VOLUME 10 - ISSUE 1 LEGAL UPDATE

- Late Fee
- Three Day Notice Serving
- Access Gates
- The Fair Housing Lady Q & A

 

 

Late Fees
by Brian Wolk, Attorney at Law

 

Florida law does not address late charges, so this leaves it up the courts to determine what is reasonable versus what may be considered unconscionable, unreasonable or excessive. Many computer programs in use today create a large account balance due to piling accumulated late charges upon any balance owed. The resident could have made a partial rent payment, leaving a small balance that is now subject to late charges until the entire balance is paid off completely. The courts do not look kindly upon these charges in the eviction setting, and if the resident has vacated and the late charges are sent to collections, later ending up as a mark on someone's credit, there is a possibility they could be challenged at a later time, and huge liability could ensue. The property manager should not look upon late charges as a revenue generator, but rather as an incentive to have the resident pay on time or at least not too late. Your lease will state whether the resident will be charged a flat fee, percentage of amount owed, a per diem charge, or some combination of these charges. Whatever late fees are charged, they must be assessed fairly and consistently to avoid Fair Housing law implications, and if forgiven or reduced for a resident, your company should have a written policy under what circumstance forgiveness of the late charges will occur.

Law

There is no specific mention of late charges in the Florida Residential Landlord/Tenant Act, (hereinafter the"Act") or in any related statute. Therefore, judges must make the determination whether a late charge is or is not valid under Florida law. As a necessary consequence, courts must base their rulings on general principles of law as opposed to specific statutory language. In addition, the Act does contain specific language authorizing a judge to strike any provision in a lease which is considered grossly unfair, otherwise known as "unconscionable". That analysis is by nature very subjective. Therefore, the property manager must be wary, as it is not particularly difficult for a judge to make a ruling striking down a property manager's late charges as unreasonable.

Unconscionable Rental Agreement Provision

The Act gives a judge the power to refuse to enforce a rental agreement or any provisions of the rental agreement if the judge believes that the agreement or lease term was unconscionable at the time the agreement was made. The Florida legislature believed that even if the resident agreed to a particular lease term, the resident should enjoy additional protection, because the resident does not have equal bargaining power with the property manager. To determine if the agreement or lease term was unconscionable, the court will have to find both substantive and procedural unconscionability. Substantive unconscionability requires a showing that the commercial practice is unreasonable, for example, a late charge that grossly exceeds what other similarly situated residents are being charged. Procedural unconscionability refers to the resident's particular circumstances, meaning that the late charge is actually having a detrimental impact on the resident. The lesson for the property manager is that if the late charge is reasonable and not excessive, the late charge should withstand the scrutiny of a judge. Even worse for the property manager, the judge under the Act has the authority to remove the late fee provision and keep the lease intact. As a consequence, the resident could not be charged even one cent as a late charge for the remainder of the lease.

Unreasonable and Excessive Late Charges

The owner of an apartment community most definitely faces negative financial consequences when rent is not paid timely. Judges will be sympathetic to the property manager who is making sure that the apartment community is being adequately reimbursed for the resident's tardy payment. Judges will take a dim view on late charges that include amounts over and above what the owner requires to recoup its investment. The late charge should be a reasonable estimate of the property manager's additional administrative, bookkeeping and clerical expenses. The late charge should essentially be a good faith estimate of the actual monetary damages suffered by the apartment community owner as a result of the resident's late rent payment. The date the late charge accrues should also be reasonable. For example, most judges would not enforce a late charge which accrues at 4:00 p.m. on the first of each month.

Percentage and Per Diem Late Charges

The typical apartment lease contains a flat fee late charge. Other apartment community leases contain a daily late charge, while yet other leases define the late fee as a percentage the base rent. All three methods of assessing late fees are subject to potential abuse by the property manager. There is no magic number or amount that is 100% guaranteed to hold up in court or protect the property manager from a class action lawsuit, because the Act is silent in that regard. Therefore, the property manager must exercise caution and restraint. Some states other than Florida specifically prohibit the property manager from charging greater than five percent of the base rent in total, while others impose a 10% cap, and still other states are silent like Florida. Daily late fees in particular are often abused by property managers.

