QUESTION- We followed the 45-Day Letter Rules and deducted a $200 carpet cleaning and repainting fee that the lease clearly describes. Yet, the tenant claims we owe her the entire security deposit back and that Indiana law does not allow us to keep from the security deposit anything other than damages, unpaid utilities and unpaid rent. Is this tenant right?
MATT’S ANSWER- No, the tenant is wrong for several reasons. Your lease specifically states that you can withhold that $200 fee from the security deposit. Secondly, the $200 fee is a form of damages called “liquidated damages.” In essence, you and the tenant agreed to “liquidate” certain repairs costs – carpet and paint – at the set amount of $200. Clearly, damages amounts can be withheld from the security deposit.
Additionally, the Indiana Court of Appeals and Supreme Court have held in prior landlord-tenant cases that a tenant is not owed a 45-Day Letter Notice for unpaid rent, because the tenant already knows that the tenant owes rent. The purpose of the 45 Day Letter Rule is to give the tenant notice of what amounts and why the tenant is not getting all her security deposit back. There is no point in sending a tenant notice to apprise her of her obligation to pay rent, as the tenant already knew about that obligation – it’s in the lease she signed. So, the Courts have ruled against tenants in security deposit lawsuits where the deposit refund has been reduced by the amount of unpaid rent. Here, the $200 fee is no different than the unpaid rent – in both matters, the tenant knew in advance that the tenant owed that amount to the landlord. Accordingly, no notice in the form of a 45 Day Letter would be required.
Here’s a recent question from one of the members of INreia– the Indiana Real Estate Investor Association, which meets monthly- SECOND TUESDAY- in downtown Indianapolis.
QUESTION- I am a friend of Amy Siewe’s and I have attended a couple of the INREIA meetings as well. I was wondering if you could answer a quick question for me regarding collecting late rents from tenants. I have a tenant who is late on rent and owes a $75 late fee. If I accept the rent without the late fee, will I legally be unable to pursue the $75 late fee in Indiana?
ANSWER- No, you can collect the rent and add the late fee to the unpaid balance owed. Just communicate that intent to the tenant, and don’t accept any “paid in full” check. Eventually, take the late fee out of the security deposit.
Generally, each party to a dispute must bear his, her or its own litigation expenses. In other words, each party pays his or her own attorneys’ and expert witness fees, and the other costs of a lawsuit. The winner does not get to recover those fees from the loser. This system is known as the “American Rule.” There are two exceptions to the American Rule. A party can recover litigation expenses to the extent:
1. Permitted by a contract signed by a party against whom litigation expenses might be awarded.
2. Permitted by a statute.
One of my old law partners and I wrote a great residential lease about 15 years ago. Over the years, I have made dozens and dozens of changes to that lease. For example, when a client calls me and reports a problem with a tenant that I had not previously experienced, I will consider the challenge faced by the landlord and will often address that situation by adding new language to my lease form. The lease grows each year by another sentence or two. Every year, I am surprised by the actions of irresponsible and reckless tenants who endanger themselves, their family, friends and property, not to mention the landlord’s property, by doing really dumb things. As long as tenants find new ways to pose risks to landlords, I will be adding new provisions to my lease form.
One of my favorite dumb-tenant activities involved the tenant placing a trampoline between the rental house and his unlawful above-ground pool. His children (young children) would climb a ladder onto the roof of the home, so that could jump off the roof, onto the trampoline and into the pool. Can you spell – L – I – A – B – I – L – I – T – Y?
It is impossible to predict or even react to every dumb thing that a tenant might do. So, it is impossible to guard against every liability risk in a good lease agreement. However, you should try to cover as many risks as are reasonable in a lease.
Last week, I received a call from a client about a risk that I do not think warrants a new provision in my lease form. Ghosts. Seriously, ghosts. The tenant called the landlord to complain about ghosts. I’m not talking about leaking noisy pipes or creaky floors. The tenant claims the rental home is haunted, and the tenant wants concessions from the landlord. And we don’t think the tenant is joking. It appears that the tenant is quite serious about the ghosts and the concessions.
