LETTERS OF PROTECTION

 

A “Letter of Protection” is a lawyer’s representation that his client has agreed that an amount, which is owed to a creditor by the client, will be paid to the creditor by the lawyer from the client’s share of a proposed monetary recovery.

 

Commonly Used For Medical Providers

 

This letter is commonly given by lawyers on behalf of their clients to medical care providers. Personal injury lawsuits and workman’s compensation claims are types of lawsuits in which letters of protection are often used. When a client has suffered a physical injury, he may not have sufficient money to pay for his medical care. Doctors, hospitals, and others who provide the medical care are promised payment from the client’s monetary recovery. They are more willing to render the medical care if they have some assurance from the lawyer that they will be paid before the money is distributed to the client. However, letters of protection can be given to any creditor of the client in the hope that the creditor will forego payment, accept the letter of credit and rely upon the possible recovery for payment.

 

Not Much Protection

 

The problem is that such a letter is not much protection for the manager. If and when the resident recovers any money in his lawsuit, he has instructed his lawyers to pay his manager an amount owed from the resident’s share of the recovery. The key words are “if and when” a recovery is made. If the resident loses his lawsuit or his workman’s compensation claim, than there is neither recovery for the resident nor payment to anyone. If a recovery is made, when it will be made is another question. The resident’s legal action or claim could take months or years.

 

What is Covered by the Letter?

 

It is important to understand how much a letter of protection is actually “protecting”. The resident may tell the manager that the letter will cover the past and future rent. Whatever the resident is saying, it’s the wording of the letter of protection that is important. Some letters are promising payment only of the amount owed at the time the letter is received, not future amounts owed.

 

No Guarantee of Full Payment

 

A resident’s recovery doesn’t guarantee full payment to his letter of protection creditors. The attorney fees and costs of the lawsuit are first deducted from the client’s recovery. It’s possible that after payment to the letter of protection creditors, the balance to the client will be little or nothing. Despite having given letters of protection, a lawyer is unlikely to make distribution from the client’s recovery without the client’s final consent. A client, who is receiving nothing or very little from his recovery, may not be disposed to give final consent. The lawyer might then ask the creditors to agree to accept only a percent of their amount owed, so that the client can receive more. If an agreement cannot be reached that induces the client to consent to distribution, the lawyer is likely to deposit the client’s recovery into court and let the court decide who gets what.

 

Significant Risks

After reading this, I am sure you understand why our law firm advises its clients that reliance on letters of protection poses significant risks. Managers invest in rental units, not in lawsuit recoveries. Foregoing collecting rent to rely on a letter of protection is a voluntary act by the manager. The manager is not required to do this. If the manager is unwilling to rely on a letter of protection, the manager should write a letter to the resident, with a copy to the law firm, indicating that the manager will not accept and rely upon the letter of protection. The rent must be paid timely and in full.

 

LEASING BONUSES AND REFERRAL FEES

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.

 

LEASE CANCELLATION BY THE RESIDENT

 

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.

 

LEASE BREAKS DUE TO MEDICAL REASONS

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.   

 

LEASE BREAK RAMIFICATIONS

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 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.

 

LATE CHARGE AND UTILITY CHARGE ACCUMULATIONS

 

You just took over a property that has had 3 managers in the last 6 months. Needless to say things are a mess, and each day you find more money owed by residents and inconsistencies in the rent records, receipts and especially the utility accounts and late charges. It is pretty clear that collection of these amounts was the last thing on the prior manager’s priority list, but your company is now faced with thousands of dollars in unpaid utilities and growing ledgers full of late charges and other unpaid sums. Can you simply bill the resident and get paid? Not so fast. Collecting this money will be a “process”. Can you put the full amount of 4 months of uncollected utility bills and late charges on the on the Three Day Notice and expect to prevail in court? We certainly will not file the case.

 

With the economic downturn, the focus has been on collecting the base rent money. It is hard to turn away a payment of $900 because the $50 late charge was not included. While the resident may be responsible for the payment of late charges, NSF fees and utility bills when they tender the base rent alone, the base rent alone is being accepted. The result is a build up in the other charges, including unpaid late charges building on top of other unpaid charges. Eventually the resident’s ledger is a complete mess and nearly impossible to distinguish. When the next month comes along the resident is given a Three Day Notice with the full amount owed, and again the resident simply pays the base rent which is accepted. If this occurs multiple times, the chances of collection diminishes, and the principle of law referred to as waiver may come into play. Some judges rule that prior uncollected late fees will be waived if base rent is subsequently accepted. Lease clauses indicating that all payments will first be applied to outstanding balances may or may not matter to this type of judge, particularly if there is a clear pattern of the resident paying the exact base rent amount late.

