Lessons from Eviction Court: New Thoughts on Partial Payments

Last January, I published an article, linked here, on dealing with partial payments of rent from tenants. The issue of partial payments is largely governed by KRS 383.675 in URLTA areas. KRS 383.675 reads as follows:

Acceptance of rent with knowledge of a default by the tenant or acceptance of performance by him that varies from the terms of the rental agreement constitutes a waiver of the landlord's right to terminate the rental agreement for that breach, unless otherwise agreed after the breach has occurred. 

Three Options for Handling Partial Payments

In my earlier article I described the three options for a landlord when a tenant offers a partial payment. The first option is to reject the partial payment and proceed with the eviction if full payment is not tendered before the notice expires. There’s never any problem with invoking this option; the downside is that you are passing up money, which no one wants to do.

The second option is to accept the payment on the condition that the tenant signs an agreement that explicitly allows the landlord to proceed with the eviction if the tenant fails to pay the remaining balance. The agreement allows the landlord to avoid the waiver of the right to evict set forth in KRS 383.675 because the landlord and tenant have “otherwise agreed after the breach”. This is option puts money in your pocket and allows you to proceed with the eviction, which makes it a sweet deal, except for one thing: the tenant must agree in writing.

The third option I presented in the article is for the landlord to accept the payment, then issue a new seven-day notice for the tenant to pay the balance or vacate the unit. The bulk of my January article talked about how to properly sequence things when using this option. However, I recently had a case where this option was challenged as a violation of KRS 383.675, the statute set forth above.

A New Argument on Partial Payments

The tenant’s attorney argued that, under the strict language of the statute, accepting a partial payment always waives the landlord’s right to evict for non-payment, at least for the particular amount that was owed at the time the partial payment was accepted. Now, this argument is terrible for tenants in general and would make for bad public policy in that, if this rule were adopted, many more tenants would be evicted and it would occur much earlier in their tenancies, as landlords would simply stop accepting partial payments altogether. In fact, this argument was rejected by the particular judge presiding over the case.

However, the argument is not without merit when you look at the strict language of the statute, as it prohibits the acceptance of rent by the landlord once he knows the tenant has breached the lease. At least when it comes to past due payments, when you accept a partial payment, you know the tenant has breached his lease by failing make timely payment. At that point, you are accepting rent “with knowledge of a default by the tenant”. Additionally, when you accept an amount that is less than what the lease requires, you are accepting a performance from the tenant that “varies from the terms of the rental agreement”. Thus, arguably, the plain language of the statute requires that you either reject the partial payment or obtain the tenant’s written agreement if you wish to proceed with an eviction against your tenant.

Thus far, this argument against accepting partial payments has been universally rejected. Indeed, it would make for very bad policy in that landlords would simply stop making payment arrangements tenants. Landlords who would have accepted a partial payment and given the tenant some additional time to pay the balance would simply reject such payments and proceed with the eviction. So, I think there are sound legal and policy reasons for the courts to reject the idea that landlords cannot proceed with an eviction when they accept a partial payment even after issuing a new notice to pay or vacate. Still, one cannot guarantee that a judge will not decide otherwise.

Conclusion

So, I put these issues before you so that you can make an informed decision about how you deal with partial payments. Everyone has a different level of risk tolerance, and everyone has different business and cash-flow needs, so there is no one-size-fits-all answer on what to do with partial payments. However, I’m comfortable saying this: if your primary goal is to get rid of your late-paying tenant who offers a partial payment, you should reject the payment unless the tenant signs an agreement that explicitly allows you to proceed with the eviction despite accepting the payment.