The Property Management Shop

by Marc Wilson

Q. We purchased a seven-unit apartment building two years ago. One of the existing tenant’s files was very bare: no copies of historical rental increases, no landlord-tenant correspondence, just the original one-page rental agreement. This tenant has been in occupancy for over 10 years. The problem is that this tenant pays a different rent amount almost every month. Sometimes he pays a few cents under; sometimes he pays a few cents over. I am becoming increasingly uncomfortable accepting a different rent amount every month. What should I do?

A. First, you need to establish your tenant’s proper and current rent amount. In the absence of filed copies of all chronological rental increases, you don’t really know your tenants’ proper rent amount. How could you? Only the former owner, God and/or the San Francisco Rent Board really knows, or should know, what rental increases have been served in the past. The good news is that you know his original base rent. You know this because you are in possession of his original rental agreement. And that’s not all that you know. You also know the allowable yearly increases for each year following the inception of the tenancy. Just do the math (compute all allowable increases from the inception of the tenancy) and see what rent you come up with. Hopefully, your calculator will spit out the exact number that you have been using as the current rent.

However, in my experience, the likelihood of this is close to zero. What are the chances that the previous owner–an owner who did not have the basic business acumen to keep copies of historical rental increases–would have done the proper math over more than a 10-year period? If your calculator tells you that the tenant has been paying too much, then follow the rules and give the tenant a reimbursement for his overages for the statutory period–three years, I believe. In your letter with the refund, establish in no uncertain terms his current and proper rent. If he has been paying just under what your calculator tells you, then accept that amount as the current and proper rent. And if your calculator and his current rent payment are not at all similar, then file a petition with the Rent Board to establish his proper rent. The Rent Board is in the business of determining proper rent amounts and will be most happy to accommodate you. You should do this with the help of an attorney. The simple point is that you need to establish the proper rent before you can fix this problem.

Once you know the proper rent, the rest is easy. I, too, have had tenants over the years that were seemingly incapable of paying the exact rent every month. Never accept rent payments that are not exact in their amount. I don’t care if we are talking about two cents or two dollars. I have a special form for this occasion that reads, “Enclosed please find your rent check in the amount of ‘x.’ Your current and proper rent due is ‘y.’ Please immediately make your account current by paying the correct rent amount, which is ‘y.’” As hard as it is to believe, I have gone through this drill with some tenants three or four times in one month. They send the wrong amount; I send it back. They send the wrong amount again; I send it back again. Be sure that you keep copies of the errant checks and the letters admonishing the tenant for improper payments. If you don’t receive the proper rent payment shortly thereafter, serve the tenant with a three-day notice to pay rent or quit and proceed, if necessary, with their eviction.

I know, I know. It seems nonsensical and even draconian to descend into the darkness of eviction proceedings over a couple of pennies. But what choice do you really have? What if you have to evict this tenant for nonpayment of rent sometime in the future? Your tenant could mount a successful defense based on historical overpayments or even a proven uncertainty as to the actual rent. It is important that you afford your tenant ample opportunity to correct his behavior before you proceed with his eviction. I have even gone so far as to ask the tenant to declare if they are disabled or otherwise handicapped relative to tendering the correct rental amount every month. I have asked tenants to declare now if they require special accommodation relative to proper monthly rent payments. I don’t know, maybe they suffer from dyslexia or some other related disorder. Ultimately, it is easy to train your tenants to pay the proper amount if you simply do not accept payments that are not exact. Don’t send refund payments for overpayments and don’t request the balance for underpayments; simply return the rent payment to the tenant. Nothing gets a tenant’s attention faster than a returned rent payment. Nothing quite carries the message like we don’t want your money.

I had an epiphany–what alcoholics call a moment of clarity–at the doctor’s office last week. My doctor was performing a routine physical exam when I noticed my file sitting on the examination table. It was very, very impressive. Professional, organized, complete and concise–the absolute mother of all files. This thing had multiple labeled sections, multiple prong fasteners and preprinted sections on the hard cover for the doctor to log all doctor-patient communications, meetings, etc. If this file had wheels, it would be a champion at NASCAR. Anything and everything that ever transpired between my doctor and me was contained within this file. My doctor would never, ever consider leaving a pertinent document out of this file.

Why do you think my doctors’ files are so perfect? Is it because he is smarter than the average apartment building owner? Is it because he is better educated? Is it because he has a heartfelt concern for the wellbeing of his patient? I don’t think so. His files are perfect because he knows that each and every one of his patients is a potential litigant or plaintiff. For a doctor, it is not a question as to whether he will be sued for malpractice; it is a matter of when. And guess what? It is not a matter of whether you will be sued by a tenant; it is a matter of when. And when you get sued, the only documents that will really matter will be the documents contained within your file. There is no good reason why your files are not as professional and complete as your doctor’s. It takes about as much time to throw a piece of paper in the trash as it does to punch it with holes and put it in the tenant file. If you are too busy or too lazy to keep and file copies of historical rental increases, then you should hire a property management company.

The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of SFAA or SF Apartment Magazine. Marc Wilson has specialized in the brokerage of San Francisco apartment buildings for 20 years. He can be reached at 415-229-1275. Copyright © 2007 by SF Apartment Magazine. All rights reserved.