Law Outside the Box

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If you’ve been a property manager, you may have faced a situation where your tenant fails to pay his last month’s rent but tells you just to keep the security deposit in exchange. 

Understand the consequences of accepting the tenant’s offer

Before you jump to accept such an offer, think carefully about the potential ramifications!  You may want to arrange with your renter to perform a preliminary walk-through right away to ascertain whether there is presently any damage to the unit beyond normal wear and tear.  This may give you a better idea of what considerations you need to take into account.

Don’t waive statutory and lease rights you have as a landlord

In a situation like this, any communication you have with your tenant needs to be very precise.  Don’t communicate acceptance of such an arrangement under any circumstances until the time is right!  You may be O.K. with your tenant’s offer.  But you don’t want to unknowingly waive certain landlord rights you have under the law.

Timing is critical when addressing tenant issues

Generally, your best bet is to wait out the balance of the lease until the tenant moves out.  During that time, make it clear that you cannot accept any such offer until this happens.  Then at the time the tenant moves out, perform the walk through with him and note in writing any damage beyond normal wear and tear, if any.  If none, provide written notice within 21 days notifying your tenant that you are retaining the security deposit in exchange for the last month’s rent.

Remember: If you do not provide this written notice within 21 days, you could be forced to return the security deposit regardless of the fact it is designated for the last month’s rent.  I’ve represented a landlord where the former tenant changed his story and the landlord was found to be in fault for not providing this notice and he was forced by the Court to return the security deposit.  The landlord was out the last month’s rent without any opportunity to recover – a $1,400 mistake!

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In 2006, I began taking an active role in managing rental property.  One of the things that didn’t come to me instinctively was to have a written move-in move-out inspection checklist utilized with each renter.  A move-in, move-out inspection memorialized by a checklist form signed by both landlord and renter during the walk-through actually protects the rights of BOTH sides.

Landlords protect their interests by using a move-in move-out inspection checklist

A landlord benefits from preparing a move-in move-out inspection checklist because this inspection reveals what issues existed in the rental unit at the time the renter moved in and the renter acknowledges that on the form.  If issues arise during the renter’s tenancy, a landlord can point to this form in any legal dispute to show that such issues arose during the renter’s tenancy.  It will be more difficult for the renter to dispute this and easier for the landlord to recover monetarily.

Renters keep landlords honest when using a move-in move-out inspection checklist

For the renter, utilizing a move-in, move-out inspection checklist benefits her if there are preexisting issues (such as a leaky faucet) within the rental unit and the parties acknowledge this in the form.  Surprisingly enough, people forget that such problems preexisted (particularly without a form).

I have handled a number of cases where a landlord acknowledged verbally to a new renter that a problem existed at the move in.  But at the move out, suddenly the landlord has no recollection of that conversation and is blaming the renter for causing the problem and threatening to withhold returning the damage deposit.  This happens commonly and you may have experienced such a memory lapse from a landlord and not known what to do.

A mutually signed move-in, move-out inspection checklist makes good business sense for a landlord.  It can also save the renter substantial headaches at the move-out or when the renter is seeking to have the security deposit returned.

As many of you know, I have managed rental property for several years in addition to my duties as an attorney. This firsthand experience dealing with landlord-tenant issues has proven to be invaluable when it comes to understanding the needs of my property management clients.

In previous posts, I described issues I had with my first roommate who subleased from me while I was renting. I explained problems relating to nonpayment of rent and failing to collect a security deposit. After these negative experiences, I didn’t know if I could ever handle the responsibility of being a good landlord if the opportunity ever arose.

Minnesota Multi Housing Association (MHA) offers a wealth of information for landlords

Several years later, early in 2006, I did get an opportunity to help manage rental property through a family business. My wife, who happens to work in housing, informed me about the Minnesota Multi Housing Association (MHA) and the resources they provide for landlords of all sizes. I would say if you are a landlord, you need to check out what MHA offers. Visit their website, contact their office or go to an upcoming event. I have attended many of their seminars over the years and gained a wealth of information to assist me in becoming a better property manager.

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In a previous blog post, I described to you my first experience renting. I had a roommate that was an old friend of mine who was subleasing from me. We didn’t have a writhe lease agreement, just an informal verbal understanding. I was going on faith that he would pay me his ½ of the rent and utilities each month. As I learned, I was wrong not to have a written lease to enforce as problems arose over the next several months.

When my friend moved in, I was naïve not to collect any form of security deposit. Again, I was going on trust that there wouldn’t be any significant issues. In addition to my roommate’s challenge with paying me his share of the rent and utilities, he brought with him another surprise…

As background, my roommate had his own room with a separate door to enter and exit the house. He used the sliding door constantly and excessively to the point that by the time he moved out, the door had been damaged beyond normal wear and tear.

Lesson: Always collect a security deposit to protect unforeseen renter issues

Because I hadn’t collected a security deposit from him, my options were very limited in terms of recovery when he did move out. In addition, as a tenant myself, I could have been held liable by the property owner for excessive damage even though it was my roommate who was responsible for the excessive damage. Thankfully, in this case that didn’t happen to me. But it served as a stern reminder that along with a written lease, I should have collected a security deposit as ways to protect myself.

