of the city. However, the complete name of the bank and the name of the city are likely to be considered adequate. For an interest bearing account, the rate of interest should be revealed, and when it is expected the resident is to receive interest payments. If the account is non-interest bearing, it should state this clearly, so there is no expectation on the part of a resident who maybe is under the impression that all deposits are kept in an interest bearing account
Subsequent Disclosures - After the manager makes the initial disclosures, circumstances can change - a bank closes, a new owner takes over, etc. If the manager changes the manner or location in which the funds are being held, the manager must notify the resident, in writing, within 30 days of the change.
Consequences of Non-Disclosure- Unlike other portions of the security deposit statute, there is no clearly defined "penalty" to be applied to a manager who fails to make the disclosures. Thus, a resident who sues a manager for failing to make the required disclosures must prove that the non-disclosure resulted in losses suffered by the resident. There is no reason to not disclose and aggravate a judge.
WHEN IS THE "NOTICE OF INTENTION TO IMPOSE CLAIM UPON SECURITY DEPOSIT" TO BE USED
The manager only uses the Notice of Intention to Impose Claim on Security Deposit if making a claim against the security deposit and other deposits (such as a pet deposit). If you are returning the entire deposit, then there is absolutely no need to use the Notice of Intention to Impose Claim on Security Deposit. The manager can simply return the entire deposit by first class mail with or without a cover letter to the last known address. If the manager is claiming any part of the deposit, then the manager MUST use the Notice of Intention to Impose Claim on Security Deposit.
Sending a Refund of the Deposit WITH the Notice of Intention to Impose Claim on Security Deposit
If you are returning PART of the deposit, we suggest that if at all possible you send a check for the balance with the Notice of Intention to Impose Claim on Security Deposit, because it provides a certified mail record of the refund check being received (since the Notice of Intention to Impose Claim on Security Deposit must be sent by certified mail), and the check demonstrates to the resident the manager is genuine about returning the portion of the deposit not claimed. If the resident does not get the check with the Notice of Intention to Impose Claim on Security Deposit, then there is a greater chance the resident will object to the charges. One downside to sending the refund check with the Notice of Intention to Impose Claim on Security Deposit occurs when subsequent damages are discovered within the 30-day notice period, and the manager seeks to send a revised Notice of Intention to Impose Claim on Security Deposit for a greater amount. The negative, psychological effect on the resident is strong when the resident does not receive the refund check, but just receives the Notice of Intention to Impose Claim on Security Deposit indicating only a partial refund will later be sent. Try to encourage your company to send any refund check with the Notice of Intention to Impose Claim on Security Deposit. It will cut down on time consuming disputes.
The Claims Made in the Notice of Intention to Impose Claim on Security Deposit
One of the most common areas of confusion regarding deposits is knowing what to put on the Notice of Intention to Impose Claim on Security Deposit. We find managers do their best to figure out what the resident owes, either due to breaking the lease or simply leaving at the end of the lease with damages to the premises or otherwise owing the company money. The problem is that this form only is dealing with the deposit. This is not a "final bill" or "statement of account" to the resident or the total amount a resident will possibly eventually owe. Sometimes the Notice of Intention to Impose Claim on Security Deposit is called a "SODA" or Statement of Deposit Account. NOTE. It is not a Statement of "Account", but focuses only upon the deposit.
Amounts Allowed on the Notice of Intention to Impose Claim on Security Deposit
A deposit is the amount the resident gives you to hold to cover damages to the premises, monies owed to the manager under the terms of the lease and for full and faithful performance of the lease terms. "DAMAGES" is a legal term. It does NOT mean simply physical premises damages, but also any money that is owed to the landlord, such as rent, bad check charges, utilities or any other amounts.
1. The resident breaks the lease by vacating
If the resident simply "skips" out of the lease, the manager can charge the resident rent that is owed at the time the resident skips out. "Acceleration" means the resident is immediately charged for all the remaining rent owed under the terms of the lease. While the lease may provide for this, and it seems logical, acceleration is not a specific right granted to managers under Florida law, and we recommend against it. A resident who skips or otherwise vacates early owes rent due at the time of the skip, damages to the premises which exceed ordinary wear and tear, and any other amounts legally chargeable to the resident under the lease terms, as long as those terms are in accordance with Florida law. If a resident paid rent for June and skipped out June 20, it would seem that the resident would owe no rent, and that no rent could be placed upon the Notice of Intention to Impose Claim on Security Deposit. This is certainly not the intent of the statute, and since the manager has 30 days to send out the Notice of Intention to Impose Claim on Security Deposit, by July 1, the resident will owe another month's rent which can and should be indicated. You do not want to be returning the full security deposit if the resident skips out on the lease, as rent will presumably be owed. As you can see though, if the unit stays vacant, the resident will owe you more rent, until the earlier of the end of the lease or until the unit is re-rented. How can you put this on the Notice of Intention to Impose Claim On Security Deposit? You can't and you don't need to. The Notice of Intention to Impose Claim On Security Deposit is only dealing with the deposit! It is NOT a Statement of Account.
2. The Resident is Evicted
If your resident is evicted, you will be charging them all sums as indicated in the above paragraph, plus your attorney's fees and court costs.
3. The Resident Vacates at the End of the Lease
If your resident vacates as planned at the end of the lease owing no rent, you will not be charging the resident any rent on the Notice of Intention to Impose Claim on Security Deposit, just damages that exceed ordinary wear and tear, and any other sums due under the terms of the lease.
Sums Owed that Exceed the Security Deposit
Often a resident will owe significant sums that exceed the deposit, or after you send the Notice of Intention to Impose Claim on Security Deposit, you discover at a later time some further damage that was not detected or actually hidden from the manager. If you already claimed the entire deposit, this is not relevant to the prior Notice of Intention to Impose Claim on Security Deposit. While you do want to list on the Notice of Intention to Impose Claim on Security Deposit everything possible that is owed by the resident within the window of 30 days you have to send the Notice of Intention to Impose Claim on Security Deposit, if there are other amounts that the resident owes you as time goes on, these amounts will still be owed to you by the resident. You do not send out another Notice of Intention to Impose Claim on Security Deposit as time goes on. You would send out a BILL or a STATEMENT OF ACCOUNT.
Determining the Charges
The manager can impose a claim on the security deposit, not only for physical damage claims, but for any failure in the performance of the rental agreement by the resident. There is a lot of confusion surrounding the term "damages". As FS 83.43(12) clearly provides the term is not limited to just physical damages, but also monetary damage, such as unpaid rent. Damages are the compensation recoverable for any loss suffered by the manager due to the resident's breach of the lease.
Most Common Damages
Non -Physical Damages: The most common damages chargeable against the security deposit are rent (the unpaid rent for the month of vacating: the entire month can be claimed, not just the prorated rent through the vacating date), late charges, NSF fees, accrued utilities, including water, sewer, gas, electric and garbage (utilities are often billed in arrears), pest control, valet trash service, eviction court costs and attorney's fees. Concession recapture is not permitted without clear authorization under the lease or concession addendum. Even then, there may not be a clear answer as to whether a concession can be recaptured. A judge could take the position that the statute does not directly provide the manager with this remedy, and therefore the recapture of the concession may be prohibited. If the Early Termination Addendum is used, and the resident picked Choice #1, concession recapture is not allowed.
Automatic Forfeiture of the Security Deposit
A common misconception among managers is that the resident who breaches his lease by skipping or being evicted automatically forfeits the deposit. Some managers also believe the forfeited security deposit is in addition to any other damages; those managers incorrectly fail to apply or credit the deposit against legitimately owing amounts. Many managers bolster their claim to the automatic forfeiture of the security deposit for breach of the lease because the lease so provides. As a general rule, automatic deposit forfeitures for breach of the lease are not legal. In real life though, a resident who breaches the lease will most likely not receive the security deposit back, NOT because of forfeiture, but because of the legal claims made against the deposit for rent owed, physical damages, liquidated damages charges or charges for failure to give notice prior to the end of the lease, if and only if the manager has followed Florida law.