 

Preventing the Problem

 

What is a partial payment? Many managers will tell us that it is their company policy not to accept “partial payments”, but what they mean is that they don’t accept partial “base rent” payments but do in fact accept the base rent, even if a late charge or a utility charge is not included.

 

It is far easier to prevent the problem than to fix the problem. All a property manager needs to do is refuse any payment that is not the full payment amount under the lease terms and demand full payment only with no partial payment accepted. If the lease defines late charges and utility charges as additional rent, all of it goes on the Three Day Notice, and if the resident makes a partial payment, and it is the first time this is occurring, it should be returned to the resident immediately with the resident told in writing and in person if possible that no partial payments are accepted. Property managers who are most successful with collecting the full amounts owed all follow this method, and it sends a clear message to the resident that the terms of the lease will be upheld and enforced by the manager.

 

Solving the Problem

 

Not so fast! The problem of accepting partial amounts cannot be solved overnight. You must first determine what is owed and create a collection strategy. Determining what actually is owed can be difficult in and of itself. If you have inherited a property and it has been mismanaged, often the records of amounts owed are not accurate, or they are difficult to sort out, because when money was received it was applied by the manager’s computer accounting software to monies owed with the balance being “rent“on the computer ledger, but the resident intended for rent to be paid. We recommend that unless the resident has been given a receipt and a balance due statement each time a partial payment was accepted, if the rent is $700 and the resident pays $700, it should be assumed that the resident is paying base rent. Getting a resident in line is a process that cannot be accomplished overnight and should not be attempted through the eviction process unless all else has failed.

 

1. Notify the resident in writing that NO partial payments will be accepted in the future. Explain that the payment the resident makes must include any utilities for the period used and any late charges for that period.

 

2. Demand the base rent and the late charge for that month’s payment on the Three Day Notice. We do not recommend you put the full amount the resident owes on the Three Day Notice if it is a large accumulation of late charges and utility bills.

 

3. At the same time the Three Day Notice is served, prepare and Serve a Seven Day Notice of Noncompliance with Opportunity to Cure, and on that notice you will clearly state the balance owed to you for the past amounts of late charges and utilities. If it is confusing or you think the resident may dispute the amount because of the past partial amount acceptance actions, attach a ledger to the Seven Day Notice. Make sure your ledger is accurate, because if it is not, you will really have a dispute later.

 

What Will Occur?

 

1. The resident may attempt to pay the base rent as before. We feel this should be refused and returned to the resident. Accepting this amount does absolutely nothing to solve your problem.

 

2. The resident may attempt to pay the full amount owed on the Three Day Notice but not the amount on the Seven Day Notice. If you have also given the Seven Day Notice of Noncompliance with Opportunity to Cure for the other past due amounts, and your company is insisting that all these amounts be aggressively pursued, you would need to refuse the amount tendered pursuant to the Three Day Notice, because the resident is still in noncompliance by not paying the amounts demanded on the Seven Day Notice of Noncompliance. However, now you are locked into filing a questionable Seven Day case. At the time the money tendered is returned, use this opportunity to explain to the resident that the amounts must be paid in full and you will not accept anything less than the full amount or, if your company permits, enter into a payment plan with the resident using the Past Due Amounts Workout Agreement.

 

3. The resident may pay everything that is owed, but we doubt this will happen if the accumulated amount is high. If you get the full amount, congratulations.

 

Why Use the Past Due Amounts Workout Agreement?

 

The Past Due Amounts Workout Agreement is like a promissory note, but it is used during a tenancy rather than after a tenancy. It allows you and the resident to come up with a plan to pay the past due monies owed in a fashion that hopefully the resident will be able to pay by converting any past due amounts into “rent”, and it makes the entire balance due and owing as “rent” if the resident fails to pay per the agreement. This will allow you to place the entire balance owed on a Three Day Notice in the event the resident fails to pay.

