REDBOOK Blues: Reletting

by John Gillespie, WAK Management

The TAA Lease is awesome. In fact, it is the best lease in the nation and the model for the NAA Lease.

However, it was written by lawyers and contains a fair amount of legalese.  Subrogation – what’s that?  One, if not THE most misunderstood and misapplied sections of the TAA Lease is Paragraph 10 – Unlawful Early Move-Out and Reletting Charge.

Multifamily professionals must understand this paragraph so we can communicate the obligations and requirements of this lease section to our residents.

When a resident seeks to move-out before the lease term ends, the resident typically wants to know: 1) what is the cost, and 2) how quickly can they leave. In this situation, landlords need to know: 1) what are we required to do; and 2) how much money can we collect?

Unless the early lease termination is covered by federal or state statute (domestic violence, military deployment, death, etc.) or both parties have agreed in writing to allow early termination for specific reasons (job transfer, sale of property, etc.), then landlords are under no obligation to allow early lease terminations.

It’s actually just the opposite. Paragraph 10.1 states that a reletting fee not to exceed 85% of one month’s rent will be charged to a resident who fails to fulfill the lease term. Be sure that residents understand that this fee does not: 1) cancel the lease nor 2) release them from their obligations under the lease. Paragraph 10.2 Not a Release plainly states “the reletting charge doesn’t release you from continued liability for future or past-due rent; charges for cleaning, repairing, repainting, or dealing with unreturned keys; or other sums due.” Bottom line, resident who move-out early are still liable for rent.

Generally, residents who vacate early will at least owe the reletting charge, as well as, accelerated rent stated in paragraph 32.3.

The tenant may also owe, among other things, unpaid rent, late fees, pet fees, damage to the apartment, and legal fees. Tenants who get judicially evicted before the termination of their lease are also liable for these same fees.

When determining how much a tenant owes, proper calculation of late fees is important. The new state law effective September 1, 2019, provides a safe harbor from potential lawsuits if you cap your late fees at 10% of the monthly rent. Also, you cannot begin charging late fees until the 4th of the month.

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.

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 significant evidence for future collection efforts.

To generate a proper itemized security deposit accounting, the landlord must determine which fees apply to the tenant.

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.

Although not required, photographic evidence of any damage to the apartment is highly 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 relet the apartment. It is important to note that a landlord is not required to relet the premises to simply any tenant; rather, Texas law requires the landlord to relet the premises to a suitable tenant under the circumstances. In some cases, a landlord can relet 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 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, according to section 92.107 of the Texas Property Code, the 30-day time 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 under paragraph 32.5 of the TAA lease. Itemized security deposit accountings are crucial 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 significantly 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 from one of AATC’s member attorneys.

John Gillespie, WAK Management, is the AATC Government Affairs Committee Chair.