Ask SKY: Past Due Balances in Rent Controlled Buildings

Written by Landlord Property Management Magazine on . Posted in Blog

by Kari Negri

I am not an attorney.

Dear SKY, how can I Collect Past Due Balances in Rent Controlled Buildings?

Many tenants in Los Angeles, California enjoy the advantages of rent stabilization and rent control. It keeps the amount of a rent increase ridiculously low while they live in a rental property. 

 In Los Angeles California, rent control laws allow Housing Providers to increase the rent by a maximum of about 3% for several years now.  This year, THE CALCULATED ANNUAL INCREASE PERCENTAGE EFFECTIVE JULY 1, 2019 THROUGH JUNE 30, 2020 IS FOUR PERCENT (4%) while expenses increase by about 7%.

As rent is due on the dates specified in the lease agreement, a tenant is bound to pay the rent on time.  If your tenant doesn’t pay rent on the due date, you can charge a late fee but it is not really enforceable and any late fees that they have paid even willingly should be deducted from any 3 Day Notice to Pay or Quit (per our attorney) that you serve and intend to begin an Unlawful Detainer. Under LA rent control laws, a Housing Provider can charge a 6% late fee, in some areas like Santa Monica and West Hollywood the amount is less – about 1%; but how do you collect it when technically you can’t.

Despite the law, tenants refuse to pay post fees including  late fees, administrative fees or repair reimbursement fees for damages they caused or created. For most of them they think it is unfair and the rent control laws protect the tenant and not the Housing Providers which makes collecting past due balances in rent controlled buildings a daunting task.  Add to that, most judges will always side with the tenant and there are some laws on the books that make them liquidated damages and therefore uncollectable.

This situation doesn’t only disrupt the finances, but also causes inconvenience to the accounting department or a record keeper. Fortunately, you can diminish the issue of late fees collection in rent controlled buildings if you use the following tips.

Don’t Forget to Include Late Fee Policy in the Lease Agreement

If your tenant is in California, make sure you check the state laws and the specific laws in the city your building is located. This will help you determine the percentage of late fee you can charge.  Make sure you have the correct amount in your lease. 

Plus, check to see if there is a waiting period (“grace period”) before sending your tenants a late fee notice. Once you understand the law, include a late fee policy in the lease agreement – it must be reasonable. If you miss this point, you cannot charge or collect due balances.

There are some general guidelines most states follow but in a rent controlled building you need to know what the law is in your city specifically. 

Add Clause “Allocation of Payment” in the Lease Agreement

Having this clause in the rental agreement suggests that any fee you collect for next month’s rent will be counted as unpaid fees of the prior month – this could be helpful in getting them from your tenant but the court will not look at it this way here in Los Angeles. In other words, the clause could make it easier to collect these fees, but to enforce them is another story.  Filing a lawsuit against tenants for his/her unpaid dues even for repair reimbursements or pest control issues is nearly impossible except possibly in small claims court.

Remind Tenants Constantly They Owe

It is clearly one of the simplest ways to collect past due balances from the tenants. Talk to them and/or send them notices each and every month that they have past due balances, whether it is unpaid rent or late fees for repair reimbursements – refer to your lease as well as to the applicable rent control laws in your city.  At least for rent – you can file an Unlawful Detainer or UD or Eviction but never include a late fee your resident has paid when you fill out your notice to evict.

Withholding Security Deposit

Withholding money from the security deposit has become much harder to do where the courts are concerned as well.  We used to be able to recover money out of the security deposit for damages, any cleaning or repairs above normal wear and tear, late fees, pest control issue (caused by tenant), past due rent, etc. when your tenant refused to pay past due balances. However, now SKY has had a judge tell us that only damages, cleaning and rent can be deducted from the security deposit.  It is important that you explain (in writing) the reason of withholding ANY AMOUNT FROM the deposit.  All of this is will not keep us from trying to get the correct amount paid by a tenant but all of these things make it harder every day for a Housing Provider to collect the money due to them and before proceeding you should check with an attorney so you do not waste your time.

Overall, hopefully the above tips are somewhat effective for collecting past due balances and managing your property collections smoothly even if you have problem tenants and the laws in California are getting more and more impossible.

If you have a question, please email me at Kari@SKYprop.LA

Although I am not an attorney, I am a very qualified property management company with 26 years of experience so if you have questions, you can always email me and “ask SKY” at Kari@SKYprop.LA.

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