 

Best Practices When Accepting a Partial Amount

 

While it is easy for us to tell you to refuse a base rent payment or base rent including a current late charge that does not include the accumulated utilities or past accumulated late charges, we know acceptance of such payment will happen, and it may be your company policy. If you do this, we urge you to always immediately give the resident an accounting showing exactly how the monies the resident paid were applied. If they are applied to utilities and late charges first, make this perfectly clear, as the resident will often use the defense in court that she has “paid the rent”. You want to be able to tell the judge that money was accepted and applied first to the other amounts owed and second to the rent, AND that the resident completely knew it and understood it.

 

Not Sure How to Proceed?

 

If you are not certain how you should go about cleaning up seriously delinquent accounts, we recommend you call your attorney as ask for advice. Certain fact situations may require differing strategies. Always resist the temptation to simply put the full past due accumulated amount on the Three Day Notice.

 

Renewing a Lease?

Never renew a lease unless all the past amounts are paid or you have asked your attorney for advice on how to address the amounts owed on the new lease. Failure to do this correctly could result in you completely losing any ability to collect the accumulated past due amounts

KEY RETURN AND POSSESSION DATE

Many property managers consider the return of keys as the date that the resident gives possession. When the key return occurs, they begin to count the 15 or 30 days as required by law for returning the security deposit or making the claim. Sounds reasonable, right? Wrong. This method of determining the possession date gets countless managers in trouble, as the resident argues about the key return or key return date, resulting in potential accusations of a violation of the security deposit claim/return laws.

The Lease

Your lease most likely has a clause which states that the resident is to turn in the keys, garage door remote, etc., upon surrender of the premises to you. This reminder is important, as often the resident leaves forgetting to return these items, and besides, when the key is returned, it is usually clear that the resident has in fact surrendered. Unfortunately, like any other lease clause, residents will do whatever they want. They do not always do "what they are supposed to do".

Your Company Policy

You may have a company policy that states that the resident has not surrendered the rental premises unless the keys are returned. While this seems like a logical policy, the reality of the resident not returning the keys can make this policy silly, as most managers have taken possession of a rental unit at one time or another, even when no keys were ever returned. The policy may be good in theory, but in reality it does not always work. Furthermore, many judges do not care much what your company policy is.

What is the Surrender Date?

Your residents are supposed to leave at the end of October. They have given notice that they are leaving, their lease may be expiring, or possibly you non- renewed the residents. At the end of October, no residents show up in your office to drop off the keys. The question now is whether the residents have indeed surrendered.

Rent and Keys

It would seem logical that if you did not receive the keys from the residents on the surrender date, the residents would continue to owe rent until such time as those keys are returned. This is simply not practical, as the chances are the residents have vacated on the surrender date, but for whatever reason or no reason at all, they drove off with the keys.

The Manager’s Actions

The manager who does not receive the keys on the surrender date often decides to continue charging residents rent. This amount will be deducted from the security deposit or could exceed the security deposit funds, resulting in the residents owing more money than the security deposit, which amount could eventually end up on a credit report.

Now For the Dispute

1. Charging the resident rent: Once the residents receive the Notice of Intention to Impose Claim on Security Deposit, the fireworks begin. The residents are furious that you would have charged them rent, when in their opinion, they vacated the property, and since they were not living there, they should not have to pay any further rent. They may even bolster their argument by showing you the notice of vacating they gave you or the notice of non-renewal you sent them. In your mind, since no keys were returned, they owe rent. In their mind, they vacated just as planned and owe nothing.

2. The 30 day Notice Period requirement: The manager receives the keys on the 4th day of the month or goes to the property on the 4th and finds the keys sitting on the countertop with a little note next to them and a forwarding address. A common problem occurs when the manager begins the counting period of 30 days to send the claim letter as of the key receipt date. Typically the problem is caused when the manager waits until what they consider the 29th day to send the notice out. Savvy residents know about the law regarding the security deposit and the timeframes under which the manager is working. The result is that the residents are now demanding the full return of the security deposit, as in the residents’ opinion, you sent it out late. The argument then becomes whether you sent the notice out on time. The manager argues that the resident did not return the keys until the 4th or not at all, since the keys were left on the counter. The residents argue that you knew or should have known that they had vacated, and you should have begun counting your 30 days from the date that the residents were supposed to vacate. The residents may even argue that they returned the keys to your receptionist or dropped them in the drop box. Who is correct, the residents or the manager? It is tough to predict how a Judge will rule under these facts; the best answer is for the manager to avoid this problem.

