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The LandLord Advocate March 2011

Lead Article:

One important test you had better pass.

First step, click here and read a recent Hartford Courant article that you may have missed. Then, return to this email to finish reading our thoughts.

We’ve written about testers and their never ending quest for new opportunities to sue landlords and managers for discrimination. This recent article highlights a few important issues for you to digest.

  • First, looks like the Connecticut Commission on Human Rights and Opportunities (“CHRO”) is recruiting third parties to initiate the lawsuits.
  • Second, there’s a really big national firm representing the Complainant in the case.
  • Lastly, notice who is being sued in this instance.

Here’s why you should care…

If you’ve been unfortunate enough to experience the CHRO, you already know that is an expensive, lopsided process from which your only hope is to escape alive. If you have not, speak to someone who has. They’ll scare your socks off. What we learn from the Courant article is that once CHRO has you on their radar screen, you are a permanent target and the next incoming salvo you hear will likely be much larger than the last. Notice, the Respondents in this matter had previously been the source of complaints to the CHRO. This time CHRO got a complaint and they brought in reinforcements, which leads to point two…

Rather than receive the complaint from the individuals and pursue it, CHRO recruited testers through the Connecticut Fair Housing Center to “investigate” the allegations and bring the official Complaint against our unfortunate Respondents. Now they are up against a larger adversary. And, as if the challenge they faced wasn’t daunting enough, the Complainant [the Connecticut Fair Housing Center], has brought in a goliath law firm to represent them. They are seeking compensatory and punitive damages along with attorney’s fees. Now, since the CHRO will likely seek fees as well, there are a lot of dollars signs facing the Respondents.

And, just who are the Respondents? The Respondents are the owner and the manager of the properties in question – individuals against whom the complaints are alleged and the damages are sought. Just in case you haven’t attended one of our fair housing seminars, yes, individuals can be sued individually for claims of discrimination, even if they work for a company and are following a company policy.

Now, let’s make one thing perfectly clear, we do not condone, counsel, or encourage landlords and management companies to engage in discriminatory housing practices. Look what could happen. Nor am I in any way suggesting that the Respondents in this matter are without fault. They may well be discriminating for which they will have to pay dearly. But, we wanted to make sure we highlighted how easily you can become enmeshed with the CHRO, it allies, and their considerable resources.

The Respondents may have thought that a “working for the past six months” policy was a simple, universally applicable, way to make sure their tenants could pay the rent. But, this seemingly logical policy, at least as alleged in the Complaint they now face, resulted in illegal discrimination at a cost to them that cannot currently be measured.

Every policy you consider and deploy in your ownership and management is one you must vet completely. If it doesn’t pass muster, either change it or prepare for the possible consequences. Every phone call you receive could be a tester checking to see if your policies meet their criteria. Every person you employ should know that this is one test they must pass, every time they take it.

Contact your landlord attorney if you are not confident in your current policies and procedures, or if you would like further information on how to best defend yourself against these potential outside testers.

“Where’s my security deposit?” How to best deal with this inevitable end-of-lease question.

Security deposits are a wonderful tool to protect the landlord from a tenant’s noncompliance with the lease and governing statutes. They can also be the source of undesired conflict, delay, and additional expense for the landlord when trying to regain possession of the unit as the tenancy ends, whether by mutual agreement, the tenant’s unilateral action, or a summary process case. The key is to regain possession in the quickest timeframe, at the lowest cost, and with the security deposit intact for use to address any problems with the tenant and the unit.

Landlords report that security deposit-related conversations start with the tenant seeking confirmation that the landlord will return the security deposit once the tenant vacates and returns the keys. Landlords often respond – correctly, but maybe not advisedly – that it may not (or will not) return the security deposit because of potential (or actual) property damage, unpaid rent, late, or maintenance/repair fees, and/or legal fees. If the tenant has damaged the unit or not paid everything due to the landlord, the tenant may react angrily because of a belief that they have a “right” to the return of the security deposit, regardless of how things end with the landlord.

Upon realizing that the landlord will modify its position, the tenant may look for other ways to penalize the landlord. For example, if the tenant is still living in the unit or has not completed vacating, the tenant may force the landlord to complete an actual eviction to regain possession of the property. While this may be counterproductive to the tenant from a financial standpoint (by increasing what the tenant owes the landlord), it seems to make some sense to tenants – we sense that they see it as a chance to exert some semblance of power over the situation. Regardless, this is counterproductive for the landlord, who usually just wants possession of the unit – and some compensation from the security deposit – to address the problem tenant’s situation.