Accumulating Late Charges and Application of Funds Received to Rent vs. Late Charges

Accumulating late charges are a good example of a potentially unconscionable business practice. Suppose the resident is obligated to pay $650 a month in rent, and the lease contains a $15.00 per day late fee charge. If the resident pays $600 on the first of the month in rent instead of $650, that resident will now continue to owe late fee charges. Twenty days later the resident will owe $50 for the base rent and $300 in late charges. That late fee is 600% percent above the remaining base rent owed, and would most likely be considered unreasonable and thus unconscionable. Property managers will also incur the wrath of a judge if they are accepting payments from residents but merely applying those payments to late charges. That act will cause the late charges to continue to accrue and can lead to absurd late charge amounts. In an abundance of caution, payments should be applied to base rent first before being applied to late fee charges.

Immediate Disclosure to Resident

As previously mentioned, even though a lease agreement has been signed, it does not mean that a judge will enforce all of its terms. The late fee charge should be clearly spelled out in the lease so the resident will know exactly what to expect. The resident must be given the opportunity to understand what the future payment obligations are under the lease. A property manager who attempts to insert vague language into the lease with respect to late fee charges, or who attempts to impose late fee charges pursuant to the enactment of unilaterally imposed rules and regulations after lease execution, will find that the late fee charges will probably not be upheld in court. It is recommended that the property manager make late charge amounts very clear to the prospective resident early in the application process.

Late Charges should be Defined as Additional Rent

Most judges will allow a property manager to place reasonable late charges on a Three-Day Notice and evict if necessary. However, although the Act is silent concerning late charges, courts have held that late charges must be deemed additional rent under the lease. Therefore, the lease should clearly contain language which defines the late charges as additional rent. The rationale for prior court decisions in this area stems from the fact that the Act specifically authorizes rent to be placed on a Three-Day Notice, not late fees. Therefore, late charges need to be defined as rent under the lease before they can properly be included on a Three-Day Notice.

Waiver

One way a property manager can lose the ability to collect late fees is known as waiver. This simply means that the property manager is engaging in conduct contrary to resident's lease terms. For instance, a new payment arrangement is created, and the property manager possibly waives rights to enforce the lease as it is written. The property manager's course of conduct in allowing partial payments may be used by the resident to show that since partial payments were made a few times, this has now become a permissible way to make payment, and a judge may hold the property manager to that new arrangement. Many leases have clauses which clearly provide that if the property manager deviates from the lease terms, then there will not be waiver, but these clauses often will not be enforced by a judge if the resident can show that the landlord has a pattern of not enforcing the lease. For example, some judges will refuse to allow a property manager from pursuing late fees from prior months on a Three-Day Notice if rent was accepted in those prior months.

Deciding to Waive or Forgive Late Charges

Whether to waive or forgive late charges is a business decision, as there are reasons to keep your residents happy, and the manager may not wish to spend the time and money to evict over these amounts. On the other hand, the property manager is stuck with the legal consequences of waiving or forgiving late charges. The property manager must be in a position to defend a potential Fair Housing lawsuit. To do so, the property manager must prove that certain residents were not arbitrarily treated more favorably than others. The criteria for waiving or forgiving late fees must be given in detail and must be in writing. A Fair Housing lawsuit could cost an apartment community hundreds of thousands of dollars in penalties, damage awards and legal fees. As previously mentioned, waiving or forgiving late charges could also prevent the property manager from enforcing late charge provisions in the future, under the legal argument that rent is being accepted with knowledge of the lease noncompliance.

Usury Florida's usury laws prescribe a maximum rate of interest of 18 percent on loans of less than $500,000. On loans that exceed $500,000, the maximum legal rate of interest is 25 percent. Also, it is a criminal offense to provide loans which have effective interest rates greater than 25 percent up to 45 percent. Interest rates that exceed 45 percent are punishable as a third degree felony. The purpose of the statute prohibiting usury is to prevent creditors from extorting harsh and undue terms in the making of loans according to the Florida Supreme Court. A few attorneys in Florida are trying to make the argument that late fees are loans. It does not appear that any judges have accepted this argument. A loan is defined as the delivery of a sum of money under a contract to return an equivalent amount with interest at some future time. A property manager would argue that the lease is a transfer of the possession interest in the apartment home for a price, and therefore that no loan is taking place, exempting the apartment community late charges from the usury statute.

