Tenant security deposits and unpaid utilities

15 Replies

Greetings;

Apparently, my current and previous tenants have failed to pay their water bills, per the rental agreement.  My PM knew nothing of this until  .  . . well . . I'm not sure how they found out . . Anyway - when a tenant moves out, can a PM check that all utilities have been paid and retain from the tenant deposit any unpaid utilities?  Would the PM be 'negligent' for not having verified this at move out? 

thanks

Kelly

This is going to sound silly, but bear with me.

1) does it say in writing in your lease that the tenant is responsible for the water bill?

2) Does you lease lay out the different, explicit reasons why you may withhold their deposit?

3) does your PM contract explicitly state that they are authorized and expected to monitor utility usage and payment by the tenant?

Water is lien-able almost everywhere, so you need to pay close attention.  

And I don't know how they do it in Cali, but here in PA, they generally won't shut off 'essential utilities' in the winter, which means come spring, the tenant can be WAY behind.  I had a tenant that was six months delinquent gas & electric when the spring thaw finally came, off went all the things that glow and burn.

Originally posted by @Jeremy Pace :

This is going to sound silly, but bear with me. . .    

No, actually - that doesn't sound "silly' at all! , . .

1) does it say in writing in your lease that the tenant is responsible for the water bill?

Yes

2) Does you lease lay out the different, explicit reasons why you may withhold their deposit?  

hmmm, haven't read in a while - will have to check - one of the dangers of having a PM

3) does your PM contract explicitly state that they are authorized and expected to monitor utility usage and payment by the tenant?

I don't think so . .   I'm actually just reviewing a new contract having fired the old PM.  I would expect that they are responsible for ensuring compliance with the lease/rental agreement - which does say the tenants are responsible for the utilities . .      

So . . .   by the reasoning in point #3 - a property mngt agreement would be tens of pages long to specify every little detail that the PM is responsible for . .  at what point does it become part of "management"?  

Your points are well taken though . .  thanks

Kelly

@Kelly G if you are in-between property managers and in charge of the security deposit yourself right now, if I was you, I'd go ahead and deduct what they owe for utilities out of the security deposit and see if they sue you over it.  Odds are good they won't.

And if they do, then you counter-sue them for what they owe you for the utility bills.  Honestly, this is what I would do.

But, legally, if your property is in CA, then you can't deduct utility bills from their security deposit.  In CA you can only deduct for rent, damage, cleaning or personal property (like keys or furniture):

http://www.dca.ca.gov/publications/landlordbook/se...

You also can't have a separate deposit for utilities.  Any deposit money or fees paid, are all to be considered part of the security deposit:

http://www.dca.ca.gov/publications/landlordbook/wh...

I believe you can set something up with the utilities, though, where you get notified if a tenant falls behind.  Check into that.

I'm trying to figure out how a manager could monitor utility payments, realistically, if you didn't have the notifications set up with the utility company.  Require the tenants to send you a copy of their bills, so you can see if there is a past due balance?  You can't force them to pay the bills off before they can move out, or take it out of their deposit.  This just leaves you with suing them if they leave you with the bill.  Assuming the PM isn't going to bend the rules.

I'd set up to get copies of the bills, or notifications if they get past due, if possible, and put a clause in the lease that says it's mandatory the utility bills are paid on time, and if they are not, it would be a breach of the contract and they could be evicted.

You could have the utility company notify your manager, I suppose, of overdue bills, and put in the manager's contract that they are to give a 3 day notice to pay the utility bill or quit as soon as they're notified the tenant is behind.  And if they fail to do this, and it results in unpaid utility bills that become yours, that the manager must pay them.

By the way, I believe you can just use a collection agency for the utility bills you got stuck with (if you don't just deduct them from the deposit), and they will report to all three bureaus.  I found one online recently for someone else, where for only around $17, they will send one collection letter and then report the debt to all three bureaus.  Then, if you want to after that, you can pay more for different services.  It would be cheaper than taking them to court, perhaps.  Just google "landlord collection agency" and a few pop up.  You'll see the one I'm talking about.  Not sure if I should link to it.  

@Sue K.

California Civil Code 1950.5.4

http://housing.ucsc.edu/cro/pdf/CCC_security-depos...

states that you may withhold security deposits for the purpose of restoring appurtenances (unpaid utilities!!), if and only if it is authorized by the rental agreement.  

If it does not say in your rental agreement that you will use those funds to do this, you should add it all future tenants.  You should NOT just keep security deposit money and hope they don't notice.  That's not just bad practice, but if they DO sue you, you'll be on the record as a shady shadester.

