VOLUME 1 - ISSUE 3 LEGAL UPDATE
- Non-Renewing a Tenant
- Paying Leasing Bonuses and Referral Fees
- Safe Harbor Recommendations for Lease Clauses
Non-Renewing a Tenant
There will inevitably come a time in the landlord tenant relationship where the landlord wishes to end the tenancy at either the end of the lease term or at some later time, if the tenancy has become month-to- month. Successfully terminating the tenancy will depend upon the terms of the lease and the proper timing and service of the Notice of Non-renewal. Failure to non-renew properly can result in an unwanted extension of the tenancy. An improperly served or timed Notice of Non-renewal does not cure itself by the passage of time and thus becomes void to the tenant’s favor. Just as the tenant has a right to leave after the expiration of a lease, the landlord also has a right to make a tenant leave at the expiration of the lease. In this article, we will examine non-renewing a tenant at lease end and non-renewing the month-to-month tenant.
NON-RENEWING A TENANT AT LEASE END
DO YOU NEED A REASON TO NON-RENEW AT LEASE END? A landlord can non-renew a tenant for any reason or no reason at all, as long as the non-renewal is not based upon any illegal, discriminatory or retaliatory reason. A landlord is not required to provide the tenant with the reason for the non-renewal. It is imperative that if there is a reason for the non-renewal, that the landlord has this well documented in the landlord’s files. Often a tenant who is non-renewed claims that the non-renewal was based upon race, handicap, familial status or almost any other reason related to their status as a protected class. In the event the tenant files a discrimination lawsuit, a complaint with HUD or the local fair housing office, the landlord will be required to provide proof that the non-renewal was not based upon an illegal discriminatory reason, but was rather based upon some valid business decision or due to the tenant’s noncompliance with the lease or Florida law.
DO YOU NEED TO PROVIDE A TENANT WITH NOTICE OF NON-RENEWAL PRIOR TO LEASE END? If the lease is silent as to any notice requirements at the end of the lease term, the lease will automatically end at the lease ending date, the landlord shall have the right to immediately file an eviction action, and the tenant will be considered a holdover tenant, thus owing double rent for each day the tenant remains on the premises. No notice at all from the landlord is legally or contractually required in this instance. Although it may not required by the lease and is certainly not required by Florida law, we highly recommend that the landlord give a Notice of Non-renewal to the tenant at least 30 days prior to the end of the lease. This will help prevent any misunderstandings or the possibility that the tenant may have forgotten that the lease is ending and may be expecting that it will continue if the landlord does not advise otherwise.
HOW MUCH NOTICE SHOULD BE GIVEN PRIOR TO LEASE END?If the lease requires notice by the landlord prior to lease end, as many leases do, this must be strictly followed per the lease terms, otherwise the lease will automatically convert into a month-to-month tenancy. In some cases the lease is silent as to notice requirements by the landlord but does have a notice requirement on the tenant. In this case we recommend that the landlord follow the same notice requirement that is imposed on the tenant. If you are asking the tenant to give you 30 days’ written notice prior to the lease end, you should give the tenant at least 30 days’ written notice.
NON-RENEWING THE MONTH TO MONTH TENANCY
WHAT IS A MONTH-TO-MONTH TENANCY? A month-to-month tenancy occurs when a tenant is residing on the premises after the lease has expired, or if there was never a lease in the first place. Since we highly recommend against a landlord failing to use a lease agreement of some sort, and there are sales tax ramifications of moving a tenant into a property without a lease, we will deal here with cases where the lease has expired and has become a month-to-month tenancy. The lease becomes a month-to-month tenancy when the landlord allows the tenant to continue to reside on the premises after the lease expires, collecting the rent from the tenant and basically carrying on business as usual, with the only difference being that the lease has expired. All the same terms and conditions of the lease still will apply, and it is not required that the landlord charge or collect sales tax when the lease becomes month-to-month.
CAN THE LANDLORD CHARGE THE TENANT MORE RENT WHEN THE TENANCY BECOMES MONTH-TO-MONTH?The law is not clear whether the landlord can arbitrarily raise the rent on the tenant and force the tenant to pay the higher amount on a month-to-month tenancy. The landlord will probably be safe in giving the tenant 30 days written notice that the rent will be increasing, but should make it clear that the month-to-month tenancy is terminating and the landlord is offering a new month to month tenancy at a higher rent amount. Here, by the tenant staying on the premises, there is an implicit agreement that rent will be at the higher amount. Many leases contain a clause which states that in the event the lease becomes a month-to-month tenancy and the tenant remains on the premises with the consent of the landlord, the rent will increase by a specified amount. This is highly recommended, as it will increase the rent and/or encourage the tenant to sign a new lease or renew a lease with you.
