Sunday, July 21, 2013

Landlord's Rental Property Conditions Inventory - long form

Kentucky landlords who operate in local jurisdictions that have adopted the Uniform Residential Landlord and Tenant Act, as enacted in Kentucky, must provide a tenant with an itemized list of preexisting damages to the premises before accepting the tenant's security deposit. This form is one possible, however excessive, possibility for that purpose.

Anticipating the Strange Things Tenants Might Do

We once had a tenant who borrowed my stepladder two months into a twelve month apartment rental. After a month I went to get it back, but it was gone. "Where's my ladder?" I ask.

"I dunno."

We once had an apartment tenant who moved out and left the place spotlessly clean, but took every working light bulb from every ceiling fixture in every room. Of course, I did not discover this until I went to show the apartment after dark one winter evening.

Would a tenant ever steal your refrigerator? Maybe. If you inadvertently rent to a junkie, it's possible. That's why it's smart to make a list of appliances with year, make, model and serial number. If you ever need to file a police report for a missing kitchen appliance, they'll ask.

Friday, July 19, 2013

Before and After. Residential Tenant Security Deposits

What system does Kentucky's enactment of the Uniform Residential Landlord and Tenant Act (URLTA) provide for documenting tenant-caused damages to the premises, and why do I always refer to "Kentucky's enactment" of the URLTA, and not just the URLTA?

The second question is first, and my answer is another question. What are the odds that Kentucky enacted the URLTA exactly as the Uniform Law Commission presented it, with zero tweaks, and it is just the same in Kentucky as it is in any other state that has adopted it? The answer is, I don't know and I don't like to gamble.

The easy way to answer the first question is to quote K.R.S. §383.560(2) - (3)
(2) Prior to tendering any consideration deemed to be a security deposit, the prospective tenant shall be presented with a comprehensive listing of any then-existing damage to the unit which would be the basis for a charge against the security deposit and the estimated dollar cost of repairing such damage. The tenant shall have the right to inspect the premises to ascertain the accuracy of such listing prior to taking occupancy. The landlord and the tenant shall sign the listing, which signatures shall be conclusive evidence of the accuracy of such listing, but shall not be construed to be conclusive to latent defects. If the tenant shall refuse to sign such listing, he shall state specifically in writing the items on the list to which he dissents, and shall sign such statement of dissent. 
(3) At the termination of occupancy, the landlord shall inspect the premises and compile a comprehensive listing of any damage to the unit which is the basis for any charge against the security deposit and the estimated dollar cost of repairing such damage. The tenant shall then have the right to inspect the premises to ascertain the accuracy of such listing. The landlord and the tenant shall sign the listing, which signatures shall be conclusive evidence of the accuracy of such listing. If the tenant shall refuse to sign such listing, he shall state specifically in writing the items on the list to which he dissents, and shall sign such statement of dissent.
Answering the first question begets the next question: What the hell does this mean?

Clearly, the intention is to document the condition of the premises at the beginning of the tenant's occupancy and then again at the end of occupancy; and to give the tenant the opportunity to either agree or disagree with the landlord's assessment of each, and to make a record of any disagreement .

The procedure in the statute strikes me as antiquated and excessively clunky, but I will not go into the details as to why I think this. Here in the 21st Century when digital photography is cheap, easy and ubiquitous, simply photographing any preexisting damage and having both parties to sign off on the collection of photos would be sufficient to substantially satisfy the spirit and intention of the URLTA, while ignoring the literal requirements of the section. This is my opinion only.

There is not an abundance of Kentucky caselaw on the subject.

Never mind, I take it back. It's not a good idea to blatantly ignore the clear language of a duly enacted law in the Commonwealth of Kentucky. It's not a good habit to get into. But the statutory language, "estimated dollar cost of repairing such damage," is difficult to implement in practice.

Obviously, if the estimated repair cost of damage existing at the beginning of a tenancy is the same as the estimated cost of repair at the end of a tenancy, then the tenant did nothing to elevate the repair cost during the tenancy. But the reverse is not necessarily true.

Estimating repair costs is difficult and inexact. It is difficult and inexact for a landlord, and it is even more difficult for a tenant. The fact of the matter is that the landlord opted not to have the existing damage repaired and the tenant chose to enter a rental agreement and occupancy with knowledge of the existing damage.  It is very likely that two different people at two different times would come up with two different estimates for the cost to repair the exact same damage.

There are two separate related questions. Did the tenant damage the premises during the course of the tenancy and how much should the landlord be compensated for this damage.

Before and after photographs of the premises would be very useful to avoid or resolve landlord tenant disputes about damages. This would be in addition to the clunky mechanism provided by statute.