Physical Damages: Physical damages to the rental in excess of ordinary wear and tear are valid claims against the security deposit. The manager should remember that after a year or more of use, there will be some ordinary wear which should not be charged to the resident. The manager should also remember that many judges will build in a depreciation factor to many items supposedly needing repair or replacement. Thus, a manager should not attempt to charge a resident for the full cost of carpet replacement, when the useful life of the carpet was already 90% exhausted prior to that resident taking occupancy. The term "ordinary wear and tear" does not appear in the Landlord/Tenant Act, but most judges will enforce a variation of this concept. Particularly with regard to physical damage claims, managers would be well advised to settle with residents, if possible, rather than risk an adverse court decision. The amount in dispute is usually small compared to the liability for the prevailing party's attorney fees. When the unit has not been left clean, cleaning charges can be deducted. Like ordinary wear and tear, "clean" has no statutory definition, and resident disputes are better settled then litigated. If the manager imposes a standard nonrefundable redecorating or cleaning fee, then the manager may have waived the right to charge for any further painting or cleaning, as the case may be. If the resident has made unauthorized alterations to the rental, such as unauthorized painting, then the removal or repair of the alterations and restoration charges are valid deductions from the security deposit. If the resident has made authorized alterations which the manager is leaving in place, such as the installation of a ceiling fan, then there should be no deduction from the deposit. If the manager is removing the authorized alterations, then the lease should indicate that it is the resident's duty to restore the premises to the original condition. If the lease is silent or unclear on this duty, then the authorization may be seen as a waiver of any resident's obligation to restore.
Problem Charge Areas
An issue arises when a deduction is made without an actual repair being conducted, either prior to or after the claim letter is sent. There is no legal requirement that particular damage be repaired in order to entitle the manager to a deduction from the deposit. However, claiming damages without making the repair will require clear and convincing proof. Managers should have particularly well documented files for any charges in that scenario. Courts have held that certain damages are chargeable against the deposit only if the lease provides for them in explicit, unambiguous language. Leases can maximize the claims against the deposit by identifying these items as damages. If the lease is not specific, a general catch-all clause may suffice. However, reliance on general language is risky. Charge lists for repairs or replacements, when reasonable, will likely be upheld. It is overreaching that leads to judicial skepticism: if a manager does not buy at retail, the charge sheets should not be at retail.
Notice of Intention to Impose Claim on Security Deposit Form
The manager must account on the Notice of Intention to Impose Claim on Security Deposit not only for the security deposit, but also for any pet deposit or other deposits, such as appliance, utility, garage or common area deposits. In other words, all deposits. Although not technically required under Florida Statutes, it is good practice to account for the last month's rent on the Notice of Intention to Impose Claim on Security Deposit. However, non-rent claims should not be made against an advance rent fund. Look carefully at the form provided here and compare it to the form that your company uses. Many computer generated forms from companies who have a nationwide presence are completely insufficient. The fact that you have not had a problem in the past with your form means nothing.
Preparing The Notice Of Intention To Impose Claim On Security Deposit
FS 83.49(3) (a) states: If the manager fails to give the required notice within the 30-day period, he or she forfeits the right to impose a claim upon the security deposit. Whatever the date on the Notice of Intention to Impose Claim On Security Deposit, the postmark date is conclusive. If the postmark is not within 30 days of vacating, then the Notice of Intention to Impose Claim On Security Deposit is late. The courts accept no excuses. Note that the failure to timely comply with the statute only bars claiming the deposit. It does not release the resident from the financial obligation to pay the damages. The manager must return the deposit, but the resident can be sent to collections or sued for the damages. Judges are very familiar with this law. While the statute permits some wording changes by only requiring a "substantially" similar statement, you are advised to consult with your attorney before making changes. The manager's address must be included in the Notice of Intention to Impose Claim on Security Deposit. This is the complete manager's address, where any resident's objection should be sent, including P.O. Box/street, city, state and zip.
Listing the Damages
Again, the Notice of Intention to Impose Claim on Security Deposit only deals with the deposit. It is not required by law to be the complete listing of all the damages, but it is highly recommended. Confusion can be avoided if the Notice of Intention to Impose Claim on Security Deposit contains a statement to the effect that the Notice of Intention to Impose Claim on Security Deposit "does not waive or limit any of the manager's rights to damages or amounts due, which may exceed the security deposit or the amounts listed on the Notice of Intention to Impose Claim on Security Deposit". The manager may later send the resident a statement of additional amounts due as a result of further damages found or incurred. It is best to send a STATEMENT and not a second Notice of Intention to Impose Claim on Security Deposit form, as sending a second Notice of Intention to Impose Claim on Security Deposit may provide the former resident with a legal argument that the "final" Notice of Intention to Impose Claim on Security Deposit was not timely.
As used in this article "damages" means physical damages to the premises, cleaning charges, unpaid rent or other accrued charges, and any other amounts charged to the resident. It is good practice to list all known damages at the time the Notice of Intention to Impose Claim On Security Deposit is sent. If the damages exceed the deposit, the resident will have a clearer idea of the true status of the account.
Detailing the Damages
The purpose of the Notice of Intention to Impose Claim on Security Deposit is to let the resident clearly know what is happening to the deposit. To effectuate that purpose, the courts require that the Notice of Intention to Impose Claim On Security Deposit contain sufficient detail to apprise a reasonable person such that he could make an informed decision as to objecting to a damage item claimed or the charge for that damage. A manager should ask the question, "If this Notice of Intention to Impose Claim on Security Deposit is given to a judge, will the judge be able to ascertain what was damaged and how much it cost?"
The following represent bad practice claims: claiming the deposit without listing any damages; listing the damages without amounts, lump-sum damages, such as "rent, damages and cleaning: $900.00", and summary listings, such as a long paragraph of the individual itemized damages followed by a total amount. The Notice of Intention to Impose Claim On Security Deposit can refer to another attached or enclosed list that itemizes the damages and amounts, such as a move-out reconciliation or a final inspection form.
All too often the math is wrong. Check and re-check your math. Most importantly, is the balance owed the manager or the refund to the resident correct?
Where the Notice of Intention to Impose Claim on Security Deposit Is to Be Sent
We have all heard the expression "last known address", but much confusion abounds regarding its actual definition or how it should be defined in the manager/resident law context. According to Florida law, the manager must send out the Notice of Intention to Impose Claim on Security Deposit or refund any money that is due to the resident to the "last known mailing address".
The "Last Known Mailing Address"
FS 83.49(3)(a) clarifies the issue stating that it is the "last known mailing address". The usual last known mailing address will be the address of the premises or the address that you have been sending correspondence to the resident while the resident was living on the premises or any other address that the resident has given you to send correspondence to the resident by mail.
1. The Apartment where the Resident Resided
If the resident has not given you any other address to which to send mail, this will be the "last known mailing address". Of course, the resident no longer resides at the property, but in the absence of the resident providing the landlord with a forwarding address, this is where you should send your Notice of Intention to Impose Claim on Security Deposit. The resident may or may not have put in a forwarding address with the post office, but this is not your problem. The law requires you to send out the Notice of Intention to Impose Claim on Security Deposit. It does not require you to make sure the resident actually receives it.
2. The Address where You Have Been Sending Correspondence
The resident may have given you a mailing address at the beginning or during the tenancy, requesting that you send all mail to that address. Commonly, residents and managers alike do not like to use the exposed street side mailboxes due to the high incidence of theft from these mailboxes, resulting in the use of a post office box at the post office or at a mailbox/shipping store. If this is the only address you have, this is the "last known mailing address".
