“Tenants Sue Property Management Company Over Outstanding Fees” – Now that is not a headline you expect to see in the multifamily industry. But that was the case for Dunn Wright Services, who was a defendant in a class action suit by more than 1,400 tenants. The claim? Residents accused the property management company of improper fee charging and the use of eviction threats to recover payment. The improper fee charging claim included charging excessive fees for filing costs and applying tenant payments to fees as opposed to the outstanding rent.

While Dunn Wright denied the allegations set out in the claim, they settled the matter. More than $600,000 was allocated to credit the rent accounts of the tenants, and the company paid an additional $61,500 to cover the plaintiffs’ legal fees. Additionally, Dunn Wright agreed to rewrite its leasing contract and change its practices relating to the collection of rent and fees.

This settlement is considered a big win for tenants. While this case is specific to Maryland, the property management practices that led to it are common in the industry; and other multifamily property managers can learn from it.

You Cannot Evict for Fees
Eviction is often the last resort to recover unpaid amounts under a lease agreement. Those sums often include things beyond just rent like trash pickup, water or gas. However, the definition of “rent” is tricky territory.

Earlier this year, the Maryland Court of Appeals took the legal bull by the horn and defined rent as follows:

“The periodic charge for use or occupancy of the premises, but not the various other payments that the tenant may owe to the landlord from time to time, even if the lease characterizes them as ‘deemed rent’ or ‘additional rent.”

In the recent Lockett v. Blue Ocean case, the court ruled that the landlord was wrong to add unpaid utilities to the total rent outstanding; However, industry onlookers and judges continue to debate the implications of this case. Does this interpretation apply broadly to all late rent cases or only to the specific retaliatory nature of the unique elements of this case? The Dunn Wright case touch on similar issues.

Regardless of how the Maryland courts progress on this topic, it is prudent for property managers to be disciplined and thoughtful with how they track the elements of their overdue balances when it comes to court filings.

Improper Fee Charging
The tenants in the Baltimore class action suit also cited improper fee charging and allocations. In this case, Dunn Wright was applying filing fees that were more than the actual cost charged by the court. For example, tenants were charged $50 in a failure to pay rent action, when the actual cost in the court was $27; $50 costs for filing warrants of restitution was charged as $70 to the tenant’s account.

Additionally, Dunn Wright would apply payments to the excessive fees instead of the outstanding rent; resulting in a revolving cycle of litigation and more costs.

The Solution for Multifamily Properties
According to President of Click Notices, Eric Sigler, “This is another reason why using electronic interfaces for your delinquency management system is critical.” It is important to implement a system that captures the correct charge codes. This type of pre-litigation due diligence produces an accurate account of what is owed by the tenant and reduces any disputes in court.

A fundamental role of any property manager is to ensure prompt and full collection of money owed by delinquent tenants. When balances become delinquent, it is, unfortunately, often necessary to initiate legal action. In order to succeed in court and avoid risks such as those presented in this case there are several important elements:

  • An accurate and methodical system for tracking the types of balances owed to ensure compliance with eviction rules in each jurisdiction (i.e., judges will often disallow or at least want to know the detailed composition of all outstanding balances).
  • Ensuring that any non-rent balances like utilities and fees get posted promptly so that they are more likely to have been extinguished prior to any future late rent or eviction filing.
  • Using two-way electronic interfaces in your delinquency management process addresses both issues. This ensures your court filings are drawing specific balances by charge code and that you promptly post back onto the ledger any legal expenses, thus increasing the likelihood of recovery – ahead of any future rent balances.

    Delinquency rent management is critical to the operation of any multifamily property. To improve the process and increase compliance, consider outsourcing to a company with the tools and expertise to deliver results.