Before Equity v. Yates

 

Prior to the court case of Equity v. Yates, landlords and tenants could agree on just about anything when it came to penalties in the event of a lease break. The decision in Equity v. Yates limited this severely.

 

Before The Law Change

Before the change to Florida Statute 83.595, when a Tenant chose to break a lease by vacating before the end of the lease, commonly called “skipping” or vacating early, the Landlord was only allowed to charge the Tenant rent through the earlier of the lease expiration date or the date a replacement Tenant took occupancy. In addition, many companies also charged a Termination Fee, Termination Penalty or Liquidated Damages charge, BUT in a major Florida class action lawsuit, the judge in that particular case ruled that these various practices were unlawful and inconsistent with Florida Statute 83.595.

The Current Law

A common misconception is that under the current law, when a Tenant vacates early, you can NOW charge the Tenant a Liquidated Damages or Early Termination Fee. This is only partially correct, and it is crucial that you understand the law.

Under the law, you can give the Tenant a CHOICE to either owe a flat fee “Liquidated Damages/Early Termination Fee” OR owe rent until the unit is re-rented. The TENANT makes the choice, NOT you. If you do not want to give the Tenant this choice, you will not use the Addendum, and you can ONLY charge the Tenant your rent loss, as has been the law.

Suppose You Want To Hold The Tenant To All The Rent Due Under The Lease?

If this is what you want to do, then simply do it. The law still allows you to do this. You will not give Tenants a choice in the matter, and if a particular Tenant vacates early, you will charge rent as it becomes due under the terms of the lease until the unit is re-rented. In a soft market, when it may take a while to re-rent a unit, this is your best bet; you really do not need to read any further, AND you will NOT use the Addendum.

Suppose You Want To Charge The Tenant a “Liquidated Damages/Early Termination Fee” When They Vacate Early?

You CAN if and only if 2 things occur:

A. You present the attached Addendum to the Tenant AT THE TIME OF LEASE SIGNING

AND

B. The Tenant picks Choice #1

What Happens If The Tenant Picks Choice #1?

You can charge the Tenant a flat “Liquidated Damages/Early Termination Fee” of a maximum of 2 months’ rent when they vacate early and NOTHING more other than rent, and charges they may owe at the time of vacating early. The Tenant may or not pay it, but if not paid, this 2 months’ rent can be sent to collections.

What Happens If The Tenant Picks Choice #2?

You can charge the Tenant rent that he owes at the time he vacates and rent as it becomes due until the unit is re-rented or the end of the lease, whichever occurs first, just like you have been doing or should have been doing all along.

Can You Charge the Tenant a Concession Payback?

The law does not clearly provide that you can or you cannot. If the Tenant picks Choice #1, it may be dangerous to charge a concession payback, because some judges are apt to consider a liquidated damages charge as exclusive.

Now For Some Q&A:

Q—Do I have to use the Addendum?

A- Absolutely not. It is your choice. If you don’t provide the Addendum to the Tenant to sign, the Tenant will owe rent that is owed at the time the Tenant leaves early PLUS all rent as it becomes due until the unit is re-rented or the end of the lease, whichever occurs first.

Q—Can I have current Tenants come in and sign the Addendum?

A—No. You can only use the Addendum at lease or renewal signing.

Q—Do I need to fill in all the amounts on the addendum before I give it to the Tenant?

A—Yes, do not leave anything blank.

Q—Suppose I use the Addendum and the Tenant picks Choice #1?

A—If the Tenant chooses to vacate early, you can only charge the Tenant 2 months’ rent plus whatever they already owed you for rent or other amounts under the terms of the lease. NOTHING MORE.

Q—Suppose I use the Addendum and the Tenant picks Choice #2?

A—You can charge the Tenant rent that is owed at the time the Tenant leaves early PLUS all rent as it becomes due until the unit is re-rented or the end of the lease, whichever occurs first.

Q—Can I force the Tenant to sign the Addendum?

A—No. If the Tenant refuses to sign, they simply will owe rent that is owed at the time the Tenant leaves early PLUS all rent as it becomes due until the unit is re-rented or the end of the lease, whichever occurs first.

Q—Should I utilize the new law and use the Addendum?

A- It is purely a business decision. In a soft market, it would be better not to utilize the new law and the Addendum. If you feel you will rent out the unit in less than 2 months, it would be better to use the Addendum IF the Tenant picked Choice #1. There is no guarantee what the Tenant will choose.

Q—Can I force the Tenant to pick a particular Choice, #1 or #2?

A—No. If you use the Addendum, you are at the mercy of the Tenant and his choice.

Q—Can we require the Tenant to give notice before he vacates early if he picks Choice #1?

A—Yes, but if he does not, you can only charge the 2 months’ rent amount as if he simply walked out on you tomorrow.

Q—If the Tenant picks Choice #1 and gives us notice, can we charge the Tenant through the notice period PLUS the 2 months’ rent?

