Security Deposits & Carpet Cleaning Fees
Here’s a recent question from a property manager-

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.

Read more about Indiana’s Security Deposit Laws.


Can I Collect Rent and Charge a Late Fee?

rent sign

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.


Hi Matt,

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.

Protecting a Business Owner’s Family



A Question from one of Matt’s readers:


“Matt, should I buy some life insurance so my wife can pay off the bank loan I took out to buy my business?  I don’t want my wife to have to deal with the bank, if I die first.”


Matt’s Answer-


Probably, yes.  I’m glad to see my readers listening to my advice about the importance of insurance to business owners.


I’m not licensed to sell life insurance, but I am a big fan of insurance under the right circumstance.  Life insurance can be a great way to aid your widow to retire the business’ debt.  That would enable her to sell the business after your death and realize the full value of your company.  You might need some additional life insurance coverage to retire your home mortgage debt, car loans or other debt, and provide cash to support your family after they lose your income.


What about disability insurance?


You didn’t ask about disability insurance, but it might be even more important, given your circumstances.  You’re a young and physically active person.  And, your business is relatively small and cannot operate for long without you.  You’re more likely to suffer a disability in the next 20 to 30 years than to die.  So, I’d encourage you to discuss disability insurance with your agent.


Before you meet with your agent, please review this post-  Is Your Insurance Agent Reassuring.  In that post, teach you how to communicate with your agent in order to make the most of insurance purchase.


Remember this-  Your insurance agent is NOT YOUR agent.  Your agent actually represents the insurance company.  So, keep in mind that you always have the right to seek a second opinion from any professional advisor.  If you’re not comfortable with the advice you’re getting, seek a second opinion.  You might return to the original advisor, but you’ll have more information and possibly a higher level of faith and trust in the advice you’re getting.

Stay Out of Court At (Nearly) All Costs


Stay out of court, because courts often make bad decisions that can have enormous impact on your business, your personal life and your finances.  If you stay out of court, you increase your chances of controlling your own fate.  If you let a judge decide, you have no control.


One of my law partners has a great expression about clients who get themselves entangled in lawsuits:


“When a client has to file a lawsuit or gets sued, he has already lost.”


What’s that mean?


It means lawsuits cost.  They cost you or your business:

  • Time spent in the courtroom, in depositions, reading documents, talking to your lawyer, in mediation, reading court documents, searching for evidence, etc.
  • Money for attorneys’ fees, expert witness fees, photocopies, travel, etc.
  • Opportunities to make money elsewhere doing other things, to grow your business, or to take personal time to be with family and friends.
  • Your health.  Lawsuits are stressful.  The only thing more stressful than getting sued is having to file a lawsuit.  Lawsuits are fun for lawyers.  I love them, from a professional vantage point.  I get to exhibit and sharpen my advocacy and strategy skills, but lawsuits are no fun for my clients.
  • Goodwill or reputation.  Getting sued can hurt the image people have of your business or you.  The newspapers rarely report stories accurately.  Allegations and even rumors are often reported as facts.  People who really, truly know you and your ethos will be unaffected.  Everyone else,  including your customers, vendors and potential customers, will develop doubt in you to some degree.


A good lawyer-friend of mine just got a horrible ruling from a judge in a divorce case.  The judge was wrong and should be appealed, but at what cost to the client?  The judge robbed a father of all time with his children in a visitation ruling.  The father in the case is not a bad guy at all, but the judge, for whatever reason, decided that the man should no longer see his own children. 


Amazing isn’t it?  How can one human being exercise that much power over another human being.  This father is dying inside, because he no longer can see the children he loves so much.  It’s very sad, and that judge should be ashamed of himself.


In a divorce case, there is not much you can do in advance to avoid a divorce lawsuit.  Save your marriage, if you can.  Or, don’t marry THAT woman in the first place.  Ladies, don’t marry THAT man!  That is the only lawsuit prevention available in a divorce context.


But what about your business affairs?


Do you take these preventative measures:

  • Meet with your lawyer when you are unsure of your rights?
  • Meet with your CPA, lawyer and insurance agent at least once every year?
  • Have your lawyer draft or review all your contracts?
  • Have your lawyer develop an asset protection plan?
  • Use limited liability entities properly to create a “corporate shield?”
  • Train your staff on a regular basis?
  • Have processes and procedures developed into an operations manual?
  • Properly use insurance to transfer liability risks away from you or your business?
  • Etc.