The Kentucky Legislature Rubs My Rhubarb

The Kentucky Legislature, or whoever is in charge of its online version of the Kentucky Revised Statutes, has changed the system recently.

This means is that every hot link I have ever used to connect directly to a particular statute or Code Title is now obsolete. R.I.P.

This has happened to me so many times, I don't get angry about it anymore.

Wednesday, July 17, 2013

Notice of Residential Security Trust Deposit: Form

Kentucky Revised Statute. §383.580(1), in effect for Jefferson County, Kentucky, requires residential landlords to:

  1. Deposit all tenants’ security deposits in an account used only for that purpose, and 
  2. To inform the tenant of the location of that separate account and the account number.

This is the form I use to document the deposit:

Thursday, July 11, 2013

Conundrums, Foreclosure and Tenant Security Deposits Under URLTA and PTFA

I have to say that foreclosure law is not my thing, but with that disclaimer in mind, I have to write about it anyway.

In Jefferson County, Kentucky, the standard notice of Commissioner's auctions for foreclosed upon properties (sometimes called a Handbill) contains the following language:
"The subject real estate shall be sold free and clear of all liens, encumbrances and interest of the parties hereto, except sold subject to:  
A) Easements, restrictions and stipulations of record;  
B) Any matters which would be disclosed by an accurate survey or inspection of the property;  
C) Any current assessments for public improvements levied against the property."
However, the 2009 Federal law, Protecting Tenants at Foreclosure Act (PTFA), as amended, (see: PTFA does NOT expire December 31, 2012), remains in effect until December 31, 2014. PTFA provides, in part:
" . . . . any immediate successor in interest in such property pursuant to the foreclosure shall assume such interest subject to . . . any bona fide lease entered into before the notice of foreclosure to occupy the premises until the end of the remaining term of the lease . . . . " 
12 USC § 5220 note (Really. It's in the notes to that section)
First. the notice of the Commissioner's auction is not accurate. By reason of PTFA the buyer at Commissioner's auction takes a rental property subject to any bona fide lease entered into before the sale (I have omitted a few PTFA details here).

Second. By reason of Kentucky's Uniform Residential Landlord and Tenant Act (URLTA) (see:Notes on Kentucky's URLTA - Security Deposits) a buyer of rental property at a Commissioner's auction might be obligated to refund a tenant's security deposit, when the time comes, without ever having collected it.

This potential undisclosed liability is the conundrum. In a negotiated sale of rental property, tenant security deposits are undoubtedly disclosed and resolved by negotiation. But in a forced sale after foreclosure? How are tenant security deposits accounted for?



Wednesday, July 10, 2013

Drafting the Residential Lease - Security Deposits

K.R.S. §383.545 (13) defines the meaning of the term "Security Deposit" as it is used in Kentucky's enactment of the Uniform Residential Landlord and Tenant Act.
"Security deposit" means an escrow payment made to the landlord under the rental agreement for the purpose of securing the landlord against financial loss due to damage to the premises occasioned by the tenant's occupancy other than ordinary wear and tear.
But, there are many other uses for deposits commonly required by landlords. A key deposit, for example, does not involve "damage to the premises occasioned by the occupancy." It just involves the tenant returning the keys to the locks on the doors at the end of the tenancy. If the tenant returns the keys upon surrendering occupancy, the tenant gets the deposit back. If the keys are not returned to the landlord, the key deposit is forfeited and the landlord has the option of using the money to replace the locks, or at least to replace the keys. Either way, there is no "damage to the premises."

Possible types of deposits:
  • Key deposit;
  • Cleaning deposit;
  • Junk removal deposit;
  • Appliance deposit - some appliances are fixtures and some are not;
  • Furniture deposit - for furnished apartments;
  • No smoking deposit;
  • Yard maintenance deposit, and;
  • Others, depending upon the peculiarities of the rental.
As a landlord, my drafting objectives would be:
  1. To allocate the total deposit among every reasonably imaginable contingency;
  2. To provide for the re-allocation of deposited amounts between categories if events during or at the end of the tenancy prove that to be necessary;
  3. To provide for clear documentation of starting conditions at the beginning of the tenancy and ending conditions at its termination, to which the tenant agrees, dissents or abstains;
  4. To specify objective criteria to clearly establish how much of the deposit can be transferred out of escrow for the landlord's benefit, and when that transfer may be effected;
  5. To specify objective criteria to clearly establish how much of the deposit can be transferred out of escrow and returned to the tenant, when that transfer must be effected and how;
  6. How to allocate the expense of maintaining an escrow bank account and the allocation of any interest earned by the deposit over time, and;
  7. Something I haven't thought of yet.
As a tenant, I'd want to include provisions in the rental agreement that addressed these concerns:
  1. For any tenancy lasting more than a year, that the security deposit in all it's guises be re-visited at least annually to update the documentation on the condition of the leased premises and to settle any landlord claims at the time the lease is renewed, when everyone is still friendly.
  2. To provide for a disposition of the security deposits in the event of the landlords bankruptcy or the sale of the property, forced or otherwise. See: Conundrums, Foreclosure and Tenant Security Deposits Under URLTA and PTFA
  3. Something else I haven't thought of yet.
Yeah, this is a work in progress, and yeah, I didn't get around to the drafting part, and yeah, this will be revised sometime. I'm thinking about it.