A—NO. You can ask the Tenant to give you notice, BUT you cannot hold him to it.

Q—If I decide to use the Addendum, must I offer it to everyone?

A— For Fair Housing purposes if you use it for one, you should use it for all, at least in a given time frame.

Q—Why does the Tenant get to make a choice? Why can’t we just charge them liquidated damages?

A—The Tenant only gets to make a choice if you decide to use the Addendum. The Governor said he would not sign the bill into law unless the Tenant was given a choice, so the bill was amended late in session to get it passed.

 

                                         “Serving the Property Management Professional”

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PURPOSE OF CORPORATE TENANTS: The common reason given by a corporate tenant is that it must be done this way so the company can pay the rent.  The IRS does not care whose name a lease is in be it an individual or a corporation. If it is deductible as a business expense, it will not matter whether it is in a corporate name or not. The usual purpose of a corporate tenant is to avoid personal liability for the occupant at the expense of the property owner with whom the property manager owes a fiduciary duty.

NAME OF CORPORATION: Often the exact name of the corporation is misrepresented by the corporation and ends up on the lease. The corporation must be researched thoroughly and cannot be listed under its fictitious name.

OUT OF STATE CORPORATIONS: Many out of state corporations have not registered in Florida resulting in no way to check the validity of the corporation and requiring that we serve the registered agent in the state of the corporation according to the laws of that state causing huge eviction delays.

NO ASSET CORPORATIONS: Many corporate tenants are the corporate entity that a business holds with no assets for the sole purpose of avoiding liability.

BANKRUPTCY:  If the event a corporation files a bankruptcy, it is usually a Chapter 11 reorganization resulting in a substantial loss of rent and eviction delays of over 3 months in addition to the normal eviction time frame.

AUTHORITY OF SIGNERS:  Often the corporate lease is signed by a party who does not have the actual authorization to sign the lease on behalf of the corporation resulting in the corporation successfully denying liability under the lease.

COLLECTIONS: Collecting against a corporate tenant is almost impossible as a “deadbeat” corporation often is dissolved or has no assets and there is no easy way to mar the credit of the corporation. The occupant’s credit is untouched.

CREDIT CHECKING:  It is nearly impossible to run a proper credit check on a corporation.

OCCUPANTS: If there is a corporate rental, the occupants may have criminal backgrounds or credit issues but this will not be discovered as no proper check can be made on the corporation.

LIABILITY TO THE PROPERTY MANAGEMENT COMPANY: When a corporate tenant must be evicted, breaches the lease or skips on the lease, the property owner is surprised to find out that they have been placed in serious jeopardy by the fact that the tenant was a corporation and often attempts to hold the property management company liable for the loss and failure to warn of the dangers.

RECOMMENDATIONS: Avoid corporate tenants without co-signers at all costs UNLESS it is an established company, the proper name has been researched and the officers of the corporation have authorized the rental in writing.

 

 

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Although it is difficult to determine who is winning the race between cable companies and dish networks, there can be no question that more and more residents are opting to get their entertainment through a satellite dish. Can the manager refuse to let the resident install a satellite dish? Are there any restrictions?

The Federal Communications Commission

In 1998, the Federal Communications Commission enacted rules to help TV viewers (and the satellite television industry). The rules prohibit unreasonable restrictions that impair the installation, maintenance or use of satellite dishes that are less than one meter (39") in diameter. The rules state that a manager cannot unreasonably deny a resident from having a satellite dish on the premises that is within the leasehold and under the exclusive use or control of the resident. The rules apply to managers, homeowners' associations, and condo associations (among others).

Placement of the Dish

The manager cannot stop the resident from erecting a dish if it is placed in an area that is under the exclusive control of the resident. That means areas where only the resident (and no one else) has the right to be present. Premises include the interior of the unit, balconies, balcony railings, terraces, patios, yards or gardens.

Premises DO NOT include outside walls, roofs (unless they are under a resident’s exclusive control), window sills, or other common areas. If the resident wants to erect the satellite dish in a common area, then the manager can prohibit the dish.

In the case of a condominium, all property is considered to be common area except the air space of the units and the portions designated as limited common elements (such as a patio or balcony). In other words, condominiums may restrict satellite dishes from being in the common areas. However, the resident has the protection of federal law if he wants to install the dish within the boundaries of the condo unit.

Liability

The resident is liable for any liability arising from the installation of a satellite dish. This is because the dish is located only in a location that under the exclusive control of the resident. The FCC includes this in its rules.

Property Damage

A manager can require that the installation of a satellite dish be done in a way that does not damage the premises. A manager can prohibit drilling holes in walls, using nails or screws, piercing roofs, or causing any damage more than ordinary wear and tear. Clamps or straps should be permitted.

Hopefully, the lease requires the resident to obtain written consent of the manager before beginning any alteration. Such a provision would give the manager a way to protect his property. Property managers should check for installation equipment, and if present, take photos.

