Your residents have just informed you that they are breaking the lease agreement and moving out. A job transfer, sickness, home purchase or any other reason may be given. They may call you on the phone and then inform you in writing, sending you their new address where they expect you to send the security deposit. They may simply send you a letter telling you their intentions. Most likely you will not agree with the resident’s desires or plans, but you need to decide whether to ignore the letter or respond.

Do You Need To Respond?

There is nothing in the law that requires you to respond to the residents. A letter from residents indicating their intention to break a lease does not have any effect upon the lease agreement or the tenancy. Legally, it is called an anticipatory breach of contract. Will the residents be breaching the contract? Yes, and you do not need to respond. However, when you do not respond, the residents feel they are entitled to break the lease, and they assume your failure to respond indicates acceptance with their intentions. We feel you should respond, but in writing and with specific wording.

The Residents’ Expectations?

What are the residents’ expectations? As we can see in many lease break letters from residents, many feel that a job transfer, sickness or home purchase somehow legally allows them to simply pack up and break the lease. During the sales boom, many real estate salespersons told residents that in the event they purchased a home, the law allowed them to break the lease without penalty. We all know that this just is not the case, but the residents think otherwise. If the residents feel they can break the lease without penalty and send the manager a letter indicating the same and the manager in no way responds to the residents, the residents may feel that everything is fine and that the manager is in complete agreement.

How to Respond

When residents have already broken or will break a lease, the manager must immediately become vigilant and communicate only in writing with the residents. Remember, the residents are attempting to get out of a serious contract, and anything can and will happen. The manager may be caught off guard, the residents may be desperate, and the parties begin a verbal communication which is subject to interpretation and misunderstanding. The act of residents breaking a lease is a legally significant and dangerous situation (from the standpoint of the agent’s potential liability), and nothing should be done unless it is in writing. Too often we see cases in which deals are made, conditions are set, and conversations ensue in which the manager and the residents each end up having a completely different understanding of the situation. This results in conflicting testimony in a later court case. Unfortunately, some people can lie more convincingly than others can tell the truth, so when the residents go to court and claim the manager said they could break the lease, no one has anything in writing other than the residents who have a letter written to the manager indicating they could break the lease. The judge is put in an unfortunate situation in which he or she must decide who to believe. You may be on the losing end that day.

Common Manager Mistakes

Upon learning of a lease break or anticipatory lease break, the manager may tell the residents that if a new resident is obtained, the departing residents will not have to pay any further rent. This immediately creates an expectation on the part of the residents that the manager will mitigate his damages and suddenly get a new resident. Under current market conditions, we all know that finding a new resident may be a lot harder than it was two years ago. The manager may make the mistake of agreeing that the departing residents will find a replacement resident. Often this happens, and the person the breaching residents find does not meet the manager’s criteria and is not accepted, causing the breaching residents to feel that the manager does not want to rent the unit out. Another mistake is to make a payment arrangement with the residents for money owed, but at that time no one really knows what is owed or how long the unit will be vacant. Lastly the manager may find a new resident, but at a lower rent amount. Does this mean the lease breaking residents are now off the hook? All the foregoing mistakes are made by managers, and often they are part and parcel of the verbal agreements with the residents.

The Proper Response

Now that you are convinced that the manager should never respond unless in writing, you need to know what to say. Simply put, the manager should tell the residents that the lease agreement stands, and that the residents’ vacating shall constitute a breach of the lease agreement. Since automatic forfeitures of security deposits, liquidated damages and accelerated rents are not expressly legal, this will not be discussed. The correspondence should be short and simple.

The Residents Have Left. Can You Take Possession?

If you do not agree with the residents’ intention to break the lease by vacating and the residents vacate, how does the manager know if he can take possession? Often residents will wait to see if the manager takes possession. They will have a neighbor watch the property and notify them if the manager is seen going into the unit. Possibly, the rent will be current, and if so, the manager cannot take possession unless the residents have granted possession. If the residents have indeed vacated and the unit is abandoned, meaning the unit has been vacant for 15 days and the rent is unpaid, the manager may take possession. If the residents have told the manager in writing that they will be vacating on a particular date and in fact do so, the manager will most likely have possession of the premises, but should be sure by inspecting the unit and running this by their attorney. By sending the residents a proper response, the manager can accomplish a number of things to help minimize a bad situation and dispel the uncertainty of whether possession is or is not granted.

Sample Response Letter to the Lease breaking Resident

Dear Resident,

We are in receipt of your letter (or phone call) in which you have indicated that you are vacating the premises on (month, day, and year). Please note that under the terms of the lease agreement that you signed your lease and rent obligations continue until the end of the lease term. We will expect you to continue paying the rent and all charges due under the terms of the lease until the earlier of the date we may be able to re-rent the unit, if we decide to do so, or the end of the lease agreement. If we are only able to rent the premises at a lower rental rate than the amount for which you are currently responsible, you will also be liable for that deficiency. Please inform us in writing when you have vacated the premises, and return all keys, garage door openers or any other property belonging to us at that time, so we can avoid filing a possible eviction action. Please note that by vacating prior to the end of your lease agreement, you are in breach of the lease agreement, and we shall exercise all our rights under the lease and Florida law.

 

“Serving the Property Management Professional”

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Prior to the law change, if the last remaining resident in a dwelling unit died leaving personal property behind in the unit, serious problems were created for the property manager. Upon the resident’s death, relatives often would request keys or access to the unit to retrieve personal belongings of the deceased. If the property manager provided such access to the relatives or friend of the deceased, massive liability was potentially created, as heirs could later appear claiming a property interest in something that they said was or indeed was willed to them by the deceased. Since the property manager was not allowed to provide access, the result was that the relatives of the deceased would need to open up a probate estate so a personal representative, referred to in some states as an executor, could be appointed, and the property manager could then deal with the executor directly, possibly get possession of the rental unit from the executor, or even serve notice on the executor and file an eviction if necessary. Since more often than not an estate was never opened, the property manager was left in a legal limbo, and would frequently have to consider hiring an attorney to open up an estate at significant expense and delay.