DO YOU NEED A REASON TO NON-RENEW A MONTH-TO-MONTH TENANCY? A landlord can non-renew a tenant who is on a month-to-month tenancy for any reason or no reason at all, as long as the non-renewal is not based upon any illegal discriminatory reason. See the discussion above regarding non-renewing a tenant at lease end. All the same reasons apply.
HOW MUCH NOTICE NEEDS TO BE GIVEN TO NON-RENEW A MONTH-TO-MONTH TENANCY?If the tenant is remaining on the premises under a month-to-month tenancy, and the lease has expired, either party may terminate the tenancy by giving the other no less than 15 days’ notice prior to the beginning of the next monthly rental period IF AND ONLY IF the expired lease agreement does not require a different notice period. This is extremely important!! The lease agreement which the tenant signed and is not expired often has a clause which states that either party must give a particular number of days notice to terminate the tenancy after it becomes month-to-month. If this is the case, the landlord will be held to the notice requirement in the lease agreement, while the tenant simply needs to give no less than 15 days notice to the landlord. Here we have an apparent conflict with the lease terms and Florida law. Why should not the tenant be bound to the lease terms? This is an example where the tenant has a clear right under the law to terminate their month-to-month tenancy by giving no less than the 15 days notice. The lease cannot take this right away from them.
WHAT DOES “AT LEAST 15 DAYS NOTICE PRIOR TO THE BEGINNING OF THE NEXT MONTHLY RENTAL PERIOD” MEAN? The landlord or the tenant must give the notice at least 15 days before the beginning of a monthly rental period. If the rent period begins on the first day of the month and either party gives 15 days’ notice on the first day of the month stating they will be out on the 15th day of the month, the notice is NO GOOD. The tenant will owe rent for the entire month, even if the tenant vacates on the 15th. If the notice came from the landlord, the notice will be invalid, and the tenant can remain on the premises as until the landlord give proper notice. If the rental payment period begins on the first day of the month, either party must give the notice no later than the 13th, 14th, 15th, or 16th of the month in order for the notice to be valid, and as mentioned previously, the landlord may have to give even more notice if the lease requires the landlord to do so.
SUPPOSE YOU ARE HOLDING A LAST MONTH’S RENT AND DECIDE TO NON-RENEW A MONTH-TO-MONTH TENANCY? If you are holding a last month’s rent, when you serve your Notice of Non-renewal, you need to state to the tenant in writing that you are applying the last month’s rent to the last month of the tenancy. For example, if you are holding a last month’s rent, you cannot accept rent from the tenant in June and then serve them a Notice of Non- renewal on June 1st stating that they must vacate on June 30th. Your acceptance of June’s rent implies that they can stay until the end of June, and your holding another month’s rent implies that you are not going to make them move at the end of June!
SERVICE OF NOTICE OF NON-RENEWAL. Serving a Notice of Non-renewal incorrectly will result in a nullity of a notice, and the tenancy will continue as if no notice was given. Shorting a notice by a few days will not mean that the landlord simply has to wait those few additional days and the tenant will then have to vacate. The landlord will be at square one. Florida law does not state how a notice must be served, so the lease must be examined. If the lease requires that the landlord gives the tenant 30 days’ notice prior to the end of the lease term, that notice must be actually received by the tenant no less than 30 days prior to the ending date. A common mistake is for the landlord to mail the notice without giving the required 5 business days for mailing, or just sending the notice by certified mail believing that this is a sure way to prove that the tenant got notice, only to realize that the tenant failed to pick up or refused the certified mail. We recommend that a Notice of Non-renewal be served multiple ways, including mail, only if time permits, and hand- delivery or posting on the premises in the tenant’s absence. First and foremost, the notice must be served in accordance with the lease. Sometimes a tenant will fail to put a notice in writing, and the landlord will then seek to take advantage of this and try to prove that since proper notice was not given, the tenant owes an additional month’s rent. Most judges feel that if the tenant can prove that they put you on notice, then the requirement of written notice is not as important. If a tenant gives you verbal notice that they are leaving, follow this up with a confirmatory letter stating, “This will confirm our conversation whereby you have indicated that you are vacating the premises on (insert date). The landlord should also then serve a Notice of Non-renewal to the tenant just to be safe.
