Rent Payments – Issues That Affect Evictions

A Boulder County Judge recently dismissed an eviction case.  The judge ruled that the landlord’s three-day demand for payment of rent was defective.  The judge declared the rent demand defective even though the tenant never offered to pay the rent during the demand period.  Without a valid three-day demand for rent, a landlord cannot prevail in an eviction case.  The judge found the rent demand defective because it required the tenant to pay the demand in certified funds, but the tenant’s lease did not require certified funds.  The Boulder ruling and the new year are good reasons to review some basic rules regarding payments in eviction cases.

Can you require tenants to pay rent demands in certified funds?  Maybe.  If your lease gives you the right, then you can insist that tenants pay rent demands in certified funds.  If your lease does not require rent demands to be paid in certified funds, you cannot unilaterally impose this condition.  This is an important point because almost all of our clients require tenants to pay rent demands in certified funds even though not all of our clients’ leases give them this right.  Regardless if your lease requires rent demands to be paid in certified funds, you may insist upon certified funds if a rent demand has expired.  Once a rent demand has expired, you are under no legal obligation to accept the tenant’s money, and thus can insist upon certified funds as a condition of acceptance.

The Boulder County case further illustrates that nothing can save a defective rent demand, including the tenant’s failure to offer the rent.  Arguably, the landlord should have won the Boulder case because the tenant never tendered the rent in non-certified funds.  However, the defective rent demand gave the court an easy out.  Because the rent demand imposed an impermissible condition (“pay in certified funds”), the tenant could have been mislead into believing that anything less than certified funds would have been rejected.  Taken to its logical conclusion, each and every condition imposed in a rent demand potentially creates an argument that a tenant will be misled.  Accordingly, rent demands should be kept as simple as possible (pay within three days or vacate), and certainly not impose any conditions that aren’t backed up by the tenant’s agreement in the lease.

As the rental industry evolves, so do payment terms and conditions.  For example, many communities would like to see everyone pay online.  Other communities want to eliminate payment by money orders to address the growing problem of money order theft from drop boxes.  Can you make a tenant pay you online or eliminate payment by money order?  Theoretically, yes, because parties are free to agree to any term or condition that will govern their working (contractual) relationship.  However, given the freedom of judges to impose their own sense of fairness, no payment policy is risk-free.  Some judges have had difficulty with no-cash policies until the enormous security problem is explained (having tens of thousands of dollars in cash in an unguarded leasing office every month invites armed robbery).  Overall, common sense payment provisions that facilitate both the tenant’s interest and the landlord’s interest have been consistently upheld in our experience. Payment provisions that burden tenants are more problematic.  For example, not everyone has a bank account or even a computer, so some or maybe even most judges probably would not enforce an online payment only provision, without any alternative methods of payment.

Again every non-payment eviction must be based on a valid rent demand.  It’s no good to start with a valid demand, only to waive the demand by your actions.  By now, every client should know the consequences of accepting partial payments.  The law of partial payments is simple.  You can’t have your cake and eat it too.  You can’t have the partial money, and your eviction.  If you serve a rent demand, and then accept less than full payment, you have waived your right to evict on the current three-day rent demand, and must start over by posting a new rent demand.  Most landlords understand this and make decisions to accept partial payments accordingly.   However, landlords may still not be aware that other policies and procedures can arguably result in waiver of valid rent demands.

Some landlords send rent bills or reminders to tenants.  Landlords do this to increase timely rent payments, and to provide good customer service.  Sending rent bills or reminders does not in itself create a problem.  Problems result when bills and reminders are sent after the expiration of rent demands.  Once a three-day is served, the tenant must pay within three days or vacate the unit.  You have no legal obligation to accept the tenant’s rent after the three day rent demand has expired.  If the tenant receives a written rent reminder a week after a rent demand has expired, the tenant can argue that you now have given more time to pay, or that you have waived your right to proceed on the original three-day rent demand.  Overall, we have seen more and more rent bills and reminders in eviction files.  The key point is that “we have seen”.  Tenants have yet to figure out this argument so it hasn’t been a big problem for clients in court.  Because at some point they will, don’t send bills or reminders after rent demands have expired.

Landlords also waive rent demands by accepting partial payments, in many cases unknowingly, by either direct deposit or electronically.  Some landlords give the tenant their bank account number, and instruct the tenant to pay the rent by depositing it at the bank.  Almost every owner or management company involved in the multi-family apartment industry now receives a significant amount of electronic rent payments (“ERPs”).  Direct deposit problems are easy to solve.  Don’t give a tenant your bank account number, and you won’t have to worry about the tenant depositing rent into your account without your knowledge after a rent demand has expired.  You also won’t have to worry about identity theft related issues.

The problem of unwillingly accepting ERPs after a rent demand has expired can be much more difficult to solve.  If the community is using a third-party vendor to process ERPs through a website, the landlord may not have the ability to control (shut off) ERPs after rent demands have expired.  If you don’t have the ability to control ERPs to prevent unwilling or inadvertent payments, you should address the issue in your lease.  Because we have seen countless different ERP protocols and processes, lease language may have to be specifically designed to a particular protocol.  Regardless of how ERPs are processed, if you accept an ERP, you have waived your right to proceed with the eviction and must start over.  To prevent waivers, landlords should evaluate their ERP system and develop policies and systems to address related ERP issues.

Not all eviction cases are about rent.  If you are evicting a tenant for a non-monetary violation (disturbing other tenants), can you accept the tenant’s rent?  It depends on when the rent accrued and when the tenant offers to pay it.  Colorado law is clear that you can accept rent that accrued before the problem.  For example, a tenant has a loud party on the weekend after New Years.  The rent was due (accrued) on January 1st.  Because the rent accrued before the cause of forfeiture (the loud party), you may accept the rent without waiving your right to evict.  On the other hand, you waive your right to evict if you accept rent accruing after the problem with the tenant arose.  However, you can accept rent accruing after the problem if we have filed the eviction case with the court.  Regardless of your legal right to accept rent and not waive your right to evict, we almost always advise not to accept rent in non-monetary evictions.  Regardless of the law, because judges are so conditioned (from rent cases) that acceptance of any money is a waiver, landlords are better off just eliminating the waiver issue by not accepting any money.

Some landlords mistakenly believe that failure to deposit or cash a payment means they haven’t accepted the payment.  This is not accurate.  Courts will deem prolonged holding of a tenant’s payment as acceptance, regardless of whether you deposit the payment.  If you are not accepting a payment, you must return the payment to the tenant to manifest your intention to reject the payment.  To avoid problems, we advise caution in handling payment returns, especially if the tenant paid by money order.  If not handled properly, the tenant may claim that the landlord never returned the payment or lost the payment.  Because money orders can be easily altered or even blank, the tenant may receive the money orders back, cash them, and still assert that the landlord accepted the money orders but lost them.  To avoid this nightmare scenario, promptly inform the tenant in writing that the payment is being rejected, and for security reasons the tenant can come pick up the payment at the office at anytime during normal business hours.

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