JULY 2008 LEGAL UPDATE

- Understanding The New Early Termination Law
- Evictions Now That Filing Fees Have Exploded
- A Security Deposit Primer - Part 1 Holding The Funds
- The Early Termination Law And The Single Family Home Manager
- Creating Written Policies

Understanding The New Early Termination Law
by Harry Anthony Heist, Attorney at Law

Before the law change

Before the recent change to Florida Statute 83.595, when a tenant chose to break a lease by vacating before the end of the lease, commonly called "skipping" or vacating early, the landlord was only allowed to charge the tenant rent through the earlier of the lease expiration date or the date a replacement tenant took occupancy. In addition, many companies also charged a Termination Fee, Termination Penalty or Liquidated Damages charge, BUT in a major Florida class action lawsuit, the judge in that particular case ruled that these various practices were unlawful and inconsistent with Florida Statute 83.595.

The New Law

A common misconception is that under the new law, when a tenant vacates early, you can NOW charge the tenant a Liquidated Damages or Early Termination Fee. This is only partially correct, and it is crucial that you understand the law.

Under the new law, you can give the tenant a CHOICE to either owe a flat fee "Liquidated Damages/Early Termination Fee" OR owe rent until the unit is re-rented. The TENANT makes the choice, NOT you. If you do not want to give the tenant this choice, you will not use the Addendum, and you can ONLY charge the tenant your rent loss, as has been the law.

Suppose you want to hold the tenant to all the rent due under the lease?

If this is what you want to do, then simply do it. The law still allows you to do this. You will not give tenants a choice in the matter, and if a particular tenant vacates early, you will charge rent as it becomes due under the terms of the lease until the unit is re-rented. In a soft market, when it may take a while to re-rent a unit, this is your best bet; you really do not need to read any further, AND you will NOT use the Addendum.

Suppose you want to charge the tenant a "Liquidated Damages/Early Termination Fee" when they vacate early?

You CAN if and only if 2 things occur:

A. You present the attached Addendum to the Tenant AT THE TIME OF LEASE SIGNING

AND

B. The tenant picks Choice #1

What happens if the tenant picks Choice #1?

You can charge the tenant a flat "Liquidated Damages/Early Termination Fee" of a maximum of 2 months' rent when they vacate early and NOTHING more other than rent, and charges they may owe at the time of vacating early. The tenant may or not pay it, but if not paid, this 2 months' rent can be sent to collections.

What happens if the tenant picks Choice #2?

You can charge the tenant rent that he owes at the time he vacates and rent as it becomes due until the unit is re-rented or the end of the lease, whichever occurs first, just like you have been doing or should have been doing all along.

Can you charge the tenant a Concession payback?

The law does not clearly provide that you can or you cannot. If the tenant picks Choice #1, it may be dangerous to charge a concession payback, because some judges are apt to consider a liquidated damages charge as exclusive.

Now for some Q&A:

Q- Do I have to use the Addendum?

A- Absolutely not. It is your choice. If you don't provide the Addendum to the tenant to sign, the tenant will owe rent that is owed at the time the tenant leaves early PLUS all rent as it becomes due until the unit is re-rented or the end of the lease, whichever occurs first.

Q- Can I have current residents come in and sign the Addendum?

A- No. You can only use the Addendum at lease or renewal signing.

Q- Do I need to fill in all the amounts on the addendum before I give it to the tenant?

A- Yes, do not leave anything blank.

Q--Suppose I use the Addendum and the tenant picks Choice #1?

A"”If the tenant chooses to vacate early, you can only charge the tenant 2 months' rent plus whatever they already owed you for rent or other amounts under the terms of the lease. NOTHING MORE.

Q"”Suppose I use the Addendum and the tenant picks Choice #2?

You can charge the tenant rent that is owed at the time the tenant leaves early PLUS all rent as it becomes due until the unit is re-rented or the end of the lease, whichever occurs first.

Q- Can I force the tenant to sign the Addendum?

A-- No. If the tenant refuses to sign, they simply will owe rent that is owed at the time the tenant leaves early PLUS all rent as it becomes due until the unit is re-rented or the end of the lease, whichever occurs first.

Q- Should I utilize the new law and use the Addendum?

A- It is purely a business decision. In a soft market, it would be better not to utilize the new law and the Addendum. If you feel you will rent out the unit in less than 2 months, it would be better to use the Addendum IF the tenant picked Choice #1. There is no guarantee what the tenant will choose.

Q- Can I force the tenant to pick a particular Choice, #1 or #2?

A- No. If you use the Addendum, you are at the mercy of the tenant and his choice.

Q - Can we require the tenant to give notice before he vacates early if he picks Choice #1?

A-- Yes, but if he does not, you can only charge the 2 months' rent amount as if he simply walked out on you tomorrow.

Q- If the tenant picks Choice #1 and gives us notice, can we charge the tenant through the notice period PLUS the 2 months' rent?