3. The Address the Resident Gives You when Vacating
Often a vacating resident will give you his or her soon to be NEW address. This may be done by phone or in writing. If the resident has requested that you send any correspondence to this new address, do as you are instructed. If it was a verbal instruction, note the date and time of the request in your file, and urge the resident to give you this instruction in writing. The most common problem is that a resident will give a forwarding address to a staff member prior to vacating, and this information will be forgotten, lost in the file or not noted immediately in the computer system. When in doubt, sending the claim letter to both the former and "new" address should minimize the risk of sending the claim letter to the "wrong" address.
Deposit Claim and Refund Timing: Specific timing issues are laid out in Florida Statutes which must be followed to avoid the manager having to refund the entire deposit to the resident, even if the resident owes the manager money. Many managers fail to take the law seriously and are surprised when a resident leaves owing a substantial amount of money to the manager, only to demand the full security deposit back from the manager because the manager failed to send the Notice of Intention to Impose Claim on Security Deposit out in time or get the resident the balance of the Deposit if any back in time.
When Does the Notice of Intention to Impose Claim on Security Deposit Have to be Sent to the resident?
The required timing of the Notice of Intention to Impose Claim on Security Deposit depends on whether you are making a claim against the deposit or whether you are returning the full deposit to the resident. Timing When Making a Claim
If making a claim against the deposit, the Notice of Intention to Impose Claim on Security Deposit must be sent out within 30 days from the date that the resident vacates the unit for termination of the lease and not one day later. Failure to send out this Notice of Intention to Impose Claim on Security Deposit within the 30 days will result in the manager having to refund the full amount of the deposit to the resident, regardless of the amount owed to the manager. There is no excuse for failing to send the Notice of Intention to Impose Claim on Security Deposit out within the 30 day timeframe. For many years, the law only gave the manager 15 days to send the Notice of Intention to Impose Claim on Deposit. You have 30 days now; don't wait until the last minute.
Timing When Returning the Full Deposit
If you are returning the full deposit, you do not have to send out the Notice of Intention to Impose Claim on Security Deposit at all. However, you must get the money in the mail within 15 days of the date that the resident vacated the premises. Many apartment communities fail to send the deposit refund to the resident within 15 days due to accounting issues and the time delays in requisitioning the money and getting a check from the corporate office. Unfortunately, the judge does not care how your system works. The money must be sent out within the 15-day period.
Returning a Portion of the Deposit or Making a Claim upon the Entire Deposit
If you sent the Notice of Intention to Impose Claim on Security Deposit out, and you are returning a portion of the deposit or retaining the entire deposit, you must mail the Notice of Intention to Impose Claim on Security Deposit within 30 days of the resident vacating, and if refunding a portion, send the refund within 30 days from the date you sent out the Notice of Intention to Impose Claim on Security Deposit.
1. Resident gives notice to vacate September 5 or the lease ends September 5, and you are returning some but not all of the deposit. You must send out the Notice of Intention to Impose Claim on Security Deposit by October 5, and you must return the balance of the deposit within 30 days from the date you sent out the Notice of Intention to Impose Claim On Security Deposit. 2. Resident gives notice to vacate for August 31 or the lease ends August 31. No keys are returned until September 5. You should send out the Notice of Intention to Impose Claim on Security Deposit within 30 days from August 31. NEVER look at the key return date to begin counting your days, as this could cause a dispute as to when or if keys were returned.
How to Send the Notice of Intention To Impose Claim on Security Deposit
The statute requires that the Notice of Intention to Impose Claim on Security Deposit be sent by certified mail. Use of a return receipt (the green card) is not required, but we have traditionally advised managers to obtain a return receipt. You will have the ability to track receipt of the Notice of Intention to Impose Claim on Security Deposit online. The green card is powerful evidence in court when the resident denies receiving notice. You may not charge the resident for the cost of the certified mail. It is a duty imposed on the manager by the statute and is not chargeable to the resident.
Forgetting to Send the Notice Of Intention To Impose Claim On Security Deposit
Managers forget to send out the Notice of Intention to Impose Claim on Security Deposit. It is fairly common. You may have evicted the resident, and the last thing on your mind is returning any money to the resident, as the resident owes so much. The resident may have skipped out in the middle of the night owing 3 months' rent, there is $5000.00 worth of damage to the unit, and the thought that the resident is entitled to a Notice of Intention to Impose Claim on Security Deposit is just not present. Unfortunately, the fact that the resident owes money and will not be getting a dime back does not excuse the manager from sending out the Notice of Intention to Impose Claim on Security Deposit. The failure to send out the Notice of Intention to Impose Claim on Security Deposit within the time period as required by law could result in having to return the entire security deposit to the resident. This could be a devastating occurrence, especially if the security deposit was a significant amount of money. If the manager forgets to send out the Notice of Intention to Impose Claim on Security Deposit within 30 days of the resident vacating, is it over now? Does the deposit money have to be returned to the resident? Possibly NOT, as Florida law has carved out an exception to the 30-day rule.
The General Rule: The general rule as discussed above found in Florida Statute 83.49, provides that upon the "vacating of the premises for termination of the lease", the manager shall have 30 days from that date to send out the Notice of Intention to Impose Claim On Security Deposit to the resident's last known address, which of course is the unit the resident was renting, unless the resident provides the landlord new address information. The confusing part of the statute has to do with the wording "vacating the premise for termination of the lease". This wording is open to more than one interpretation. Obviously it would apply to the resident leaving at the end of the lease, but what about an eviction? Does an eviction terminate the "lease", or does it terminate the "tenancy"? A good argument can be made that if a resident does not fulfill the lease term, whether by abandonment, surrender, or eviction, and the manager tries to rerent the unit on the resident's account under Florida Statute 83.595, the 30-day counting period does not start until the lease expiration date or the date a replacement resident takes occupancy, whichever occurs earlier. Under this statutory interpretation, the date under which the resident loses the right of possession and the date under which the lease obligations are terminated can be two very different dates. However, some judges may not accept this argument, and will start the 30-day counting period strictly from when the unit was physically vacated. Therefore, the safe approach is to remember to send the Notice of Intention to Impose Claim on Security Deposit out within 30 days from the date the resident physically vacates. If you know when the resident vacated, as in an eviction being finalized with the sheriff, or at the end of a lease, you know when to begin counting your 30 days. But suppose you forgot to send the notice out?
The Exception to the Rule: There is an exception to the 30 day rule, but it should never be relied on, only used in case a mistake was made. The general rule is that the manager ALWAYS gets the Notice of Intention to Impose Claim on Security Deposit mailed within 30 days.
Florida Statutes reads in part as follows: FS 83.49 (5) Except when otherwise provided by the terms of a written lease, any resident who vacates or abandons the premises prior to the expiration of the term specified in the written lease, or any resident who vacates or abandons premises which are the subject of a tenancy from week to week, month to month, quarter to quarter, or year to year, shall give at least 7 days' written notice by certified mail or personal delivery to the manager prior to vacating or abandoning the premises, which notice shall include the address where the resident may be reached. Failure to give such notice shall relieve the manager of the notice requirement of paragraph (3) (a) but shall not waive any right the resident may have to the security deposit or any part of it.
An Examination of this Exception: As can be seen under FS 83.49(5), if a resident abandons or vacates before the end of the lease, the resident is required to give at least 7 days' written notice by certified mail or personal delivery, stating he is vacating and giving a forwarding address. Many residents who leave early do not do this. They simply skip out in the middle of the night, or state they are leaving and then leave. In this case the Notice of Intention to Impose Claim on Security Deposit does not have to be sent out within 30 days if the resident is not on a lease, but if the tenancy is now month to month or week to week, the same rule applies. If the resident fails to give notice of vacating and a forwarding address at least 7 days before vacating, the Notice of Intention to Impose Claim on Security Deposit does not have to be sent. To recap: UNLESS the Lease Is at Its Normal End or the Resident Has Been Evicted: 1. The resident must give you at least 7 days' written notice before vacating, advising of the lease break. 2. The notice from the resident must be hand delivered or sent to management by certified mail. Why Does the Law Provide this Exception?: The reason this exception exists is so that the manager is not under the 30-day requirement when the manager has no idea if the resident has in fact vacated. Often the manager does not know the date the resident vacates, so the manager should not be held to a timetable when the manager did not know when that time period starts. This is a manager protection exception.