Florida Statutes Section 83.67 solves the problem of the deceased resident and the abandoned property, BUT it only will be effective and applicable if the proper wording is in the lease agreement.

The Wording Which MUST Be in the Lease Is As Follows:

 

BY SIGNING THIS RENTAL AGREEMENT, THE RESIDENT AGREES THAT UPON SURRENDER, ABANDONMENT, OR RECOVERY OF POSSESSION OF THE DWELLING UNIT DUE TO THE DEATH OF THE LAST REMAINING RESIDENT, AS PROVIDED BY CHAPTER 83, FLORIDA STATUTES, THE MANAGER SHALL NOT BE LIABLE OR RESPONSIBLE FOR STORAGE OR DISPOSITION OF THE RESIDENT'S PERSONAL PROPERTY.

Is This Wording in Your Lease? Really? Are you sure?

 

Take another look and see if these words: OR RECOVERY OF POSSESSION OF THE DWELLING UNIT DUE TO THE DEATH OF THE LAST REMAINING RESIDENT are in your abandoned property clause. Chances are the words are not there. Fix it now!!! Failure to fix this clause can mean the difference between getting possession 60 days after a resident’s death or having to wait many months and spending thousands of dollars in attorneys’ fees. 

 

“Serving the Property Management Professional”

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If you are unsure as to exactly what renters insurance is, then you are not alone. Renters insurance is a topic that perplexes both residents and property managers, because there is not an adequate one or two sentence description that will do justice to this topic. There are many nuances involved, and a capable property manager should be aware of them. The good news is that you do not have to be an expert in the field of insurance to gain a basic understanding of renters insurance. However, what you do need to do is set aside some time to learn about it. Our hope is that this article will assist you in that process.

 

Some studies suggest that the number of renters have increased steadily. Some studies suggest only 43 percent of renters have renters insurance, while 96 percent of those who own homes have homeowners insurance. Why is there such a gap? Your residents have personal property just like homeowners. Do they not want to protect their personal belongings? Do not get the wrong impression, though; renters insurance has the capacity to protect the residents from much more than just personal property loss.

How Does Renters Insurance Protect the Resident From Personal Property Loss?

Mary lives in an apartment home located in Orlando. One night after returning home from work, she saw that her front window was busted. Sure enough, her apartment home was burglarized, and all of her valuable possessions, including her jewelry, were stolen. Edward lives an apartment home in Jacksonville, and a huge storm swept through the area. Edward’s unit was damaged due to flooding related to the storm, and among the items damaged were his valuable baseball card collection. Cindy lives in West Palm Beach and rents a single family home. Unfortunately, a fire swept through the house, and all of Cindy’s clothes and furniture, including her flat screen televisions, were destroyed. Most renter’s insurance policies cover theft and fire, so Mary and Cindy should be able to recoup some or all of their losses. Edward’s situation will be a different story. Property loss due to flooding is not covered in most renter’s insurance policies, so it is important to understand that while renters insurance offers protection, it does not offer complete protection to the resident for losses. The renter’s insurance policy will dictate what is and what is not covered based on the cause of the damage or loss. The policy will list which perils will be covered. Many renters’ insurance policies cover fire, lightning, explosions, vandalism, theft, and overflow of water from plumbing or air conditioning systems. Items typically not covered are sewer back ups, flooding, power failures, negligent or intentional acts. The key is to read what the policy says! Sadly, many residents buy into the fallacy that the manager is responsible in those instances, and that they will be covered by the manager’s insurance policies, when then is often not true.

Cash Value vs. Replacement Value

Elron was surfing the internet during what had been a very nice day. Out of nowhere a bolt of lighting flashed through the sky. The lighting bolt struck Elron’s unit, which in turn caused his computer to be fried. Elron previously purchased renters insurance. Assuming that losses from lightning are covered under the policy, how much money will Elron receive from the insurance carrier? If the policy allows for him to receive actual cash value, then Elron will be reimbursed the depreciated value of the computer. If the computer is very old, then the reimbursement may be minimal. For slightly more money, Elron would have been better served having replacement cost coverage, because it is going to cost him more to replace the computer than what the old computer’s actual value is.

How Does Renters Insurance Protect the Resident From Personal Liability and Loss of Use?

Tim, a resident at the XYZ Apartment Homes, had a very bad day! Tim invited Abby to watch some football playoff games, but an accidental fire started when Tim’s dog, Klumso, knocked a lit candle onto the carpet and newspapers. Tim was filling the bath in anticipation of washing Klumso when the fire started, and in the confusion of the moment, forgot to shut off the water, which then overflowed through the apartment and flooded his neighbor’s unit as well. Abby was injured trying to put the fire out, and Tim was forced to stay in a motel for ten days. If Tim had elected to pay for loss of use coverage in conjunction with his renter’s insurance policy, then he would be reimbursed for additional living expenses incurred, because he could not use his apartment home. Even more importantly, had Tim also selected personal liability coverage with appropriate coverage limits as part of his renters insurance policy, then he would be able to use those proceeds from the policy for potential liability to Abby, such as medical expenses. The resident can be held liable for injuries to guests. Additionally, residents that have accidents which cause damage to a neighbor’s unit can also be held liable. Therefore renters insurance with personal liability coverage is a must.

Why Should the Manager Care?

Mildred leased a two bedroom apartment for $1300 a month. A fire started in her kitchen while she and a guest were inside the unit. The guest was injured trying to put the fire out. Mildred had not purchased a renters insurance policy covering her personal contents or for personal liability. Her manager Mitch tells her it is not his problem, and she will pay the consequences for her failure to secure adequate insurance. Mitch could not be more wrong! Mildred will need to replace her personal contents that were damaged by the fire, such as her clothing, and may also be spending monies on legal bills if she is sued by her guest because of his injuries. How in the world is Mildred going to pay her rent? Renters insurance protects the income stream of the manager. Guests injured in a rented unit can also sue the manager. Soon Mildred’s guest may be coming after Mitch with a personal injury lawsuit in hand. There is no doubt that it is in the best interest of the manager to have residents obtain renters insurance with personal liability coverage.