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A common mistake when renewing a lease is to use a standard lease renewal or draw up a new lease omitting any reference to money that may be owed from the expired or expiring tenancy. Late charges may have accumulated, the resident may owe for some damage, or there may be NSF charges or some other charges that have been incurred under the prior lease. Once the new lease is executed, while the resident may still owe you the money, there is no enforcement mechanism to collect it. You cannot evict under the new tenancy for money owed under the prior tenancy, UNLESS the new lease or renewal clearly spells out that there is a balance owed and states how the resident shall pay this balance.

What Might Be Owed From the Prior Lease?

A resident can easily have accumulated late charges, NSF charges, unpaid water, sewer or garbage bills, unpaid repair bills or almost any other amount that could have been incurred over the past year. The manager will most likely want to collect this money and does not intend to write the amounts off when giving the resident a new lease. The manager has a full expectation that the resident will pay these sums. But will he?

Tying in the Old Balance to the New Lease

When preparing the new lease, it is crucial that terms of the new lease contain the past or accumulated amount due, a definition of this amount as “additional rent” and the payment arrangements. We recommend that the amount is spread out in a reasonable fashion and due with the resident’s rent payment as “additional rent” until paid in full. Done this way, if the resident fails to pay, the resident can then be given a Three-Day Notice for non-payment, and an eviction can be instituted if necessary. We do not recommend that you accept the normal monthly rent without the resident paying the full rent amount and the “additional rent” at that time. If you wish to have a separate form for dealing with the amounts, terms and conditions we recommend a Past Due Amounts Workout Agreement

The New Lease Does Not Reflect the Past Balance; Is the Money Still Owed?

The execution of a new lease does not wipe out the prior debt, but creates two distinct problems. First, if the prior debt was debatable or in dispute, the manager’s actions in entering into a new lease certainly favors the resident, and secondly, the ability to evict the resident under the new lease for amounts incurred under the old lease are slim at best. With that said, the resident still owes the money, and the manager can at some time attempt to collect this money through litigation or other means, but much of the leverage is gone. Before you renew a lease, always check to see if money is owed, and carefully reflect this in the new lease.

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There will come a time when a resident will want to be removed from a lease, or another resident will want his or her co-resident removed from a lease. In the first instance, the resident comes to you and asks to be “let out” of the lease for whatever reason. Possibly they have “broken” up with the co-resident, having problems with the co-resident, or it could be something as innocent as a job transfer, in which the resident just wants out of the lease obligations. In the touchier situation, a co-resident wants another resident removed from the lease. This usually occurs when one resident has left the apartment, skipped out, is in jail or just plain disappeared. The remaining resident often wants the co-resident removed from the lease so he can get another resident on the lease, or sometimes it is an attempt by one resident to try to keep the other resident away from the property. In other words she is attempting to “evict” the resident in her own way and trying to use you to assist her.

Do You Have to Remove a Resident From a Lease if Requested?

There is absolutely no legal requirement that you must remove a resident from a lease. Sickness, domestic issues with the other resident, job transfers or any other reason why a resident may want out of a lease are not “legal reasons” which would require the manager to remove a resident from the lease. However, there may be instances in which even though the manager is not required to remove a resident from a lease, a judge could feel that the resident’s reason is such that you should. We need to remember that in county court, the court in which most situations regarding manager resident law are heard, you are dealing with judges who will sometimes make decisions not necessarily based upon the law, but rather equity, and what the judge feels is the right thing to do. To put it bluntly, the county court judge will sometimes do whatever he or she wants to do, and you are stuck with it; your only recourse is to appeal the decision in circuit court, and we all know this is not usually economically feasible. If the resident has a particular disability that makes it difficult or not feasible to live on the premises, you may want to consider letting him out of the lease. An example would be a resident living in a second floor unit in a building with no elevator. The resident acquires a disability which is preventing him or her to get up the stairs, and no downstairs units are available. This would probably be a case in which you would allow the resident to be removed from the lease.

One Resident Wants to be Removed From the Lease

If a resident comes to you and wants to be removed from the lease, as we have said, you can just simply say no. The resident will then probably vacate the premises, leaving the other resident behind, and both residents will continue to be liable under the lease terms, regardless that one resident no longer resides on the premises. If the other resident continues to pay the rent, no harm has been done. Our office does not recommend that you remove a resident from a lease, because it is not required, and secondly, you potentially lose your ability to collect your money due under the terms of the lease agreement. With that said, we know that managers sometimes will in fact agree to let a resident be removed from the lease. If this is done though, what about the security deposit? Did not one or both residents pay this security deposit and/or last month’s rent when they moved in? Who gets this money if one resident is removed from the lease? If you are going to allow a resident to be removed from a lease, these issues need to be dealt with in writing.