The Danger of Using the Exception: People are dishonest, and when the resident finds out that he was supposed to give you at least seven days' written notice by hand delivery or certified mail stating when he was leaving and giving a new forwarding address, a copy of this notice can miraculously appear, and the resident will tell the judge that he in fact DID give you the notice. Now the manager is faced with having to explain to a judge that the notice was not received, and the resident will try to convince the judge that he did give notice. Who will the judge believe? We cannot underestimate how convincingly someone can lie to a judge.
What to Do with the Exception: Once a manager understands the exception to the rule, it should be tucked away and almost forgotten. Always get the Notice of Intention to Impose Claim on Security Deposit out within the 30-day time period as required by law. Assume the resident will lie and say that he DID give at least 7 days' notice before he left, and that he DID give a forwarding address. Only use the exception to the rule when in a bind if management has forgotten to send out the Notice of Intention to Impose Claim on Security Deposit within the 30 days; possibly the exception will be there to help. If management does forget to send out the Notice of Intention to Impose Claim on Security Deposit, it is advisable to send it out anyway, even if outside the 30-day window. There is no need to alert the resident to the fact that the required 7 days' notice was not provided, because this will give the resident ample opportunity to fabricate the notice after the fact. Let this limited, technical exception work in your favor when needed; don't open yourself up unnecessarily to having to use it. As soon it is determined that the resident has vacated, begin counting the days, and timely send the Notice of Intention to Impose Claim on Security Deposit. Whether it be a skip, an eviction or the natural ending of the lease, send the Notice of Intention to Impose Claim on Security Deposit.
Revising the Security Deposit Claim after It Has Been Sent
When a resident vacates, the inspection is performed and the claim is made on the deposit by certified mail as the law provides. Maintenance may discover some serious problems that were missed in the inspection, including fleas, bad touch up paint by the resident and a hidden rug burn. Can management go back and send out a revised claim? Is there a waiver of rights to making an additional claim? This situation will arise at some point, and timing is crucial. If outside the 30-day window as required by Florida law, damages will not be able to claimed from the security deposit. The resident still may owe you the money. The right to go after the resident for this additional money has not been waived, only your ability to claim additional amounts directly from the deposit.
Get in the Unit as Soon as Possible! It is important that as soon as you get possession from the resident, be it from surrender, eviction or abandonment, you get into the unit quickly. The purpose of this is not to make the claim as soon as possible, but to document the condition of the unit quickly, so a resident does not later say that the property was damaged by someone else AFTER possession was turned over to you. A property could indeed be damaged by someone breaking into that unit some time after your resident has vacated. If you attempt to charge the resident for this damage, she may object and successfully convince a judge that the damage occurred after she vacated. Should you make the claim on the security deposit right away? No. If you are certain that you are going to make a claim, this is the time to pause and carefully begin documenting the damages and comparing the condition reflected in the move-in inspection report that hopefully you have.
Discovering More Damages after Sending the Notice of Intention to Impose Claim On Security Deposit: Some property damage is not immediately evident at the time the resident moves out. Residents sometimes successfully hide damages, paint over poorly filled holes in walls, mask odors with spray deodorants, or the unit may all of a sudden be infested with fleas two weeks after the resident moves out. A unit that is heavily cooled by air conditioning may not reveal the true smell of the years of cigarette smoking or urine damage to a carpet. Some damages are simply missed in error by the manager and later caught by the maintenance technician, who is more experienced in these matters and finds resident damage at a later time.
If You Are within the 30-Day Window: If you have sent out the Notice of Intention to Impose Claim on Security Deposit already, but are still within your 30-day window, you can simply prepare another one and send it out again to the resident in the same fashion as the first one, being sure to again comply with the certified mail requirement. The resident will of course be upset about the bad news, but you are within your rights to do this. Remember that the resident does not have to receive the Notice of Intention to Impose Claim On Security Deposit within 30 days; you simply must send it within 30 days.
If You Are outside the 30-Day Window: If you are outside the 30-day window and do not fall under any exception to the requirement to send the Notice of Intention to Impose Claim on Security Deposit out within the 30 days, you will not be able to claim anything more from the deposit than referenced in the initial Notice of Intention to Impose Claim on Security Deposit. If the resident was to receive a refund, the resident will receive the "balance due resident" as indicated in the initial Notice of Intention to Impose Claim on Security Deposit. Even if the resident owes you the money, the resident should receive this balance back.
Does the Resident Still Owe the Money? The resident will still owe you the money, but you will not be able to retain it from the deposit. You will be able to send it to collections, try to get the resident to pay or sue the resident if you wish. The main issue is that the funds you are holding cannot be used for the amounts owed.
Suppose the original amount and the revised amount owed both exceed the security deposit? Let us assume you are holding a $1000 security deposit and originally claimed damages of $1200 within the 30-day period. After the 30-day period expires, you discover another $500 in damages. You may feel that there is a need to send a revised Notice of Intention to Impose Claim on Security Deposit, but this is not necessary, and besides, it is too late to send an amended Notice of Intention to Impose Claim on Security Deposit. You already have claimed the entire security deposit, so this intent has already been established. Remember, a Notice of Intention to Impose Claim On Security Deposit is not a bill or a final accounting you are sending the resident. It is simply a notice stating how much you will be taking from the deposit as required by law. However, to cite the above example, if you discover more damages within the 30-day period, it is good practice to send an amended Notice of Intention to Impose Claim on Security Deposit, since some of the items claimed in your initial Notice of Intention to Impose Claim on Security Deposit may not hold up in court if a dispute leads to deposit litigation.
Avoiding a Possible Waiver Issue: There is a possibility of a resident claiming that since you sent the Notice of Intention to impose Claim with a particular amount stated, you are now stuck with it and cannot now charge the resident any more. For example, if a resident breaks a lease owing you one month's rent, and you make a claim for this one month's rent, more months of rent may become due if the unit remains vacant. You certainly do not want the resident to think that just because one month was subtracted from the security deposit, this is all the resident is liable to you for. The standard notice wording as stated in Florida Statute 83.49 does not address this, so we recommend that non-waiver wording discussed above is placed on the bottom of the Notice of Intention to Impose Claim on Security Deposit to be safe: "This does not waive or limit any of manager's rights to damages or amounts due which may exceed the security deposit or the amounts listed on this form.
THE SECURITY DEPOSIT DISPUTE:
When receiving a Notice of Intention to Impose a Claim on the Security Deposit, invariably a resident will one day dispute what you have charged. You will usually be notified of this in a long, rambling letter, in which the resident goes on and on about how the premises were left cleaner than when he or she moved in. The resident's letter usually ends with a threat that you will be sued if the deposit money is not received back within a certain period of time.
What Is the Manager Required to Do when a Security Deposit Claim Is Disputed? The easy simple answer is NOTHING. Contrary to popular belief, there is no legal obligation to respond in any way to a resident's verbal or written security deposit dispute, but it should not be completely ignored. If the amount charged to the resident exceeded the security deposit, and the overage has or will be sent to collections, your collection agency must be notified that the account is disputed.
The Four Options when there Is a Dispute
1. Do Absolutely Nothing and Ignore the Resident's Dispute. This will most likely infuriate the resident. You will either hear nothing from the resident, receive multiple threats or calls, receive a letter from an attorney for the resident, or a lawsuit could be filed against you, the property owner or both. Chances are you will hear nothing. If you receive a letter from an attorney, it should not be ignored, but it should not be answered by the manager.