Sunday, July 7, 2013

Fantasy Litigation - Forcible Entry and Detainer vs. URLTA

Beware the hypothetical.

In Kentucky the statutory action for Forcible Entry or Detainer, K.R.S. §383.200 - §383.285, is widely understood and acknowledged to be a summary proceeding to determine the right of possession of real property, and nothing else. (citations omitted) It is a statute with statewide application, unlike the Uniform Residential Landlord and Tenant Act (URLTA) which is a local option law. Where it has been adopted by local governments, URLTA and Forcible Entry or Detainer overlap, and the latter is employed to evict tenants from residential leaseholds governed by the former.

Under the Kentucky Rules of Civil Procedure (K.R.C.P.) it would be simplicity itself to combine a claim for Forcible Entry or Detainer and a claim for unpaid rents in a single action arising from a common set of facts. Or, to entertain a counterclaim by the tenant for money damages for the landlord's breach of a lease agreement. This has the virtue of being expressly authorized by URLTA in K.R.S. §383.645(1):
"In an action for possession based upon nonpayment of the rent . . .  the tenant may counterclaim for any amount he may recover under the rental agreement . . . . "
The different parts of the action could be adjudicated sequentially.

The biggest bug in the hypothetical soup is the different service of summons procedures specified for Forcible Entry or Detainer and  for a claim for money damages under the K.R.C.P. Service of summons for a Forcible Entry and Detainer action is controlled by K.R.S. §454.030, Forcible entry or detainer, how notice served:
"If the officer directed to serve notice on the defendant in forcible entry or detainer proceedings cannot find the defendant on the premises mentioned in the writ, he may explain and leave a copy of the notice with any member of the defendant's family thereon over sixteen (16) years of age, and if no such person is found he may serve the notice by posting a copy thereof in a conspicuous place on the premises and by mailing a copy of the notice to the mailing address of the premises mentioned in the writ by regular mail through the United States Postal Service, postage prepaid. The notice shall state the time and place of meeting of the court."
This is different from the rules for service of summons in the K.R.C.P.

I'm not complaining. The prevailing system seems to work just fine, but at the expense of ignoring the seemingly clear language of the URLTA in K.R.S. §383.645(1)

-oOo-

Addendum, December 30, 2013 -

After re-reading the last part of this blog post, it does not make as much sense to me now as what I imagined when I first wrote it. The problem of merging any issue other than the right of possession into the expedited statutory Forcible Detainer action, or "an action for possession based upon nonpayment of the rent" as K.R.S. §383.645(1) words it,  is the risk of destroying the streamlined efficiency of the eviction process. The procedure and timetable specified for Kentucky's statutory Forcible Detainer action is very different from that provided for general damage breach of contract actions proceeding under the Kentucky Rules of Civil Procedure. The statutory scheme for Forcible Detainer has no room for counterclaims or any issue other than the right of possession. Yet the URLTA, K.R.S. §383.645(1), expressly allows for tenant counterclaims in a landlord's action for possession.

I have no idea how the courts will resolve this seeming conflict should it ever arise in actual practice.

Saturday, July 6, 2013

More on Kentucky's residential security deposits

The meaning of 'security deposit' within the framework of Kentucky's Uniform Residential Landlord and Tenant Act (URLTA) is extremely limited. It is confined to, "securing the landlord against financial loss due to damage to the premises occasioned by the tenant's occupancy other than ordinary wear and tear" K.R.S. §383.545 (13). In actual practice, Kentucky landlords think of rental security deposits as covering much more than just physical damage to the leased residential premises.

In property law, for example, surrendering the keys to a residence has great symbolic importance as an indicator of relinquishing possession. In practice, many tenants just move out and don't bother returning the keys. When this happens, simple prudence may require the landlord to incur the expense of changing the locks on the doors for the security of the next tenant, and the idea of a 'key deposit' is born. It also sometimes happens that a tenant will leave the premises in a filthy mess with assorted junk left behind that the landlord must have hauled off and disposed, or the carpets must be professionally steam cleaned. Pet deposits and cleaning deposits are not unheard of concepts, even if the financial damage to the landlord is not strictly physical damage to the premises. In actual practice, the various tenant obligations a landlord believes are secured by a deposit may be ambiguously rolled up into a single 'security deposit' and the technical niceties of the statute are completely overlooked.

