Does property management com have right to hold last month's rent

16 Replies

We have a duplex rented out as student housing on a yearly lease in Philadelphia. 

Before move in, tenants are required to pay 1st, last months' rent and one month rent as security deposit. Based on contract we have with property management company, they hold the security deposit. It was vague regarding the last month's rent. My position is that the PM company has no right to hold the last month's rent, since it is rent, it belongs to the owner and owner should get paid as it is collected. What do you guys think?

The is my second question. We (the landlord) did a walk through of our property a couple of weeks ago. We notified the PM in advance and before we entered the property, the PM told us that tenants had been notified. But when we went to the first apartment, tenants told us that nobody notified them. We went into the 2nd apartment, there were no tenants there at the time. We found a device for smoking pot. 

Is it illegal to smoke pot in the apartment, is it also a fire hazard? If indeed the PM did not notify the tenants, can we complain about their use of weed? What is the legal and right thing for us to do as the landlord?

Thank you all for your input

Susan

Probably their duty to hold the last months rent as it “has not been earned” at this point.....your duplex could burn down, flood, etc and not be habitable.

Good luck having no tenants, let alone college kids, not smoke pot.

Wayne and Tracy:

Thanks for your input. Good to know. I am still kind of new in the business.

Our PM charged a huge fee ($6100) for turning over a 6 bed room apartment. It seemed really high... They have not provided any detailed reports or receipts of any materials of labor. We have asked for them. But it is already after the fact. They are probably not going to admit over billing and refund us any money.

In the future, how do we make sure their bills are reasonable and honest? I guess we can do a walk through and discuss the price in advance, what are the rules of thumb for figuring out a fair price for repairs, cleaning, maintenance etc. ?  We do not have reliable contractors or handymen that we can rely on. 

Any suggestions are appreciated.

Thanks

Susan

@Susan Shen . Without any reliable Contractors, Handymen, Cleaners or personal experience you are at a disadvantage about the $6100 Turnaround Costs. 

$6100 could be reliable if they had to do significant repairs during the turn. You just don't know until you have copies of the invoices!

First part:  assuming the PM is a licensed re broker, they have absolutely no right to hold last month's rent--rent paid in advance is still rent.  If  the tenant paid the full year in advance, would the PM hold the money and dole it out on a monthly basis to the owner?  I think not.  

The PM may take the % of that month as their 'collected rent' fee as per their contract, but the balance belongs to the owner.  In PA, the broker/PM holds the deposit in escrow at a named financial institution and has under PA L/T laws 30 days after move out/possession to send detailed report of damages and balance of deposit check (or notice of amount due) to the tenant.

Second:  whether or not the PM notified the tenant(s) is open to debate, "he said-she said".  (How many times has that happened to us?!?)  Easy excuse for tenant not allowing you in, but of course possible that PM was lax.

Pot: Does your lease say smoking is permitted in the apartment?  If yes, then of course the tenant can smoke whatever they want!  NOT.  If smoking pot is legal in your state or municipality, of course that changes things.  They aint (yet) in Pennsylvania.

Come on, illegal drugs are, well, illegal.  Doesn't matter if you smoke inside the apartment, outside, or in your car.  We handle this way:  leases have a strict zero tolerance clause for drug and domestic violence issues.  Did you happen to take a photo of the 'smoking device' (bongo?)  Send infraction letter, (and copy of photo) to the tenant, include in it 'immediate cease and desist', and inform them of your obligation to inform the proper authorities.  

Remember, in many municipalities in PA, drug use is a "you knew or should have known" issue.  If you know about it, (or should have known) and don't take action, if/when tenant is busted, you are subject to having the property condemned/closed for a period of time by the city.  See Scranton and Wilkes Barre codes.

Of course I understand about kids/adults smoking weed, but the popo don't have any sense of humor when it comes to this stuff.  Protect yourself and your investment(s) as best you can.

Peace.

Follow up question on the repair costs:  make sure there is a written limit as to how much the PM can spend without contacting owner (ours defaults to $250, or could be more or less, depending on owner's decision).  Anything over that needs written estimate of description of work and estimate of costs, and owner approval BEFORE doing the work.

We have contractors/vendors take digital photos of the work before (sometimes during if they have to open a wall for example) and after.  These are sent to the owner along with the detailed invoice.  Then everyone can see what was done, cost, and can keep records of detailed repairs if they choose.

In case of emergency, for example a blown water heater, until contacting the owner for approval to replace, we will do only enough to stop the emergency, in this case, shutting off the water to the water heater to stop flooding.  When owner responds, we can proceed with repair/replacement.  Obviously replacing a water heater is a costly expense, well over most owner's contract limit. 

Hope this helps you going forward.