2. Give the Resident what He or She Wants. If the resident is demanding a return of the security deposit in full or in part, you can simply cave in and return the money. That is a fairly certain way to calm the resident down, but it is doubtful that your company wants to do this. If your attorney advises you to refund all or part of the funds, trust your attorney. Your attorney has most likely been in court many times and has won and lost many of these cases. Fighting small disputes can become expensive and time consuming.
3. Respond to the Resident and State that the Charges Stand. Tell the resident in writing that you have reviewed the file and that the charges stand. There is no need to explain the charges if they are clear. Remember that you are building a paper trail when you respond, so be careful you do not disclose any weaknesses you have in your documentation. Your response will at least show that you are not ignoring the resident and may calm the resident down. The response to an attorney can be as simple as, "We have received your letter dated _____ and we have forwarded your letter to our attorney _______" The purpose is twofold: (1) the attorney now knows that you have an attorney, and (2) by Florida Bar Rules, this attorney should now no longer communicate with you and must go through your attorney. This prevents the attorney from contacting you directly or trying to intimidate you.
4. Receive Settlement Authorization from Your Company and Settle the Case. After review of the file and possibly consultation with your regional and your attorney, it may be determined that certain charges are not easy to prove or were not warranted. If you receive a fixed amount of settlement authority in writing, you or your attorney can attempt to settle the matter. If settled, a release can be drawn up and the money disbursed according to the agreement.
Unclaimed Security Deposit Funds Procedure
Sometimes you will send a partial or full refund of the deposit to the resident, and it is returned to you unclaimed. Florida law specifically deals with the procedure a property manager must take with these funds in Florida Statute 717, the Florida Disposition of Unclaimed Property Act.
What Type of Funds Will You Be Holding Most commonly, the money returned to you will be the security deposit, a partial security deposit and sometimes other deposits, including but not limited to the pet deposit or key deposit.
Are These Funds Unclaimed? Typically, you have sent out the Notice of Intention to Impose Claim on Security Deposit, and this has come back to you "unclaimed", and the refund check is still in the envelope. In other less common situations, there is evidence of receipt of the certified mail, as you have received back the return receipt "green card", but for some unknown reason, the check is never cashed, and each month it shows up in your escrow account as an outstanding sum paid but not cashed. This can be an annoyance as time goes on, as this will inevitably occur in property management multiple times.
Due Diligence Since you may not have a forwarding address, you have sent the funds to the "last known address," which is indeed the home or apartment which the resident was renting. Since many vacating residents do not put in a forwarding order with the post office, it becomes difficult to discover a new address absent notification from the resident. This is when some investigation needs to begin, and this investigation can save you significant time and aggravation later. In the first place, you need to send it again by regular mail, unless it was sent back to you with notification that the resident had moved and no forwarding address is on file.
The "Certified Mail Conundrum" It is quite possible that the certified mail did indeed get forwarded to the new address and was refused, unclaimed and still never made it back to you, or was in fact claimed, but the "green card" did not show that the mail had been forwarded. There is a strange aversion by many people to claiming certified mail which results in a large percentage of the certified mail never making it to the recipient. Many individuals feel that by accepting the certified mail, something "bad" will occur to them; hence the certified mail is refused. In many other cases, the certified mail is indeed accepted, but the "green card" somehow never makes it back to the sender. There seems to be no reasonable explanation for this common occurrence, other than often the postal worker fails to remove the "green card" from the back of the envelope, and the recipient then has both the green card and the certified mail in his or her possession. We recommend that you first send the Notice of Intention to Impose Claim on Security Deposit and refund check by certified mail, but if this is returned to you, you follow this up with regular mail by sending the replacement check. The original certified mail envelope should be left intact (unopened), and the check within that envelope can be voided on your check records. You are not required to send a refund check by certified mail. You are only required to send the Notice of Intention to Impose Claim in this fashion.
Locating the Resident - Years ago, you could simply find out the forwarding address from the post office if there was one on file. This is not possible anymore. Now comes the time to begin to dig into the file to see if the application gives any clues where the resident works or worked, emergency numbers, or any other names or addresses you can find which you can call or write to possibly gain a proper address. There is no prohibition on calling any of the numbers you may have in the application, writing or emailing to any addresses you may have, since you are now simply trying to return some money, and you are not engaged in any collection activities. You may glean some information by talking to neighbors of the former resident as to the new address. Remember, you have already sent the Notice of Intention to Impose Claim on Security Deposit out. You DON'T need to send it out again. You simply need to send back the money.
Cutting a New Check If you have previously sent out the refund check and it has not been returned to you, you certainly do not want to cut a new check to the former resident unless you have stopped payment on the first check, and a significant amount of time has elapsed. Speak with your banker, as sometimes a stop payment order expires, and the check becomes good again. We recommend waiting at least three months before taking any action. If you send a new check to the now located prior resident, and the resident somehow received or has been holding the original refund check, you could be in for an unpleasant surprise if both checks now are able to be cashed.
Pulling Another Credit Report or Skip Tracing If the resident originally gave you permission to pull a credit report in the application process, it is permissible to do this again in order to potentially find a new address. After some period of time, a new credit report will most likely contain information on the current address of the resident. Many companies offer reasonable skip tracing services as well, and the small amount of money spent could save time and money later.
You Have Exhausted All Your Resources but Cannot Locate the Former Resident: Now What? If the refund is for more than $10.00, you are required to hold the funds in your escrow account for 5 years. Florida law requires this extremely long time period to safeguard the funds from the time the funds were due to the resident and provides a means to dispose of these funds upon the end of the 5 years.
What Florida Law Requires - The Florida Disposition of Unclaimed Property Act requires you to exercise due diligence in attempting to locate the former resident. This means the use of "reasonable and prudent means under particular circumstances to locate apparent owners". The exact requirements are listed in the Act and include using the Social Security number, if you have one, using nationwide databases, mailing to the last known address unless you know for sure it is inaccurate, or engaging a licensed skip tracing company. You are required to send in a report to the State of Florida on the forms provided by it prior to May 1 of each year, or you could be subject to a penalty imposed upon you. You must send a final letter to the former resident no more than 120 days and no less than 60 days prior to filing the report with the State, informing the resident that you are still in possession of the unclaimed refund. When you finally file the report, you must include the refund money with the report, and upon payment and delivery to the State, you will have no further liability to anyone and can remove the amount from your escrow account records.
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Releasing a Resident
by Harry Heist, Attorney at Law
Situations will arise when a resident or residents wish to be released from the lease agreement. The first reaction of the property manager is typically to refuse the request, wanting to hold the resident to the terms of the lease agreement. Often this decision can have serious consequences, as the resident may legally be entitled to be released from the lease agreement, or much to your surprise, a judge will feel that the resident is entitled to be released.
When a resident is demanding to be released from the lease agreement, the facts and circumstances have to be examined on a case by case basis with the assistance of your attorney. Your attorney most likely has dealt with the particular situation before and will be able to properly advise you. While the decision to release a resident is ultimately up to the property manager and the company, it is wise to take the advice of your attorney, even if it is not what you agree with or wish to hear. A resident who seeks to be released from the lease will often vacate even when the landlord's approval cannot be obtained. The manager will then seek to send the file to collections, and ultimately, the resident's credit will be affected. If the resident decides to challenge the credit reporting later, a judge may find that that the resident had proper grounds to be released. This makes a proper decision on whether to grant the release crucial, and most importantly, the proper Mutual General Release should be utilized, so the release is clean and final.
