a list a part of the lease agreement or an ad- dendum of some kind, it may be very advisable to stop immediately. Remember: your ability to charge for such items at flat fee prices arises purely from the lease agreement – not simply from the fact that you are a landlord. Most lease agreements look to your actual dam- ages/costs to charge against the resident. If you attempt to charge for flat fees that exceed your actual costs without a lease or addendum referencing such flat charges, you may be subject to violations of the N.C. Fair Debt Col- lection Practices Act (N.C. GEN. STAT. §§ 75-50 – 75-56), which generally prohibit certain debt collection practices, among them the charging of fees without a legal basis (specifically, see N.C. GEN. STAT. § 75-55(3). Without a lease or addendum memorializing such flat fee charges, there is probably not a legal basis to charge them against a resident.].
Make no mistake: if such flat fee charges are specifically described in the lease, the use of such fee schedules is defensible and arguably legally enforceable. From the perspective of freedom of contract, the parties can agree in advance as to the “retail price,” so to speak, of certain replacement items. By contract, then, the resident can agree to pay you the agreed- upon price of these items at the time of move out. However, that is not the question for today. The question is: can such flat fees be assessed against the security deposit?
NO – if the flat fee exceeds your actual costs. The answer is found in N.C. GEN. STAT. § 42- 52, which states in pertinent part that:
§ 42-52. Landlord’s obligations. . . . The landlord may not withhold as damages part of the security deposit for conditions that are due to normal wear and tear nor may the landlord retain an amount from the security deposit which exceeds his actual damages.
(emphasis added). Your “actual damages” would be your actual out-of-pocket costs for
any damage. Thus, if a set of blinds was dam- aged beyond normal wear and tear, and if the blinds had an actual cost of $36.00 to replace, but you charged the resident $50.00 pursuant to a lease addendum, you cannot charge the fee against the security deposit.“But Will,”you may ask, “I thought § 42-51(2) al- lowed us to charge damages to the premises against the security deposit.” Yes, it does – so long as the charge against the deposit does not exceed your actual damages/out- of-pocket costs.
Now, the reverse is arguably true: if your flat fees are very conservative and always are less than your actual costs (for example, a blinds replacement actually cost $42.00 but you had a flat fee of only $40.00), then you could argu- ably assess the flat fees against the deposit, as they would be in compliance with N.C. GEN. STAT. § 42-52, because they did not exceed your actual damages.
FUN SCENARIO: A REFUND AND AN INVOICE
The above discussion sets up what may be a fun scenario (depending on your point of view). Imagine if all your flat fees exceeded your actual costs, yet the resident had a security deposit of $250.00. You cannot charge the more-than-actual-cost fees against the deposit, so what can you do? Simple: you refund the balance security deposit while sending the resident an invoice for the flat damage fees, assuming they are memorialized in your lease or an addendum. They certainly owe you the flat fees; you just cannot use the deposit to pay for them, thus resulting in a refund of the deposit while you pursue the flat fee damages via other means, like collections. I realize it may sound crazy – but that is price of charg- ing flat damage fees which exceed your actual costs. Again, any attempt to charge these fees against the deposit may place you in noncom- pliance with security deposit laws and trust accounting rules.
THE BOTTOM LINE
As with many things in the rental industry, good ideas sometimes outpace the laws that may regulate them. The intersection of security deposits and flat fee damages are but one example. As we discussed previously, such flat fees may well be a very good idea and may be very useful for both landlords and their residents. However, they must be handled carefully and always in compliance with applicable laws – particularly those regulating security deposit and debt collections. Used cautiously and legally, the convenience af- forded by such billing practices may be worth a landlord’s consideration.
I hope that you enjoyed this article and that this information will empower you to make better, more informed decisions in managing your communities. Stay tuned to future issues of the ApartMentor, where we will discuss other landlord issues.
As always, should you have any questions about the issues raised in this article, we en- courage you to consult with an attorney who practices landlord law.
Author’s Note: The information contained in this article should not be construed as specific legal advice for your exact situation. Before acting on any information contained in this article or should you have any questions about the issues raised in this article, you should first consult with your attorney. Also, Landlord Lawyer is not meant as a replacement for your own best business judgment. A “legal answer” may not always be the “best” answer for you or your communities, and we applaud and celebrate any creative solution to a problem that avoids litigation, reduces your exposure to risk, encourages positive relationships with your residents, and improves your bottom line.
the ApartMentor | July/August 15
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