My lease agreement contains this clause for this exact purpose:

Within 30 days of Tenant moving, Landlord forwards the balance of the security deposit, plus any interest due. Landlord gives Tenant a list detailing the costs of all damages subtracted from the security deposit.

Landlord will use security deposit money in the following order:

1. Additional Rent Charges 

2. Tenant-owed Utility Bills 

3. Legal and Court Costs 

4. Other Fees Not Paid 

5. Past Due Rent

6. Current Rent

7. Damages to Rental Property specified in this agreement

Thank you @Sue K.

Wow, this is very good information, does anyone know how the laws place in Texas for the unpaid utility bill?

The problem I face was the Utilities Company, especially water does not have any system to notify the landlord, PM in case the tenant has past due. Especially in the Houston area which we have so many MUD's.

Thank you in advance

Originally posted by @Jeremy Pace :

@Sue Kelly

 @Kelly G.

California Civil Code 1950.5.4

http://housing.ucsc.edu/cro/pdf/CCC_security-depos...

states that you may withhold security deposits for the purpose of restoring appurtenances (unpaid utilities!!), if and only if it is authorized by the rental agreement.  

If it does not say in your rental agreement that you will use those funds to do this, you should add it all future tenants.  You should NOT just keep security deposit money and hope they don't notice.  That's not just bad practice, but if they DO sue you, you'll be on the record as a shady shadester.

My lease agreement contains this clause for this exact purpose:

Within 30 days of Tenant moving, Landlord forwards the balance of the security deposit, plus any interest due. Landlord gives Tenant a list detailing the costs of all damages subtracted from the security deposit.

Landlord will use security deposit money in the following order:

1. Additional Rent Charges 

2. Tenant-owed Utility Bills 

3. Legal and Court Costs 

4. Other Fees Not Paid 

5. Past Due Rent

6. Current Rent

7. Damages to Rental Property specified in this agreement

 Hi Jeremy,

An appurtenance is something attached to the property - not utilities.  It's for personal property or furniture, etc. - a tangible "thing" you can touch.

I know the OP "shouldn't" include the utilities, but it would be easy to say you believed the utilities were "appurtenances," now wouldn't it :-)  And this way, the tenant pays the court fee, and you just counter-sue to be able to keep the money you already have - as opposed to having to collect it.  I'd do it, anyway.  I doubt a judge would think of this as "bad faith" dealings.  It's not like you're trying to rip off the tenant unfairly.

What I'd see happening is the judge saying, "You can't deduct utility bills from the security deposit, so the tenant wins on the first suit.  Now, Mr. Tenant, do you owe the utility bills?  Yes, okay, then the landlord wins her case against you.  And I hereby declare that the money the landlord already collected from you will settle this matter completely.  And no, you don't get punitive damages because this landlord was not trying to rip you off in bad faith.  And nobody gets their court fees paid by the other side.  Case closed."

:-)

But Sue, you forgot about the treble damages for improperly withholding the security deposit!

An appurtenance is something associated with a certain activity or style of living, so you extend that to cover utilities. You can argue that when the tenant was given access to "water" it worked great and now it doesn't and they owe X dollars for that.

And to clarify, what you are doing is writing a poor lease, which leaves you exposed more than it harms the tenant ... and then depending on the unwillingness of your tenant to fight you for what is rightfully theirs, and/or a judge being lazy.  You're not doing anything new or clever, you're just making my life more difficult because when one of my tenants has a landlord before me that deals with them in this manner, it's hard to build a good relationship with them.

To reiterate my previous point, if you lose a hearing where you cannot justify having kept some of the tenant's deposit, there will be some record of that even if they do owe you money for utilities and are subsequently forced to repay you.

Originally posted by @Richard C. :

But Sue, you forgot about the treble damages for improperly withholding the security deposit!

 That's if the judge finds the deposit was withheld in bad faith.  Punitive damages are very rarely awarded.  And the only times I've heard of it happening, is when the landlord blatantly ripped off the tenant. 

For instance, there was a fellow in San Jose (tenant) who asked my advice.  His landlord kept his deposit despite the fact he'd left it in great, clean shape.  When he requested receipts, the landlord faked them and it was obvious they were doctored.  He was awarded $1,000 in punitive damages which wasn't even one month's rent.

Judges are fair, smart people, in my experience.  And really, it's not likely at all that the tenant is going to sue to get a deposit back when they know they owe the utility bills.  And if they did, once they got notice they were being countersued - and then the landlord follows up with a letter telling them "How about we settle this and I just keep the money you know you owe me," it probably wouldn't even get all the way to court.

I'm just saying what I would do.