A- NO. You can ask the tenant to give you notice, BUT you cannot hold him to it.

Q- If I decide to use the Addendum, must I offer it to everyone?

A- For Fair Housing purposes if you use it for one, you should use it for all, at least in a given time frame.

Q- Why does the tenant get to make a choice? Why can't we just charge them liquidated damages?

A- The tenant only gets to make a choice if you decide to use the Addendum. The Governor said he would not sign the bill into law unless the tenant was given a choice, so the bill was amended late in session to get it passed.

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Evictions Now That Filing Fees Have Exploded
by Harry Anthony Heist, Attorney at Law

On July 1, 2008, the costs of filing a tenant eviction increased dramatically. For many years, county filing fees ranged from under $50.00 to over $160.00, depending on which county the property was located, but many counties charged less than $100.00. On July 1, 2004, all eviction filing fees became uniform at $80.00. As of July 1, 2008, all eviction filing fees are now $270.00, but there is even more that must be paid. Whether managing an apartment community or a single family home, it is important to know what your eviction will cost and where the money is going. Ironically, attorneys' fees for most evictions now make up a small part of the actual eviction price. The rest are the "costs".

The Filing Fee

The Filing Fee is the base charge the Clerk of Court collects to file the case in county court. This is now $270.00. This amount does not change, regardless of the number of tenants you are attempting to evict from the premises in a given case.

Summons Issuance Fee

The Clerk of Court NOW can charge a fee to issue each summons in the eviction. This is indeed a brand new fee never charged before. The summons is the document which must be served upon the tenant either by Private Process server or the Sheriff's Deputy depending upon how your attorney operates in a particular county. You will always have one summons per tenant. This charge is $10.00 per tenant.

The Writ of Possession

1. A New Clerk's fee

Many County Clerks are now charging a fee to "issue" the Writ of Possession, just as they are now charging to "issue" summonses. Fortunately at this point, this charge is $2.00 per Writ of Possession, not per Defendant. If you do not need a Writ of Possession because you have full legal possession of the premises, you will not incur this charge.

2. The Sheriff's Department Charge

At the end of the eviction, if it is necessary to finish up the eviction and get full possession of the premises, the Sheriff charges $70 to serve and execute the Writ of Possession. In a few counties, the Sheriff has charged an extra $20.00 per additional tenant named in the lawsuit. This fee is unchanged, but we don't know if it will remain this way for long.

What does this all mean?

1. Try to avoid having to file an eviction. Work with the tenant within the boundaries of your company procedures and policies, but never let it go too far. Never hold off on filing an eviction for a single family homeowner, unless the homeowner gives you permission to hold off. Your "working with the tenant"could result in a charge of negligence against you by the property owner.

2. Make sure if you file an eviction, there are no potential problems. Now with the higher costs, you do not want to have to dismiss a case and re-file an eviction. Take your time, use the Eviction Checklist we provide, and do it right. Many of our clients get annoyed when we point out mistakes in their notices. Some judges are picky, so it pays to redo a Three day Notice rather than have a judge dismiss the case or otherwise deny the eviction.

3. Use stipulations whenever possible. Stipulations allow you to accept rent during the eviction and hold the eviction open. Most judges will sign stipulations for future rent of up to 6 months. This may avoid you having to refile an eviction. If you have never done a stipulation, we will walk you through the process.

4. When preparing your budgets, look at your eviction expenses, and add approximately $210.00 to each eviction.

5. If managing a single family home for another, make sure you have the money to pay for the eviction and that the property owner is made aware of the substantial price jump. Many property managers get fired by the owners of single family homes if there is an eviction. This results in your attorney having to now chase after the owner of the property, often with no success.

Can we save money by having less tenants on the lease?

Great question! There are many property management associations, groups, organizations and self-help books, and often "trying to save money" is a topic of much discussion. Theoretically, if you had 2 people living in a rental unit and only one was on the lease, you might be able to get away with just evicting the tenant who signed the lease. What would you save? After taking into account the additional service of process charge, about $30.00 - 40.00. This would be the worst $30.00 - 40.00 you ever saved. First of all, we know that all adult occupants should be lease signers, and second, if someone is an occupant, they often become a tenant in the eyes of the law over time. You are allowing that person to live there, you know he or she lives there, and often rent is accepted from that occupant. In the event of an eviction against only the lease signer, the occupant is capable of submitting a third party affidavit late in the eviction process, which can lead to hearings, substantial expense and delay, and can possibly even completely derail the eviction. Additionally, if you only had one person on the lease, you have cut your chance of collection down as well. NEVER try to save a little money by making such a serious mistake as not having all the adult occupants sign the lease.

Will evictions go faster now that it costs so much more?

Now that was a funny one!!!

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A Security Deposit Primer - Part 1 Holding The Funds
by Cathy Lucrezi, Attorney at Law

A hundred years ago, a landlord had few obligations in how he handled the security deposit. There was no statute telling him to keep it separate from his other funds. There was no obligation to make a "claim" on the deposit. He did not have to tell the tenant where the deposit was being held. That was then, this is now.