Avoiding the Problem

If you are told by the residents that they will vacate at the end of the month, or you gave them a notice of non-renewal for that date, it is YOU who should be going over to the property on the first day of the month and seeing if they have completely vacated. Sitting in your office waiting for keys which may never be returned is patently foolish. Additionally, waiting until the 28th, or 29th day from the key receipt date to send the deposit claim letter is dangerous and increases the odds of a dispute immensely. NEVER rely upon the return of the keys to begin the counting of your days when making the claim upon the security deposit, regardless of company policy or lease wording.

 

 

INTEREST BEARING SECURITY DEPOSIT

Most resident security deposits are held in non-interest bearing accounts in a Florida banking institution. This is due to the fact that most property managers do not feel it is worthwhile to keep the funds in an interest bearing account, as under current Florida law, the manager will be required to account for the interest each year and either give this interest to the resident in whole or part. Often the banks will not impose their monthly fees if the account is non-interest bearing, as the banks are reaping the rewards of the money held by them. Even in light of Florida law, many property managers see these often large deposits building in the bank accounts and are desirous of keeping the interest for their company. If you have 200 residents each paying $500.00 in a security deposit, this amounts to $100,000.00 sitting in a bank, and potentially $5,000.00 in interest, assuming a 5% interest rate, being lost to the banks and not being received by the property manager. Unfortunately, Florida law simply does not allow the property manager to keep all the interest. This article will examine the current law regarding security deposits, how they are held and where the interest can go.

What Must Be Held In That Escrow Account?

Deposit money must be held in the escrow account. Deposit money is defined by Florida law as any money held by the manager on behalf of the resident, including, but not limited to, damage deposits, security deposits, advance rent deposit, pet deposit, or any contractual deposit agreed to between manager and resident either in writing or orally. "Security deposits" means any moneys held by the manager as security for the performance of the rental agreement, including but not limited to monetary damage to the manager caused by the resident's breach of lease prior to the expiration thereof. By the way, this definition is word for word from Florida Statutes Section 83.43 (11) and (12). As you can see, if you collect money from a resident and that money is not a “fee” but a potentially refundable “deposit” or “advance rent”, it must be retained in the escrow account and accounted for by the property manager.

The Non-Interest Bearing Account

Unfortunately, most deposit money is held in a non-interest bearing account for reasons previously mentioned. The bank retains all the interest, and the property manager and resident get absolutely nothing in return. If anything, the property manager may get their bank fees waived, and this is common practice in many banks. The money must be in a separate escrow account in a Florida banking institution.

The Interest Bearing Account

Florida law states that if the deposit money is held in an interest bearing account, the property manager has two choices when dealing with the interest.

Choice #1: The resident must receive of that interest paid at least 75% of the annualized average rate payable on such account. For the sake of simplicity, let’s say that the deposit was $1000.00 and the interest paid on that money was $50.00. The property manager can choose to give the entire $50.00 to the resident OR can give the resident $37.50 and retain $12.50 for the property management company.

Choice #2: The property manager must pay the resident 5% simple interest per year.

When and How Must Interest be Paid to the Resident if Choice #1 or #2 is picked?

While this may come as a surprise to many property managers, the interest must be paid to the resident directly or as a rent credit at least once annually, which means usually at the time of the lease end or renewal of the lease. Many property managers roll over the deposit money into a renewal, forgetting that they must account to the resident for the interest and pay this interest or credit this interest to the rent. While there is no specific penalty to a manager listed in the Landlord/Tenant Act, managers who are licensed by the Division of Real Estate could find themselves subject to a serious FREC complaint for a simple mistake such as this.

So You Still Want To Keep All The Interest?

Some of our clients, against our advice, specifically agree with the resident in writing in the lease agreement that the property manager shall retain all the interest on the deposits. These staunch believers in freedom of contract feel that if all parties are in agreement, it should be allowed and will not be challenged. Unfortunately, Florida law does not draw clear lines of when and where we can move outside of the Landlord/Tenant Act and contractually agree to something that is not specifically permitted in the Act. Florida Real Estate Law specifically allows parties to a sales transaction to agree who retains the interest on the deposits, but unfortunately, we do not have this specific authorization in the Act. We have seen clients who retain the interest in full audited on a regular basis, and the auditors have not cited them for this practice. If you choose to keep all the interest, do so at your own risk, and remember that in the event of litigated disputes, you always have to fear the potential of class action litigation. If you do the same or similar thing to all your residents, attorneys can and will sue you in a class action. This can result in huge sums, including attorney fees and costs, paid by your company to your attorney, whether you win or lose, AND the plaintiff’s attorney, if you end up losing in court.