REASONS FOR RELEASE - The reason or reasons a resident gives for wanting to be released from the lease agreement vary greatly. It could be as simple as a situation when the resident wishes to move in with his or her significant other at another location, or as complex as when the resident is complaining about a repair or maintenance situation on the premises which you are unable to rectify to the satisfaction of the resident, a situation in which code enforcement is involved and the resident has properly threatened to terminate the tenancy or withhold rent. One must always keep in mind that residents desperate to be released from a lease may come up with bogus reasons why they "want out" and begin to set themselves up for a lease break by fabricating things or events. If you have a resident who is so intent on breaking the lease that he begins to cause trouble with other residents, a practical approach needs to be taken in the decision making process, even if the resident's reasons are not at all legitimate. The following will examine some of the "reasons" why a resident may wish to be released from the lease and how to handle each one.
Job Transfers - With some limited exceptions governing servicemembers, there is no legal basis in Florida law for a resident to break a lease due to a job transfer. Unless the lease has a clause allowing the resident to break the lease due to a job transfer, this request can and should be denied. It is important that if the resident makes this request, you follow up with a short letter to the resident stating that the request is denied if this is your decision. If a resident or his attorney makes a request, and you fail to respond, the resident may try to claim that the request was agreed to. If your lease does contain some sort of job transfer clause, the resident will need to have followed the terms and conditions of the clause. Make certain that any job transfer clause in your lease or one that you may wish to create is perfectly clear with no ambiguity. We do not recommend that you try to draft a job transfer clause in your lease on your own, but rather consult your attorney, who will easily be able to provide this to you as a separate addendum
Home Purchase - There is absolutely no legal basis in Florida law for a resident to break a lease due to a home purchase. As with job transfers, unless the lease contains some sort of home purchase clause allowing the resident to be released from the lease due to a home purchase, the resident will be held to the lease. Often real estate salespeople will tell a prospective buyer of a home that Florida law allows the resident to break the lease in the event of a subsequent home purchase. This is a very common and pervasive myth amongst residents and even real estate salespeople. It is important that if the resident makes this request, you follow up with a short letter to the resident stating that the request is denied if this is your decision. If a resident or his attorney makes a request, and you fail to respond, the resident may try to claim that the request was agreed to. If your lease does contain some sort of home purchase release clause, the resident will need to have followed the terms and conditions of the clause. Make certain that any home purchase release clause in your lease or one that you may wish to create is perfectly clear with no ambiguity. No one should be released for a home purchase if that resident is in default of the lease owing you money. We do not recommend that you try to draft a home purchase release clause, but rather consult your attorney, who will easily be able to provide this to you in a separate addendum.
Domestic Violence - There is no legal basis under Florida Statutes for a resident to break a lease due to domestic violence issues, but care must be taken to avoid further problems or an escalation of an already bad situation. A judge may decide that the resident was able to break the lease, not on the basis of law, but simply because of that judge's idea of fairness. Usually the situation begins with the victim resident asking to be released from the lease agreement due to a dangerous situation developing in the apartment. The police may have been called, an arrest made, and now the alleged victim of the domestic violence wishes to be released. Your gut instinct may be to not wish to release the victim, especially if the victim has obtained an injunction against the resident perpetrator and the resident perpetrator is not allowed to come back to the premises, assuming that the violence has ended. Unfortunately, injunctions are often temporary, and domestic violence is ongoing. You may release the victim resident, the perpetrator resident returns to the premises and all is well, or more commonly, the victim resident you released returns, residing again with the perpetrator resident. In the worst case scenario, you refuse to release the victim resident from the lease, the perpetrator resident returns to the premises and commits an act of violence on the victim resident, who then tries to hold your company responsible for his or her resulting personal injury, citing your refusal to allow the release. Requests to be released based on domestic violence must be examined on a case by case basis based on the facts and circumstances. Remember that you cannot just "remove a person from a lease", unless it is agreed to by all parties. While you may be able to release the victim resident without the consent of the perpetrator resident, you cannot simply unilaterally remove the perpetrator resident from the lease without that person's knowledge and consent. Legislative efforts have been made in Florida to give more rights to domestic violence victims, both in being released from a lease and in regard to applying for a new rental, but those legislative efforts to date have failed. Additional rights for domestic violence victims do exist with regard to some federal, project based properties.
Habitability Issues - Under Florida law, a resident has many rights regarding habitability. If your apartment is not up to code, if things are constantly breaking down, if you cannot provide the services per the terms of the lease, if it impossible for you to rectify a maintenance problem or the resident's decision to remain in the unit will be dangerous to the resident, we recommend that the resident be released from the lease agreement with no penalty. Your view of the existence or severity, if any, of a habitability issue may differ drastically from that of the resident's. It is beneficial to have a third party such as your attorney help you make the determination whether a person should be released from the lease agreement. Florida law requires that you provide the resident with a habitable apartment and imposes many obligations regarding the same. The fact that a repair cannot be accomplished quickly, or that the problem is serious or expensive to rectify, has no relevance whatsoever upon your legal obligations. Often you may feel that you are doing "the best you can". Unfortunately this may not be enough to satisfy a judge. If you think getting a repair is expensive, you will be even more surprised how expensive litigation will be.
Property Casualty - In the event of a casualty on the premises, such as a fire, flood or other major problem, we recommend in most cases that the affected resident is released from the lease agreement upon request, or at least that the offer is made for the release to occur. The fact that you have a suitable unit for the resident to move to or another apartment at a sister community is available will not negate the fact that the resident may be legally entitled to a release. A resident is not required to move to another unit just because another unit happens to be available. If there is significant casualty damage to an apartment not attributable to the resident, the resident will have a right to be released from the lease as a matter of law.
Neighbor vs. Neighbor Disputes - Neighbor versus neighbor disputes can often be extremely difficult to resolve, and they sometimes result in the request by one or both parties to be released from the lease agreement. The issue may be as simple as one neighbor complaining about comments made by another neighbor, to an all out war between neighbors in which threats have been made, possibly a physical altercation has occurred, and there is a strong potential for escalation. While one resident can possibly legally argue that his or her peaceful, quiet enjoyment of the premises is being violated entitling that resident to be released from the lease, often it takes two to create a problem, and you are not sure who is at fault. Possibly an offer to transfer to another unit may be in order prior to an offer to release. Care must be taken whenever it may appear that you have "taken sides", as this could trigger a Fair Housing complaint.
Noise Complaints - A typical complaint is the downstairs resident complaining about the noise from the upstairs neighbor or vice versa. The manager has asked the complaining resident time and time again to notify the office or the courtesy officer when the noise is occurring; it cannot be verified, or you just have a situation in which the resident cannot be made happy no matter what. The slightest bit of noise results in a complaint by the resident, and nothing can be done to fix the problem. In addition to noise from another neighbor, you may be having extensive construction on your property which is interfering with the quiet enjoyment of the premises for the resident who works in the evening and sleeps during the day. We recommend that the first step is to offer the resident another similar apartment if one is available, and if this does not ameliorate the problem and the resident is insisting upon being released from the lease, if you believe that there is noise occurring, the construction of your property is such that you feel the resident's complaints may be indeed valid, or there is extensive construction noise on your property that may last a long time, a release of the resident may be in order.
Crime and/or Presence of a Sexual Offender/Predator - If you begin to have crime problems on your property of a serious nature, or a resident is the victim of crime against person or property, often the request will be made by the resident to be released from the lease agreement. The property manager sometimes downplays the crime issues, especially if the manager does not live on-site, or if the manager takes the position that the resident was a victim of crime because of the resident's own conduct, such as individuals with whom the resident is associating. A resident arguably should not have to reside at an apartment community when there is a serious, ongoing crime problem. If there is a crime problem of an ongoing nature or even one extremely violent crime, many judges may allow a resident to be released from the lease agreement, particularly if the resident is a victim of crime or is geographically located very to close to the scene of a crime. If there is a sexual predator or offender residing in the community or neighborhood, either as an authorized or unauthorized occupant, a resident with a child or children may wish to be released. Will a judge allow this? What would you do if you were the judge? Give it some thought. When making a decision to allow a resident to be released due to crime issues, the facts and circumstances have to be examined. Is this a one-time occurrence? Was the resident the innocent victim or part of the problem? Is there an ongoing crime problem on the property? Have you gotten the problem under control? Finally, ask yourself how you would feel if you lived on-site and were dealing with a crime problem, police responses and disturbances that arise when crime begins to get out of control.