One Resident Wants the Other Resident Removed From the Lease

If one resident comes to you and asks that you “take the other resident off of the lease”, you can be fairly well assured this will not be possible. In most cases it is requested when a resident has either left the area, is in jail or in domestic violence situations. The one resident feels that you have the power to unilaterally take the other resident off of the lease, and thus the remaining resident can prevent the resident you took off the lease from residing on the property. You just cannot unilaterally remove a resident from a lease, unless the resident who is leaving agrees, and this agreement is in writing. It does not matter where the resident is or what the resident did, the resident has an interest in the property and is subject to all the rights and responsibilities of the signed lease. The fact that the resident was put in jail for murder does NOT give you the power to remove this resident from the lease. When asked by a resident to remove the other resident from the lease, you need to explain that it is not possible.

One Resident Has Disappeared and the Remaining Resident Wants His Friend ADDED to the Lease

Again, it cannot be done. You would be interfering with the lease that both residents signed, specifically that of the resident who is no longer residing on the premises but still has rights and obligations by virtue of signing the lease.

The Lease is up For Renewal But One Resident is now Gone

In the case where the lease is up for renewal, it is possible to renew the lease only in the name of the remaining resident or add another resident if and only if the other original resident on the lease is gone and you can confirm this completely. You need to be extremely careful when doing this, because possibly the resident who is gone is simply temporarily detained in a jail or mental institution. The other big issue is the security deposit. You cannot just transfer the security deposit to the new lease, unless all the original residents are on that new lease. Remember, the security deposit belongs to the residents who originally signed the lease. The fact that one resident is gone does not automatically vest this security deposit in the remaining resident. Prior to entering into a new lease, we recommend that you ask the remaining resident for a brand new security deposit, and you do your normal disposition of the original security deposit by sending out the Notice of Intention to Impose Claim on Security Deposit and following all the procedures required by Florida Statutes 83.49. A very common mistake made by managers is to simply carry over the security deposit to the new lease. This is absolutely wrong if the residents are not the same.

Does the Remaining Resident Have to Agree to the Manager Removing a Resident From the Lease?

It is a good idea. Case law has held that releasing one resident from the lease may result in the release of the other resident from the rent obligations. You might think that a manager has the full right to allow one resident completely out of the lease obligations and hold the remaining resident to the full obligations under the lease but courts hold otherwise. The remaining resident has no say in your decision to allow a resident to be removed from a lease BUT you may be hurting your chances of collection against the remaining resident. Most forms in use today, commonly called ROOMMATE RELEASES have a spot for all the parties to sign but often the remaining resident will refuse to sign the form.

The Mechanics of Removing a Resident From a Lease

In order for you to properly remove a resident from a lease, the manager, the remaining resident and the vacating resident should sign a Resident Vacating Agreement with similar wording to the example below. If the remaining resident refuses to sign, then no one should be released.

RESIDENT VACATING AGREEMENT

The undersigned Resident Mary Jones hereby agrees that she has completely vacated the premises known as 125 Main Street, Mountain Grove, Florida or will vacate the premises no later than June 20, 2006.

Resident Mary Jones understands that Bill Smith shall continue to reside on the premises and shall be subject to all the terms and conditions of the lease agreement and any renewals.

Resident Bill Smith shall continue to reside on the premises and shall be subject to all the terms and conditions of the lease agreement and any renewals and fully liable for all payments due under the lease and amounts owed.

Resident Mary Jones agrees to relinquish all rights to the security deposit, advance rent, any prepaid fees or charges and agrees that nothing is owed to Resident Mary Jones by the Manager or its agent(s).

Resident Mary Jones agrees to release, acquit, satisfy and forever discharge the owner of the premises, any other owners of the rental premises, any agents of the owners, its owners, agents, employees and assigns, for and from all manner of action and actions, cause and causes of action, suits, debts, dues, sums of money, accounts, reckonings, bonds, bills, specialties, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, executions, claims and demands whatsoever, in law or in equity, which resident ever had, now have, or which any personal representative, successor, heir or assign resident, hereafter can, shall or may have, arising out of the tenancy.

Resident Mary Jones agrees to hold the property owner and/or its agent(s) harmless for damage or loss to any items of personal property left on or about the premises by Resident Mary Jones.

If Resident Mary Jones completely vacates the premises as per this agreement and does not return to or otherwise reside on the premises at any future date, the owner hereby shall release resident Mary Jones from the obligations of the lease agreement.

Date area and signature area. Signature lines for the Manager, the remaining resident Bill Smith and the Vacating Resident Mary Jones

 

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There are thousands of different leases currently in use by Florida managers. They include among many others, the homemade lease, the store-bought lease, the Supreme Court Approved Lease, the lease made by your attorney, the Blue Moon Apartment Lease, the many internet leases and the lease created by the Harvard graduate on the 60th floor of the big law firm in New York City. The problem? Florida law governs the Florida landlord/tenant relationship. If a lease clause violates Florida law, the clause and sometimes the entire lease will be stricken. More often than not, the lease clause does not violate Florida law, BUT can cause the manager problems and actually interfere with the rights the manager is given by Florida law! This article will look at some of the common clauses found in leases and the problems they cause.