Deducting from the Security Deposit

While judges will scrutinize late charges in the eviction context, judges will even be more apt to strike down late charges in the course of a security deposit dispute. Judges view the security deposit as the resident's money, and the burden of proof is on the property manager to show a right to make claims against the deposit fund. Also, if the resident contests the security deposit deduction, obtains an attorney and prevails in court, the apartment community could be liable for attorney's fees, which amount would likely be significant. The property manager who deducts unreasonable late fee charges, including the piling up of accumulated late fee charges against the deposit, could face very expensive consequences.

Weekends and Late Charges

The law is not clear on how the property manager is to deal with the situation of the late charge falling on a weekend day. For example, suppose the lease states that a late charge accrues on the fifth of the month, and the fifth of a given month falls on a Sunday, when the rental office is closed. Most judges would allow the resident to pay on the sixth without being charged a late fee in the interest of fairness.

Judges' Attitudes

In general, judges are less than enthusiastic about late fee charges. However, most judges will enforce late fees which are clearly and properly articulated in the lease, and that are reasonable and are free from Fair Housing or waiver issues. Certain judges have their own preferences with regard to late charges. Some judges will not allow the property manager to charge a late fee for a particular month if a partial rent payment was accepted that same month. Likewise, other judges do not want to see the words "late fees" or "late charges" listed anywhere on a Three-Day Notice, since only rent is to be listed on the Three-Day Notice. Those judges require that the Three-Day Notice contain one grand total instead of an itemized list. Still other judges will not allow the property manager to hold the resident responsible for late fees during the months in which the resident deposits money into the court registry in the course of an eviction action.

Follow your Attorney's Advice

Because the law in the area of late charges is unclear and constantly evolving, it is crucial that a property manager follow the advice given by his or her attorney. The potential pitfalls for the property manager are numerous. It could be a multi-million dollar class action lawsuit for example, or losing an eviction case, exposing the apartment community to large attorney's fee liability. Your attorney should be aware of the fact that not only do judges in different counties treat late charges differently, different judges within the same county may treat late charges in a completely different manner: even more reason to listen to your attorney and heed the advice given.

 

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Access Gates
by Harry Heist, Attorney at Law

 

Access gates have become a common amenity at apartment communities and are very common at condominiums and properties within homeowner's associations. While property managers know that access gates are not security devices, the mere presence of the gate creates an illusion and expectation of security. If these gates are working properly, there is no real issue to be discussed, but the problems begin when the gates are inoperable or cause vehicle damage. Gates become inoperable due to defects, wear and tear, and most commonly when they are struck by vehicles. Often the gates cannot be repaired immediately or continually break and are inoperable. Can a resident withhold rent because this amenity is not being provided? Can a resident or others hold your company liable for vehicle damage due to a break-in on the property while the gate was inoperable? Could the resident terminate the lease because the gate is inoperable? We are not sure about the answers to all these questions, but we know that with proper procedures and a sufficient access gate addendum, you can minimize the legal problems and liability. If you have an access gate, you will have problems with it. If you are thinking about having one installed, be prepared.

A Security Device?

While the seasoned manager knows that an access gate is not a true security device, a prospect or resident may feel otherwise. It is crucial to train your leasing staff to never imply to any prospect or resident that the access gate is in any way a security device, or that it will assure that your community is somehow safer because of the gate, gate codes, changes in gate codes or procedures. Train your staff, especially anyone involved with leasing, to never imply that you are providing a "gated community" or that the gate makes the property more secure in any way. Almost every property that has an access gate uses a photo of its main entrance showing the gate in their advertising. This causes an unreasonable expectation that you will never be able to live up to.

Damage to Vehicles

While damage to the access gate due to vehicles will be a common occurrence, there will be times when the resident or guest of the resident claims that the access gate malfunctioned, resulting in some sort of vehicle damage. The gate may have malfunctioned, or more commonly, the resident or guest was trailing behind another vehicle when the gate closed, resulting in vehicle damage. This damage will possibly lead to litigation, including attempts by the resident to withhold rent or terminate the lease. It would be difficult to disprove that your gate caused the damage to a resident's vehicle unless you had surveillance systems in place, so this must be considered.

Surveillance at the Access Gate

If you have an access gate or are considering the installation of one or more on the premises, having a video surveillance system in place will be well worth the cost, as it will dramatically cut down on those cases when it is difficult to prove why vehicle damage resulted, and can also often be used to prove when a resident or other person causes damage to the gate. As it is almost a 100% certainty that you will have claims of vehicle damage and also have gate damage, surveillance cameras are crucial. Again, there cameras are for your use only, and should never be touted as any type of security device or system. If there is a sign indicating surveillance, that sign should simply say that surveillance cameras(s) may be in use. You are under no legal obligation to disclose that there are or are not surveillance cameras in use, as there is no expectation of privacy at the gate areas.