Here is our suggestion for handling the “security deposit return” question to avoid this problem. When asked about the security deposit, we recommend that landlords answer with language similar to: “State law says that we cannot touch or address the security deposit until after you vacate and return they keys, and we do a move-out inspection. We must return your security deposit plus interest, or explain in writing why we kept some or all of it, as long as you give us your forwarding address in writing, usually within thirty (30) days. So, we will address your security deposit when you move-out.”

The idea is to delay the conversation about the security deposit and to get the tenant to agree that you cannot address the subject until after the tenant has moved-out and you have conducted a final move-out inspection. A tenant who has moved somewhere else is usually more interested in ending their interaction with the landlord, and thus more likely to simply return the keys, than to have an argument about something that the landlord has thirty (30) days to address. The advantage for the landlord is that this position accurately reflects the law.

Speaking of the law governing security deposits, landlords should not act like attorneys and try to explain every detail of the law to the tenant, particularly what the landlord may charge against the security deposit. The security deposit statute obligates the landlord to return the security deposit plus interest after the tenancy terminates “less the value of any damages which any . . . landlord . . . has suffered as a result of such tenant’s failure to comply with such tenant’s obligations.” This is the law – tenants are supposed to know it, just like landlords – and landlords have no legal obligation to explain it to tenants.

If the tenant persists, landlords can end the conversation by referring to the lease, particularly if the landlord took our advice in our February 2009 article “How secure are your security deposits?” to use clarifying lease language to detail how and when the landlord can use the security deposit. If your lease contains such language, you have already provided a sufficient explanation to the tenant about how and when you can withhold money from the security deposit. Remember, the tenant signed the lease and has accepted and agreed to its terms – reminding the tenant of this fact can be a powerful way to eliminate disputes at the end of the tenancy.

We also covered other keys points about security deposits in our February 2010 quick tip “Handling security deposits,” which landlords should review at least once per year.

Contact your landlord attorney if you have any questions about security deposits and their return or proper accounting, or if your business operations require a different approach than described above. Remember, the goal is to increase the likelihood that you regain possession at the lowest cost and aggravation, and then have any battles over the security deposit with the former tenant.

How missing a birthday could really ruin your day (and your case).

I recently sat in housing court, awaiting the judge to call my case, and watched a hearing on a claim of exemption. The claim of exemption, if you are not aware, is a claim by an occupant of a unit that they have a right to remain in possession of an apartment even after a judgment has been entered.

First, some facts about the initial judgment. The landlord, with counsel, had successfully obtained a judgment for possession from a family that had not paid rent in some time (the original summary process case had been brought for nonpayment of rent dating back six months prior to this particular day in court), and the tenants had made no subsequent payments after judgment. The occupant family, which had been living in the apartment for over 5 years, consisted of two adult parents, one adult child, and two minor children.

Yet on this particular day, the landlord found herself back in court facing a claim of exemption. Why? What could she have done differently to protect her judgment for possession from such a claim? Easy. Included one simple piece of information – a date.

The specific date she needed was the adult child’s birth date. Here’s why.

Shortly before the landlord had the notice to quit served on the family, the oldest child living in the unit turned 18. Because the child turned 18, the landlord was required to include that child on the notice to quit, regardless of whether the child signed the lease or was listed as an occupant. The landlord, who, five years earlier, did not obtain birth date information on the children that were occupying the unit, had no idea the oldest child turned 18 and therefore, the child was not included.

The judge, who has quickly earned a solid reputation for making prompt decisions, usually excuses the parties after a hearing, considers the facts and the law in chambers, and renders a prompt written decision in the case. This case was so straight forward he did not even pause to catch his breath before he granted the claim of exemption to the adult child who turned 18 less than a month before the notice to quit was served.

What, you say? How can he do that? Well, the bad news is that is the law. The good news is that the judge issued a perfectly accurate ruling on the facts and the law. The best news is that you can avoid encountering this issue by doing two simple things:

  • Collect birth date information on all applicants and residents and;
  • If you refer a household for eviction proceedings, make sure you include everyone who lives there and the date of birth in your referral documentation.

The time and expense the landlord spent obtaining judgment in this case just doubled, at a minimum. She must now start over from scratch in order to ultimately obtain possession. And, to make matters worse, while she seeks to obtain a judgment against the adult child (who did not sign the lease), the entire family remains in the unit, luckily with an obligation to pay rent. However, the damage may well be done. Because of the lack of incoming rent for an extended period of time, the landlord may be facing foreclosure. Missing that one date may have just cost her the entire property.