The online comments of the Uniform Law Commission show the path forward.
" . . . . the basic approach was to eliminate all elements of outmoded 'common law' from the landlord-tenant relationship and base all phases of the rental agreement on contract law."
The specific provisions of the URLTA are not the beginning and the ending of landlord - tenant relations, they are just the beginning. While preserving the URLTA's treatment of security deposits as escrows, a more comprehensive elaboration of the terms of the security deposit escrow should be subject to the parties' express agreement. If so, it is merely a drafting problem for the rental agreement, to expand upon the statutory provisions without contradicting or offending them.
"A landlord and a tenant may include in a rental agreement terms and conditions not prohibited by KRS 383.505 to 383.715 or other rule of law, including rent, term of the agreement, and other provisions governing the rights and obligations of the parties."
K.R.S. §383.565(1)

Friday, July 5, 2013

Notes on Kentucky's URLTA - Security Deposits

Kentucky has adopted the Uniform Residential Landlord and Tenant Act (URLTA) not as a statewide law, but as a local option. It is found at K.R.S. §§ 383.500 - 383.715.

Section 383.580 deals with tenant security deposits. The first part of that section requires a landlord to deposit and maintain all tenant security deposits in a separate dedicated bank account, in the nature of an escrow.
"Security deposit" means an escrow payment made to the landlord under the rental agreement for the purpose of securing the landlord against financial loss due to damage to the premises occasioned by the tenant's occupancy other than ordinary wear and tear.
Tenants are to be informed of the bank and account number.
"All landlords of residential property requiring security deposits prior to occupancy shall be required to deposit all tenants' security deposits in an account used only for that purpose, in any bank or other lending institution subject to regulation by the Commonwealth of Kentucky or any agency of the United States government. Prospective tenants shall be informed of the location of the separate account and the account number."  
K.R.S. §383.580(1)
Normally, the security deposit is held by the landlord until the end of the tenancy when it is applied to repairs for damage caused by the tenant or retained for unpaid rent, EXCEPT:
"No landlord shall be entitled to retain any portion of a security deposit  if the security deposit was not deposited in a separate account as required by subsection (1) of this section and if the initial and final damage listings required by subsections (2) and (3) of this section are not provided.
K.R.S. §383.580(4)
Although the URLTA was made a local option nearly thirty years ago, and it has been adopted by many municipalities across the Commonwealth since then, the woods are not full of Kentucky case law discussing K.R.S. § 383.580. In fact, so far, I have located exactly nothing. But, the part where it says, ""No landlord shall be entitled to retain any portion of a security deposit  if  . . . . " is not quite the same as saying the landlord is obligated to return it to the tenant. I'm inclined to put the conceptual emphasis on the idea of entitlement, and not so much on retention.
If the conditions of the URLTA are not met, the landlord continues to hold the money in trust with all that entails, whatever that is.

Part (2) of K.R.S. § 383.580 requires the landlord to provide the tenant a "comprehensive listing of any then-existing damage to the unit which would be the basis for a charge against the security deposit and the estimated dollar cost of repairing such damage," at the beginning of the tenancy. The tenant then has the option of agreeing to the landlord's list of preexisting damage and estimated repair costs or dissenting, in writing. This process is repeated at the end of the tenant's occupancy, as provided in part (3) of the section. If the landlord and the tenant agree as to the extent and repair cost of damage caused during the tenancy, then the landlord would clearly be justified under the URLTA in removing  the agreed dollar amount from the escrow account and and retaining that sum free of tenant's claim. "A tenant who disputes the accuracy of the final damage listing given pursuant to subsection (3) of this section may bring an action in District Court.K.R.S. § 383.580(5), except "if the tenant shall fail to sign the listing or specifically dissent in accordance with subsection (3) of this section.[§ 383.580]"

Holding security deposits in escrow under the URLTA is a big responsibility. It's not the landlord's money. The security deposit is being held in trust and any misappropriation of funds by the landlord might amount to theft by embezzlement. The URLTA expressly states the landlord is not "entitled to [summarily] retain any portion of a security deposit" as her own if it is not deposited in a separate dedicated bank account or if the beginning and ending signed written damage inventories are not provided.

Parts (6) and (7) of § 383.580 provide for the landlord applying the excess remaining security deposit to unpaid rent after thirty days, and for retaining the unearned balance of the security deposit if the tenant does not claim it within sixty days after the landlord sends reasonable notification to the tenant.