Pedestrian Dangers

Access gates can cause serious personal injury and have actually been responsible for deaths. It is crucial that the gates are inspected by the installers, that your maintenance techs are trained properly if they are to work on them, and that the company responsible for the access gate installation and maintenance is fully insured for any malfunction which could cause injury, death or property damage. Often in retrofit situations, the pedestrian areas have not been designed to fully protect an individual who may be walking or riding a bike near the gate. Proper signage is important, and most importantly, safe ingress and egress for pedestrians or bicycle riders must be provided.

Incident Reports

Anytime you have a resident or other person claim personal injury or vehicle damage due to the access gate, immediately have that person fill out an incident report. As we all know, the initial demand for $500 can rapidly grow to $2000 when the person demanding the money goes to an attorney or meets resistance by your company. By using an incident report, it helps to somewhat lock in the amount demanded while the matter can possibly be settled, and in the event of litigation, the incident report can be used to show the individual changed the demand from the initial amount.

Access Gate Addendum

If you have a preexisting access gate or will have one installed, it is imperative that you have renewing or new residents sign an access gate addendum. This addendum achieves many goals and helps to minimize liability. The main purpose of the access gate addendum is to make it clear that the gate is an amenity, and that it can and will fail. When you provide a resident an apartment, you are responsible for maintaining that apartment, and in the event there are certain failures, damages or problems suffered by a resident, it is sometimes possible for the resident to withhold rent, break the lease or sue for breach of contract. The access gate addendum is an agreement by the resident from the beginning of the tenancy not to use any problems with the access gate or arising from the access gate as a means to hold you liable. A classic situation arises when cars are broken into on the property at a time when the access gate is inoperable. There will usually be claims by a resident to try to be compensated, with the resident stating that the break-in would not have occurred had the access gate been operable. Cases like this could be decided against the apartment community by a judge.

The access gate addendum clearly states that the gate is not a security device and that the access gate is subject to malfunction. It further explains that the failure of the access gate cannot be used by the resident as a basis to claim any breach of obligations by the apartment community. The car break-in situation would potentially be covered by the wording of the addendum. While no addendum can completely relieve an apartment community of liability, the access gate addendum can go a long way in educating the resident and reducing liability

Click here to download Access Gate Addendum


 

 

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Three Day Notice Serving
by Harry Heist, Attorney at Law

The Three-Day Notice is one of the most common and most important notices that is served to a resident. Other articles have addressed how to prepare the notice, dating the notice, what can be placed on the notice, amounts, etc., and it is crucial that the property manager is aware of all those issues. Now comes the actual service of the Three-Day Notice. We have seen an alarming amount of discrepancies in how the Three-Day Notice was actually served and what the certificate of service section on the Three-Day Notice indicates.

The Certificate of Service

The certificate of service section of the notice is simply the bottom paragraph of the Three-Day Notice where it indicates who served the Three-Day Notice, and how and when it was served. The purpose of the certificate of service section is not to inform the resident about the service of the Three-Day Notice, as the resident knows how the notice was received, but rather to preserve this information for your benefit, and to convey this information to the judge, who can determine if the Three-Day Notice was properly served. Improper service or no service of a Three-Day Notice is an excellent defense to an eviction.

Date of Service

The certificate of service section shows the date that the Three-Day Notice was served. This date should correspond to the date on the top of the Three-Day Notice if there is a separate date section. If these dates are different, the Three-Day Notice may be defective. This can occur if the Three-Day Notices are prepared one day and served another day. It is not necessary to put the time of day that the Three-Day Notice was served, but this information can be helpful as long as it is true and accurate.

How the Three-Day Notice was Served

Typically, there are two options to indicate how the Three-Day Notice was served. It was either hand delivered to someone, and that person's name should be noted in the certificate of service section, or the Three-Day Notice was posted on the door of the unit in the absence of the resident. The person serving the Three-Day Notice should have knocked on the door, and if no one came to the door, the Three-Day Notice can then be securely affixed to the door in an envelope.

Who Served the Three-Day Notice

The certificate of service section should clearly state who served the notice. It may have been a process server, property manager, assistant manager, maintenance tech or anyone else you designate in your company to serve notices. The main thing is that it is accurate. The person serving your Three-Day Notices should be well trained.