Originally posted by @Sohrab Khosravi :

Thank you @Sue Kelly

Wow, this is very good information, does anyone know how the laws place in Texas for the unpaid utility bill?

The problem I face was the Utilities Company, especially water does not have any system to notify the landlord, PM in case the tenant has past due. Especially in the Houston area which we have so many MUD's.

Thank you in advance

 Hi Sohrab,

I looked up the TX law on security deposits and how I read it, is that you just need to put in the lease that the tenant must pay the utilities and that if any is owing when they terminate, that the charges will be deducted from the security deposit.  TX law lets you put utility charges in the lease, from what I can see.

http://texaspropertycode.org/chapter-92-texas-prop...

If you click on the "to top" link, you will go back to the index of all of the laws.

Wow!  So glad my question has generated quite a discussion!!  that how we learn . . 

I should have stated that the rental in question is actually in WI - Milwaukee.  Although I am about to have another rental here in CA - so all good information I can use!

Just an aside - here's the funny thing . . .  In WI, I should have filled out an application to authorize billing the tenants for water - seems my 1st PM just got the bills and billed the tenants and I knew nothing about it.  So .  the 2nd PM was hired in Nov 2013 - with tenants in place . .   the water bills stopped being paid in June 2014.  So how did the water bill get paid from Nov 2013 - June 2014, if they weren't going to the tenant and they weren't (??) going to the PM??  It's Good Friday - so I can't do anything till Monday - at least with the water company.  My ex-PM and I are exchanging emails about who was responsible - not productive.  

Thanks so much for everyone's input.  Will keep you posted.  And yes, I now have the application from the City to direct bill tenants for water.  

Enjoy your weekend!

Kelly

The fact that the old tenant didn't pay their water bill shouldn't keep a new tenant from getting service. Maybe it is different there.

Originally posted by @Kelly G. :

Wow!  So glad my question has generated quite a discussion!!  that how we learn . . 

I should have stated that the rental in question is actually in WI - Milwaukee.  Although I am about to have another rental here in CA - so all good information I can use!

Just an aside - here's the funny thing . . .  In WI, I should have filled out an application to authorize billing the tenants for water - seems my 1st PM just got the bills and billed the tenants and I knew nothing about it.  So .  the 2nd PM was hired in Nov 2013 - with tenants in place . .   the water bills stopped being paid in June 2014.  So how did the water bill get paid from Nov 2013 - June 2014, if they weren't going to the tenant and they weren't (??) going to the PM??  It's Good Friday - so I can't do anything till Monday - at least with the water company.  My ex-PM and I are exchanging emails about who was responsible - not productive.  

Thanks so much for everyone's input.  Will keep you posted.  And yes, I now have the application from the City to direct bill tenants for water.  

Enjoy your weekend!

Kelly

 Unpaid utilities CAN be withheld from the tenant's security deposit ... make sure you are using a good lease.  Damages to the unit, neglect and waste, unpaid rent, and unpaid utilities are generally givens.

Water in Milwaukee is billed only quarterly.  We have some tenants that pay a lump sum every quarter, some pay a flat amount every month toward the bill, etc.  But we always make sure WE get the bill and pay it, so there's no late fees, so we send a copy to the tenant and they know we saw it, and we can monitor the usage.

Originally posted by @Kelly G. :

Apparently, my current and previous tenants have failed to pay their water bills, per the rental agreement.  My PM knew nothing of this until  .  . . well . . I'm not sure how they found out . . Anyway - when a tenant moves out, can a PM check that all utilities have been paid and retain from the tenant deposit any unpaid utilities?  Would the PM be 'negligent' for not having verified this at move out?

 As to your question above -- the PM should be staying on top of the water bill every 3 months, not just checking when the tenant moves out.

Originally posted by @Dawn Anastasi :
Originally posted by @Kelly G.:

. . .  

 As to your question above -- the PM should be staying on top of the water bill every 3 months, not just checking when the tenant moves out.

 Hey Dawn - thanks for chiming in . .    yes, the PM Should be staying on top of the water bill.  That's why I can't figure out how the water bill got paid from Nov 2013 through June 2014 and then it was suddenly forgotten - June 2014 to present! Same PM  with a change of tenants in Aug 2014.    I think he (the PM) was negligent . .  I've had other issues with him - which is why he is no longer my PM.  Anyway . . .  Can't get any more info till Monday  . . .  I need to verify/ask the Water Dept who paid the bill before June 2014!?  I suspect it was the PM - but don't want to ask him directly . . yet . .   would clearly demonstrate negligence.  

Hope all is well with you.  

Kelly