The LandLord Advocate Sep 2011

In these difficult economic times, we are hearing from our landlord clients more frequently about guarantee-related transactions, and specifically about how to make the guarantee binding and effective. This article will hopefully clarify some of the questions our readers may have about guarantees and what is takes to ensure payment is received.

Let’s begin with the basic rule – A guarantee of payment is binding only if it meets two conditions:

• It is signed by the party guaranteeing payment and,
• All stated conditions that may exist in the guarantee, have been met.

Guarantees are often used by landlords who house college students – where the parent(s) or guardian(s) guarantees the student’s performance under the lease. In the past, we have heard concerns over whether a lease reference to a guarantee requirement from the parent is actually effective if the lease is signed only by the student-tenant – and the guarantee is not received from the parent. The answer is NO, the guarantee it is not binding on the parent as it fails the first criterion of the basic rule – it was not signed by the parent.

A second question that arises is whether a parent-signed guarantee from a prior year’s lease applies to the current lease. Depending on the guarantee language, it may or may not be effective – depending on whether it captures the current and any future lease entered by the student, or whether it is limited to just the original lease term.

BREAKING NEWS ON GUARANTEES! In our accompanying article, we discuss the Connecticut Supreme Court’s recent ruling that a security deposit guarantee from the state’s Department of Social Services (“DSS”) is a lawful source of income that landlords must accept. In other words, landlords must treat a security deposit guarantee as the equivalent of a cash security deposit (even though they are obviously not the same). However, it must be a guarantee, not just a flyer about the program or an application for a guarantee.

In the past, DSS had a habit of sending unsigned security deposit guarantees to landlords with language in the document that the guarantee would not be effective unless and until an authorized DSS representative accepted and signed it. In that situation, the document was merely an application and would only become a guarantee when three (3) conditions were met:

• An authorized DSS representative handled it;
• He/she accepted the obligation; and
• He/she signed it.

Thanks in part to our advocacy on behalf of landlords that an unsigned, non-binding piece of paper did not constitute a guarantee, we noted that DSS seemed to have changed its procedures, and landlords began receiving signed guarantees from prospective tenants. Nonetheless, there is no guarantee that DSS will continue to act in this new way, and landlords must be vigilant to assure that they have received a real guarantee.

Contact your landlord attorney if you are looking to implement guarantees into your leasing operations and rent collection procedures, or if you are facing a proposed guarantee (such as a security deposit guarantee) and are unclear whether it is – in fact –
a guarantee that you must honor.

Security deposit guarantee now a lawful source of income.

In our August 2009 issue, we wrote about the trial court ruling where refusing a security deposit guarantee from the state was discrimination based on lawful source of income. Well, not surprisingly, the CT Supreme Court recently agreed with that conclusion, making security deposits a lawful source of income.

In a case initiated by the Connecticut Commission on Human Rights and Opportunities (“CHRO”), the CT Supreme Court ruled that a landlord is illegally discriminating against their tenants by refusing to accept a security deposit guarantee from the CT Department of Social Services. The CT Supreme Court also upheld the trial courts award of $30,000 damages to the tenant and $7,500 damages to each of the tenant’s two minor children [click here to read the official court ruling].

Most landlords require a security deposit before tendering possession of a unit to a tenant. The Department of Social Services Security Deposit Guarantee (“SDG”) program provides tenants unable to craft together the required security deposit, the ability to take possession of the apartment without one. The SDG now replaces that landlord security deposit in the form of “guarantee to landlords of up to two month’s rent instead of an actual payment.” (Source: Connecticut Department of Social Service Website) The CT Supreme Court has now obligated landlords to accept the “guarantee,” in lieu of payment. While the program is not available to all tenants, those who apply and are eligible, can now obtain an apartment without providing any of their own money upfront.

CT remains one of a handful of states that reaches the same “compulsory” conclusion with respect to the Federal Section 8 Housing subsidy program, a “voluntary” program under federal regulations. Federal law makes participation in the Section 8 program voluntary, but, state law and the state courts interpreting such laws have made acceptance and participation in the Section 8 program mandatory for CT property owners (see our August 2010 issue for more on the subject). Mandatory participation and acceptance of state funded subsidy programs is now permanently extended to include the security deposit guarantee program.

So landlords, be prepared as you will undoubtedly see these security deposit guarantees more and more, and be prepared to accept them and handle them properly. If you don’t, it may cost you plenty. And take the time now to prepare yourself in the event you ever need to make a claim against the SDG program after a tenant vacates the premises.

Employees seek Autonomy, Master and Purpose – not just money.

At the 2011 National Apartment Association Education Conference and Exposition in Las Vegas this past June, Daniel Pink – author of the book Drive: The Surprising Truth of What Motivates Us – gave an engaging presentation to property owners and managers about the key conclusions of his research into work motivation.

Mr. Pink believes that “management” is an 1850’s technology created to obtain compliance by using money (salary raises and/or bonuses) as the prime motivation tool, when what U.S. businesses need now is engagement by employees.
He found that companies focused on Autonomy, Mastery, and Purpose (rather than employers that focused solely on money as a motivator) outperformed their competitors and created work environments where people wanted to be. Let’s delve a bit deeper into his findings…

First, Pink advocates that owners and managers focus on giving their employees Autonomy by setting high standards and then empowering employees to decide for themselves how they apply:

1. Time;
2. Task;
3. Team; and
4. Technique.

He recommends an “Autonomy Audit,” in which employees rate their job on a 1-10 point scale on each of these four areas. Satisfied employees will have a score of 27 points or higher. Obviously, if your employees report a score of below 27, you have some work to do on your overall Autonomy.

How? Pink notes the following two examples:

• At FedEx, employees are given at least one (1) day a year in which they get paid to think about innovation and how to improve processes, and to present their ideas. Note that they are not responsible for any work or production that day. In addition,
• At Google, employees are given the equivalent of one (1) day a week for the same exercise.

According to Pink, such companies reported that their greatest innovations, new products, and service improvements came from such “FedEx Days” (bottom-up insight) and not management created or sponsored “product development projects” or “service reviews” (top-down assignments). Pink recommends that owners and managers try a FedEx day or two this year, and evaluate the results for themselves.

Second, Pink believes that employees care about the work that they do, and are highly motivated to make progress in their work. In other words, they want to achieve Mastery and are hungry for timely feedback to accomplish it. However, the standard management “annual performance review” gets them nowhere – it is too little, too late.

Instead, Pink recommends that owners and managers use do-it-yourself performance reviews, where the employee sets his/her goals at the beginning of each month (reporting those to the owner or manager), and then evaluates his/her performance relative to those goals at the end of the month (reporting again to the owner or manager). In this way, the owner or manager knows what the employee is seeking to accomplish, and can provide feedback during the month, and again at its end, to assist the employee in accomplishing those goals.

Pink also recommends that companies create peer-to-peer awards programs in which employees can recognize one another’s progress in mastering their work, without having to get the owner or manager involved in the recognition.

Finally, and although this came third, we thought Pink’s discussion of Purpose was very powerful. He noted, and the audience agreed, that new employees are merely trained on “what to do” and “how to do it” without even a cursory explanation of why the company needs the work done. Indeed, companies seem to assume that employees will eventually “learn” or “figure out” what the company is trying to accomplish with its products or services. This sounds – and, indeed is – silly.

Instead, Pink recommends that owners and managers focus on explaining “why” to employees – for example, why the company exists and why the employee is doing something. Upon learning the “why,” the employees can then use their Autonomy and Mastery to accomplish the Purpose.

We recommend Drive to our Landlord Advocate readers, and would appreciate hearing from those who have implemented some of its recommendations.

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.