By Steve Scott, Attorney
Scott Law Firm, PC
“Preparing to Fail” means preparing in advance – before a landlord-tenant relationship even begins – and continuing to prepare as the relationship continues, for the possibility that the relationship will somehow fail and you will need to file a lawsuit and ultimately be a witness on your behalf in a trial in the lawsuit.
If you have taken the appropriate steps so that you are prepared for the failure of the landlord-tenant relationship, then you are also well on the way to “Preparing to Succeed” – that is, to win the lawsuit. Or, if the relationship does not fail, then your preparation may well be one of the reasons it succeeded.
First Things First – Qualify Your Tenants
If “location, location, location” is the mantra of Realtors®, then “qualify, qualify, qualify” should be the mantra of landlords.
The single most important thing you can do to ensure a successful landlord-tenant relationship is to properly qualify prospective tenants before you lease to them. Later, if the relationship breaks down anyway, the information you gathered in the qualification process can be a big help in winning an eviction lawsuit and collecting a judgment.
So use all the resources at your disposal to check on prospective tenants. Every adult renting from you should fill out a separate application form (and should also be required to sign the lease so they will be “jointly and severally liable” – more on that later). Run credit checks. Review court records for criminal cases and civil lawsuits.
And don’t hesitate not to rent to applicants if they appear to be too big a risk based on what you find out. Down the road you stand to lose more money on bad tenants than by waiting a little longer to rent a vacant unit.
Next, Have the Tenants Sign a Written Lease
Most landlords use written leases, but a few still rely on oral leases. Written leases are highly preferable because they can cover many issues not covered by oral leases. Most important in terms of later success – and more complete success – if you need to file an eviction lawsuit, are the following points:
1. All adults who will reside in the premises should be required to sign the lease; further, it is particularly important to have both husband and wife sign the lease if you rent to a married couple. Also, the lease should specify that all lessees are jointly and severally liable. This way, you are more certain of being able to hold all tenants jointly liable if you need to sue and being able to collect from the jointly-owned assets of a married couple. (These issues are discussed more under “Enforcing Your Judgment” below.)
2. Include a clause saying that the tenants have inspected the premises and find them satisfactory and that any problems they notice after moving in must be reported within, say, 48 hours, or it will be conclusively presumed there are no problems.
3. The lease should specify the order in which payments will be applied. This can become important in a rent-and-possession case if you really want the tenants out, as explained below.
4. Because tenants sometimes raise security deposit issues in lawsuits based on statements made by the landlord during a check-out inspection, the lease should contain language to this effect: “Any statements or estimates made by lessor or lessor’s representative during inspection are subject to correction or modification before final security deposit accounting.”
5. The lease should specify that only the persons named on the tenants’ applications are authorized to live there. Such a clause gives you a lever to terminate the lease if the tenants allow additional people to reside in the unit.
6. You may want to inspect the premises during the tenancy to determine if there is damage before filing suit. Many leases do not contain language that would allow this. A good lease should set out a “laundry list” of reasons the landlord can enter, including to: (a) Inspect for damage; (b) determine whether lessee is in violation of the lease; (c) remedy any lease violations known by lessor; (d) remove unauthorized animals or items prohibited by the lease or the Rules and Regulations; (e) remove perishable foodstuffs if electricity has been turned off; (f) retrieve property owned by lessor or former lessees; (g) make necessary repairs, whether or not requested by lessee; (h) protect persons and property in case of an emergency; (i) show the premises to government inspectors, fire marshals, lenders, appraisers, contractors and insurance agents; (j) allow access by law enforcement personnel executing an arrest or search warrant or in hot pursuit; (k) show the premises to prospective buyers; (l) show the premises to prospective lessees during the 90 days before expiration of the lease; and (m) deliver or post notices to lessee. The inspection clause should contain some “teeth” – for example: “Lessee’s failure to allow entry under this paragraph shall be sufficient cause to terminate this lease; alternatively, lessee shall be liable for liquidated damages of $200 for each failure to allow entry, which shall be deemed additional rent.”
7. You may need to serve notices on the tenants before filing suit. Make it easier on yourself by including appropriate notice language in the lease. For example: “Lessee agrees that any notice given by lessor relating to this lease may be given by any one or more of the following methods, each of which shall be equally sufficient: (a) by personal delivery of the notice to any one or more of the persons signing this lease as lessee or any person residing in the premises who is at least 16 years old; (b) by posting the notice on the main entrance door of the premises; or (c) by mailing the notice to lessee at lessee’s last-known address by certified mail, return receipt requested. Notices which are personally delivered or posted shall be deemed given on the date of delivery or posting; notices which are mailed shall be deemed given on the next mail delivery date after the date of mailing, whether or not the return receipt is signed and returned. Any notice given as stated in this paragraph shall be binding on all lessees under this lease and all other persons occupying the premises with lessees’ permission.”