Having accurate and up-to-date information on your tenants is catamount to successfully defending yourself in court. Contact your landlord attorney should you find yourself faced with a matter such as this, or better yet, to design a data collection process that will protect you from ever getting in the situation to begin with.

OK – we agree that lease language matters. Now what?

We discussed the positive, and potentially negative, power of lease language in our January 2011 article “Vague lease language spells defeat for the landlord.” We have received feedback from our readers asking us for more direction on how to evaluate and change their lease, including an identification of a current business or mission critical subject that commercial and residential landlords are currently facing and the lease language involved.

First, landlords usually cannot unilaterally change the lease while it is in effect. As we often say to clients, landlords can determine their rights on this subject by “reading what the lease says” about changing its terms while it is in force.

Almost all commercial leases, and most residential leases, contain a clause establishing that the lease is the complete agreement of the parties (i.e. no other agreements exist or apply) and that the landlord and tenant can only change the lease with a written document signed by both parties. With such a lease clause – or in the absence of any such lease clause – the landlord cannot simply identify a potentially problematic lease provision, change it, and send it to the tenant with the claim that the new language governs their lease relationship going forward.

Rather, the law generally requires that the parties agree to exchange something of value for a contractual change to occur. It need not be money – it could also be a promise to, or right of, a party to do something. The value and exchange need not be complicated, but it must exist and happen to change the lease.

Second, landlords need to accept the likely reality that they cannot (and may not want to) fix everything “wrong” or “vague” in their lease right now. Eventually, sure, but that may require a complete lease re-write, plus a substantial amount of staff time and expense, to roll-out the new lease to all existing tenants on renewal and new tenants upon application.

Even a small change now could require a lot of time and money, particularly with a commercial lease, because the parties will inevitably negotiate the terms of the change to reach agreement. However, that does not mean that landlords cannot identify and pursue one or more changes right now, particularly if it is a business or mission critical subject.

Third, landlords need to identify the business or mission critical subjects that the lease covers, and realize that those subjects can change in priority over time.

Right now, we are seeing a number of commercial landlords facing challenges with the tenant’s option to renew the lease. Indeed, landlords can easily overlook this clause at the beginning of a long-term commercial lease, and the landlord does not feel its impact until just before or, even worse, after the lease term apparently expired.

In a recent case from South Carolina, a commercial landlord lost the opportunity to end a long-term tenancy with a tenant paying $500.00 per month for space with a current estimated fair market rental value of $5,000.00 per month. The lease was for five (5) years with an option for the tenant to renew for three (3) additional five-year periods. Here was the applicable lease language: “[Tenant may terminate the lease at any time by giving written notice to [Landlord]” with Tenant liable for payment of rent for the then-current five-year period

Note that there is nothing in here about the lease actually ending, and the court held against the landlord on exactly that point. Pointing to the lease language, the court found that only the tenant could force the lease not to renew – by giving written notice to the landlord – and otherwise renewed the lease as long as it paid the applicable rent for the next five-year period. Aside from the financial impact of the applicable rent escalation term (which was minimal), the landlord faced the major problem of having already secured another tenant to rent the space at the fair market rental value, and addressing with that prospective tenant its inability to deliver the space. Indeed, with the litigation caused by its lease language, the landlord did not get a binding ruling from the state court system until three (3) years into the first disputed renewal term, while the old tenant continued to use and occupy the premises. This likely had a very negative effect on the landlord’s business relationship with the potential tenant.

A better lease would establish that the lease ended on a specific date, and the tenant could renew it only by taking certain affirmative steps by particular deadlines before the lease term expired, so the landlord would know where things stood well before the lease term ended and could plan (with much more certainty) accordingly.

Turning to the residential side, many landlords are currently facing cash flow challenges with utility expenses for which the tenant should by paying. For example, we have a client whose tenant has completely failed to pay the utility bills for the last three (3) months, which total as much as one (1) month’s rent at this point. Here is the current lease language:

The rent payment does not include utilities. Utility bills, including electric, gas and water will remain in the landlord’s name but can be paid directly by the tenant, or another agreeable arrangement. Bills will continue to be mailed to the [premises].

Obviously, the landlord intended the tenant to be obligated to pay the utilities each month, but the lease does not explicitly say that. A better clause would state that

  • The tenant is responsible for providing and paying for a list of utilities,
  • The landlord is responsible for providing and paying for a different list of utilities (if any), and
  • The tenant is responsible for contacting, arranging, and maintaining any utilities not provided by the landlord.