If you answered “no” to any of these questions, then it’s time to go see your lawyer.

WARNING- Asset Protection Is NOT Done Off-Shore


My blog just got spammed by some company trying to get people to invest in a corporation based on some Caribbean island.  The spam came across as an advertisement for “asset protection.”  I deleted the comment and will not be posting it on this site!  The spammer was trying to comment to my post Asset Protection-  “It’s As Easy As 1 – 2 – 3!”


So, I need a Caribbean trust or corporation to protect my assets?




Asset protection is the lawful use of entities, contracts, business practices and other legal structures that are recognized and permitted under existing law.  Everything you need to protect your personal and business assets can be found right in your home state.  You do not need to go off-shore to protect your assets.  In fact, going off-shore raises another type of risk to your assets and can, therefore, be self-defeating.


Asset protection is NOT trying to hide assets in a Caribbean-based trust or corporation.  Nor do you need a Delaware corporation or a Nevada corporation, unless you live or operate your business in those states.  Nor do you lawfully protect assets by trying to hide them, by committing crimes or by engaging into fraudulent transfers.


The law provides ways to protect your assets!  You’ve just got to understand what your risks are and what lawful means are available to address those risks.  It’s really not that difficult.  And there is no trickery involved.  Trickery usually leads to other problems.


Do you know what a “legal witch doctor” is?  It’s a term I coined years ago to describe people who talk about the law and who practice law without a license but with a particular financial motive impacting their advice.  If a legal witch doctor tells you that off-shore trusts are the key to asset protection, you can bet that off-shore trusts are being sold to you.


Buyer beware!  Avoid legal witch doctors.  Go see your lawyer.

Is your insurance agent reassuring?

How do you know if your insurance agent sold you the right insurance coverage?

You’ll never know for sure, unless you suffer a casualty, loss or judgment.  Or, you can follow the instructions in this blog!

I am a huge proponent of getting insurance to cover your personal and business risks.  But, the key to insurance is getting the right type and the right amount of coverage.

Let me illustrate these lessons with the story of two of my clients:  Fred and Bill.

THE STORY OF FRED –  BUYING THE WRONG COVERAGE.  Fred ran his business out of a spare bedroom in his house.  Twice each week, Fred had a few contractors come to his home for business meetings.  One winter day, Fred’s favorite contractor (Stanley) walked up Fred’s driveway, slipped on some ice and broke several bones.  Stanley had no disability or health insurance, and was out of work for weeks.  Stanley, being self-employed and thus unemployed, turned to Fred:  “Hey Fred, I got hurt because you didn’t clear your driveway of ice.  Can you pay me my lost income, while I heal?”  Fred calls his insurance agent and makes a claim.

BUT THERE’S NO COVERAGE FOR FRED!  Fred’s homeowner’s insurance doesn’t cover business risks.  Stanley is a business invitee.  There’s no coverage for a business invitee who gets hurt doing business at Fred’s home.

THE STORY OF  BILL- BUYING TOO LITTLE COVERAGE.  Bill owns a business- a restaurant.  One day, there is a grease fire in the restaurant and Bill loses $225,000 of equipment and tools (stoves, ovens, utencils, pots, pans, etc.) and $150,000 of leashold improvements (plumbing, carpet, walls, restrooms, etc.).  Bill calls his agent and makes an insurance claim.

Then Bill gets the bad news-   Bill has $200,000 of coverage on equipment.  He’s short  $25,000 of coverage.  But the insurance agent has some good news. . .  there’s $300,000 of coverage on the improvements.




Bill was UNDER-insured on equipment and OVER-insured on improvements.  What a waste.

Could Fred and Bill have done something differently?  Was this the agents’ fault?  Do these situations happen often?

Yes.  Maybe.  And yes.

There are solutions.  There is a better way to communicate with your insurance agent in developing a great business insurance plan.  Stay tuned to this blog.  I’ll cover these topics in future blogs.  For now, you should recognize the importance of buying the right TYPE and AMOUNT of coverage.