Illness or Disability - If a resident requests to be released from the lease due to an illness or disability, although Florida Statutes may not address the issue, there are Fair Housing and common sense considerations. A somewhat uncommon but important request by a resident is to be released from the lease due to the resident entering an assisted living facility, the resident no longer able to live alone. The resident may need to move in with a caretaker out of state, or the resident is unable to climb stairs anymore, for example. We recommend that in these situations, you should strongly consider releasing the resident. In those situations in which the resident is having difficulty with stairs and you do not have an elevator, if you have a ground floor apartment that is in fact suitable, we not only recommend that you offer this to the resident, but also assist in the move, of course using the proper Moving Assistance Release form. Even if you are able to make accommodations, if the resident desires to be released from the lease to illness or disability, we recommend that you strongly consider granting the request with no penalty.
Prepaid Rent and Security Deposits - If you are releasing a resident, the disposition of any prepaid rent or security deposit must be determined, and the normal procedures of sending the Notice of Intention to Impose Claim on the Security Deposit out by certified mail must be followed and not forgotten. You do not want to have a situation in which you agree to release a resident, and then a dispute occurs after you claim the security deposit or prepaid rent, if any. There should be no surprises, and if the departing resident is to receive the security deposit or prepaid rent back, or if it is to be used for rent or a buy out, this should all be determined and memorialized in writing signed by all parties to the lease. Preferably a properly drafted Mutual General Release will be executed in situations in which the resident and management have come to an agreement.
Releasing with the Mutual General Release -
Once the decision is made to release the resident from the obligations of the lease agreement, everything needs to be put in writing. Carelessly allowing a resident to be released from the lease could result in your company being sued later by that same resident for whom you did a favor by granting the release. All releases should be in writing; cover all the bases. This can be accomplished by a simple general release by management, but this would only protect the resident. It affords no protection for your company. In most cases, the General Mutual Release is advisable, which applies to both the residents and your company.
Parties - All parties to the lease and any other people who may have been occupants or could claim anything against your company should be signers of the release. The release will not only apply to the actual named parties, but also to heirs, assigns, employees, owners or anyone else who potentially could be involved in litigation along the way. The legalese you see in a Mutual General Release is more important than it may appear. You do not want to release a resident, only to have that person file a lawsuit against the property owner because the property owner was not addressed properly in the release. Releases need to cover all possible parties, including but not limited to owners, management, agents and staff.
Vacating Date - If the resident is to vacate the premises by a fixed, predetermined date as part of the term of the Mutual General Release, this needs to be indicated on the form. Failure to vacate by said date, if this is a not a term or condition, will likely render the Mutual General Release invalid, and will also be ineffective for the purpose of supporting an eviction.
All Claims - The Mutual General Release will in a general way release all parties from any and all claims that a party or parties had now and in the future. This means that no party can pursue any other party if there is compliance with all the terms of the release. Extreme caution here must be taken, as there is always a possibility that you may discover damages after the Mutual General Release is signed and a resident has vacated. Unless the potential of these damages is addressed in the Mutual General Release, you will not be able to pursue the resident, and any claims will be wiped out by the document.
Prepaid Rent and Deposits - The General Mutual Release will need to address all prepaid rent or any deposits, if any, held by your company on behalf of the resident. If they are not addressed properly, you could end up having to refund money you are holding to the residents that you fully expected to retain.
Possible Later Claims - Just as a resident could possibly have later additional claims, or in legalese, causes of action, against your company, you may find that the resident owes you for damages or other amounts that might not have been apparent at the time the Mutual General Release was executed. Damages to the unit, overlooked rent, late charges or unpaid utility charges may not be discovered until it is too late. Your Mutual General Release should address these issues or potentialities. The main issue that cannot normally be definitively addressed is possible damage to the premises discovered after the resident vacates, as inspection of an occupied unit is often difficult and faulty. The Mutual General Release can state that damages discovered after the resident vacates attributable to the resident exceeding ordinary wear and tear will be subtracted from any anticipated refund. Of course, if a Mutual General Release is executed after the resident has vacated, this is not an issue, but often the execution of the Mutual General Release is done while the resident is still in possession.
Personal Injury/Children and Health - Sometimes a Mutual General Release is meant to address personal injuries which the resident may have suffered. Possibly a medical bill is being paid, or for some reason the resident is being allowed to vacate or is compensated for some injury or perceived health issue due to a mold problem, for example. While the wording of the Mutual General Release would appear to extinguish any ability of the resident to come back at a later time, as that is the purpose of a Mutual General Release after all, the landlord needs to be extremely careful if there are minor children of residents involved, or there is a potential of an undiscovered illness or injury which was not apparent at the time the General Mutual Release was signed. If a General Mutual Release is meant to deal with medical bills, health hazards or potential health or injury to person issues, you MUST speak to your corporate attorney, risk management department or the insurance company that handles your property.
Fair Housing Considerations - Allowing residents to be released from the lease agreement could have serious Fair Housing implications. Where do you draw the line, and how do you decide to allow one person to be released but possibly not another? Make sure you carefully consider all factors when allowing a release to occur, and be sure to have your attorney review all the facts prior to a Mutual General Release being offered or executed.
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by Brian P. Wolk, Attorney at Law
Most property managers understand that name of the owner is often not remotely the same name as their apartment community. For example, the name of the apartment community may be XYZ Apartments, but it may be owned by ABC Limited Partnership. XYZ Apartments is the fictitious name. The apartment community is certainly allowed to have a fictitious name which does not match the name of the legal owner. However, under Florida law, the fictitious name must be registered with the State of Florida through the Secretary of State. If the fictitious name is not registered, then the landlord will not be entitled to maintain a legal action in Florida, unless the fictitious name bears a resemblance to the name of the legal entity. This means that failure to register the fictitious name may delay or totally derail the eviction effort against a resident. Time and time again, property managers assume their property management corporate home office staff has handled all necessary registrations to make the apartment community compliant with Florida law. As this is read, there are countless numbers of apartment communities operating without properly registered fictitious names throughout Florida. An apartment community manager should never assume that the fictitious name is properly registered, as that assumption could lead to serious consequences, including criminal penalties. On the other hand, it is inexpensive and not very difficult to properly register a fictitious name.
Location of fictitious names
The Division of Corporations possesses an index of fictitious names on an internet database which is located at sunbiz.org. It is recommended that property managers utilize this web tool to see if their apartment community has filed the fictitious name. Applications for fictitious names can be obtained from the Division of Corporations in Tallahassee and can be downloaded at sunbiz.org.
Definition of fictitious name
A fictitious name is any name in which an entity or person transacts business in the State of Florida that is different from that entity's or person's legal name on file with the Florida Division of Corporations of the Department of State. Conducting business means any enterprise or venture, in which a person sells, buys, exchanges, barters, deals or represents the dealing in anything or article of value, or renders services for compensation. Apartment communities clearly fall within the definition of business transactions.
The Fictitious Name Act
Florida Statute 865.09 is known as the Fictitious Name Act. The Act sets detailed fictitious name registration requirements, exemptions from those requirements and penalties for noncompliance with the Act. The Act also sets forth the cancellation and renewal requirements with respect to fictitious names.
The purpose of the Act
The Florida Legislature intended that there be public notice as to ownership and did not want legal entities or persons to avoid being sued by using fictitious names that could not be easily traced back to the true and proper owners. In keeping with that purpose, a fictitious name registered under the Act may not contain the words "Corporation" or "Incorporated," or the abbreviations "Corp." or "Inc.," unless the person or business for which the name is registered is incorporated or has obtained a certificate of authority to transact business in Florida pursuant to chapter 607 or chapter 617.