INSURING A SMOOTH RESIDENTIAL EVICTION

Evictions are being contested at a record rate. Residents are hiring attorneys at a record rate. While many residents have no legal basis for contesting the eviction, they are still able to file an answer with the court and too often get a court hearing, which causes significant delays. Most of the time, the resident does not win in court, but the resulting delay causes significant financial harm to the manager. In many cases a resident will contest the eviction and actually have a legal basis for contesting the case. Some successful defenses to an eviction action include but are not limited to:

1. Late charges on the Three Day Notice which are not considered “additional rent” in the lease.
2. Amounts other than rent on the Three Day Notice.
3. A pattern of late payments.
4. All adults not on the Three Day Notice.
5. Address discrepancies.
6. Notices or letters sent to the resident AFTER the Three Day Notice given.
7. Verbal agreements or conversations between manager and resident.
8. Accumulated late charges.
9. Deficiency or repairs needed on the property.
10. Failure to receive notice
11. “Hard times defense”
12. Denial of noncompliance

THE SOLUTION

 

While it is impossible to prevent a resident from contesting an eviction, it is possible to LIMIT the things for which the resident can contest. This is actually very easy, but takes a commitment on the part of the manager to do it correctly. Over 50% of all paperwork that comes into our office for eviction filing is wrong in one or more ways. This is unnecessary and inexcusable. It creates more work for the attorney and staff and often requires a re-do of the notice or notices. Redoing the notice results in delays and more money is lost by the manager unnecessarily. Following the Speedy Eviction Tips and using the Three Day Notice Checklist can cut down on mistakes substantially. Successful managers use checklists and procedures manuals. Haphazardly preparing and servicing notices is a recipe for disaster.

 

“SPEEDY EVICTION TIPS”

EXAMINE! - - Is the Certificate of Service filled out on your 3 day? Are all residents listed?

EXPLAIN! - - Explain any strange amounts that do not match up to your lease rent amount.

FAX OR EMAIL! - Send all pages of lease and 3 day notice. Don’t forget the back pages!

USE A FAX COVER SHEET IF NOT EMAILING – Use your attorney provided transmittal form or fax cover sheet

CONFIRM! - - Call and confirm that your attorney has received all pages. A fax machine or scanner can pull through more than one page at a time! A power outage can make it appear that your attorney has received a fax, but in actuality, it was in memory and now is gone forever!

SEND EARLY IN THE DAY!!!! - - Most of the time there is no charge to you if the case is pulled before it is filed with the Court

CALL IF YOU FIND RESIDENT’S PAYMENT IN THE MORNING!!!

“EVICTION CHECK-LIST”

 

1. ADDRESS: The address on the notice must be correct. a full and complete address is necessary, i.e., county, unit #, left or right side, upstairs or downstairs, street, road, drive, etc. Note: if notice/lease do not match completely, please confirm the proper address on the cover page.

 

2. DATES: The dating of the notice is crucial. i.e., three full business days, excluding Saturdays, Sundays, legal holidays and the day you serve it. Note: Please make sure the certificate of service is filled out completely prior to faxing the notice to our office.

 

3. AMOUNTS: Only the past due undisputed amount of rent should be on the notice. if there are any other charges on the notice they must be considered “additional rent” Note: if the amount on your notice does not match exact amount of one month rent per the lease please provide us with a breakdown of the total.

 

4. NAMES: All adult occupants should be listed on notice, i.e., those who are on the current lease but may have moved out and those who are not on the lease but have established tenancy. Also, correct spelling and the full names are necessary. Note: If the notice is inconsistent with the lease please give an explanation on cover page.