The Problems

We are seeing too many Three-Day Notices that are conveying inaccurate information, and sometimes we find out this damaging information after a court hearing is set, and the judge then wants to confirm who served the Three-Day Notice. The certificate of service section sometimes indicates that the Three-Day Notice was served by someone other than who actually served it. The solution to this problem is simple. Make absolutely sure that the person who served the Three-Day Notice is the person who signs the certificate of service section. Never have your maintenance tech go out and serve a Three-Day Notice, and then sign your name as the person who delivered the Three-Day Notice. It is just plain inaccurate, wrong and even could be considered fraudulent. You are telling the judge how the Three-Day Notice was served; therefore, you need to be sure that the person who signs the certificate of service section is the person who actually delivered the notice.

The next problem relates to how the Three-Day Notice was served. If it was posted on the premises in the absence of the resident, it needs to indicate this. If it was hand delivered to the resident, it needs to indicate this. We are seeing Three-Day Notices where the certificate of service section is filled out prior to service, most often indicating, "posted on the premises". How can you fill out a certificate of service section ahead of time? You should not do this, because you usually have no way of knowing whether the resident will be handed the Three-Day Notice, or whether the Three-Day Notice will be posted on the premises.

Proper Procedures

The certificate of service section should never be filled out ahead of time. It should be left blank until the Three-Day Notice is actually served. The certificate of service section on the copy that the resident either received by hand delivery or finds posted on the door does not have to be filled out. This practice probably reflects the biggest misconception. Your original you will place in your file needs to have the certificate of service section filled out. Remember, the certificate of service section is not for the resident's benefit; it is to preserve this information for your benefit, and to convey to a judge how the Three-Day Notice was served, to whom, by whom, and when.

As soon as a Three-Day Notice is served, be it by hand delivery or posting on the premises, the person serving the Three-Day Notice fills out the certificate of service section on the original that will go in the file. When going out to serve the Three-Day Notice, that person should always have the original notice and the copy. The copy is served, and the person serving the notice then fills out the certificate of service section on the original notice, keeping this original.

Ramifications of an Inaccurate Certificate of Service

An incorrect certificate of service can render an eviction defective, infuriate a judge, or even have the property management company or property manager accused of fraud. Remember that the Three-Day Notice becomes a court document. If a document is filed with the court, it should be true and accurate. The property manager must take the filling out of the certificate of service section very seriously, as you are "certifying" to the court that something was done. Before you send your next eviction to your attorney, examine the certificate of service, and confirm that it is true and accurate. If it is not, examine your procedures, and serve a new, proper Three-Day Notice. Remember, your attorney is going to take your word that the certificate of service is true and accurate, so it is up to you to make certain that it is.

Best Practices:

1. Serve the copy of the Three-Day Notice and keep the original in the file.
2. Never post a Three-Day Notice on the door unless you have knocked loudly and there is no answer.
3. Fill out the certificate of service section immediately after serving the copy.
4. The certificate of service section should be filled out by the person who served the Three-Day Notice, and no one else.
5. Confirm the certificate of service is accurate before sending the file to your attorney.
6. If you have to go to court, always bring the person who served the Three-Day Notice to court.

 

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THE FAIR HOUSING LADY Q & A
by Nadeen Green, Attorney at Law

Dear Fair Housing Lady,

The physician said they would NOT be willing to testify as to the reason/reasonableness of the accommodation. To be consistent, can you please reiterate what we should do at that point? Do we need to contact the doctor and find out why, etc.? How do we ask that question?.

Sincerely, Angie

Hello Angie,

You should call the doctor back and explain that you would not necessarily even be the party (in a proceeding) that would ask them to come to court ÔÇô that would likely be their patient. What the question is asking is whether this doctor is confident enough in his opinion of disability and need for this dog because of the disability that this doctor would be able to testify to those reasons/answers if a hearing ever did take place. If the doctor will still not say "yes" to that question, then it is likely reasonable for you to deny the accommodation. (Remember this is not legal advice!)

Sincerely, The Fair Housing Lady

 

This Dear Fair Housing Lady article was originally posted on Nadeen Green's blog at fairhousing.forrent.com" Nadeen is known nationwide as a Fair Housing Law expert and she is proud to be Senior Counsel with For Rent Media Solutions

 

 

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

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


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