DANGERS OF PREPAID RENT     

Collecting rent has been the biggest and most basic challenge of managers since the first cave was rented out in 1300 BC. Typically, residents are required to pay rent on a specific day of the month, the 1st being the most common day of payment. Situations arise in which residents are desirous of paying rent in advance, and most managers do not perceive this as a problem, but rather see it as a plus. Many reasons abound for a resident’s prepayment of rent. The resident may be going on an extended vacation or job assignment, may have come into a substantial sum of money, or simply doesn’t want to be bothered with making monthly payments and is willing to pay the entire term of the lease, possibly in exchange for a more favorable rent amount. In a perfect world, accepting prepaid or advance rent would be an advantage, but there are many dangers and pitfalls which should be considered before the decision is made to accept prepaid rent. Additionally, there are legal considerations which govern how the prepaid rent is held and disbursed.

The Law and Prepaid Rent

Florida Statutes require that advance rent be kept in the same account in which the security deposit is held. If interest is to be earned, Florida Law must be followed regarding the payment of this interest and notifications to the resident. The money can be removed from this account for use by the manager only as it becomes due. This would prohibit a manager from accepting prepaid rent from the resident and immediately utilizing it for the manager’s general purposes if it has not in fact become due. In a typical lease, the term is for a year, and the payments are made monthly. This means that the manager is only entitled to the rent when the due date arrives.

The Lease and prepaid rent

However, there is a way that a manager can legally take all or part of prepaid rent and utilize it at any time and for any purpose, but the lease must be drawn up differently. Instead of having a lease for a year, payable with monthly rental payments, the lease is for a set term, and the resident is required to pay rent for the entire term. be it 3 months, 6 months or even the entire year. In this case, the lease is not a typical monthly lease, but simply a lease for a fixed term, and the lease states the amount of rent due for that term. Most leases are not structured this way, but this is a possibility and an available option to the manager and resident.

Prepaid Rent and a Resident’s Unwarranted Breach

If the manager is holding prepaid rent, and the resident breaches the lease by vacating prior to the expiration date of the lease, the manager will be able to tap into that prepaid rent that is or should be held in the security deposit account only when it becomes due. Acceleration of rent is not looked upon favorably by the courts in Florida, so the manager would need to wait each month to be able to actually utilize the prepaid rent. The law is not entirely clear regarding any duty by the manager to try to rerent the unit to mitigate their damages, because presumably, there are no damages if the manager is holding the rent. In the situation in which the resident breaches the lease with no legal basis whatsoever, having prepaid rent will definitely be advantageous to the manager.

Suppose the Resident Has a Warranted Breach?

Many residents who breach a lease by vacating prior to the expiration date have or will fabricate a legal reason why they are breaking the lease. Reasons may include a failure by the manager to provide peaceful quiet enjoyment of the premises to the resident, defects in the property, failure on the part of the manager to make a legally required repair, or a host of other reasons which seem to come out of left field and astound the manager when the breach occurs and the resident is demanding a refund of the prepaid rent. That perfectly nice resident, when faced with having to break a lease for a job transfer or divorce, will come up with novel or bizarre reasons why breaking the lease was completely warranted and legal under Florida law. It is bad enough that resident can completely fabricate reasons why he will break a lease when there is no prepaid rent in the picture, and this only gets worse and more common if in fact the resident has more at stake. Possibly the resident’s breach is completely warranted. Let’s say the resident just moved into an apartment. Two months after move-in, contractors begin replacing or repairing the concrete balconies. This resident, who coincidentally has a night job and sleeps during the day, now is faced with listening to jackhammers and construction crews all day long. Can this person break the lease? While the construction noise may not be the fault of the condo owner, it is clear that the resident’s peaceful quiet enjoyment of the premises is interfered with significantly. If there were no prepaid rent, the resident most likely would simply give notice and walk out of the lease, and the manager would have a difficult time enforcing the remaining balance of the lease, as this would probably be considered a good reason to break a lease by most judges. If there is prepaid rent, many managers will insist on keeping the rent, and many residents will insist on getting it back. The result? Litigation. In the event of litigation, the manager will be faced with trying to convince a judge that the resident’s breach was improper, illegal and unwarranted. The resident will have an entirely different story, and if there are attorneys involved in the case, it will often become a bad situation.

Is the Manager “Used” to Accepting Prepaid Rent?

Most managers are not accustomed to accepting prepaid rent. They are more accustomed to chasing after current or past rent owed! This increases the risk that the prepaid rent is mis-posted in the computer system that the manager uses for managing the property. Recently a client accidentally failed to post the rent prepaid by a resident. The computer system incorrectly showed that the rent was delinquent, the resident was evicted, and all his possessions were removed to the street. The resident returned a month later, only to find that all his possession were gone and that he had been evicted. The result? Most likely a lawsuit will be filed. If a manager is not accustomed to accepting prepaid rent, the danger increases dramatically.

The Conclusion

Are you convinced yet? Often things that appear good turn out to be fraught with dangers. We urge you to think long and hard before you deviate from the standard and time tested way of charging and accepting rent monthly.