The Visitor Clause

Often we see a clause which says that resident may have no visitors for more than 72 hours without the manager’s consent. The clause may say that visitors cannot stay on the premises for more than 5 consecutive days. These clauses are extremely difficult to enforce. The “consecutive day” language would require the manager to basically sit outside the unit for 5 solid days in a row to determine if the visitor is staying there. If the visitor was not there for one of the days out of the 5 days and came back, they would not have been there for more than 5 “consecutive” days.

The Rent Collection Clause

If the lease states that the manager will collect the rent on the 1st day of the month, this means that the manager is under the duty to collect the rent rather than the resident being under a duty to pay the rent!

Rent Paid to a Post Office Box

Sounds fine, the resident is supposed to pay the rent to a post office box. Problem is that Florida law allows a person 5 additional days for mailing time if they are to pay rent by mail. How do you give that person a Three Day Notice? You can’t. You need to give them an 8 day Notice giving them 3 business days to pay the rent not including Saturday, Sunday or court observed holidays PLUS 5 business days. On top of that, you have to deal with the “check must be lost in the mail” routine.

Rent Late Clauses

Many leases state that rent is due on the first of the month and if not paid by the 5th, there will be a late charge. Does that mean the rent is not late until after the 5th? Does this mean that the manager must wait until after the 5th to serve a Three Day Notice? The lease needs to clearly state when the rent is due, when the rent is late and when the resident can receive a Three Day notice.

Late Charges Clause

We constantly see leases which say that a late charge will be due if the rent is not paid by a certain day of the month. The problem is that late charges cannot be put on a Three Day Notice. Only rent is allowed. The ONLY way you can put a late charge on a Three Day Notice is if you define the late charge as rent or additional rent in the lease. 

The “How to Serve Notices” Clause

Florida law only requires ONE notice to be mailed by certified mail, and that is the Notice of Intention to Impose Claim on Security Deposit. We see many leases under which it is stated that ALL notices must be served by mail. This can create a huge problem when the manager serves a notice by posting on the door or even hand delivery, only to find out that the lease clause required the notice to be mailed. One would think that if the lease required a notice to the resident by mail, personal hand delivery should suffice. After all, isn’t the whole idea to get the resident notice? This mailing business is a nice idea thought up by an attorney who thinks everything should be mailed, but this is a no go for serving the usual notices such as the Notice of Non-renewal, Three Day Notice and the Seven Day Notices of Noncompliance.

The Detailed Pet Clause

Some leases go to great lengths talking about pets, size limits, weight limits, etc. This should be left to the pet addendum, NOT the lease. The lease should simply state that no pets are permitted without a pet addendum and the proper pet fee or deposit paid. Too much talk about the pet policy in the lease could be an implicit authorization for 

The Month-to-Month Notice Clause

Florida law states that in the event either party wishes to terminate a month-to-month tenancy, at least 15 days’ notice must be given prior to the beginning of the next monthly rental period. Many leases state that in the event the lease becomes month-to-month, 30 or 60 days’ notice is required. The reasoning behind this is to try to hold a resident to a longer month-to-month tenancy, as they must give you 30 or 60 days’ notice. Nice try, but the essence of a month-to-month tenancy IS the ability to get out of the tenancy with only 15 days’ notice prior to the beginning of the next monthly rental period. The 15 days is stated very clearly twice in Florida Statutes. Result? While the resident only needs to follow the law and give you 15 days’ notice, the manager will be STUCK with the clause in the lease and the manager will be required to give the notice as stated in the lease. There will come a time when you want to get a month-to-month resident out as fast as possible. Do you want to be forced to give 60 days’ notice? We didn’t think so!

The Arbitration/Mediation Clause

Arbitration and mediation is often an excellent way to resolve disputes. Anytime you can avoid full-blown litigation, you have already succeeded. Some attorneys, especially real estate practitioners, are used to the arbitration and mediation clauses found in sales contracts. These clauses sometimes end up in leases. Suppose you file an eviction on a resident, and the resident demands mediation or arbitration? No matter what the result, there will be no way to force the resident out, even if the arbitrator decides that the manager is entitled to possession. You will end up in court. You may be thinking that a mediation or arbitration clause would be good in dealing with a security deposit dispute, but it is unknown whether taking someone’s right to access to the court will be allowed under the Landlord/Tenant Act.

The Military Clause

Many leases include a type of Military Clause which details the requirements for breaking a lease in the event of a military transfer or being called to active duty. The problem is that these laws change on a fairly regular basis, especially in time of war, and it really does not matter whether a military clause is in a lease. The Soldiers and Sailors Relief Act in addition to any state laws will override any clause that is in a lease. By having the clause in the lease, the manager is led to believe that the clause is correct, when in fact it could be obsolete, incomplete or downright illegal.