While not every tenant demand, threat or crazy activity will warrant changes to your lease form, you should develop the practice of talking about such challenges with your lawyer and decide whether the threat warrants changes to your lease form or even to the rules promulgated under your lease form.
Basic Asset Protection for small business owners is not complicated. In fact, for most small business owners, asset protection consists mostly of three key components: (1) a limited liability entity (corporation or limited liability company), (2) a solid and sensible insurance plan, and (3) good business practices developed, in part, with your business lawyer’s help or review. In this blog, Matt briefly explores these three basics components.
Landlording is a tough business. More today than ever before, landlords need to stay vigilant and follow strict rules of operation to minimize risks and increase profits. After 18 years of representing landlords, I have developed several “rules of landlording.” Here are the first three rules-
I have been writing and talking about the SAFE Act- which makes most land contracts in Indiana unlawful- for months now. I thought that I was the only lawyer in town who had heard of the new law. No one seemed to know about it.
That recently changed, as a wave of panic swept through the local real estate bar in recent weeks. And boy oh boy, are there some shocked and angry real estate lawyers out there. This is a horrible new law in that it makes it unlawful for many people to sell their own real estate on contract.
It has been such a rude awakening for so many lawyers that a Continuing Legal Education class was quickly organized for next Friday in a matter of weeks. Usually, CLE’s are planned months and months in advance.
Congratulations to those of you who listened to my teleclass on the SAFE Act or who read my blog. You knew about this crazy new law long before many real estate lawyers did.
If you want to learn more about the SAFE Act and the several new laws that have passed recently, register for the July 17 real estate class. Details are here.
You can also listen to the teleclass on this blog.
Every small business needs to address the possibility of future shareholder or owner disputes. These concepts apply to every business structure, including partnerships, limited liability companies ans corporations.
Shareholder disputes are time-consuming, expensive and counter-productive. Shareholders disputes are easy to avoid, if you agree on basic principles before shareholders come together as business partners. The basic principles include-
1. Who does what jobs.
2. Who gets paid what and when. (I include a provision to cover taxes.)
3. What happens if someone stops working or completing their job duties.
4. What happens if there is a buy-sell “triggering event” such as death, divorce, dissolution of the entity, disability, etc.
5. How elections are held to select company leaders.
The key to solving shareholder disputes is to AVOID them in the first place through buy-sell agreements, operating agreement and similar documents. Do NOT form your business partnership without addressing these issues IN WRITING AT THE START.
One final thought. . . pick your partners well. I have myself had to endure difficult and unreasonable business partners. So, trust me when I urge you to be cautious in selecting your partners. Assume each partner will be unreasonable at some point.
As the costs of litigating disputes continue to increase, litigants are increasingly settling their disputes through arbitration. Arbitration is a process in which a neutral third person (arbitrator) or panel, usually of three persons, considers the facts and arguments presented by the parties and then renders a decision. By utilizing arbitration, litigants can avoid trial, and the lengthy and expensive process of getting to trial. Arbitration usually results in a quicker decision than could be had by going to court. After the arbitrator renders a decision, that decision can be enforced by the courts. However, the courts cannot hear an appeal of an arbitration decision, except in the case fraud.
Arbitration is often preferable for the plaintiff who wants quick redress for the harm he or she has suffered, but defendants may prefer the longer and slower processes of trial and appeal in the courts. The rules of evidence in arbitration differ from those in trial. There are other differences between the two processes. Consequently, before a party agrees to submit to arbitration, thereby waiving the right to trial, careful consideration should be made as to which process is more likely to yield the better result.
How do parties choose arbitration over trial? They simply agree to arbitrate, usually in a written agreement. Written agreements to submit a dispute to arbitration can be signed before or after a dispute arises. So, for example, an employment agreement might include a provision requiring an employee to submit a wage dispute to arbitration. Nearly any agreement can contain an arbitration provision. Agreements can even be written to require mandatory arbitration only if requested by one but not the other party to the agreement.
Whether arbitration is right for you depends on a number of factors particular to your circumstances. However, all parties to an agreement in which significant disputes might arise should consider whether arbitration is a preferable alternative to resolving those potential disputes.