What does the statute cover?

All security deposits are governed by Florida Statute Section 83.49. The statute defines a security deposit as all funds that are "deposited or advanced by a tenant on a rental agreement as security for performance of the rental agreement or as advance rent for other than the next immediate rental period." That means that any money held for some future event, like future rent coming due or repairing damages after the tenant moves out, is covered by the statute.

Three ways to hold the funds.

The landlord is obligated to hold the security deposit and advance rent in one of three ways.

The first option is to hold it in a separate non-interest-bearing account in a Florida banking institution. The landlord cannot commingle the money with any other funds of his or otherwise make use of the funds, until the funds are actually due the landlord.

The second option is to hold the security deposit in a separate interest-bearing account in a Florida banking institution. If this option is used, the tenant is entitled to receive interest. The amount of interest shall either be 75 percent of the annualized average interest rate payable on the account OR 5 percent per year, simple interest. The landlord chooses. As with the first option, the landlord cannot commingle the money with any other funds of his or otherwise make use of the funds, until the funds are actually due the landlord.

The third option is to post a surety bond. The bond must be in an amount equal to the total amount of the security deposits and advance rent or $50,000, whichever is less. This option is so rarely used that this article will skip the remaining details.

Keeping the deposit in a Florida bank.

Any security deposit account, whether interest bearing or not, MUST be kept in a Florida bank.

The account must be in a bank that is chartered to do business in Florida. Most, but not all, banks that are physically located within the state fit into this category. [Not sure about your bank? Ask them if they are chartered in Florida. They easily know the answer.] If an out-of-state owner wants to hold the deposit in his own account, it needs to meet this criteria. It is not sufficient for the owner to place the deposit in a national bank located in his home state which has branches in Florida.

Keeping deposit funds separate.

The deposit and advance rent must be kept separate from other funds.

If an agent collects the funds on behalf of the landlord, the agent should either deposit them into the escrow account that is set up in the agent's office, OR send the funds to the Florida bank account that the landlord has set up. It is not proper to send them directly to the landlord.

If an owner is holding a deposit, it must be in an account that is set up for the purpose of holding the deposit. It cannot be mixed in with the owner's other funds in a checking or saving account.

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The Early Termination Law And The Single Family Home Manager
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.

Conclusion

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.

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Creating Written Policies
by Cathy L. Lucrezi, Attorney at Law

There is great value in having a "policy book" or "management handbook". It holds the landlord's written policies and procedures. It is a tool used by management staff to assure a uniform approach to handling applicants and tenants. The written policies promote consistency, and thus help the landlord avoid fair housing pitfalls.

Every property manager should have a set of written policies describing the procedures to be followed by staff. This article is a "how to" of how to create a set of written policies.

Organize your priorities"¦

If you had to, you could probably describe your policies: "We require a photo id when the lease is signed." "I always require a guarantor if the credit score is poor." "We don't allow tenants to have decorative items on the door." All of those "rules" reflect a policy that you have, even if it's all in your noggin.

Start by writing down all of those "rules" that you apply without thinking. Sort them by the following categories:

-- Applications and Eligibility
-- Lease sign-up
-- Tenant requests for accommodations and modifications
-- Deciding when to evict
-- Deciding when to non-renew
-- Collecting rent
-- Work out agreements
-- Work orders and maintenance
-- Tenant complaints and suggestions
-- and whatever else you might think of

Don't be overwhelmed"¦

If you are starting from scratch, down be intimidated by the size of the task. Take it one step at a time.

In some areas, you already have a head start. Our office makes the following "models" available: eligibility criteria, a non-renewal policy, and reasonable accommodation/modification policy.

Once the policy is written"¦

Be sure all staff is aware of the written policy and understand its importance. Keep a binder of the written policies in a place where all staff can have access to it.

Most important - Follow the written policies that are in place. The purpose of the written policy is to promote consistent treatment of applicants and tenants. Think of it as "self-imposed" law.

If you deviate from your written policies, be sure to document why you made an exception. Keep a record of the non-discriminatory, business reason. It is wise to have a supervisor or the broker sign off on any deviation.

Periodically, review your written policies. It is easy for such things to become stale. For example, you may change the manner in which you handle maintenance requests if you get new software.

Resistant to putting it in writing?

An argument can be made that it is a bad idea to put certain policies in writing. It can be said that by creating these "self-imposed" laws, one is creating just another pitfall for a litigation-happy tenant. Although there may be some truth to that line of thinking, it is our humble legal opinion that the risk is outweighed by the benefit of having a well-informed staff that is all on the same page.

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Law Offices of Heist, Weisse & Wolk, P.A.
Phone: 1-800-253-8428 Fax: 1-800-367-9038

Serving Florida's Property Managers with offices in Orlando, Clearwater, and Fort Myers Beach, Principal Office


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