8. The lease should contain a multi-part clause allowing you to declare defaults, with these important options among others:
a. Declaring a termination of the lease after 10 days notice.
b. In the case of minor violations, when you are willing for the tenants to stay if the default is corrected, allowing you to give notice that the lease will be terminated after 10 days notice unless the default is corrected.
c. Allowing you to demand possession of the premises so they can be re-rented without terminating the lease, in which case the tenants’ liability will continue until you enter into a new lease or the old leases expires, whichever happens first. Such a clause should also make it clear that the tenants are responsible for costs you incur in re-renting the premises.
9. For effective enforcement of the lease and the fastest, least expensive litigation, the lease should specify:
a. That all lawsuits relating to the lease and the tenants’ occupancy of the premises must be filed in Boone County. This is important if tenants skip and move to another county in Missouri because, technically, you would otherwise be required to sue them in the county where they now live.
b. That both you and the tenant waive jury trial. This is crucial because jury trials are much more expensive than trials heard by a judge and take much longer to schedule.
c. That each tenant is considered the agent of all other tenants for purposes of service of a lawsuit.
d. That the tenants will be liable for all expenses you incur in enforcing the lease, including reasonable attorney fees, litigation expenses, court costs and collection agency fees.
A final point about the leasing process: Do not, under any circumstances, allow tenants to take possession of leased premises without first collecting the full security deposit. After the tenants move in, you have no leverage to collect the unpaid balance of the security deposit because the court will not award a judgment for an unpaid security deposit. This is for the reason that the court’s judgment will take account of the damages you claim, and the tenants would be entitled to credit for the security deposit against those damages, so also awarding judgment for an unpaid security deposit would result in unjustifiably increasing damages.
You’ve qualified the tenants, they’ve signed a good written lease, and now it’s time for them to move in. This can be a crucial point in time for later litigation if the condition of the premises becomes an issue. One of the more common defenses raised by tenants in landlords’ lawsuits is that the premises were in bad condition.
So, plan to protect yourself in advance against such a defense by documenting the condition of the premises at the time the tenants take possession. There are two key things to be done:
1. Have a standard check-in inspection form where you document the condition of the unit upon move-in. The form should contain space for the tenants to make their own notations. It should also state that unless the tenants return the form with differing comments within 48 hours of move-in, they will be deemed responsible for any unnoted problems existing at the time they move out. When you’ve filled it out, give a copy to the tenants and point out that they have 48 hours to return it with their comments.
2. Take photographs of the unit immediately before the tenants move in. Make sure the date-display feature of your camera is turned on and the date is set correctly. If you’re using a film camera, you do not have to get the pictures printed, but you should have the film developed and keep the negatives in the tenants’ file so they can be printed later if necessary. If you’re using a digital camera, you can simply store the digital photographs in a known location on your computer so they can be printed later if necessary. (Do not use a video camera for this purpose. They do not produce as high-resolution images, and judges get impatient sitting through videos.)
Also, if you have done any refurbishing of the unit before the tenants moved in – say, for example, installing new carpet – either put the bills (or copies) for that work in the tenants’ file or put a note in the file to remind you of the work and where the original records are located.
A similar procedure should be followed at the end of the lease. Do an inspection and prepare a check-out form (some landlords use a combination check-in/check-out form so that conditions at the beginning and end of the tenancy can be easily compared). Take photographs again, particularly if there is any significant damage or cleanup problem that you may want to charge against the tenants. This inspection can be combined with the security deposit inspection mentioned below.
Maintaining Your Business Records
Many landlords now use property management software which essentially maintains much of the same information that would otherwise be kept in the form of paper records. If you use such software, be sure that you know how to extract the necessary information when the need arises.
Even with a computer-based management system, however, you need some paper files. To ensure later success if a lawsuit must be filed, here are the recommended guidelines for keeping records:
1. You should have a file for each tenant/unit which contains all paperwork relating to the particular tenancy, including applications, background checks, the lease, the check-in/check-out forms, all correspondence to and from the tenant, all notes of phone calls and personal contacts to and from the tenant, the originals (or copies, with reference to the location of the originals) of bills and work orders for maintenance and other work done during the tenancy, and notices and demands served on the tenants. Also, every once in a while, make a photocopy of the tenants’ rent checks so you’ll know where they bank and throw the copies in the file (this is helpful in collecting a judgment later). In short, all information relating to the tenant/unit should be in the file. If your computer system maintains some of this information, be sure you can print out everything to put in the paper file if the need for litigation arises.
