Lessons from Eviction Court: Partial Payments, Part III

Partial payments can be a lifeboat for a landlord who needs the influx of cash or an obstacle that keeps them from getting rid of a problem tenant. I've written a fair amount on this topic before (see here and here), so check out those articles for the complete picture. My observations in court this morning prompted me to cover something that I usually only cover in my Landlord Education Conference on Evictions (usually held in February). 

KRS 383.675, which is a part of the URTLA, which applies in 19 areas in Kentucky (see here for the list), prohibits landlords from evicting a tenant when they have accepted rent after learning that a tenant has breached the lease. In addition, most courts in non-URLTA areas use legal concepts such as accord and satisfaction, waiver, and equity to rule in a manner consistent with KRS 383.675. 

As a result, the question in many of these cases becomes what constitutes "acceptance" of the rent by the landlord. I've typically advised clients that there is an Acceptance Spectrum.

Refusal of the payment   >   >   >   >   >   >   >   >   >  Depositing the payment 

Refusing the payment is a clear rejecting or non-acceptance of the payment. Depositing the payment is a clear acceptance. Everything else, such as holding the payment, fits in between. The guideline is that the longer that you deny the tenant the use of the funds, the closer you have come to "accepting" the payment. As a result, my advice has been to return the payment as soon as possible if your goal is to evict the tenant. Otherwise, you run the risk of being deemed to have "accepted" the payment by holding it.

However, as a practical matter, most courts rule that a landlord has not accepted the payment as long as the payment is, in fact, returned. I find this to be the correct interpretation of the law and the best interpretation in terms of public policy. However, I watched a judge this morning rule that a landlord had accepted a payment made in the form of a money order when he held the payment for "several days". The judge reasoned that the money order operates like cash, which meant that the landlord's holding the money served to deny the tenant the use of the money, which constituted "acceptance" of the payment by the landlord.

I've done over 30,000 evictions throughout the state and have never seen this ruling before. And I thoroughly disagree with it. Still, we have to operate in the world as it is, not as we wish it to be. As a result, when your goal is to evict the tenant, here are some good practices:

• the safest practice when dealing with partial payments is to refuse to accept them. Require the tenant to bring you the full amount due before you take the funds.

• Make sure all your staff members are notified about which funds to accept and which to reject. Because, as you know, tenants will wait until your new leasing agent is the one in the office, then they'll bring him the partial payment in hopes that it will be unwittingly accepted.

• If you have a drop box, and the tenant drops off a payment, send a notice immediately that the payment is not being accepted and should be picked up immediately. Keep a copy of the notice.

• If you allow direct deposits into your bank account, either cut off the tenant's ability to make deposits or immediately send a notice that the payment is not being accepted along with a check refunding the payment.

• If you accept payments via online portal, either shut down the portal or immediately refund the money along with a notice of the refund. 

But what about those HUD/Section 8/HAP payments that come in like clockwork during the first week of each month? The problematic sequence typically looks like this:

tenant fails to pay on time → landlord gives notice → tenant fails to pay → notice expires → landlord files eviction → HUD payment → eviction hearing

In these cases, when the HUD payment comes in after you send the notice to pay or vacate, the payment should be refunded immediately to the provider. Otherwise, the court could rule that you've accepted rent and thereby waived your right to evict the tenant.

If you'd like more information about evictions or other legal issues impacting the rental industry, contact your friendly neighborhood attorney and sign up for my e-mail newsletter here. In addition, you may be interested in my Landlord Education Conferences. There's one coming up next month, click here for more information.