Occupant Clauses

A common clause found in leases states the number of occupants allowed to live on the premises. Some also state the number of children who are permitted. These clauses are vague, can often lead to having occupants you did not intend to have, and worse yet, a fair housing complaint. We recommend that all adult occupants sign the lease as residents, and if there are children, their names are listed as occupants.

The Solution to the Lease Clause Problem

While some lease clauses are simply an annoyance or inconvenience, others can severely restrict the manager or subject the manager to a potential discrimination action. The lease document needs to be taken seriously and amended as the statutory laws change and case law is created If you are a member of your local apartment association affiliated with the Florida Apartment Association or the National Apartment Association and manage units in apartment communities, you can consider using the Blue Moon Lease.

 

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THE BACKGROUND

Florida Statutes section 475 governs the ability or inability to receive or pay compensation when engaging in real estate related services. Real estate related services include things such as appraising, auctioning, selling, exchanging, buying, and most importantly for this article, renting of real property. Only a licensed broker, a person who holds a real estate broker’s license in Florida may receive and pay compensation for these services to other licensed brokers or salespersons. Certain exceptions to the requirement of licensure have been carved out by the legislature, which allows compensation to be paid and received for a real estate related service without the need for a license. For instance, FS 475.011 exempts any “salaried employee of an owner or of a registered broker for an owner, of an apartment community who works in an onsite rental office of the apartment community in a leasing capacity”. Note that the key word here is “salaried”. Through the efforts of the Florida Apartment Association, another exemption was added which allows a referral fee or finder’s fee to be paid in an amount up to $50.00 in cash, a rent reduction or something of value to a resident who refers another resident to the apartment community. Unfortunately, apartments are limited to paying their employees only a salary for leasing activities and paying residents the $50.00 referral fee cap. Many companies knowingly and unknowingly violate this law. There has been little to no enforcement by the Florida Real Estate Commission until very recently, and a number of apartment communities, in particular the licensed real estate brokers of those companies, have come under fire. The penalties are expensive and severe and there are criminal felony implications.

COMPENSATION WHICH AN UNLICENSED EMPLOYEE OF AN APARTMENT COMMUNITY CAN LEGALLY RECEIVE

FS 475.011 exempts on-site employees from the legal requirement of having a broker’s or sales person’s license to receive compensation for leasing. Specifically, it exempts any “salaried employee of an owner, or of a registered broker for an owner, of an apartment community who works in an onsite rental office of the apartment community in a leasing capacity.” From the language of this section, it would appear and has been interpreted by the Florida Real Estate Commission that nothing other than a “salary” can be paid to the property manager or leasing staff. Paying a bonus or giving anything extra of value to the employee when he or she leases an apartment is considered illegal and violative of FS 475. Can the property manager or leasing agent receive a performance bonus each week or month, just as in many other professions where the hard working employee can receive a bonus? It appears that the answer is no, if that bonus is based on the “leasing” or the number of leases which are consummated through the effort of that employee. It our opinion that this prohibition by FS 475 is ridiculous and the law needs to be changed. No harm is being done to the public by paying a leasing agent or property manager a “bonus”; many on-site property managers and leasing agents have far more experience then the majority of property managers who hold Florida real estate licenses, and almost no training or testing in property management is performed or required by Florida law in order to obtain either a sales person’s license or broker’s license. This is not a situation where unlicensed persons such as on-site property managers or leasing agents are in any way infringing upon the livelihood of a licensed person. With all that said, it is our firm’s view that if an apartment manager, leasing agent or any employee of an apartment community is paid anything other than a salary, they risk prosecution by the Florida Real Estate Commission. You have been forewarned and enforcement has begun.

REFERRAL OR FINDERS FEES TO CURRENT RESIDENTS

FS 475.011 specifically allows the payment of a referral fee or finder’s fee to a current resident for referring a new resident to the apartment community. The law exempts “Any property management firm or any owner of an apartment complex for the act of paying a finder's fee or referral fee to an unlicensed person who is a resident in such apartment complex, provided the value of the fee does not exceed $50.00 per transaction”. This means that no license is required by either party to give or receive this finder’s fee or referral fee. The amount given cannot exceed anything valuing more than $50.00 so a $100.00 reduction of rent off to the referring resident, a $100.00 gift certificate to a local restaurant or anything that exceeds $50.00 in value is clearly prohibited. Examples the law gives include a “fee paid, credit towards rent, or some other thing of value provided to a person for introducing or arranging an introduction between parties to a transaction involving the rental or lease of an apartment unit”. The penalty for paying a referral fee in excess of $50.00 is severe, and the person making the payment could be charged with a third degree felony, and the person or corporation making the payments fined up to $5000.00 per occurrence.

OUR RECOMMENDATIONS

You should immediately speak with your corporate attorney if your company has been paying employees anything other than salaries for leasing activities, or you have been giving resident referral or finder’s fees in excess of $50.00, and get advice on how to proceed. We urge you to actively get involved with the Florida Apartment Association, which is continuing its effort at trying to clarify the law and lobbying for the ability of the apartment community employee to be rewarded for a job well done.

