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PARTIAL PAYMENTS

 

To put it in Shakespeare’s words, to accept partial rent payments or not, that is the question?  This is entirely a business decision; however, it does have legal ramifications.

 

It is entirely up to the landlord and tenant to reach an agreement on partial payments of any money owed, whether it is rent, late fees, security deposits, etc.  It is of the utmost importance to put any partial payment agreement in writing.  As it is with most landlord / tenant disputes, what was once a very casual conversation and agreement regarding partial payments now becomes two entirely different agreements depending on whether you ask the landlord or the tenant.

 

The most common partial payment situation we have seen is partial payments of rent.  This can occur in a variety of ways.  First is the tenant that is unable to make a full rent payment and only pays part of the rent to the landlord with a promise to make the rest of the payment either later in the month or all together with the next month’s rent.  Second is the tenant that consistently makes erratic payments and this is the more problematic of the two.  This typically occurs when a tenant either falls behind on rent or the tenant knows that he will soon be unable to make payments.  The tenant then makes a partial payment one month and an over payment on other months.  Example the tenant is short $100 this month and promises to pay the $100 with next month’s rent.  The following month rather than pay the $100 the tenant was short the tenant pays an additional $300.00 and asks the landlord to credit the additional $200 to the following month.  Now the landlord and tenant must keep a running accounting of the rent that has been paid and to what month it should apply and is typically a recipe for problems.

 

The other common partial payments situation is with deposit money.  This occurs when a landlord in essence agrees to finance a security deposit or advance rent (last month’s rent).  Example landlord has a $1,000.00 a month unit for rent and requires $1,000.00 Security Deposit + $1,000.00 Last Month’s Rent + $1,000.00 first month, so the total to move in is $3,000.00.  Problem is the new tenant only has $1,800.00, so the landlord agrees to accept $1,800.00 and breaks it down as follows:  $1,000.00 for first month’s rent, $800, as partial security deposit.  The landlord and tenant then agree that the remaining $200 to complete the $1,000.00 security deposit and $1,000.00 for the last month’s rent can be paid in installments of $200 per month for 6 months. So for the first 6 months the tenant is to pay $1,200.00 to the landlord $1,000 rent and $200.00 to complete the security deposit and last month’s rent.  Problems will occur if the tenant falls behind on payments or makes partial payments.  The landlord and tenant must then decide how to apply the money the landlord has received, what was rent and what was part of the deposit.

 

Aside from the obvious accounting problems between the landlord and tenant that partial payments have there are also legal ramifications.  If the landlord / tenant dispute ends up in court one must consider that Judges can, and often do, decide cases based on equity or what is the fairest outcome.  So, if a landlord has decided to accept payment plans of rent or other monies there is possibility that a Judge will not insist that the tenant not make partial payments to defend a case.  In some instances the actions of the landlord and tenant can be deemed to modify their agreement.

 

Ultimately, it is a business decision to accept partial payments.  The landlord must decide whether it makes business sense to enter into an agreement for partial payments and asses the risk that the payments will or will not be made. 

 

To protect both the landlord and tenant any agreement regarding partial payments should be put in writing and clearly state a time frame or payment schedule in which all payments should be made and clearly state that it is a temporary modification of the rental agreement.  Below is a sample agreement for a unit that rents for $1000 a month, the tenant owes $400 in back rent and the tenant has agreed to make partial payments for 2 months until they are caught up.  (this scenario assumes the tenant is paid bi-weekly at their job and has agreed to make the rent payments bi-weekly)

  

PARTIAL PAYMENT RENT MODIFICATION AGREEMENT

 

Landlord and tenant agree to modify their current rental agreement as follows:

 

Rental Property Address:                   __________________________

                                                            __________________________

                                                            __________________________

 

Landlord and tenant agree that the monthly rent for the above premises shall continue to be $1,000.00 per month.  Landlord and tenant agree that as of the date of this modification the landlord is owed $400.00 back rent.  Landlord and tenant further agree that this rent modification shall be for the next 2 monthly rental periods and shall include the monthly rent that becomes due during the modification period.  Therefore the total amount covered by this rent modification agreement is $2,400.00 consisting of $400 back rent $1,000 rent for May and $1,000 rent for June.

 

The tenant agrees to make five rental payments of $480.00 every two weeks beginning May 2nd 2011, as follows:

 

First payment due:      May 2nd

Second payment due: May 16th

Third payment due:     May 30th

Fourth payment due:   June 13th

Fifth payment due:     June 27th

 

Total payments: $2,400.00.

 

Tenant acknowledges that tenant’s failure to timely make any of the above rental payments shall give the right to the landlord to issue a 3-day notice demanding payment of the sums due through the date the 3-day notice is issued and to commence eviction proceedings upon the expiration of the 3 days.

 

The tenant shall continue to make the full and regular monthly rental payment of $1,000.00 due on the first of the month beginning July 1, 2011.

 

Aside from the rental payment modification listed above all aspects of the rental agreement between the landlord and tenant shall remain the same.

 

Sign and dated on ________/ ____________/2011

  

________________                            _________________

Landlord                                             Tenant

 

 

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