Have you ever read the entire TAA Lease contract? Frankly, most AATC members have not. Let’s be honest; it is a legal document; it is a contract; it’s boring and tedious, and those are its best qualities! TAA attorney Larry Niemann created the TAA Lease, and TAA General Counsel Sandy Hoy along with the best landlord-tenant lawyers in the nation frequently review and revise it. The TAA Lease is so good, it is the model for the NAA National Lease.
Because the TAA Lease is written by lawyers to be used by non-lawyer rental housing owners/operators, it contains lots of confusing legalese that protects owners/operators. Paragraph 10 “Unlawfully Early Move-Out and Reletting Charge” is the most misunderstood and misapplied portion of the TAA Lease.
Tip #1: You, all onsite office staff, and all corporate operations staff read, reread, and read again Paragraph 10. Learn it, know it, and understand itYou must be prepared to explain to your tenants. Be confident and stand your ground when an angry resident challenge you about reletting.
Essentially, tenants who vacate early will at least owe the reletting charge (which can be up to, but not exceed, 85% of the monthly rent) as set forth in paragraph 10.1 of the TAA Lease.
Bold print in the TAA Lease means these words are important. The below phrase appears in bold at the end of paragraph 10.1:
“The reletting charge is not a cancellation fee and does not release you from your obligations under this Lease. See the next section.”
Paragraph 10.2 says: “Not a Release.” Hint: 10.2 is the key to understanding reletting. Most renters assume that if they pay the reletting fee their obligations end—out of sight out of mind. No to so!! Renters seeking to exercise paragraph 10 are obligated to pay rent and other sums until a new tenant signs a contract for that unit.
Tip #2: Have the leaseholders read out loud the entirety of paragraph 10.1 and 10.2 when signing the lease. Ask each leaseholder individually for verbal (not just a head-nod) acknowledgment that they have read and understood paragraphs 10.1 and 10.2
Tip #3: Have all lease-holders initial paragraphs 10.1 and 10.2.
In addition to the reletting fee, tenants may also owe unpaid rent, late fees (capped at 10% of one month’s rent), pet fees, damage to the apartment, and legal fees. Tenants who are judicially evicted prior to the termination of their lease are also liable for these same fees.
When a tenant vacates the leased premises prior to the end of their lease, the landlord is often left with two key questions: 1) what am I required to do next, and 2) how can I collect?
The Texas Property Code requires a landlord to send an itemized security deposit accounting to a tenant on or before the 30th day after the tenant leaves the apartment. Sometimes a landlord overlooks this requirement when a tenant breaks the lease since the tenant is unlikely entitled to any refund. Even so, the landlord is still required to mail the tenant an accounting within 30 days (if the tenant provided a forwarding address), and there are strict penalties if this isn’t done. An itemized accounting also provides helpful evidence for future collection efforts.
To generate a proper itemized security deposit accounting, the landlord must determine which fees are applicable to the tenant.
When determining how much a tenant owes, proper calculation of late fees is important. Next, when determining how much a tenant owes for damages to the premises, the landlord must omit any amount resulting from normal wear and tear pursuant to section 92.104(b) of the Texas Property Code.
Once the total amount owed by the tenant is calculated, the security deposit is then applied. The term “security deposit” is defined by the Texas Property Code as follows:
“any advance of money, other than a rental application deposit or an advance payment of rent, that is intended primarily to secure performance under a lease of a dwelling that has been entered into by a landlord and a tenant.”
Consequently, pet deposits and other fees may fall under the legal definition of “security deposit.” A landlord should carefully review the fees it charged the tenant, and seek legal advice when unsure whether a fee falls within the definition of a security deposit.
Tip #4: Take pictures. Although not required, photographic evidence of any damage to the apartment is recommended. Tenants do occasionally file lawsuits against landlords, months, or even years after they have vacated. It’s best to prepare for this possibility before it arises by supporting all charges relating to damages to the premises with photographic evidence.
Finally, the landlord must deduct any amount it mitigated. Section 91.006 of the Texas Property Code, and paragraph 32.6 of the TAA lease, require a landlord to mitigate its damages. Mitigation means the landlord must use objectively reasonable efforts and “exercise customary diligence” to re-let the apartment. It is important to note that a landlord is not required to re-let the premises to simply any tenant; rather Texas law requires the landlord to re-let the premises to a suitable tenant under the circumstances. In some cases, a landlord is able to re-let the premises within a few days after the tenant vacated early. If that’s the case, then the landlord must deduct the rent it receives from the amount the tenant owes.
Once all the charges and credits are listed on the itemized security deposit accounting, the security deposit accounting is complete. As noted previously, landlords are required to send the security deposit accounting to the tenant within 30 days of the tenant surrendering the premises. Tenants could file a lawsuit against the landlord if this doesn’t occur. Section 92.109 of the Texas Property Code states that a “landlord who in bad faith does not provide a written description and itemized list of damages and charges: (1) forfeits the right to withhold and a portion of the security deposit or to bring suit against the tenant for damages to the premises; and (2) is liable for the tenant’s attorney’s fees to recover the deposit. This section further provides that a landlord who fails either to return a security deposit, or to provide a written description and itemization of deductions on or before the 30th day, is presumed to have acted in bad faith.
However, pursuant to section 92.107 of the Texas Property Code, the 30-day period does not start until the tenant gives the landlord a written statement of the tenant’s forwarding address. A landlord is presumed to have properly refunded a security deposit, or made an accounting of security deposit deductions, if the refund or accounting is placed in the United States mail and postmarked on or before the 30th day.
Landlords are also able to send the tenant’s delinquent account to a collection agency pursuant to paragraph 32.5 of the TAA lease. Itemized security deposit accountings are helpful evidence for collection agencies, and even more helpful for the landlord’s attorney should the matter end up in court.
Following the above steps after a tenant vacates early should greatly reduce legal liability with respect to security deposits and collection efforts. If you have any questions regarding these matters, we recommend you seek legal advice.
John Gillespie, WAK Property Management, is the AATC Government Affairs Committee Chair. For more information, contact Perry Pillow at firstname.lastname@example.org