 

“Serving the Property Management Professional”

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Given the huge amount of information that we are bombarded with, it’s amazing that we can keep as many things factually correct as we do. It’s not surprising that the three-day lease cancellation myth has become established in so many residents’ minds. While Florida law does not provide a cancellation period, the careless manager may provide the applicant with the ability to cancel the lease by failing to deliver the lease.

Rescission is the Correct Term

Technically, the legal term is “rescission”. A rescission is the unmaking of a contract. There is no contract. It is a nullity. A cancellation is the abandonment or repeal of a contract. Since the common usage is “cancellation”, I will use it in this article.

No Three-Day Cancellation Period

There is no three-day cancellation period for residential leases in Florida. It doesn’t matter whether the lease is for only one month’s duration or for a period of years, or for any term in between. It doesn’t matter what the monthly rent is or how it is payable. It doesn’t matter if it’s a single-family home, a duplex, a condominium or an apartment. It doesn’t matter if the property is in the city or outside city limits. It doesn’t matter. It can’t be cancelled within three days. Although there is no right to cancel residential leases, there is a right of cancellation that applies to certain other types of contracts, for example door to door sales or home equity mortgages. This is what probably led to its mistaken application to leases.

Giving the Resident a Copy of the Lease

We recommend personally giving a copy of the completely executed lease to the resident as soon as the manager or his agent signs the lease. This prevents any dispute as to whether the resident knows that there is a binding lease in effect. If the manager cannot give the lease to the resident personally, then other possible methods are an email attachment with a delivery receipt, fax with a delivery confirmation or a certified letter to track the receipt.

Bad Manager Practices

It is an all too common manager practice to hold the resident’s copy of the lease until move-in. A manager does this at her own risk. Another frequent manager excuse is that a copy of the lease was available for the resident to pick up or that the resident didn’t keep his appointment to pick up the copy. Judges are unimpressed with these excuses. That being said, a resident cannot intentionally frustrate delivery of the lease by such actions as refusing certified mail.

Partial Performance

If the manager has forgotten to give the resident a copy of the lease, but the manager and resident are performing under the lease, can the resident cancel? The resident’s performance may include, for example, accepting the keys, obtaining utilities in his name, moving in some personal items, or actually occupying the premises. The manager’s performance may include complying with the resident’s preparation requests (using paint of a requested color, installing new appliances, etc.) or actually giving possession. Resident cancellations after partial performance by either the resident or manager are legally problematic. Partial performance of a lease may make the lease binding. The more extensive the performance by the resident or the manager in reliance upon the lease, the less available the right of cancellation is to either the manager or the resident. The manager should consult her attorney for advice in such situations. (Note that partial performance applies to an unsigned lease also, but with significant differences not discussed here.)

I caution that it is dangerous to rely on partial performance, as it may not save the manager’s entire lease. A manager may be found entitled to only her out-of-pocket expenses as damages. "Out-of-pocket” expenses are her actual cash outlays, such as the costs to turn the apartment again, to re-advertise it, etc., as opposed to her "statutory or contract damages", such as rent to relet under Florida statutes or liquidated damages under an early termination addendum.

So much work is involved in guiding an applicant through the rental process to the signing of the lease; it is a shame to see it fail at the finish line. The final important step is the delivery of a copy of the completely executed lease.

 

“Serving the Property Management Professional”

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Every manager will eventually experience the situation in which the resident has a family, medical or work issue, and the resident desires to break the lease. Can the resident simply break the lease if something either in their control or out of their control occurs? Florida law does not give the resident any leeway in this area. Unless the lease specifically has a clause or clauses allowing a resident to be released from the lease obligations if a particular event occurs, the resident will be held to the lease. In reality, the resident will most likely walk out on the lease anyway, but may be still obligated to you under the terms of the lease agreement. The question then remains, what will a judge say in court?

The Medical Lease Break

Florida law does not allow a resident to break a lease due to a medical condition, either preexisting or new, although you may want to allow the resident to break the lease without penalty in certain circumstances. There are many elderly residents in Florida who cannot complete their lease terms due to having to be placed in an assisted care facility. Other residents may have a serious sickness which requires long term care or some condition which does not permit them to reside on the premises on their own. We recommend that with verification from a physician, you allow individuals to break their lease without penalty. If you were to treat the vacating resident as a typical lease break, and you decide to take the case to Small Claims Court, many judges would probably rule that due to the impossibility of the resident to perform the lease obligations, through the judge’s equitable powers, the resident will be allowed to break the lease without penalty.