I disagree with @Marc Winter . The funds belong to the tenant until they are applied to the charge. If the tenant pays an entire year of rent in advance, an honest property manager will hold those funds in trust and apply it to the charges each month. This is the same principle as the security deposit. Money is "earned" when it is applied to the charges.

I don't know the law in every state but I network with thousands of property managers around the country and this is pretty common practice and backed by the courts.

As for pot, you have every right to ban smoking inside the unit. I would also remind everyone that marijuana possession and consumption is still a federal offense so Landlords are well within their rights to ban it from their property.

@Nathan G. , question:  if rent is due on the first, and a tenant pays on the 25th of previous month, you are saying PM must hold the rent until the first? Rent is due in advance, not in arrears.  An "honest" PM is a Broker and follows the RE guidelines and state laws for the area they are located.  I agree to disagree with you.

@Nathan G. , I too have read several of the PA court's decisions, and understand that they may interpret 'last month's rent' as a form of 'security deposit'.  However, unlike security deposit, which should be held in an escrow/trust account by the broker, I find no ruling regarding giving the last month's rent to the owner.  

@Marc Winter that's not quite right. 

Rent is due on October 1st. Tenant pays September 20th. I don't collect my management fee on September 20th and I don't send money to the owner on September 20th. We hold the funds in our Trust account until the day rent is charged (October 1st). Only then do we apply the payment to the rent charge, then collect our fee and pay the owner. You appear to be a property manager so I'm willing to bet you follow this same process.

You appear to live in Pennsylvania so I will tell you what your state law says:

  • Prepaid Rent: A landlord is only allowed to collect up to 2 month’s rent for escrow purposes, 1 month’s rent during any subsequent years. (68 P.S. §§250.511a.)

A recent ruling in PA makes clear that it doesn't matter if you call it prepaid rent or last month's rent or security deposit. You are limited to holding no more than the equivalent of two month's rent: CLICK HERE

I would also recommend you read a more technical description of how this works, written by an accountant: CLICK HERE

I highly recommend you consult an attorney or your state governing board for clarification.

The court's ruling is that you cannot hold more than two months rent "for escrow purposes" and they were very clear that "last month's rent" is considered "escrowed" funds, just like the security deposit.

@nathan g.  To me it's a good day when I learn something. After review and consultation I realize I was mistaken. Thanks for clarifying. I stand corrected.

Thanks to all who contributed to the discussion.

Here is the situation, the lease does not ban smoking in the apartment, it only states that tenants are responsible for cleaning and repair smoke related damages when moving out, and if other tenants complain, land lord may enforce non smoking policy. This is the PM's lease, we did not demand any changes at the signing.

And the tenants already moved in, it is too late to ban smoking at this point, correct?

I do have a photo of the device. But what if the PM did not notify the tenants, then we were not allowed to enter, let alone take photos, correct? (I can confirm with PM).

As for prepaid rents, my understanding is that by law, owner can only charge/demand the maximum of 2 months rent for escrow purpose with a new lease, but it does not say that the PM has to hold it. The PM is a representative of the owner.

We do have a case that one of the tenants has paid in full the entire year's rent voluntarily, not from the demand of PM or owner. Seems like the article by James L. Goldsmith, Esq. only discusses the legality of landlord requiring/demanding tenants to pay more than two months rent for escrow purposes. It does not address the issue of PM holding last month's rent from owner, nor does it address advance rent payments volunteered by tenants.

If tenants elect to pay in advance in full, the owner should get paid in full minus PM's management fees. How does the  PM have the right to hold all the rent and pay out to owner every month? Which statute can I find to support that? What if I do not have a PM? Then I would collect all the rent when it is paid to me, current or in advance. The contract between PM and me does not stipulate the PM shall hold such money.

What do you guys think?

Susan

Susan, honestly, based on your messages, it sounds like you should be finding another PM or self managing. I am not saying that the property is being poorly managed, but you obviously do not trust the company you are working with. I would imagine that how/when they pass along rents is stipulated clearly in the management agreement you signed with them. Also, PMs deduct repairs from rent before passing it along to the owner. If a tenant prepaid a year in advance and the PM passed along all the rent to you at the beginning, they'd have to bill & collect money from YOU to do necessary repairs to the unit during the year, they are not going to do that.

As for the weed issue, most people I know smoke weed in some capacity these days, and I'd much rather have a weed smoker in my units than a cigarette smoker. Not that we allow smoking of any kind in our units, but tenants break rules, and I've never had a problem with lingering weed smoke, whereas cigarettes can seriously harm a unit to point you need to put thousands of dollars into remediating the smell.

Greg:

Thanks for your input.

Do you have any honest and competent PMs you would recommend since you are from the area?

This is our first PM and  we are trying to work with them and give them the benefit of the doubt, but if they can't resolve the billing issues, we will have to find another PM.

Susan