Waiver of Subrogation

Not all renters’ insurance policies are the same. The manager should require the insurance company to add a waiver of subrogation endorsement to the policy. Without the waiver of subrogation, the insurance company could file a legal action against a third party who causes the loss to the insurance company.

Here is how this plays out in the renter’s insurance scenario. The resident obtains a renters insurance policy and agrees that any proceeds will be payable to the manager. Suppose the resident causes an accident in the unit. Without the waiver of subrogation clause, the insurance company would pay the manager and then go after the resident for reimbursement of the amount of the claim that was paid. Such a result could be devastating.

Requiring Residents to Obtain Renters Insurance

Managers are not prohibited from requiring residents to obtain renters insurance as long as the requirements are reasonable in the eyes of the court. Telling residents they must obtain renters insurance is meaningless on its face. From reading this article you can see that renters insurance can include many different types of coverage.

The first step that should be taken when rolling out a program requiring residents to obtain renters insurance is to obtain advice from your corporate attorney and/or risk management department and/or your insurance carrier, as the issues presented are quite complex. For instance, many property managers are more anxious for the resident to obtain personal liability insurance, as that is a huge potential risk for a manager. There should be full disclosure to your residents as to the requirements, and it should be in writing in the lease or in a renter’s insurance addendum. The coverage limits should be reasonable, and the addendum should be easy for the resident to understand, so that they know the differences between liability coverage and personal contents coverage. The lease or addendum should also make it clear that residents may choose the insurance carrier of their own choice. Selling insurance requires a license. If the property manager is mandating which insurance company be used, then the manager is essentially selling insurance and possibly engaging in antitrust activities, both of which are illegal! The lease or addendum should also spell out exactly the type of insurance that is not maintained by the manager, so the resident understands the consequences of not obtaining renters insurance.

Finally, the lease or addendum should require the resident to not only obtain the renters insurance policy, but to maintain it as well, and to provide proof of the insurance coverage to the manager. The lease or addendum should also have a clause stating that any noncompliance by the resident with respect to those obligations listed in the lease or addendum would be considered a lease default.

A final caution to managers that do require and confirm the resident has obtained renters insurance: a common fallacy held by managers is that the manager is not responsible for property loss if an item such as a pipe breaks inside a resident’s unit, causing a flood. Most likely there were problems with the pipe or a pre-existing condition prior to the resident moving in, and if so, the resident would not be liable for the resulting property loss. Even if the resident had renters insurance, the manager should not expect the renter’s insurance policy to cover the resulting losses, since the resident is not responsible for those losses. The renter’s insurance carrier may disclaim coverage, looking to the manager’s liability carrier for coverage, or if the damage claim is paid by the renter’s insurance carrier to the resident, the renter’s insurance carrier may then bring a subrogation claim against the manager, as discussed above.

 

“Serving the Property Management Professional”

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Many residents who are struggling to pay rent understandably attempt to obtain rent assistance, whether the assistance be from a church, charity, city, county or state program. It is also understandable that the manager would want to help the resident obtain rent assistance, which theoretically should help both the resident and the manager. However, when the resident brings you a form for you to fill out in the pursuit of this assistance, you need to be aware of potential risks. These forms often require the manager’s agent to provide the manager’s federal tax identification number (TIN), and also require a signature by the manager’s agent. Moreover, many of these forms attach conditions to receipt of the rent assistance. If you sign this type of form, what have you just done? What happens if you agree to wait upon charitable assistance, even if there are no forms to sign?

When no forms have to be signed, the main question becomes whether the manager has agreed to wait on payment, and if so, for how long? For example, if the resident indicates he can obtain rent assistance from his church, and you have already given a 3-day notice, do you subsequently agree to wait on this assistance? Often, we see situations in which a payment from a charity rolls in during an eviction action, an amount that was intended to pay some or all of the rent amount demanded on the 3-day notice. If the resident provides proof of this attempted charitable payment to the Court, the eviction could be derailed, even if the attempted payment is returned to the donor (!) The Judge’s decision may be based upon whether there was some agreement; either express or implied, to wait on payment. If the manager in fact accepts a charitable contribution for some or all of the amount demanded on the 3-day notice, the majority of judges will rule that the manager has technically waived the right to complete the eviction, just as if partial or full payment was made directly by the resident.

If rent assistance forms are signed, it is even harder for the manager to claim that there was no agreement to wait on payment. Moreover, rent assistance forms often come with a variety of conditions, and particularly when a city or county gives assistance, the typical form will require the manager to forebear its right to pursue an eviction for the time period which will be covered by the rent assistance, even if the payment is not full payment. Some forms can be interpreted to signify that the amount given for assistance will be considered full settlement of the resident’s outstanding rent obligations. Some forms require the manager not to file eviction 30 days from the point assistance is received. Often when these forms are used, it is not clear when the manager has waited long enough for assistance funds that never materialize, and it is not unusual for the form to indicate that payment will be made in 6-8 weeks. After obtaining the manager’s signature, the resident will sometimes delay or completely fail to submit the form to the organization offering assistance.

We have seen cases in which rent assistance procured under an assistance form rolls in many weeks after the 3-day notice was delivered, and that assistance payment covers some or all of the amount demanded on the 3-day notice. In this scenario, the resident will frequently file with the Court documentation showing the manager’s signature on rent assistance paperwork, and the eviction can be jeopardized. The manager may claim that the forms were signed to help the resident eventually obtain money to deposit into the Court Registry, but that will probably be a losing argument.

One final point: if a manager decides to sign rent assistance forms, consistent standards must be applied concerning when the forms are used. Inconsistent use of rent assistance forms will invite a fair housing complaint. The manager may be opening the door to a flood of rent assistance applications which ultimately prove to be less than desirable.