2. A separate ledger – either handwritten or computerized – should be maintained for each tenant/unit. (Aggregate ledgers including other tenants/units become unwieldy in the courtroom and risk compromising the privacy of other tenants.) More on tenant ledgers below.
3. Although mentioned above, it is important that you document all contacts to and from the tenant, whether in writing, on the phone, or in person. All such notes should include the date, and, if appropriate, the time of day. If you contact the tenant about late rent, note it in the file. If you serve a notice or demand on the tenant, put a copy in the file along with information on how and when it was served. If the tenant calls to complain about some condition in the unit, make notes of the complaint and how and when you responded.
4. If you spend any money on the unit during the tenancy, document it in the file. Throw in the originals or copies of bills, work orders, etc. (If you include copies, make sure you know how to find the originals in your central files.)
More on Tenant Ledgers
As mentioned above, you should have a separate tenant ledger for each tenant/unit. This can take the form of a traditional paper ledger sheet, a computer spreadsheet, or the ledger functions built into property management software.
The traditional ledger format will generally track date, description, charges, payments, and balance, something like this:
This is a fine system for your internal purposes, but it has some inadequacies for lawsuit purposes, and you may need to break out and summarize various charges, and how payments were credited, in a different format for trial. Such charges might include rent, late fees, utilities, bad check charges, attorney fees, court costs, etc.
In the section above on written leases, it was recommend that you include a clause specifying the order of application of payments. This can become important in some rent-and-possession cases because of the fact that under Missouri law, if a tenant pays all rent due plus court costs on or before the date judgment is entered, the tenant cannot be evicted (although you can still get a monetary judgment for other amounts owed).
Here is a suggested clause specifying the order of application of payments: “Absent lessor’s contrary agreement, payments by lessee shall be credited to first to delinquent and current charges owed by lessee other than late charges or rent, second to delinquent and current late charges, third to delinquent rent, and last to current rent, regardless of any notations to the contrary on lessee’s check or other payment advice.” This modifies the traditional rule of accounting and law that absent other agreement, payments are always credited first to the oldest charges.
To understand how the order of application of payments can affect a rent-and-possession case, consider the following simple example using the traditional rule:
This simple example demonstrates that the January 25 payment had to be attributed to the January rent under the traditional legal/accounting rule because that was the oldest charge. However, using a clause such as recommended above would result in the payment being attributed first to the late fees, in which case only $675.00 would be applied to rent, leaving an unpaid rent balance of $125.00. This may sound trivial, but when there is a lengthy series of financial transactions with a tenant, the difference in how much rent is owed over time versus other charges can be significant and can determine the outcome in a rent-and-possession case.
Whether or not you have a clause such as the one recommended above in your lease, for purposes of litigation you may have to prepare a detailed breakdown of how each payment was credited and what the balance is for various categories of charges. Your attorney can do this for you if you want, but you may pay more for the privilege.
You may also need to prepare a separate breakdown of unpaid charges depending on the amount of late fees you charge for late payments. Many landlords’ leases specify late charges of $10.00 per day or more after the fifth of a month. However, in almost all cases, judges in Boone County allow only $5.00 per day. If you have accrued late charges on your tenant ledger at a rate higher than $5.00 per day, that adjustment will need to be made.
Whatever form your accounting and other records take, they should be maintained on a regular basis using regular procedures as part of your rental business. If so kept, your records can be introduced into evidence under an exception to the hearsay rule known as the “Business Records as Evidence Law.” This will be explained in the later section on trials.
The Relationship Fails – What Next?
Say you have decided the landlord-tenant relationship is just not working out and you need a “divorce” – i.e., an eviction. What next? The answer is: It depends. There are many variables depending on what form of litigation is filed and what grounds you have.
If the problem is solely non-payment of rent, a rent-and-possession case is appropriate. The key requirement before filing such a case is that you demand payment of the unpaid rent. This can be done orally or in writing, and the fact of demand is almost never disputed by tenants. For proof purposes, a written demand is a little better, and if you have an appropriate notice clause in your lease, it will be easy to serve the demand and prove that you did so. If it’s served by certified mail, you simply produce the certified receipt. If it’s delivered to the tenant or posted, the person who did the delivery or posting should be available to testify that it was done.