Registration requirements under the Act
FS. 865.09(3) REGISTRATION."”A person may not engage in business under a fictitious name unless the person first registers the name with the Division by filing a sworn statement listing: (a) The name to be registered. (b) The mailing address of the business. (c) The name and address of each owner and, if a corporation, its federal employer's identification number and Florida incorporation or registration number. (d) Certification by the applicant that the intention to register such fictitious name has been advertised at least once in a newspaper as defined in chapter 50 in the county where the principal place of business of the applicant will be located. (e) Any other information the division may deem necessary to adequately inform other governmental agencies and the public as to the persons so conducting business. Such statement shall be accompanied by the applicable processing fees and any other taxes or penalties owed to the state.
Legal significance of the fictitious name registration
Since the purpose of the Act is simply for public notice as to the true ownership of the entity using the fictitious name, the Act does not validate the right of the entity to use the fictitious name. In other words, the filing of the fictitious name does not mean that the entity has acquired any trademark or similar rights as to the fictitious name. Therefore, the same fictitious name could still be used by another person or entity in the future, or conversely, use of a properly registered name may still constitute a separate trademark or copyright law violation.
Exemptions from the fictitious name filing requirements
If the applicant is a licensed attorney forming a business for the practice of law in the State of Florida, If the applicant is registered with the Department of Business and Professional Regulation and their licensing board has not imposed requirements for the registration as a fictitious name, if the applicant is a corporation, partnership or other legal entity filed or registered and in good standing with the Division of Corporations and is not transacting business under any other name, or if the applicant is a federally chartered corporation and is not transacting business under any other name, the applicant is not required to register a fictitious name in all of the above cases.
Properly renewing the fictitious name
Fictitious name registrations last for five years, expiring on December 31 of the fifth year. Renewal of fictitious name registrations may be filed between January 1 and December 31 of the fifth year. The Division of Corporations will mail a renewal notice in the renewal year to the most recent mailing address on file. Failure to receive the statement of renewal does not relieve the entity or person from registration renewal requirements. If the fictitious name renewal is not filed on time, the fictitious name registration expires. The renewal application can be downloaded at sunbiz.org.
Change of ownership
If the ownership of a business registered under the Act changes, the owner of record with the Division shall file a cancellation and reregistration that meets the requirements set forth in the Act within 30 days after the occurrence of such change."ƒ
It is very important to note that the Fictitious Name Act is located under the crimes section of the Florida Statutes. Accordingly, any person who fails to comply with the Act commits a misdemeanor of the second degree, punishable as provided in s. 775.082 or s. 775.083.
Other penalties for noncompliance with the Act
If a business fails to comply with the Act, the business, its members, and those interested in doing such business may not maintain any action, suit, or proceeding in any court in Florida until the business is in compliance with the Act. A party aggrieved by a noncomplying business may be awarded reasonable attorney's fees and court costs necessitated by the noncomplying business.
Fictitious Names and the Three-Day Notice to Pay Rent
The property manager who lists a fictitious name not properly registered on a Three-Day Notice to Pay Rent jeopardizes the ability of the apartment community to successfully evict the resident if the resident fails to pay the rent. Some judges have reasoned that the entity listed on the Three-Day Notice did not have authority to transact business in Florida, thereby invalidating the Three-Day Notice and preventing the landlord from having standing to file the eviction. Some judges would still require that the resident deposit the rent owed into the court registry before allowing that defense to be asserted in compliance with Florida Statute 83.60(2).
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Statistical Lease Scoring
by Jay Harris
Senior Director of Business Development, CoreLogic SafeRent
Statistical lease scoring increases acceptance levels and helps maximize occupancy with renters of better credit quality.
Today's rental property world is rapidly changing. For rental property owners and managers instability in the real estate market and an economic downturn has led to an increase in rental applicants. While occupancy levels and rent prices are up, the old rules"”like evaluating applicants based only on credit scores, or turning down applicants with little or no credit bureau history"”may no longer be sufficient to keep net operating income (NOI) at an optimum level. Instead, property owners and managers are increasingly turning to powerful, yet intuitive and cost-effective, statistical-based screening tools.
The benefits of these analytical screening models are two-fold: help maximize occupancy through the strategic lowering of criteria, and raise the overall quality of tenants by helping identify applicants most likely to stay longer, protect the property and absorb rent increases.
How is this possible? By using predictive data not available in credit reports. In fact, these statistically validated decision models are specifically designed to predict lease performance in place of generic, one-size-fits-all credit scores based only on narrower, credit bureau data.
Statistical-based lease risk models go beyond the traditional credit report to include more robust records from a multitude of sources previously unexamined. These include multifamily rental debt histories as well as records from payday loan companies, rental stores, subprime auto lenders, the courts and more. This deeper data is modeled to predict the likelihood of performance on a lease better than a generic "credit score." The result? A richly layered snapshot of each applicant that better reflects overall renter credit quality.
For property owners and managers, this greater depth of insight and data allows users to set less restrictive applicant criteria without taking on additional risk, which in turn increases rental applicant acceptance. Taken out of context, this approach appears to defy conventional wisdom. But when current trends are more closely examined, this type of informed, intelligent decision-making is precisely what the rental market is lacking.
For example, say John Smith lost his job when the company he worked for suddenly closed. As a result of this unemployment, he was unable to make his mortgage payments"”resulting in foreclosure and, ultimately, bankruptcy.
Under the old rule-of-thumb standards, John and his family could very well have been denied as renters based on a standard credit report. However, when multiple factors are taken into consideration"”new employment has led to stable income, no other financial obligations and no previous rental evictions or collections"”the picture changes dramatically. John and his family exceed the property's applicant requirements while emerging as highly desirable long-term tenants.
Statistical-based screening tools are beneficial for applicants with thin credit files as well. With little or no credit history, these applicants are often quickly denied under old rule-of-thumb standards. Now, they can be scored on a wide range of "life" factors that increase their desirability as tenants.
Another benefit: statistical screening technologies can be used not only to screen out the least desirable candidates, but can actually help identify the "best of the best" candidates as well. Some methodologies, like the one used by Registry ScorePLUS from CoreLogic SafeRent, generate easy-to-read three-digit scores that allow property owners and managers to instantly identify the applicants most likely to stay longer and pay more over time. Lower turnover rates and safer communities help improve renters' overall quality of life"”which in turn leads to increased rental values.
Statistical-based smart screening solutions can even be adjusted according to changing market conditions, such as seasonal changes in application levels and volatile rents.
Applying the best intelligence together with the best lease decision analytics not only takes the guesswork out of resident screening decisions, it also helps increase overall net operating income (NOI). It's time to move beyond traditional pass-fail rental criteria in favor of more sophisticated, analytical statistical screening models.
At-a-Glance Benefits of Statistical Lease Screening
By moving to statistical lease screening, like Registry ScorePLUS from CoreLogic SafeRent, operators credit-qualified four percent more screened applications in 2011 than 2008. How? Apartment applicant scores remained steady amid the changing economy. Facing this steady applicant pool, users adopted best-in-class lease risk modeling to lower minimum decision points from old levels. At the same time, better modeling used lease-predictive data to qualify tenants with thin or no credit bureau files who couldn't be qualified before.
Here's how statistical lease screening works on a hypothetical property:
A sample 300 unit property has 100 units to rent in 2012 (after renewals) with $1,000/month rents and related income
Property occupancy is 92 percent - slightly below optimal levels
By moving to best-in-class resident screening, the user is able to obtain 4 percent more qualified leases from the same applicant traffic
Four additional leases are worth another $12,000/year, which equals a $48,000/year boost to NOI
This $48,000 gain is a recurring annual benefit, increasing property value by $800,000 (assuming a 6 percent cap rate)
Additional savings from reduced marketing costs due to higher applicant yield are also possible
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