 

5. DOCUMENTS NEEDED TO BEGIN EVICTION: COVER PAGE Please review the information above, this will help us to speed your request. Include permission to file the eviction(s) and any information and explanations of discrepancies, etc. as stated above if necessary. LEASE Please fax all the pages of the lease, if there is no lease please provide the terms on cover page, (i.e., month to month, week to week, rental amount, the day rent is due, etc.) EXPIRED NOTICE i.e., Three day, non renewal, etc. THREE DAY AMOUNT BREAKDOWN FORM. (Breakdown three day amount only)

REMEMBER! YOU CAN NEVER ALTER A NOTICE AFTER SERVICE

 

INSURANCE INFORMATION DEMAND

You go to the post office, pick up the mail and while thumbing through it see a letter from a personal injury attorney whose name you saw on a billboard. Of course you become nervous, and it is the first letter you open. Reading it, you determine that an attorney is representing one of your residents in a slip and fall on the rental property, and the attorney is demanding insurance information. What should you do?

Sooner or later you will be faced with the situation of an attorney for your current or past resident demanding insurance information from you. This is standard procedure for the personal injury attorney, and it should not worry you. It does not matter what the attorney is alleging, if anything, in his or her demand letter. The resident may be suing on a slip and fall, mold related claim or any possible injury she may claim has been sustained on the property you manage or managed. The key is to comply or make sure the property owner complies with the demand letter as required by Florida law.

The Law

Florida Statutes 627.4137 is called Disclosure of Certain Information Required” and sets out what the insurance company and the insured must disclose to an attorney who is representing an injured party. While you may feel this does not apply to you, the statute requires the “insured,” i.e., the owner of the property you are managing, or maybe even your company, to disclose certain information. Although you most likely are not the “insured”, you are the agent of the insured, and need to communicate with the owner of the property and make sure that either you or the owner complies with the law and provides the information to the lawyer. It may be as simple as making a phone call to the owner’s insurance agency or faxing them the demand letter received from the attorney, and the information will begin to flow. If it does not, follow up.

The Resident is a Fraud!

You might be flabbergasted or angered at the allegations the resident’s personal injury attorney makes in his demand letter. You may know for a fact that the resident is committing a fraud or has completely made up a story about getting injured on the property. None of this matters. What matters is that you get the information to the attorney, or at a minimum, make sure the owner of the property complies with the law.

What Does the Letter Demand?

The letter you received from the attorney most likely quotes all or part of Florida Statute 627.4137 and demands the name of the insurer, the name of each insured, the limits of liability coverage, a statement of any policy or coverage defense and a copy of the policy. Most of this information may not be readily available to you or the property owner, but the owner’s insurance company will have everything. Usually all it takes is a call to the insurance agent, and they will get the ball rolling. The information must be provided to the attorney within 30 days of receipt of the demand. Additionally, the statute requires that the insured disclose the names of all known insurers. The owner may have insurance with one company and umbrella insurance with another. All this must be disclosed. Read the letter carefully to see if the attorney is demanding insurance information from you, the owner or both.

The Purpose of the Insurance Information Demand

The insurance information demand and the law requiring the disclosure of information allows the attorney to deal directly with the insurance company if one exists. Hiding this information from an attorney or ignoring the demand will result in greater problems for the property owner, as the attorney may directly file a lawsuit against the owner, rather than dealing with and possibly settling with the insurance company.

Notification to the Insurance Company

Besides complying with the law under the statute, it is crucial that the owner’s insurance company is notified whenever an attorney is indicating that he or she will make a claim. Many insurance carriers will try to refuse coverage of a claim if it is not reported to the insurance company within a certain amount of time as required under the policy. Once you receive the letter from the attorney, you are fully put on notice that there is some sort of claim, and this needs to be reported. If the claim is against you or your company, make sure you notify your insurance company immediately. If the claim is against the owner of the property you manage, take swift action to notify the owner, and most importantly, be able to prove you did.

Notification of the property owner

In these days of email communication and faxes, it is easy to fall into the trap of just scanning the letter and emailing the owner. Is the owner now on notice? We recommend you not only email the insurance information demand letter to the owner, but also send it to him by certified and regular mail following up with a phone call. The last thing you want is to be accused by an owner of not notifying him of a possible claim, having his insurance company deny the claim for failure to notify according to the policy rules, and have the property owner try to say that you were at fault. It is bad enough that many owners who receive the insurance information demand letter do not take the matter seriously, but to be accused of not notifying the owner is an avoidable problem. Questions? Call your attorney if you receive the insurance information demand letter.