 

“Serving the Property Management Professional”

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A Letter from the Resident? -- A certified mail or regular mail letter from a resident, now that is a change. Usually it is the property manager who is sending the letters and notices. You open the letter up expecting the resident to be breaking his lease, but instead it contains a five page list of demands on you to make repairs to the property. The letter ends by saying that if you do not make the repairs within 7 days, the resident will either withhold rent or break the lease. Rent is now due, and you have served a Three Day Notice. Can you file an eviction? Can the resident break the lease? Does this need to be taken seriously? We commonly call this letter a “rent withholding letter” or “7 Day Letter from a resident”.

Does the resident have an attorney? -- If you receive a rent withholding letter from a resident or even a letter that implies that the resident is going to withhold rent, or worse yet, mentions something about you fixing something within 7 days, you can be almost 100% assured that the resident has gotten legal advice. This means that there is an attorney lurking in the shadows somewhere in a dark alley, waiting to see if you fail to make the repairs within the 7 Day time frame as demanded in the letter.

The Manager’s maintenance responsibilities - -- A manager is required by the lease and Florida law to maintain the premises. While the lease normally states what the resident’s responsibilities may be, if it is not stated in the lease that the resident is responsible for a particular item, frequently the implication is that the manager is the responsible party.

Florida Law and the Manager’s Duties- Florida law states the manager’s responsibilities regarding maintenance in Florida Statutes 83.51. Manager’s obligation to maintain premises. (1) The manager at all times during the tenancy shall: (a) Comply with the requirements of applicable building, housing, and health codes; or
(b) Where there are no applicable building, housing or health codes, maintain the roofs, windows, screens, doors, floors, steps, porches, exterior walls, foundations, and all other structural components in good repair and capable of resisting normal forces and loads and the plumbing in reasonable working condition. However, the manager shall not be required to maintain a mobile home or other structure owned by the resident. The manager's obligations under this subsection may be altered or modified in writing with respect to a single-family home or duplex. (2)(a) Unless otherwise agreed in writing, in addition to the requirements of subsection (1), the manager of a dwelling unit other than a single-family home or duplex shall, at all times during the tenancy, make reasonable provisions for: 1. The extermination of rats, mice, roaches, ants, wood-destroying organisms, and bedbugs. When vacation of the premises is required for such extermination, the manager shall not be liable for damages but shall abate the rent. The resident shall be required to temporarily vacate the premises for a period of time not to exceed 4 days, on 7 days' written notice, if necessary, for extermination pursuant to this subparagraph. 2. Locks and keys.
3. The clean and safe condition of common areas.
4. Garbage removal and outside receptacles therefore; 5. Functioning facilities for heat during winter, running water, and hot water. (b) Unless otherwise agreed in writing, at the commencement of the tenancy of a single-family home or duplex, the manager shall install working smoke detection devices. As used in this paragraph, the term "smoke detection device" means an electrical or battery operated device which detects visible or invisible particles of combustion and which is listed by Underwriters Laboratories, Inc., Factory Mutual Laboratories, Inc. or any other nationally recognized testing laboratory using nationally accepted testing standards; (c) Nothing in this part authorizes the resident to raise a noncompliance by the manager with this subsection as a defense to an action for possession under s. 83.59 (d) This subsection shall not apply to a mobile home owned by a resident.
(e) Nothing contained in this subsection prohibits the manager from providing in the rental agreement that the resident is obligated to pay costs or charges for garbage removal, water, fuel, or utilities.
(3) If the duty imposed by subsection (1) is the same or greater than any duty imposed by subsection (2), the manager's duty is determined by subsection (1), (4) The manager is not responsible to the resident under this section for conditions created or caused by the negligent or wrongful act or omission of the resident, a member of his family, or other person on the premises with his consent.

The Letter from the Resident- What does it look like? The letter from the resident will often be a complaint letter listing one or more items and demanding that the manager fix these items. In order for the resident to withhold rent or break the lease, first these items must be those that allow the resident to withhold rent or terminate, and secondly, the letter must give the manager 7 days to fix the items and state in the letter that failure to repair will result in rent withholding or the resident breaking the lease. The letter needs to be in writing, but some judges have held that verbal or actual knowledge by the manager was enough for the resident to comply with the resident’s obligation of putting the manager on notice.

Florida law pertaining to termination of the rental agreement. FS 83.56 (1) If the manager materially fails to comply with s. 83.51(1) or material provisions of the rental agreement within 7 days after delivery of written notice by the resident specifying the noncompliance and indicating the intention of the resident to terminate the rental agreement by reason thereof, the resident may terminate the rental agreement. If the failure to comply with s. 83.51(1) or material provisions of the rental agreement is due to causes beyond the control of the manager and the manager has made and continues to make every reasonable effort to correct the failure to comply, the rental agreement may be terminated or altered by the parties, as follows: (a) If the manager's failure to comply renders the dwelling unit untenantable and the resident vacates, the resident shall not be liable for rent during the period the dwelling unit remains uninhabitable. (b) If the manager's failure to comply does not render the dwelling unit untenantable and the resident remains in occupancy, the rent for the period of noncompliance shall be reduced by an amount in proportion to the loss of rental value caused by the noncompliance

For What Items Can the Resident Legally Withhold Rent or Terminate the Lease?

A technical reading of Florida Statute 83.60(1), the section of Florida law specifically addressing the resident’s right to withhold rent, indicates that a resident’s right to withhold rent is restricted to violations of 83.51(1), which essentially involves the manager’s failure to maintain the property up to existing building, housing or health codes. The resident has the right to terminate the lease when an 83.51(1) violation exists, or if the manager is failing to provide a material provision of the rental agreement. The right to terminate is actually a more expansive right, and what constitutes a material provision of the lease can be subjective. However, many judges allow the resident to withhold rent for items that would not technically constitute code violations (for example, a refrigerator problem).

