A major part of a property manager’s duty is to properly preserve and collect evidence regarding the property’s condition and any damages caused during a tenancy and to make a proper claim on the security deposit for those damages. This practice is vitally important because Florida Statute (FS) 83.49 requires the landlord to make correct claims on the security deposit and the landlord’s attorney may have to file a lawsuit against a tenant for damages that exceed the security deposit, all of which is subject to the rules of law concerning damages.
Whether making a claim on a security deposit or filing a damages suit against the tenant, the landlord must do things correctly on the front end to avoid tenant problems on the back end. Therefore, the landlord needs to have a basic knowledge and working understanding of Florida law on damages.
Rule of Claiming Security Deposit
FS 83.49 prescribes that a landlord may collect a security deposit as “security for performance of the rental agreement.” Through Florida court decisions, it has been well-established that a landlord may make a claim on the security deposit for damages to the property that are beyond normal wear and tear. See Cunningham Drug Stores, Inc. v. Pentland, 243 So. 2d 169 (Fla. 4th DCA 1970).
“Normal wear and tear” is determined on a case-by-case basis, and it is the tenant’s burden of proving that the wear and tear was “normal”. Id. Additionally, one Florida court clarified this term, stating that allowing for “normal wear and tear” simply absolves the tenant of keeping the property in “like new” condition, but does not put all repair and replacement burdens on the landlord. It said in Rizzo v. Naranja Lakes Condominium Assoc. Numbers One, Two, Three, Four and Five, 498 So.2d 451, 452-453 (Fla. App. 3 Dist., 1986),
The exception of “ordinary wear and tear” merely relieves the lessee of any duty to the landlord to maintain the leasehold in a “like-new” condition. It does not affect the general obligations owed by the tenant under [the lease], much less result in any affirmative obligation being imposed upon the lessor.
Another “damage” that the landlord may claim on the security deposit is unpaid monies owed under the lease, such as rent and other fees the parties agreed to in the lease. See e.g. Durante v. Gadino, 157 N.J. Super. 132 (1978). These are monetary damages.
Rule of Recovery for Monetary Damage
The lease agreement must prescribe (1) the amount of rent and fees owed by the tenant, (2) when the monies are to be paid and (3) under what conditions the monies are to be paid. Meeting these elements in the lease will enable the landlord to prove the tenant’s obligation to pay rent and fees, and thus, the tenant’s failing to pay these monies would constitute monetary damages subject to claims on the security deposit.
Rule of Recovery for Property Damage
The general methods of recovering damages are (1) cost of replacement, (2) repair, or (3) restoration of property. The exception to these methods is where the damage is permanent and the restoration cost exceeds the diminution of the property’s fair market value (FMV), in which case, the damages are limited to the diminution of FMV. Basically, damages are limited to the restoration cost or the diminution in FMV, whichever is less. See U.S. Steel Corp. v. Benefield, 352 So. 2d 892, 894–95 (Fla. 2d DCA 1977) (holding property owner could not recover full cost of restoring 26 damaged acres of land but was limited to the diminution of value where restoration cost was $13,084 but the property’s entire value was only $12,116).
“Fair Market Value”
When a landlord makes a claim for damages to property, he must consider the FMV of the property damaged; that is, the amount of money which a purchaser willing but not obliged to buy the property would pay to an owner willing but not obliged to sell it, taking into consideration all uses to which the property is adapted and might in reason be applied.
In general, a tenant is liable to pay the FMV value, or depreciated value, of the damaged property, not the value when the property was new. An example of this may be where a tenant damages 5 year-old carpet in one room. Here, the landlord would not be allowed to charge the tenant the price of new carpet, but only the FMV of the carpet given its pre-damaged condition. However, the landlord would be permitted to charge the tenant for the reasonable cost of labor to repair the damaged carpet.
Damaged property can carry a “stigma” connected with the event causing damage even after repairs are made. This stigma can especially involve construction defects, mold damage, or termite infestation. If a tenant causes such damage, the landlord may want to pursue repair costs and diminution in value.
