by Harry A. Heist, Attorney at Law
NOTE: Before reading this article, we urge you to read Understanding The New Early Termination Law so you fully understand the new law before examining how it may apply to single family home management.
Should the new law be used in Single Family Management?
As you can see, if the new law is to be used, the tenant must be given an addendum at the time of lease signing which will give the tenant a choice of what they will owe if they vacate the premises before the expiration of the lease. The tenant can choose to owe a fixed sum of money not to exceed 2 months' rent or can choose to owe the rent due under the terms of the lease as it becomes due until the unit is re-rented or the end of the lease, whatever occurs first. Let us assume that you decide to use the new law, you provide the tenant with the addendum at lease signing, and he tenant chooses to owe the 2 months' rent if she vacates the lease early. What happens?
1. Just because the tenant made the choice to owe the 2 months' rent, it by no means that she will ever pay it. She simply will owe it.
2. The unit may stay vacant for more than 2 months, and the property owner may wish to go after the tenant to collect. When the owner finds out that he is limited to only going after the tenant for 2 months' rent, he will be surprised and angry, wondering what happened, and now will be looking to you for redress.
Full disclosure and permission is needed
If you wish to use the new law and are prepared to present the tenant with the addendum at lease signing, you MUST get prior permission from the property owner to do this, and fully explain to the owner that if the tenant chooses liquidated damages, you will not be able to charge the tenant ANYTHING other than the liquidated damages of up to 2 months' rent plus the rent that was owed to you, if any, at the time the tenant vacated. If you have a clause in your lease which states that the tenant is liable to pay a commission or any other non- physical premises damages, you probably CANNOT charge this to the tenant. A good argument can be made that a liquidated damages charge is a fixed amount, and that you cannot add other amounts to it.
Permission in writing
If you wish to use the new law, the property owner should give you this permission in writing. No verbal agreement should be allowed in this situation, as the use of the addendum and the tenant picking the liquidated damages choice can seriously infringe upon the rights of the property owner to pursue the tenant. Many property owners will not understand the new law. You do not want to give the property owner any idea or expectation that just because the tenant may pick the liquidated damages choice that the tenant will ever pay the money. More likely, the tenant will not pay the money.
When is the new law advantageous?
The new law is only advantageous to the property owner if the following occurs:
1. The unit is able to be re-rented within 2 months.
2. The tenant picks the liquidated damages choice.
3. The tenant actually pays the money he or she owes.
These three things must all occur for the new law to have any real benefit to the property owner. If you are in a situation under which it usually takes more than 2 months to re-rent a unit, you would definitely not want to use the new law.
Unfortunately the new law is not as useful as it may seem to the single family home manager. While it started out good, it had to be amended to appease the Governor, and now gives the tenant a choice in the matter. We have no control over that choice. The new law is more beneficial in the multi-family management situation, when there is one property owner who has decided that being able to charge liquidated damages, if the tenant so chooses, is a wise business decision. For now, we do not recommend its use in single family management.
- The Curable Noncompliance Examined PART 1
- THE CURABLE NONCOMPLIANCE EXAMINED PART 2
- THE WRIT OF POSSESSION – WHAT IT IS
- THE WRIT OF POSSESSION AND THE FULL UNIT
- WORK ORDER COMPANY POLICY AND THE LAW