The Letter from the Resident- What does it do? A letter from the resident in accordance with Florida law will allow a resident to break the lease if the problem is not repaired within 7 days AND will create a complete defense to an eviction action IF the problem has not been repaired within 7 Days. This is a very powerful tool the resident has, and if the manager receives such a letter, it should NOT be taken lightly, and most importantly, it should not be withheld from the attorney who may be filing the eviction action. Here is Florida law showing how the resident’s letter could be a complete defense to an eviction action and stating the strength of the resident’s letter to you. FS 83.60(1) …The defense of a material noncompliance with s. 83.51(1) may be raised by the resident if 7 days have elapsed after the delivery of written notice by the resident to the manager specifying the noncompliance and indicating the intention of the resident not to pay rent by reason thereof. Such notice by the resident may be given to the manager, the manager's representative as designated pursuant to s. 83.50(1), a resident manager, or the person or entity who collects the rent on behalf of the manager. A material noncompliance with s. 83.51(1) by the manager is a complete defense to an action for possession based upon nonpayment of rent…

Resident the from Letter receive you when attorney your - Failure to disclose to your attorney that you have received a rent withholding letter, or 7 Day Letter as we commonly call it, can be deadly. Your attorney will file the eviction, the resident will post the rent into the court registry and the judge may look at the letter as a complete defense to the eviction action, throwing the case out of court and holding you liable to pay a substantial amount of money in attorney’s fees to the resident’s attorney. NEVER hide a letter like this from your attorney.

So you received the letter from the resident, What should you do? – Notify the property owner, explain the law to the property owner, get the necessary funds and authorization, and get the repair done immediately. Judges are not keen on your excuse that you had no money from the owner to make the repairs, or you had to get 5 bids, or that no one could come out to make the repair. While all repair requests should be taken seriously, a repair request in the form of a 7 Day Letter from a Resident or a Rent Withholding letter needs to be given the utmost priority.

 

“Serving the Property Management Professional”

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The scenario usually goes like this: The resident vacated and owes money to the owner. The owner is angry and wants to file a lawsuit against the resident for the money owed or otherwise attempt some collection activity. The owner asks you to give him a copy of the credit report and/or social security number so he can collect the money owed. Should you release it? No.

The situation is controlled by the federal Fair Credit Reporting Act (FCRA). This is the same law that controls Equifax, Transunion, and other credit reporting agencies. The law states that if you provide credit-related information to others on a regular basis, you too are a credit reporting agency. So, in addition to being a property manager, you become a “CRA” subject to all the laws, regulations, and liabilities as Equifax. Not good.

A debtor (resident or applicant) can sue for a violation of the FCRA, as can the Justice Department. Damages are awarded, even if there’s been no harm done to the debtor! Add attorney fees and court costs to that, and one has a very unhappy property manager.

The federal Fair Credit Reporting Act says that credit information can only be released for appropriate purposes. The word “appropriate” is defined by the law. It does NOT include releasing credit information for the purpose of suing to collect on a debt.

Aside from the FCRA, there is another reason to hold tight to that credit report and social security number. Identity theft is on the rise, with increasingly clever ways of using a person’s private information to cause financial havoc. By keeping the credit report and social security number totally secure, you limit your risk of liability to a resident who becomes a victim of identity theft.

Two myths need to be debunked. One, the fact that the owner hired you as his agent and you obtained the report in that capacity of agent does not change any of the advice above. This is true even though the owner may have paid for the credit report. The owner designated you as agent for the purpose (among others) of finding a resident. Since he has delegated that authority to you, the owner has no appropriate purpose for the credit report.

A second myth involves releasing the credit report if the resident gives written consent. This is NOT true. There is no form or document that is so carefully worded that would allow the release of the information. The debtor (the resident) cannot waive his rights under the FCRA.

There are some very limited exceptions. If served a proper subpoena for the document, it can be released. If you are seeking legal advice involving the resident, you can let your attorney see the document. Otherwise, keep that information under lock and key.

Unfortunately, many property owners do not care what the law is and feel they are entitled to the information. A savvy property manager will have the following clause in their management agreement which can diffuse a touchy situation:

Due to laws which may affect disclosure of private and credit information, MANAGER shall not be provided with the RESIDENT’S credit report and/or application unless specifically authorized in writing by the RESIDENT(S) and the provider of the credit report.

Note: You will never get this authorization from the resident and the credit report provider, but we recommend you place it in your management agreement so you can convince the owner that it is indeed not an option.

 

“Serving the Property Management Professional”

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Why would you ever want to refuse rent? The resident may be currently under eviction, in continuing noncompliance with some other term or condition of the lease, holding over, or making a partial payment. In these cases you would not want to accept rent, but rather you will want to refuse the rent payment, as it could interfere with the resident removal process. The problem is that the resident came to your office, paid your front desk person and received a receipt showing that payment has been made! Have you accepted rent? Has a waiver been created such that the resident now cannot be removed? This article will deal specifically with the “acceptance of rent” and the “receipt” given to the resident, rather than how to return the “accepted” rent to the resident.

 

Rent Acceptance and Evictions

 

Accepting any rent during an eviction without the parties properly entering into a stipulation is a sure way to kill an eviction action. Most managers are aware of this and know that when a resident attempts to pay, the consequences can be severe. If a resident attempts to pay the rent, the manager will usually refuse the rent and call the attorney for guidance. Possibly a stipulation will be entered into, or the resident will simply be told that rent cannot be accepted. Accepting or even holding any rent payment from a resident under eviction can have dire consequences to the eviction action.

 

Rent acceptance During Noncompliances

Less obvious are the situations in which a resident may be in some kind of lease noncompliance and tries to tender the rent during this lease noncompliance. Examples of continuing noncompliances include unauthorized pets, code violations, unauthorized occupants, or some other uninterrupted, ongoing violation of the lease. Accepting the rent from the resident during a continuing noncompliance creates a serious, potential waiver and estoppel problem, in that the manager is basically giving the resident the permission to continue living on the premises for another month, even though there is a noncompliance. Many managers think that they can accept the rent and then quickly turn around and evict the resident for some violation of the lease not involving rent. This is a classic case of “trying to have your cake and eat it too”, and it is not good practice. Following is a typical situation: a resident is given a Seven Day Notice of Noncompliance with Opportunity to Cure on May 26 for an unauthorized pet, then comes in on June 1 and pays the rent. Can the manager turn around and terminate the tenancy? Probably not, if the rent is accepted.