With the alternative lease language, the landlord would have been completely out of the utility issue and the tenant would feel the immediate impact of utility disconnects for failure to pay their bills.

How could the landlord enact such changes in the commercial and residential leases described above? It may be difficult, but it is not impossible. Negotiation is the key, and negotiation can occur only after the landlord has identified the subject, determined that it is worth the time and expense to address now (and obtain a change with the exchange of value), and brought the subject, and the potential change, to the tenant’s attention.

Contact your landlord attorney for guidance on how to get lease language changed effectively, identify what subjects to address now while the lease is in force (if any), create stronger lease language, and negotiate those changes with your tenants.

Quick Tip:

The value of welcoming change.

I recently sat with a colleague managing a significant change of personnel in his office. Jim (not his real name) was anxious about what lie ahead and it showed on his face as he explained the challenges he perceived in his immediate future. His normally steady hands trembled slightly as he held his fork in anticipation of his next bite from his lunch plate. “I am not ready to deal with this,” he mumbled more to himself than to me. “Why is this happening?” he responded to himself. He looked up from his untouched food with a desperate stare, which I reflected back with unwavering hope.

“Jim,” I said as calmly as possible, “this may be the best thing that’s ever happened to you. You’ve talked about wanting to grow your business for years but you’ve struggled with the uneven, dreadfully slow pace of movement. Here’s your chance to make the changes you needed to make years ago, only it’s been thrust upon you unexpectedly. Seize the moment!”

Many of us don’t handle change well. It takes us out of our comfort zone, challenges our norms, and in many cases, disrupts our rather even, well-lit path on which we travel through life. As a result, if change is forced upon us, we revert to the habits and rituals that led us to the path we were on, without even considering that another path may be better.

Jim, faced with this same fork in the road, quietly finished his lunch – every morsel. In fact, his consumption quickened until he literally cleaned his plate with the last piece of bread on the table and popped it in his mouth.

I won’t take credit for getting Jim over his hump because clearly he had been wallowing in this situation for some time. I will, however, take credit for what he gave me. Jim swallowed his last bite, took a long drink from his sweating water glass and stared straight into my eyes. “Change is just a word,” he said as he thanked me for the lunch and stood up. “I’ve got some changing to do.”

Why all the detail? Just to make the same point I was trying to make with Jim, which, I’d say he got. If we consider change, wherever it happens, as an opportunity instead of a challenge, we, too, can seize the moment and turn that change into the catalyst we need for improvement. Try it on a small scale first. You may actually enjoy the results!

Quick Tip:

Keeping track of tenant-related documents.

Lawyers live in the world of documents, and we are constantly asking our clients to produce them. The reason is simple: our legal system does not allow the lawyer to tell the housing judge what happened, we must use evidence in the form of documents and people’s testimony.

A document has wonderful power – think of a written lease – it exists, court’s will generally assume that the tenant read and agreed to it, and it answers questions about “what happened” or “what should have happened”. On the other side, people’s testimony is often not as precise and can lead to the classic “he said-she said” situation.

In response to requests for documents, landlords sometimes turn to this folder and that binder, or this cabinet and that drawer. Often however, andlords cannot locate key documents, which unnecessarily hurts their business or legal case.

Here is a simple solution: have one file per tenant, and use a multi-sectioned classification folder as that file. No, we are not talking about national security here – rather, classification folders have internal sections that allow you to organize documents by type within a single file. For example, landlords can use a classification folder with four sections to separate the:

  • ledger card and any receipts;
  • application, credit and criminal background checks, lease and any lease addenda or amendments, and guarantees;
  • inspection forms and notices of intent to enter; and (4) correspondence.

While it would be great to have each section organized chronologically, this is something that can wait for the day that there is actually a problem to address with the tenant. As we like to say, it is more important that you have it organized generally, than to have it organized perfectly or not at all.

Contact your landlord attorney for advice on applying this simple yet powerful tool to your business operations.
Remember, documents are critical – organize them so that you can use and apply them when necessary.

DISCLAIMER:

The reading of this newsletter does not form an attorney-client relationship. The contents of this newsletter are for informational purposes only and do not constitute legal advice. Nothing in this newsletter is intended to imply or predict the outcome of any legal matter that you may be considering or be involved in. The Landlord Law Firm makes no warranties of any kind regarding the information contained in this newsletter.