Concessions and the Property Manager
Reprinted with permission of the Law Offices of Heist, Weisse, Davis & Wolke, P.A. email@example.com (800) 367-9038
by Harry A. Heist, Attorney at Law
A concession is a thing of value, usually in the form of a rent discount, given to a resident as an inducement to rent at the apartment community. Giving a rent concession is a common and effective marketing technique when trying to increase occupancy. The first month may be free, there may be a reduced security deposit, some product or service is given, or most commonly, the rent for the full or partial term may be reduced. A clear understanding of the concession is crucial to avoid problems later in the tenancy when the resident is in default, gets evicted or otherwise breaks the lease prior to the expiration of the term. A concession addendum should always be used rather than simply writing the terms on the special stipulation section of the lease, and this concession addendum must clearly spell out all the terms and condition of the concession. It should never be complicated, convoluted or ambiguous.
The Law and Concessions
Florida law does not address concessions; therefore, concessions are neither required, nor is there a limit to the amount of a concession or type that can be given to the resident. It is completely up to your company to decide how much and what will be given as a concession.
Fair Housing Considerations
Some companies do not have set rental rates and engage in negotiations with the applicant before coming to an agreement on the rental rate or concession. Your company may have a rental range under which the leasing agent attempts to lease at an amount most favorable to the property, but is allowed to work within the range and/or use a concession as a further inducement. It is crucial that at all times, your company keeps records of what concessions are and were being offered to the resident on any given day, and that these records can be accessed at a later time in the event there is an accusation of discrimination by an applicant or resident. Failure to have a set rental rate or a set concession on a particular day could easily open up a company to an assertion that the concession was not offered to an applicant who may be a member of a protected class. Residents will talk amongst themselves, and if it is discovered by a resident who is a member of a protected class that she was not given or offered a concession, the resident may assume that discrimination has occurred. Ask yourself this question: “Can I look up exactly what concession we were giving and the rent amount or range we were offering on a particular date 2 years ago?”
If concessions are being advertised to the public, the terms need to be made clear, and if there is a particular time limit or expiration to the concession offer, this should also be clearly and fully disclosed. Advertising a concession, then not offering one or not allowing one due to an applicant’s poor credit score, could be dangerous. If the concession is limited to applicants with a certain credit score or qualifications, the advertisement of the concession should state that fact. We highly recommend that any advertisement of a concession is reviewed by your legal counsel, as the risk is high that someone who is denied a concession could file a fair housing law complaint or lawsuit against your company, alleging that you have engaged in some fraudulent activity or unfair or deceptive trade practice. We feel that best practice dictates that if you are going to offer a concession, this should be available to any and all applicants who apply and are approved for occupancy.
Types of Concessions
a. Reduced or free rent: The most common concession is reduced or free rent for a set time period. Typically the first few months are at a reduced rate and then go up to the higher rate. Never should the higher rate be called “market rate”. The amount must be clearly stated with no ambiguity whatsoever.
Security Deposit Waiver
With the required security deposit amount sinking each year for most apartment communities, a security deposit waiver is not much of a concession, but is currently one form of concession in use. The downside for the resident with this type of concession is obvious, but an extremely low security deposit also affords no protection either. If the security deposit is to be waived, generally using a chargeback on default provision is not advisable, as you are charging back a sum that technically belongs to the resident before deductions are made. Waiving a security deposit as a concession often means you will receive the least qualified of all applicants.