 

The Accidental Rent Acceptance

In a very small company or when a manager is in complete control of rent acceptance, the manager can easily refuse the rent, explaining to the resident that rent cannot be accepted, possibly because an eviction action has been filed or the resident is in noncompliance. The resident comes in to the office, is recognized by the manager, and the manager is fully aware of the situation. This is the easy case. The problem starts when a resident waltzes into a rental office, hands a check or money order to the person at the desk that has no idea about the current eviction or noncompliance, and the resident is given a receipt and leaves. The manager may discover this immediately or even a couple days later. Possibly the rent has even been deposited! Now we have a big problem. The resident has tendered the rent to an employee or agent of the manager, the rent has been “accepted”, and potentially the manager’s ability to remove the resident has been compromised. Will a judge consider this “rent acceptance”?

 

The Not So Perfect Solution

In a perfect world, your front desk person or employee would know exactly who was under eviction, who was in noncompliance, and most importantly know not to accept the rent from that resident. The reality is that companies are dealing with sometimes hundreds or thousands of residents, and to investigate each resident at the time he or she comes in to pay the rent, normally on the 1st through 5th of the month, is simply impractical. One solution is to add some wording to the receipt that is given to the resident. While this wording is not perfect, it makes the person, be it the resident or a third party tendering the rent, aware that the rent may be returned and the tender and the receipt by the front desk person does not constitute legal “acceptance”, which we now know could kill that eviction or hurt the prospects of filing an eviction.

 

Possible wording for your receipts”

This receipt is provided for your convenience to show that you have given a form of payment to our office. In the event you are in default of the lease agreement, you are under a pending or actual eviction process, and/or you are attempting to make a partial payment, your tender of any payment to us and our giving you this rent receipt does not constitute our legal acceptance of the tender, and the payment may be returned to you at our option.

 

What is being accomplished?

By placing this wording on the receipt that is given to the resident, you possibly can protect yourself from being considered to have accepted the rent from the resident. This wording makes the acceptance of the rent from the resident conditional upon other possible circumstances. Could it be challenged in court? Sure, but it is probably better than what you have on your receipts today.

 

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Acceptance of Payment. The manager’s acceptance of payment from the resident waives the pursuit of any other lease noncompliance known to the manager at the time of acceptance. The manager’s acceptance of resident payment after a failure to pay waives that payment noncompliance as a basis for terminating the lease. If a Three Day Notice has been delivered, the acceptance voids the Notice and requires the service of a new Three Day Notice. The manager’s acceptance of resident payment after learning of a noncompliance other than nonpayment (such as illegal parking or the assault on another resident) waives that noncompliance, no matter how serious the noncompliance. If a Seven Day Termination Notice has been delivered, the payment acceptance voids the Notice.

The Gray Area. The basis of waiving the noncompliance is “acceptance” of the resident payment. Within the two clear boundaries of an accepted payment and a refused payment is the gray area. In this gray area are electronic payments: the on-line payment by credit or debit card, the electronic check, and the automatic charge to a credit card or debit to an account.

The obvious answer is to avoid the gray area altogether. Terminate the ability to pay on-line. Establish procedures and checklists to insure that electronic payment authorization is withdrawn or blocked. That being said, mistakes will happen. The size and complexity of manager organizations, the shifting of staff and plain human error are among the factors contributing to mistakes.

Judicial Discretion. In any legal gray area judicial discretion is paramount. In the exercise of its discretion a court will consider the intent of the parties, their business sophistication and any mitigating factors. The more sophisticated the manager, the less the court will be inclined to understand mistakes from failure to follow established policy, lack of adequate staff training, and disorganization. The presence of mitigating factors can be important. A resident following his established practice of paying on-line has a better chance of claiming acceptance than a resident that used the electronic payment to circumvent an in-person refusal.

Speed and Documentation. The most important factor evidencing the manager’s intent to refuse an electronic payment is the speed with which it is returned. The moment a manager discovers the payment, it should be credited back. The manager should document the file with the date and time of payment, when and how it came to the manager’s attention, and when and how it was returned. Written, dated and initialled notes are more persuasive in court then a hazy recollection.

A cautionary note to managers: while notice of an electronic payment may be nearly instantaneous the payment itself doesn’t clear instantaneously. The dilemma is that waiting for the funds to clear may be construed as acceptance, while issuing an immediate credit may result in an overpayment if the electronic payment is rejected and doesn’t clear.

The Three Day Notice. Given the uncertainty of the judicial response, I advise some common sense guidelines can be followed. If it’s a Three Day Notice, the manager should accept the payment even if it’s a prohibited partial payment, including the $25 on-line payment designed solely to buy three more days. The manager should accept that the resident took advantage of the mistake, serve a new Three Day Notice and notify the resident that electronic payment privileges are withdrawn. Note that if the lease has delivery method and timing requirements for the notice regarding withdrawal of electronic payment privileges, these must be followed.

The Seven Day Termination Notice. If it’s a reoccurring noncompliance, such as loud music late at night, the manager should accept the payment and wait for the next noncompliance. If the manager has sent a Seven Day Termination Notice, he should send a letter noting the payment, withdrawing the Notice in view of the payment and stating that electronic payment privileges will be withdrawn in the case of any future termination for noncompliance. If the current noncompliance is of such a serious nature that the manager does not wish to waive it, then the manager must accept the risk of an adverse litigation result. This includes paying the resident’s attorney’s fees, which can be substantial, and facing a fair housing complaint arising from the unsuccessful litigation.

Eviction Proceedings. If eviction has been filed, the above analysis can only be competently made by the eviction attorney. The attorney should be consulted immediately upon discovering the electronic payment. The attorney is in the best position to draw upon his experience in the particular county before the particular judge.