An unlawful detainer case may be appropriate in other situations (rarely for mere non-payment of rent). If the lease has expired by its own terms and the tenants are holding over, no prior notices are required before filing suit. However, if you want to declare the lease breached and terminate the lease, an appropriate notice will need to be served on the tenants; the notice would legally terminate the lease 10 days after being given (assuming the court finds that the breach occurred), and you would then be entitled to file for unlawful detainer. In certain other cases, a more lengthy notice period is necessary to terminate a lease. Check with your attorney to make sure the proper notice is given in a timely fashion.
Another possible type of eviction case is so-called “expedited eviction,” which deals mostly with illegal drug dealing, possession or use in and near the leased premises.
The fourth type of case that landlords can file is called a “contract action.” This is filed when the tenants have moved out still owing money for rent, late fees, physical damages to the property, etc.
Many times it is not clear what type of action is most appropriate and what needs to be done before filing suit. This is when you pick up the phone and ask your attorney for advice.
Warning: Be sure you handle the tenants’ security deposit properly. The security deposit statute requires the following:
1. You must give written notice in writing to the tenants of the date and time when you will inspect the premises to determine the amount, if any, to be withheld from the security deposit. (Don’t forget the recommended lease clause above to the effect that your statements during the inspection will not be binding and are subject to correction or modification before final accounting.)
2. The tenants must have an opportunity to be present during the inspection if they wish.
3. Within 30 days after the tenancy ends, you must either:
a. Refund the entire security deposit; or
b. Send the tenants a written itemization of what has been deducted from the security deposit together with the balance of the deposit, if any.
Note: Sometimes it is difficult to determine when the “tenancy ends” for the purpose of starting the 30-day period to account for the deposit. This is particularly true when tenants move out before the end of the lease term. If you have any doubt whatsoever when the 30-day period starts, consult with your attorney.
4. If you fail to comply with the foregoing requirements in any respect, the tenants can recover from you twice the amount of the deposit that was wrongfully withheld. This can severely limit, or even negate, any recovery you might make from the tenants.
If you have given any necessary pre-suit notices and want to proceed with a lawsuit, you will need to give your attorney certain minimum information. Your attorney may not want your entire file and accounting records right away, but will need the following minimum information to file suit:
1. Names and current addresses of tenants. If other adults are living in the unit, they should also be named as defendants so you can get an eviction judgment against all adults living there.
2. Copy of your lease.
3. Amount(s) owed.
4. The particulars of how and when the tenants violated the lease.
If the case needs to be tried, your attorney will want to review all of your records before trial to select the appropriate records to use as exhibits at trial.
Getting Ready for Trial
Uh oh. Your lawsuit was filed, the tenant was served, the first court date was held, and your case is not among the lucky 50% of landlord suits resolved by default or consent judgment – instead, the tenant has disputed all or part of your lawsuit, and there’s going to be a trial. So how to you get ready?
Remember all those wonderful records you’ve been keeping? You and your attorney are going to need to cull through them and pick out the records necessary to prove the particular claims made in your lawsuit. They will be identified at trial and offered as exhibits. This is where the “Business Records as Evidence Law” mentioned above comes in very handy. Ordinarily documents are considered inadmissible hearsay, but the law creates an exception for business records if the right conditions are present. Here’s how the questions and answers go to admit a document in evidence as a business record:
Q: Is this document a business record of XYZ Rentals?
Q: Was this document made and kept in the regular and ordinary course of business of XYZ Rentals?
Q: Are you a custodian of this document?
Q: Do you have personal knowledge of the manner in which this document was prepared and kept?
Q: Were the entries made in this document at or near the time the particular items of information were received?
Q: Were the entries made in this document by persons having a business duty to enter them correctly?
Bingo! The formula above results in the document being admitted into evidence as a business record. Once it has been admitted, unless the information contained in the document is rebutted by other evidence, the document is considered sufficient proof of the information it contains.
There may be other documents to be be introduced which are not, strictly speaking, business records, and you and your attorney will need to decide how to authenticate those documents and whether there is an applicable exception to the hearsay rule. Sometimes a witness other than a person affiliated with your rental business may be a necessary witness to authenticate a particular document.
How about those photographs you or your employee took? They are easily admissible, too, with the following questions by your attorney and answers by the person who took the photos:
Q: Did you take these photographs?
Q: When did you take them?