SUPPOSE THE TENANT REQUESTS MORE TIME? We see more problems develop when the landlord and tenant come to some sort of agreement but fail to memorialize this agreement in writing. If the tenant requests more time, the landlord and tenant should sign a document whereby the landlord agrees to the new vacating date and the tenant agrees to vacate at that time. If the tenant is going to be paying for this privilege, all this should be spelled out. NEVER MAKE VERBAL AGREEMENTS ON EXTENSIONS.
WHAT HAPPENS WHEN THE TENANT FAILS TO MOVE? Would it not be nice if people did what they said they were going to do when they said they were going to do it? If the tenant fails to move at the expiration of the Notice of Non-renewal, the landlord has some choices. The landlord can file an eviction immediately, wait to see if the tenant will move or give the tenant an extension. If the tenant has not vacated, the landlord should immediately contact the tenant to see what the tenant’s intentions are. It may be the case that the tenant is almost out or just needs a couple days. The landlord may want to wait it out. If the tenant needs an extension, we recommend that the tenant sign an Agreement To Vacate. Never assume that just because the tenant is supposed to be out or says he or she will be out, that the landlord now has a right to take possession of the premises. The only way the landlord can take possession of the premises, even after a Notice of Non-renewal has expired is by surrender, abandonment or eviction. Always call your attorney if you have any doubt whatsoever that the tenant may not be completely out.
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Paying Leasing Bonuses to Unlicensed Persons and Referral Fees to Residents
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, 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 tenant 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.
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.
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Safe Harbor Recommendations for Lease Clauses
LIQUIDATED DAMAGES FEES OR RELET FEES FOR VOLUNTARILY AGREED LEASE BUY OUTS
We recommend that you cease using these clauses. You will probably be safe letting a tenant “buy out” of a lease by paying a certain sum, but if the unit is re-rented, you will have to refund the money and not collect double rent. We recommend that if you choose to allow a tenant to buy out of the lease, that it is done outside of the lease agreement on a separate form.
CHARGING INSUFFICIENT NOTICE FEES OR LIQUIDATED DAMAGES IF RESIDENT DOES NOT GIVE YOU THE REQUIRED NOTICE BEFORE LEASE END
We recommend that you cease doing this unless:
A. The tenant fails to give you written notice prior to lease end per the terms of your lease; and,
B. You have notified the tenant in writing within 15 days prior to the beginning of the notice period that they must give you notice; and,
C. Your notification states what the penalties will be for failure to give you the notice; and,
D. You are ready to adjust the charge to the tenant if you are able to re-rent the premises so that you do not collect double rent; and,
E. You charge no more than one month’s rent for failure to give notice.
CHARGING A RELET FEE OR LIQUIDATED DAMAGE FEE IF TENANT BREAKS THE LEASE
If the tenant breaks the lease, you should only charge the tenant the amount of rent you will lose. This will be what you know you have lost for the month that the tenant vacated. The amount will increase as long as the unit is unoccupied. Once the unit is occupied by a new tenant, the lease-breaking tenant will owe no additional rent. We recommend against charging any type of liquidated damages, reletting fee or pre-set fee. DO NOT ACCELERATE THE RENT.
SENDING ACCOUNTS TO COLLECTIONS
If you send an account to collections and later it is determined that the amount is incorrect, you can be sued for significant amounts. Exercise extreme care in sending any amounts to collections. Do not send any account to collections until the unit is re-rented and you can definitively determine exactly what your loss will be. If the tenant has objected to what you are claiming, the amount should be reported as “disputed”.
ACCOUNTS ALREADY SENT TO COLLECTIONS
We recommend that you revise any accounts sent to collections, and only charge for the amount of lost rent, removing any and all termination fees or liquidated damages fees from the amount owed.
ACCELERATING THE RENT UPON DEFAULT OR EVICTION
We advise against accelerating the rent.
DISCLAIMER: These “Safe Harbor Recommendations” are provided for informational purposes by the Law Offices of Heist, Weisse & Lucrezi, P.A. as of December 15, 2004 and may change. They are not an interpretation of law in any way. They are not intended to establish an attorney-client relationship and they do not constitute legal advice to a client or any other person or entity. Further updates will be posted on WWW.EVICT.COM. To receive monthly email Legal Newsletters or Alerts, please send your email address to Info@Evict.com or call 1 800 253 8428.
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