Disabilities and Fair Housing laws

In a hypothetical situation, a resident tells you she can no longer climb the stairs in your building to her 2nd floor apartment due to a disability, and you have no 1st floor apartments available. Should you allow her to break the lease without penalty? The law requires that you make a “reasonable accommodation” for the resident. That might mean agreeing to let them transfer to a first floor unit when one becomes available, but it does not mean the resident can escape the lease obligations altogether. The resident is not entitled to break the lease because she has become disabled. Think of it this way: Breaking the lease is not a reasonable accommodation, because it does not aid the handicapped person in living at your property. It does just the opposite! Your decision to allow a lease break will decrease the possibility of potential litigation or a discrimination case being filed against you. Discrimination cases are most often decided in favor of the manager, but at what cost in wasted time and money?

Anticipatory Breaches

If a resident anticipates prior to lease signing that they may have to terminate their lease early due to a medical condition, wording can be placed in the lease dealing with the terms and conditions of what will be a mutual termination of the lease. We recommend that you ask your attorney to draw up a clause which can be placed in the special stipulation section of the lease to accomplish the wishes of all parties. Ambiguity will cause problems, misunderstanding and potentially litigation. A short statement like “Resident may terminate the lease early if they must go to an assisted care facility” is not specific enough, as it does not deal with monetary issues, notice issues and is open to interpretation.

The Mutual Termination of Lease

In the event the manager and resident agree on a mutual termination of the lease, all terms and conditions should be memorialized in writing and signed by all parties. The security deposit, last month’s rent and any other monetary sums should be completely dealt with to effectuate a clean break with no misunderstandings.  

 

“Serving the Property Management Professional”

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Your resident skipped out in the middle of the night 3 months into a 12 month lease. No notice given, not even the keys left behind. The only thing the resident left you with was a mess and a vacant apartment. Your owner or management company wants you to sue the resident for the money owed and collect this money. Can you sue? Should you sue? Is it worth it? Are there risks?

Residents break their leases on a regular basis. Sometimes they give you notice, but often they just get up and leave. While in some cases you are quite happy to be rid of a problem resident, in other cases the skip was unexpected, and the manager is upset at the loss of rental income and the prospect of a vacancy or having to retain a new resident.

The usual reaction by the manager is to want to sue the resident to recover the lost rent. Unfortunately, most managers are unsuccessful at collecting the rent in this fashion, and in our opinion, it is just not recommended.

For how much can you sue the resident? You can only sue the resident for the rent that you lost as it becomes due plus the damages to the property that exceed ordinary wear and tear, and these damages must be proven.

When can you sue the resident? You can sue at any time after the skip, but you will not know what is owed until you have the unit re-rented. You cannot calculate the rent owed for the remainder of the lease and sue for this amount, as acceleration is not allowed.

Where is the resident? In order to sue someone, you need to find them. If you cannot find them, you cannot sue them. It is that simple.

So you find the resident and sue the resident. Now what? The owner or the property manager will have to attend a pre-trial which could take hours of waiting. At the pre-trial the resident may not show up, and you will receive a default judgment. If the resident shows, the case might be settled, or if it is not settled, the case will be set for trial at a later date. This will require another trip to court where a full-fledged trial will be held and all witnesses must attend.

Can an attorney sue the resident for you? Sure, and you will be throwing good money after bad. A typical small claims suit handled properly will cost in between $500.00 to $2500.00, on average in attorney’s fees. You still will need the owner, the property manager and/or witnesses in court at the pre-trial and definitely at the trial.

Doesn’t the resident have to pay your attorney’s fees? If you win in court, the judge may award you attorney’s fee and costs based on the lease or Florida statute. Collecting them from the resident is a whole different story.

Can the resident win in court? A resident who breaks a lease will come up with all kinds of reasons why the lease was broken, most of these reasons pertaining to the condition of the property, repairs that they claim were not completed, safety issues, noise issues or just about anything under the sun. These can all be LIES, but you will have to defend yourself against these lies. Many residents can lie more convincingly than you can tell the truth. If the resident wins, YOU will have to pay the resident’s attorney’s fees. Many judges feel a lot of sympathy for a resident who breaks a lease, if the resident comes up with a good sob story.

The Counterclaim Risk Any time you file a lawsuit, you run the risk of the resident, with or without an attorney, filing a counterclaim against you. This means that the tables are turned, and now you are not only a plaintiff, but you are a defendant and must defend yourself against the resident’s alleged claims. This often will require you to hire an attorney and subject you to not only your attorney’s fees, but the resident’s attorney’s fees in the event he retains an attorney and prevails in court. A simple lawsuit you file against a resident for rent that he owes you can result in a complex counterclaim filed against you for damages the resident allegedly suffered due to your actions or inactions. The accusations the resident may make could be totally false and outrageous, but you will still be required to defend yourself.

ARE YOU CONVINCED YET? Our office does not recommend lawsuits against a resident unless it is an eviction. If the manager wishes to pursue a resident, we recommend that they do this on their own and recommend that the property manager does not file suit for the manager. Do some managers win and collect their money? Absolutely. Most do not. We recommend that you take the money you would have spent filing a lawsuit, pay for an extra ad in the newspaper, and re-rent the property as soon as possible.

 

“Serving the Property Management Professional”

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