I learned my lesson! Don't be someone else's pigeon!

As I’ve mentioned in previous blog posts, my first experience renting taught me a number of valuable lessons (at my expense unfortunately). My first roommate subleased from me and agreed to pay ½ rent + ½ utilities. We didn’t have a written lease and I didn’t collect a security deposit (damage deposit). Those were two big mistakes!

I would consider my roommate to be a bit of a party animal. He was the jock type and I had known him for a few years and suspected that maybe we’d have some small issues from time-to-time. But because I trusted him, I figured there wouldn’t be any big problems with having him as a roommate.

Squatters should not be welcomed guests if you are leasing

After my friend moved in, he would have one of his friends over on occasion, maybe once or twice a week. Within a couple months though, he was having a few more friends over and the frequency continued to increase. Soon enough, some of these friends were starting to spend the night hanging out with him in his room. In a way, some of these friends were starting to become almost squatters because they would stay at our place for several days at a time. They would bring their stuff in the house. They would use the shower and treat the place like it was their own.

A renter can be held liable for the damages caused by another renter or his guests

What I observed greatly concerned me after awhile because I suspected that if anything happened to the place as a result of their wild activities, I could be held liable to the property owner. I strongly suspected that at least one or two of these friends of my roommate had trouble with the law or some type of criminal record as well.

A written lease between a renter and the friend renting from him can reduce potential problems

My first mistake was not having a written lease at the outset to address problems that were concerning me. But I also erred in not being proactive to confront my roommate about the potential hazard this situation was creating for both of us and that I was uncomfortable with it. I even had to buy off one of his squatter friends to get her to leave the place after she had brought all of her stuff to move in and wouldn’t leave after 10 days. This was a costly lesson to me both in time and expense but forever changed how I approach rental situations. In my experience, you must have your lease agreement in writing to protect your own interests and you must be proactive about enforcing it. If you don’t take these steps, you could learn a costly lesson down the road.

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When I was in college (many years ago!), I was renting a townhouse. As part of my lease, I had the ability to sublease in order to defer some of the expense (rent and utilities) involved with renting. This was a great option because it afforded me the opportunity to choose who I preferred as a roommate if I wanted one.

Be careful if your roommate is also a friend

At that time, I had a friend who I’d known for a few years looking for a place to stay. Since he was a friend, I figured, “yeah, we can do this on a handshake – no problem!” As it turned out, I was very wrong. Many of you have probably been in this place and can relate.

Always have a written lease no matter the situation

Before he moved in, it had crossed my mind that maybe just maybe we should have something in writing. It is important to note that an oral lease would have been acceptable in this situation but enforceability of an oral lease is an entirely different matter. Our oral agreement was that he would pay me ½ rent + ½ utilities. It seemed like a reasonable way to go.

Don’t procrastinate when dealing with an ongoing tenant issue

The first couple of months were fine. However, it was soon apparent he had problems holding down a job and as I quickly learned, he had a lot of issues with creditors that I had no idea existed. This problem grew over the next few months. First, he started paying late - always coming up with excuses. Then, it got to the point where he was trying to avoid me because he was missing payments altogether. After about 5-6 months of this cat and mouse game, it became very apparent he was going to be ditching me soon. He was into me for a lot of money. Sure enough he left quickly one night.

A written lease is much easier to enforce than a verbal lease

I was left holding the financial end of this mess but I also learned a very important lesson. It doesn’t matter if your roommate is your best friend forever (BFF), if they aren’t under a written lease, you may be asking for trouble at some point. A lease isn’t required to be in writing if it is for a period of less than a year but I wouldn’t have anyone leasing from me without a written agreement.

Whether I am the landlord or the tenant, when there is an issue, make sure to Document the Heck Out of the Problem!

Here are a few tips:

1. Always have a camera ready. If there is photographic evidence when you move in, when a problem arises, if the problem persists and when you move out, you will go a long way to creating a photographic trail of evidence.
2. Always back up a phone call with an email or written correspondence. If you have made a phone call to the other party, make a written note of that phone call (when and where) and if it relates to an issue, send an email or better yet a written correspondence to the other party.
3. Always review the lease carefully. Indeed it’s true; the devil is in the details. Your rights and responsibilities are spelled out in your lease. Know what it says!
4. If it is a serious issue or an on-going problem, your written correspondence should be mailed certified. You could learn this the hard way in a courtroom if it is a serious enough issue and the sides end up there. Don’t be caught naked in front of the judge without a certified return receipt!
5. Don’t be afraid to get outside help! You’re always better off getting outside counsel if it is an issue that doesn’t seem to have a clear cut answer. Talk with your attorney or seek out free assistance from legal sources like Homeline.
6. Obtain a free copy of the MN Attorney General’s Landlord-Tenant Guide. Even as an attorney, I’ve found this resource to be remarkably useful.

Are there other tips that you would recommend or that you have found useful?