To put it in Shakespeare’s words, to accept partial rent payments or not, that is the question?
This is entirely a business decision; however, it does have legal ramifications.
It is entirely up to the landlord and tenant to reach an agreement on partial payments of any money owed, whether
it is rent, late fees, security deposits, etc. It is of the utmost importance to put any partial payment
agreement in writing. As it is with most landlord / tenant disputes, what was once a very casual conversation
and agreement regarding partial payments now becomes two entirely different agreements depending on whether you ask the landlord
or the tenant.
The most common partial payment situation we have
seen is partial payments of rent. This can occur in a variety of ways. First is the
tenant that is unable to make a full rent payment and only pays part of the rent to the landlord with a promise to make the
rest of the payment either later in the month or all together with the next month’s rent. Second
is the tenant that consistently makes erratic payments and this is the more problematic of the two. This
typically occurs when a tenant either falls behind on rent or the tenant knows that he will soon be unable to make payments.
The tenant then makes a partial payment one month and an over payment on other months. Example the
tenant is short $100 this month and promises to pay the $100 with next month’s rent. The following
month rather than pay the $100 the tenant was short the tenant pays an additional $300.00 and asks the landlord to credit
the additional $200 to the following month. Now the landlord and tenant must keep a running accounting
of the rent that has been paid and to what month it should apply and is typically a recipe for problems.
The other common partial payments situation is with deposit money. This occurs
when a landlord in essence agrees to finance a security deposit or advance rent (last month’s rent). Example
landlord has a $1,000.00 a month unit for rent and requires $1,000.00 Security Deposit + $1,000.00 Last Month’s Rent
+ $1,000.00 first month, so the total to move in is $3,000.00. Problem is the new tenant only has $1,800.00,
so the landlord agrees to accept $1,800.00 and breaks it down as follows: $1,000.00 for first month’s
rent, $800, as partial security deposit. The landlord and tenant then agree that the remaining $200 to
complete the $1,000.00 security deposit and $1,000.00 for the last month’s rent can be paid in installments of $200
per month for 6 months. So for the first 6 months the tenant is to pay $1,200.00 to the landlord $1,000 rent and $200.00 to
complete the security deposit and last month’s rent. Problems will occur if the tenant falls behind
on payments or makes partial payments. The landlord and tenant must then decide how to apply the money
the landlord has received, what was rent and what was part of the deposit.
Aside from the obvious accounting problems between the landlord and tenant that partial payments have there are also
legal ramifications. If the landlord / tenant dispute ends up in court one must consider that Judges can,
and often do, decide cases based on equity or what is the fairest outcome. So, if a landlord has decided
to accept payment plans of rent or other monies there is possibility that a Judge will not insist that the tenant not make
partial payments to defend a case. In some instances the actions of the landlord and tenant can be deemed
to modify their agreement.
Ultimately, it is a business decision
to accept partial payments. The landlord must decide whether it makes business sense to enter into an agreement
for partial payments and asses the risk that the payments will or will not be made.
To protect both the landlord and tenant any agreement regarding partial payments should be put
in writing and clearly state a time frame or payment schedule in which all payments should be made and clearly state that
it is a temporary modification of the rental agreement. Below is a sample agreement for a unit that rents
for $1000 a month, the tenant owes $400 in back rent and the tenant has agreed to make partial payments for 2 months until
they are caught up. (this scenario assumes the tenant is paid bi-weekly at their job and has agreed to
make the rent payments bi-weekly)
PAYMENT RENT MODIFICATION AGREEMENT
Landlord and tenant agree to
modify their current rental agreement as follows:
Landlord and tenant agree that
the monthly rent for the above premises shall continue to be $1,000.00 per month. Landlord and tenant agree
that as of the date of this modification the landlord is owed $400.00 back rent. Landlord and tenant further
agree that this rent modification shall be for the next 2 monthly rental periods and shall include the monthly rent that becomes
due during the modification period. Therefore the total amount covered by this rent modification agreement
is $2,400.00 consisting of $400 back rent $1,000 rent for May and $1,000 rent for June.
The tenant agrees to make five rental payments of $480.00 every two weeks beginning May 2nd 2011,
First payment due:
Second payment due: May 16th
Third payment due: May 30th
Fourth payment due: June 13th
Fifth payment due: June 27th
Total payments: $2,400.00.
that tenant’s failure to timely make any of the above rental payments shall give the right to the landlord to issue
a 3-day notice demanding payment of the sums due through the date the 3-day notice is issued and to commence eviction proceedings
upon the expiration of the 3 days.
The tenant shall continue to
make the full and regular monthly rental payment of $1,000.00 due on the first of the month beginning July 1, 2011.
Aside from the rental payment modification listed above all aspects of the
rental agreement between the landlord and tenant shall remain the same.
Sign and dated on ________/ ____________/20__