One notable Florida case on this issue is Orkin Exterminating Company, Inc. v. DelGuidice, 790 So. 2d 1058 (Fla. 5th DCA 2001). In DelGuidice, the Fifth District reversed a jury’s awarding the home owner $300,000 in diminution value (due to Orkin’s failure to prevent terminate infestation), pointing to a contractual provision that limited the homeowners’ remedy to retreatment and repair of the damage caused by termites. The Court actually treated that remedy provision as a “liquidated damages” provision, which fixed the parties’ remedies for Orkin’s breach.
However, the court noted that stigma damages may have been recoverable, stating,
if competent substantial evidence had been presented that the cost to repair existing termite damage and the cost of providing effective termite eradication procedures would have constituted economic waste. In other words, had evidence been presented that the cost of repair was substantially greater than the diminution in value, diminution in value would have been the proper standard to apply.
The general rule here is, if the plaintiff wants to seek diminution of value damages, he must prove that the cost of repairs constitutes economic waste (and therefore, did not attempt or abandoned repairs). In contrast, however, if the plaintiff performs repairs and seeks the cost of those repairs, the court will not require him to prove that the diminution value is greater. See American Equity Insurance Co. v. Van Ginhoven, 788 So. 2d 388 (Fla. 5th DCA 2001). It would be the tenant’s burden to show that the alternative remedy is practicable and lower.
Liquidated Damages Remedy Option?
A notable part of the DelGuidice ruling is the implication that the parties may fix remedies (except where that remedy would constitute economic waste, in which case, the plaintiff could seek actual damages, including diminution of value), even when those remedies are non-monetary.
As a practical matter for landlords, this case may suggest that a landlord can prescribe specific liquidated remedies in the event a tenant causes damages to property, as long as the liquidated damages provision and remedy comport with the law on liquidated damages. See Hot Developers, Inc. v. Willow Lake Estates, Inc., 950 So.2d 537 (4th DCA 2007) (damages are not readily ascertainable at the time the contract is drawn, and the amount is not grossly disproportionate to what might be expected to result from the [party’s] breach). However, the landlord must be well aware that if a liquidated damages provision is executed, he is limited to those damages only and may not seek any damages beyond that.
One important limitation to damages is the rule of mitigation. The rule of mitigation requires the parties to mitigate (i.e. reduce or prevent) losses when it is foreseeable and within his capability to mitigate. In other words, the “duty to mitigate damages prevents a party from recovering those damages inflicted by a wrongdoer which the injured party ‘could have avoided without undue risk, burden, or humiliation.’ Graphic Associates, Inc. v. Riviana Restaurant Corp., 461 So.2d 1011, 1014, quoting Restatement (Second) of Contracts § 305(1) (1979).
This duty to mitigate is subject to exceptions. In context of landlord-tenant cases, the most notable exception is a statutory exception. To illustrate, a landlord has a duty to mitigate damages when a tenant vacates the property early and stops paying rent by attempting to re-rent the unit using due diligence to another tenant. However, FS 83.595(3) altered the landlord’s duty, providing that if a tenant abandons or surrenders the tenancy or is evicted, the landlord may “stand by and do nothing, holding the lessee liable for the rent as it comes due.”
Even with this exception, however, landlords are advised to notify tenants who terminate their lease early of their intent of which remedy they will choose under FS 83.595. See Harbor House Partners, LTD v. Mitchell, 512 So.2d 242 (3rd DCA 1987) (holding that since landlord did not respond to tenant’s letter cancelling the lease early due to hardship, tenant rightly assumed landlord accepted his termination and would attempt to re-rent the property on tenant’s account and thus landlord could not seek certain damages for rent); see also Atlantis Estate Acquisitions, Inc. v. DePierro, 125 So.3d 889 (Fla. App., 2013) (holding that tenant was not liable for utilities that accrued after landlord terminated lease because landlord did not notify tenant that he was choosing option (2) under FS 83.595 and did not make tenant aware that he was holding tenant liable for continuing obligations under the lease).