REVENUE INCREASING TECHNIQUES AND THE LAW

 

Management and property managers are always trying to increase revenue. There is absolutely nothing wrong with this. Being a manager is a tough business, profits have decreased, and liability is always on the rise. Unfortunately, many property managers and management are doing things now which may or may not be considered illegal by some courts. Word spreads quickly among associations, manager groups, and from training classes, and a novel idea that one company has implemented often spreads like wildfire. Are these new charges or practices legal, or can they result in serious and expensive lawsuits? Is it legal just because “everyone is doing it”, or you were “told” it was legal by a non-lawyer?

 

This article will examine some of these charges just for the purposes of making you think and then making an informed decision, hopefully with legal counsel, whether or not to take a particular course of action with your resident.

 

Excessive Late Fees

 

Florida Statutes does not address late fees. Nowhere in the Landlord/Tenant Act are late fees mentioned. How much can you charge the resident? No one knows. You can place late charges on your Three Day Notice in most counties if they are considered additional rent, you can evict a resident for failure to pay rent and late charges, and you most likely can deduct unpaid late charges from the security deposit if they are owed when a resident vacates. The key is that your late charge correlates to the damages you are suffering due to the resident paying the rent late. How is this figured out? No one knows. Sometimes judges will see excessive late charges and rule that a Three Day Notice is invalid. What is excessive? Can late charges be considered usurious?  Under Florida law, there are specific interest limits on what a creditor can charge for interest on a loan. Some attorneys are trying to expand the idea of a loan to delinquent rent. If delinquent rent was considered a loan, then the usury laws would apply, and the result in most cases would be that the late charges were usurious or over the legal interest rate limit.

 

Lease Renewal Fees

 

Some managers charge the resident a fee upon lease renewal.  This is justified by reasoning that the fee is for the renewal lease, the negotiations, and any extra inspections or work involved in renewing the lease. Most likely this fee is legal.  It is not addressed in Florida law, and the resident will pay it, but did you tell the resident about this fee in the beginning of the lease when the resident was asking whether he might be able to renew if he needed to stay another year?  If you are going to charge a renewal fee, full disclosure of this charge should be made at the time the lease is signed or as soon as you decide to implement this type of a fee.

Notice posting or delivery fees

 

The resident has not paid the rent, and you now have to prepare and serve a Three Day Notice.   Can you charge the resident a notice serving fee? Clearly if you are going to do this, the resident would have had to agree to it in the lease agreement, so let us assume your lease addresses this fee. You are charging the resident for a notice that the resident is entitled to receive and you are required to give by Florida law.  Is this legal? We definitely are not sure. It is not specifically “illegal”, as it is not mentioned at all in Florida Statutes, and you can argue that the resident has contractually agreed to it, but will this go over well with a judge? Unless the case is contested, many judges will not even notice the fee, and many of our clients do in fact charge this fee. We don’t recommend it though. 

 

Administrative Fees

 

In order to get a resident into a unit, you have do some work for sure. You must coordinate  credit checking, call references, call utility companies, input information into the computer, make phone calls, send emails, engage in negotiations, make sure the property is ready, travel to the property, and do many other tasks in order to get your resident into the unit. Many property managers have decided that by charging the resident an “Administrative Fee” or “Move-In Fee”, this can recoup some of the expenses involved.  When you received a call from a person who saw the house advertised for rent in the newspaper, did you disclose the administrative charge to them? If not, you can find yourself in serious trouble. If you decide to charge administrative charges, you need to understand they may not be legal at all, and your failure to disclose them in your advertising and upon first contact with the prospective resident could be considered illegal.

 

Redecorating Fees

 

As a condition of moving in, you charge the resident a nonrefundable “redecorating fee”. What is this for? It is to cover some of the damages that the resident may cause to the property. But aren’t you going to charge the resident for those damages anyway when the resident moves out?  In the old days, managers collected first month’s rent, last month’s rent and a security deposit. Now that this is not the norm, managers have looked to other ways to cover the damages residents may do to the unit which they will most likely not pay for. The problem with redecorating fees is that this could be construed as an attempt to make the resident pay for someone else’s damages or to pay for ordinary wear and tear. Again, Florida law does not specifically address such charges, but there could be dangers lurking in charging them.

 

Upcharges for Credit Checking

 

A property manager may charge $50.00 for conducting the credit check, but only is charged $8.00 by the company providing the credit report. Is the $42.00 a profit? Is it fair to the resident? The property manager will point out that getting a credit report is just one aspect of the resident qualification process; however, some states have placed limitations on how much the property manager can charge. Will Florida be next?  You don’t want to be the test case, so it is advisable to have your credit checking procedures clearly laid out in detail for possibly future use in a court case.

 

Conclusion

Unless a particular charge is clearly illegal, the property manager must make an informed business decision before implementation. Some companies will make a risk/benefit analysis and decide it is worth taking a risk. Other companies will implement procedures under which these charges are clearly disclosed ahead of time to avoid being accused of bait and switch tactics or a potential unfair and deceptive trade practice. In the end, excessive or additional charges increase the risk of litigation. Increasing profits can be construed as greed, and the farther property managers go, the greater the risk that there will be litigation that will adversely affect all property managers. We urge you to speak with your attorney regarding any charges before you make the decision of implementation. If your attorney will not give you a written opinion as to the legality of a particular charge, you just might want to avoid that charge. Many property managers have been getting caught up in the latest “revenue generating technique”. Never assume that because the property management company down the street charges something or has done so for years makes it legal or advisable.