 

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APARTMENT LOCATOR SERVICES

There are many apartment locator services operating in Florida who work for the apartment hunter and find an apartment for a fee, paid sometimes by the resident, but more often by the apartment community. Your company may have an ongoing contract with one or more of these locator services, and if so, your company may be legally bound to pay the company if a lease is consummated. Extreme care must be taken to know exactly what the arrangement is with the locator service, the fees involved, and what the current contract states. Prior to entering into any agreement or contract with a locator service, you must know for sure that the company is legally operating in accordance with the licensure requirements of the Florida Division of Real Estate.

Licensure

In order for the owner or management company to legally pay an apartment locator service, that locator service must have a valid and current Florida Real Estate Broker's license. Licensure should not be assumed, as a company can appear to be legitimate and hold itself out to the public as licensed, but no license may exist. Before doing any business with an apartment locator service, and especially before signing any type of contract under which you are binding yourself to payments, research the company by going to the website of the Florida Department of Business and Professional Regulation at (http://www.myfloridalicense.com/dbpr/re/index.html). It is possible that the company has a name it is doing business under which may not match the license name, and this can be determined and verified by going to the website.

What can be paid?

A commission or a fee can be paid to the apartment locator service. There is no monetary limit on this fee, since the apartment locator service is a licensed "real estate broker", and Florida law does not impose any limits on payments in this case. There is no difference in paying a locator service than your local real estate company who sends you a prospect who eventually becomes your resident. The amount paid may be the fee that the locator company charges in its contract, or any other amount that is negotiated between your company and the locator service. Make sure everything is clearly set forth in writing, and have your attorney review the document to make sure that you never have to pay a commission or fee unless a lease is fully consummated, the resident moves in, and all monies collected from the resident have cleared the bank. In some cases, there may be no written contract at all. You may receive a call from a locator service or a real estate company, a prospect is sent to you, a lease is signed, and you pay the commission agreed upon over the phone. Better practice dictates that this all be in writing.

Who can be paid?

Only the licensed real estate broker can be paid by the owner or management company. This may be the individual broker or the licensed brokerage company. No payment may be made by you to any employees or owner of the apartment locator company, whether or not that person holds a real estate license. The payment is made out to the broker or brokerage company, and what happens after that is the business of the apartment locator company.

The Apartment Locator Contract

If your company has no legally binding contract with the locator service, you are under no legal obligation to pay any fee or commission to the service for sending a prospect your way who ends up becoming a resident. If presented with an apartment locator contract, carefully review all its terms and conditions before signing, and have it reviewed first and approved by your regional manager or corporate office. Often, a locator service has entered into a contract with a prior management company or prior owner, a contract of which you had no knowledge. Your company's contractual liability for payment of a commission or fee will depend upon the wording of the contract and whether it applied to new owners or successor management companies. Train your management and leasing staff to never sign any forms or papers presented to them by any locator service, as the apparent authority of the employee and the act of signing can have a binding effect upon the management company or ownership.

RESIDENT REFERRAL FEES

One of the best ways to increase occupancy is through a resident referral. Simply put, one of your satisfied residents refers a friend, coworker or relative to your property. Often the referring resident is rewarded by you with the payment of a sum of money, a gift or a reduction in rent for the next month. This is all completely legal, and is allowed due to the efforts of the Florida Apartment Association in having Florida Statutes Section 475 amended to allow you to give "resident referral fees". However, there are limits in how much you can give as a referral fee to the referring resident, and no matter how desperate you are for residents, you cannot exceed the limits set by Florida law. Many companies operating in Florida are based out of other states and do not know the Florida law regarding referrals, and it is just a matter of time when a company gets in serious trouble, facing hefty fines or ever criminal prosecution.

Florida Law

Chapter 475 of Florida Statutes carves out exemptions addressing who can receive a "commission" for a real estate transaction without having to hold a valid and current real estate license. Florida Statute 475.011 provides the exemption from licensure in part as follows:

"ƒ(13)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 tenant in such apartment complex provided the value of the fee does not exceed $50 per transaction. Nothing in this subsection authorizes an unlicensed person to advertise or otherwise promote the person's services in procuring or assisting in procuring prospective lessees or tenants of apartment units. For purposes of this subsection, "finder's fee" or "referral fee" means 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. It is a violation of s. 475.25(1)(h) and punishable under s. 475.42 for a property management firm or any owner of an apartment complex to pay a finder's fee or a referral fee to an unlicensed person unless expressly authorized by this subsection.

Applicability of the Statute

Who can be paid? To examine the statute, we see that it applies to a management company or owner of an apartment community. The person to whom you pay the referral fee must be the resident. The law does not indicate which resident in the case when there are two or more residents on the lease, but it can be safely assumed that the law refers to one and only one resident.

How much can be paid? The statute specifically states that the "value" of the "fee" can be no more than $50. This is clear. Any attempt to circumvent this by giving gift cards that exceed $50, paying $50 to each resident on a lease with multiple residents, giving the resident a product or service valued at more than $50, or giving a rent credit for the current or next month in an amount greater than $50, are all in violation of Florida law and will constitute a felony.

How often can the fee be paid? The statute makes it clear that the resident to whom you pay a referral fee cannot be "in the business" of trying to find residents to refer or advertise your property in any way. That enterprising resident who goes around placing flyers up in businesses or advertising apartments on Craigslist or in any other advertising medium, does not qualify under the exemption and will not be entitled to the referral fee. Exercise extreme care when a resident has multiple referrals to make sure that no violation of the statute is occurring. When dealing with the referred prospect, inquire how the prospect knows the referring resident.

Penalties for violations: The resident referral fee is always an uncomfortable topic with which to deal, as many apartment communities boldly advertise to the residents, often in writing in the resident newsletter or on signs posted prominently on the property, that resident referral fees are paid in amounts or value far exceeding $50. The reasons for payment of referral fees exceeding the $50 cap range from pure ignorance of the existing law to a knowing, calculated violation of the law. Resident referrals play an important role in filling vacancies, and the higher the referral fee, the more referrals an apartment community is going to receive. The problem is that violating Florida Statutes 475 is actually considered a third degree felony, punishable by a fine of up to $5000, and the violator is the person or company paying the referral fee, not the resident receiving it. It is important for the manager to alert his or her company to the existence of this law.