Products or services
An interesting marketing tool has been developing over the past few years, and this involves providing the resident with amenities, goods or services as an inducement to leasing. The resident may be provided with upgraded appliances, new carpeting, a free garage, free cable for a time period, or even a product, such as a flat screen television, or a membership to the local gym, or a service, such as or valet garbage collection. Whatever the concession may be, it is crucial that your company must be able to provide the concession, and that no deception is involved concerning the value of the concession. For example, if a gym membership is provided, and the gym subsequently goes out of business, your company must be prepared to convert this now unavailable concession to a cash discount to the resident. The value of the concession should be defined in writing at the time the concession is given and made clear, just in case the concession is no longer available. If the resident will be provided with a product, such as the use of a flat screen television, your company must be aware of the risk that the television will disappear upon the resident vacating or skipping, or that the television may malfunction, thus obligating your company to quickly provide a replacement. You will find that best practice does not include allowing the resident to receive an item that could malfunction, get damaged or disappear, such as a flat screen television. One lightning storm later, you may find yourself obligated to replace 20 flat screen televisions. When providing cable, that free cable package may change during the tenancy, resulting in the loss of the resident’s favorite sports channel, the only one the resident watches of course. Unless the terms and conditions are written up properly to deal with all possible events that could relate to the concession, that great idea to attract new residents, or renew existing residents, can becomes a nightmare.
Resident Default and Concession Chargeback
Some concessions are given unconditionally, while others have strings attached. When a rent concession is given, it is generally assumed by the property manager that if the resident breaks the lease, bounces a check or in some cases pays the rent late, the resident is not entitled to a concession for that month, or even that no more concessions will be received, and that in the event of a lease break, the resident will owe back all concession amounts received. Whether or not a concession chargeback can occur depends heavily upon the wording of the concession addendum, and also whether or not the early termination addendum was used in conjunction with the concession addendum.
Chargebacks to Current Residents
If the concession addendum has a clause that states that the rent is reduced for a given month only if paid on time or by a fixed date, or else it reverts to the regular rent amount, the resident can be charged the regular rent amount if the rent is not paid timely. Some concession addendums indicate that the concession will be charged back if the resident fails to fulfill the entire lease term, which does not support taking away the concession in a given month when the rent is late. Moreover, problems will arise when the resident disputes the rent is late. Residents will back date checks, or disputes will arise about when the payment was delivered through the drop slot, or residents will come up with other reasons why they feel that rent was indeed paid on time. Complications occur when giving the Three Day Notice, as the amount on the Three Day Notice will either be the concessed amount or the regular lease amount, depending upon the terms of the concession addendum. Assuming the amount on the Three Day Notice is the full amount without a concession, the property manager will run into situations when the resident will pay the concessed amount and not the full rent amount. If the property manager accepts the lesser amount, a waiver could potentially occur. If you are going to successfully enforce the terms of the concession addendum, the resident's rent should not be accepted unless it is the full amount without a concession. If any lesser amount is tendered by the resident, it should be returned immediately. We recommend you read our article, “Returning rent to the Resident.”
Concession Chargebacks and the Early Termination Addendum
If your company uses an early termination addendum, and the resident has picked Choice #1, which is the liquidated damages amount option, you SHOULD NOT charge back a concession to the resident upon eviction or lease break. While it is hard to comprehend how a resident who receives a massive concession for 3 months could be evicted or skip and not have the concession he received charged back to him, you must examine the legislative history of the early termination addendum to understand. As the proponents of the law that now allows the early termination addendum were trying to get the early termination bill passed into law, they originally had wording in the bill allowing for a chargeback of concessions. Under threat of a veto from then Governor Charlie Crist, the concession chargeback wording had to be removed from the bill, and it was passed into law without the ability to charge a liquidated damage amount AND a concession chargeback. Simply put, if the resident picks Choice #1 on the early termination addendum, no concession chargeback can occur if the resident breaks the lease or is evicted.
If the resident did NOT pick Choice #1 but picked Choice #2, which is rent due plus any rent accruing until the sooner of the unit being re-rented or the lease ending, the resident can be charged back the concession amount according to the terms of the concession addendum.
A Common mistake
A common mistake we see in leases where a concession addendum is attached is the lease having the lesser concession amount listed as the monthly rent on the lease itself, rather than the proper full amount. This mistake is very common and will result in the resident having an unintended concession for the entire lease term. This mistake could result in a significant loss of money, and cannot be overcome by trying to assert that the leasing agent or manager made a mistake, and that all parties knew what the proper amount was, or that the resident was just trying to take advantage of a mistake. Judges routinely will hold that the rent will be what the lease states; any ambiguity is construed in favor of the resident, and the resident gets the full benefit of the mistake.