A: On [date], the day after the tenants moved out.
Q: Were any changes made to the unit, such as moving anything or cleaning up anything, before these photographs were taken?
Q: Have these photographs been modified or edited in any way?
Q: Is each of these photographs a fair and accurate depiction of the scene shown as of the time you took them?
Besides documents and photographs, you will need at least one witness with personal knowledge of the relevant facts to testify. In many cases, only one landlord witness is needed – that can be you, or perhaps your office manager – who also authenticates documents (and possibly photographs, if needed).
However, sometimes additional witnesses may be needed to establish particular facts crucial to your case. Suppose, for example, that you served a lease termination notice on your tenants because neighbors complained about constant excessive noise, the tenants did not move out in response to the notice, and you sued for unlawful detainer. You cannot testify as to what the neighbors said about the noise – that would be hearsay. Instead, at least one of those neighbors is going to need to testify. You and your attorney will need to decide before trial what witnesses are needed. And, if you are not absolutely certain that a particular witness will appear voluntarily, a subpoena should be issued to that witness.
In the final analysis, you will find that if you have kept good records as recommended above, it will be easy to prove your case, and you will receive a judgment against the tenants.
Enforcing Your Judgment
If you have a judgment for eviction, it is relatively easily enforced by submitting a request to the Circuit Clerk to issue an “execution for possession” order to the sheriff. If the judgment was entered by consent of the tenants, this request can be submitted immediately after judgment. However, if the judgment was entered by default or after a trial, then you have to wait 10 business days after judgment before the clerk will issue the execution order (this is because in default and trial cases, the tenants have 10 days to appeal). Most of the time, however, tenants see the handwriting on the wall and move voluntarily before the sheriff comes around.
For more information about enforcing a judgment for possession of the premises, see the Enforcement of Judgments page.
If you have a monetary judgment, enforcement will be much easier if you have followed the record-keeping recommendations above. There are four main possibilities for collecting a monetary judgment:
1. Garnishment of wages. This is where your application forms come in handy. Your form does ask for employment information and Social Security Number, doesn’t it? You should also try to keep updated on employment information during the tenancy by whatever means possible. If you intend to renew or extend a tenant’s lease, make filling out a new application, or updating the old one, a condition of signing the extension or renewal. (You can sometimes obtain current employment information from credit reports, but you may have to wait a few months after a change of job for that information to show up on a credit report.)
2. Garnishment of bank accounts. You do ask for banking information on your application forms, don’t you? And you did occasionally put copies of the tenant’s checks in your tenant file, didn’t you? If so, you are in a good position to garnish a bank account.
3. Seizure and sale of personal property. If the tenant has personal property of some value, such as a car or expensive furniture or appliances, you can have an order issued to the sheriff to seize the property and sell it. The net proceeds of the sale after payment of sale expenses is then applied to your judgment.
4. Sale of real property. This may be the least likely method of being able to collect a monetary judgment from a tenant. After all, why are they renting from you if they own real estate? However, the possibility should be kept in mind. If it turns out that the tenant does own real estate, you can have an order issued to the sheriff to sell the property and apply the net sale proceeds to your judgment. It is easy to check public records to determine if a person owns real estate, but this has to be done on a county-by-county basis.
If you can’t collect your monetary judgment right away (and, in fact, many judgments obtained by landlords against tenants prove to be uncollectible), keep in mind that you have up to 10 years from the date the judgment was entered to enforce it (and that can be extended for additional 10 year periods if the proper procedures are followed). This suggests another desirable form of record-keeping: You should set up a system to periodically review judgments you have received in the past to determine if there is any way to collect them within 10 years and, if not, whether you need to ask the court to extend the judgment for another 10 years.
Mentioned near the beginning were the issues of “joint and several liability” and married couples. If you have a judgment against more than one tenant, as a general rule you can enforce the entire judgment against any one or all of them so long as your lease contains appropriate language and does not exclude joint and several liability. This means, in effect, that you could collect the entire judgment from just one of several defendants (it would then be up to the defendant who had to pay more than his fair share to seek contribution from the other defendants). This is highly advantageous in collecting judgments. The wrinkle with married couples is that if you obtain a judgment against only one spouse, you cannot collect your judgment out of assets the spouses own jointly. That is why it is very important to ensure that both spouses sign your lease so you can get a judgment against both.
Be a Boy Scout – Be Prepared! Make the tips mentioned above a part of your regular routine, and you will be prepared to succeed in a lawsuit against your tenants if the landlord-tenant relationship fails.
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