THE RESIDENT REFERRAL FEE AGREEMENT:

While a simple sign offering a resident referral fee will often suffice, situations may arise that are unexpected, and the referring resident may expect a referral fee in a situation that may not be appropriate. Will the referring resident receive the $50 payment or rent concession immediately, or after a specific time period? Suppose the referring resident is in default of his lease or even under eviction? The resident may refer an applicant who is not approved, or if approved, moves in and bounces the rent and security deposit checks. At what point in time will the referring resident receive the $50 payment or credit? Think about this carefully, and create a Referral Fee Terms and Conditions Sheet to avoid any misunderstandings between you and the resident. If you place a sign up on the property or advertise your referral fee in any way, simply print on the bottom of the sign or advertisement, "Terms and conditions apply, see office for details".

 

“Serving the Property Management Professional”

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Thousands of Three Day Notices, Seven Day Notices and Notices of Nonrenewal are served each week by property managers.

 

Most are served by posting on the premises or hand delivered to the resident if the resident is present. 

While most residents comply, there are many times when the manager files an eviction and the resident denies receiving the notice……..

Most likely an agent for the manager served the notice by himself or herself with no witnesses, so the judge will have to decide who to believe if this is brought up as a defense to the eviction.

So. While witnesses are not necessary, they sometimes can be crucial to your case.

Well, Let’s examine Florida Law first

What statutes addressees the witness requirement?

There are none!

There is absolutely no requirement in Florida law that the manager must have a witness or witnesses present when serving a notice.

Many of you have what we could call the The Dangerous Resident  --- the resident that could cause you  hard if angry or mentally unstable.

Serving notices can be dangerous.

Here you could have a situation where you knock on a door only to meet a less than friendly resident or other occupant of the premises, whether authorized or not.

Each year, managers get harmed while in the process of serving notices. Some have been or was killed.

You might think that mailing a notice after it is served could be the best route as you think this could be more proof that the resident got the notice.

This is a huge mistake.

Here you are insuring that the resident receives a notice so you  sends this notice by mail, in addition to posting on the premises or hand delivery.

Mailing can be a serious mistake as the law extends the expiration time of a notice if it is mailed.

If a Three Day Notice is mailed, the law allows 5 days for the resident to receive the notice and an additional 5 days for the resident to pay by mail even if you don’t want the resident to pay by mail.

This can result in a Three Day Notice becoming a Thirteen Day Notice.

On top of this, confusion can occur because the Three Day Notice was given one day but another Three Day Notice received a few days later by mail causing a conflict and possibly voiding out the first Three Day Notice.

In the case of a Notice of Nonrenewal, the manager may be under a strict timeframe in which to give the resident notice.

For instance, a month to month tenancy needs to be terminated by the manager giving no less than 15 days’ notice prior to the beginning of the next monthly rental period.

If the notice is mailed on say August 14, adding 5 days for mailing would make the notice short.  A short notice is a WRONG notice

Some residents, shall we say, are desperate

There are no limits to the lies that residents will come up with if they do not have the rent.

AND

The most common one is that they did not receive the Three Day Notice.

Judges hear this one all the time, and in most cases, as long as the manager or someone else testifies that they served the notice, this defense will not be successful.

But beware!!!

If this defense is raised in court, you better be certain that the person who served the notice is in court with you, and better yet, another witness.

There is the “I Paid the Manager by Cash” Defense

Occasionally a resident will raise the defense of payment.

They will claim that they paid the manager when the manager met them at the door.

Sometimes……………. they will allege that they paid the manager in cash.

In most cases this is NOT a very credible defense, but if the resident can show that the manager accepted cash in the past, the defense becomes MUCH stronger.

 

 Having a witness who can also testify that no payment was made by the resident could be crucial if this defense is raised.

What are some Alternative Delivery Methods???

You don’t need to go this on your own,

Private process servers are available in most counties and are certified to serve notices by the Circuit Court.

After serving, the process server will prepare an affidavit of service which will be attached to your Three Day Notice that you file with the Court.

Most judges will take this seriously, but still, if a process server is used, we would recommend that the process server comes to the eviction hearing or trial if that becomes necessary.

Now I do have a word of caution when using process servers and that is to  make sure the date on your notice and the expiration date are proper,              AND, most importantly,  that the process server serves the notice immediately.

We have seen cases in which the manager hired a process server, gave the process server the notice but the Three Day Notice was not served until the next day, requiring the notice to be completely redone, and the manager had to start over again.

Look at what a judge has to do.

While you may serve a Notice, the judge has to actually kick the person out of the house. It is kind of radical and no judge enjoys this.

Judges are human and in sometimes feel sorry for the resident‘s plight.

Some residents can weave a great story, and some residents indeed do have legitimate problems.

While most judges will follow the law, giving the judge one little excuse to deny the eviction action might be enough for you to walk out of the courtroom with unexpected results.  It has happened to US.

Never underestimate what a resident will do in Court. Our office handled a cut and dry non-payment of rent case in which the resident denied receiving the Three Day Notice.

The manager testified that he gave the notice. The resident had no other legal defense whatsoever, and the judge decided to dismiss the eviction action, stating he did not feel that the resident received the notice.

If we had a witness to the notice serving or a private process server was used, we doubt that the judge would denied the eviction.

So where do we go from there…………….

If at all possible bring a witness with you when you are serving notices. If you feel that you have a dishonest or dangerous resident on your hands, or possibly you have accepted rent in cash in the past, it is the safer approach and can mean the difference in whether you win or lose the eviction action.

 

“Serving the Property Management Professional”

www.evict.com      www.evicttv.com      www.evictforms.com      info@evict.com