All landlords, especially corporate landlords, routinely encounter tenants who get behind on rent payments. Having a good policy and approach on how to handle non-payment situations is a must in professional property management.
One approach that property managers commonly use is having the tenant enter a payment plan agreement, and this article addresses what this author believes is a better way of doing it.
The approach outlined in this article is based on F.S. 83.56(5)(a), which states:
“If partial rent is accepted after posting the notice for nonpayment, the landlord must:
1. Provide the tenant with a receipt stating the date and amount received and the agreed upon date and balance of rent due before filing an action for possession;
2. Place the amount of partial rent accepted from the tenant in the registry of the court upon filing the action for possession; or
3. Post a new 3-day notice reflecting the new amount due.”
In short summary, the landlord should first deliver a Notice to Pay, and if the tenant doesn’t pay full back rent during the notice to pay period, the landlord should then consider whether to enter a payment plan agreement or not.
1. Notice to Pay Deadline & Delivery of Notice
First, it is good practice to define and implement a company policy on when to deliver Notice to Pay pursuant to F.S. 83.56(3) for tenants who have not paid rent on the due date. For example, if tenants are required to pay rent on the first day of the month, the company could implement a
policy that all tenants who fail to pay rent by, say, the tenth (10th) will receive a Notice to Pay.
See our article on preparing Notice to Pay. It is important to enforce this policy consistently and across the board to all tenancies. On the chosen notice delivery date, Landlord should deliver a Notice to Pay to all tenants who are late on rent.
2. See Which Tenants Pay or Respond
Once the Notice to Pay is delivered to the late-payment tenants, the landlord should see which tenants pay rent or communicate with the landlord about the Notice to Pay and should evaluate which tenants the landlord would be willing to enter into a payment plan. The evaluation should be based on an objective policy based on relevant tenancy factors.
3. Evaluate the Tenancy
For tenants that have a bad tenancy history, the landlord may want to decide that he does not want to offer that tenant a payment plan but instead enforce the landlord’s rights and remedies to file an eviction if the tenant fails to pay back rent as demanded in the Notice to Pay (and I would add, fails to communicate with the landlord about the situation).
For tenants who have demonstrated a positive tenancy history (rent payment, caring for the property, good communications, complying with tenant obligations, etc.), landlords may consider being willing to enter into a payment plan agreement, because it shows good faith, maintains a good relationship with the tenant, helps to realize additional rental revenue, and may avoid the cost of an eviction.
4. Communicate with the “Good Tenants”:
For the tenants that the landlord may want to enter a payment plan agreement, the landlord may decide to reach out to these tenants instead of waiting on them to contact the landlord, though the tenant’s making contact with the landlord first would help to show the tenant’s willingness to work out the situation and good faith on their end.
Have a conversation with the tenant to understand their financial situation and the reasons for their failing to pay rent on time and during the Notice to Pay period. This will help the landlord assess the tenant’s ability to meet the terms of a payment plan and the particulars of their situation.
5. Review the Lease Agreement:
Check your lease agreement for the provision related to late payments, fees, or payment plans. If fees and penalties are added, be sure they are accurately stated in a payment plan.
6. Assess the Feasibility of a Payment Plan
After the landlord discusses the tenant’s situation, the landlord should determine if he is still willing to enter a payment plan with the tenant. The landlord should be realistic and evaluate the risks to the management company, considering the tenancy history (e.g. payment history, employment status, how much time is left on the lease, and tenant’s reliability and credibility, etc.).
7. Prepare the Payment Plan Terms
Landlords should consider the following elements in a payment plan.
Amount and Duration:
Determine the total amount owed and the timeframe of when the tenant will be required to pay all back rent. The natural expiration of the lease term may have a bearing on determining the timeframe of the payment plan. If the lease term ends soon, the time frame must be shorter, but if it terminates later, the timeframe could spread the arrears over several months in addition to their regular rent. Of course, the landlord has discretion on what timeframe and payment schedule is acceptable, but it is better to be consistent as much as possible.
Installment Schedule:
Define the payment schedule clearly with specific dates and amounts due. Define when and how payments must be made.
Late Fees and Penalties:
Decide whether you will waive or reduce late fees or penalties during the payment plan period, and what fees or penalties will apply if the tenant fails to comply with the payment plan. While landlords hope to get all fees and penalties paid, there is incentive for the landlord to waive some of those if it means keeping a good tenant in the property when the tenant catches up on rent payments, especially in a cold market.
8. Written Agreement
Ensure the payment plan agreement complies with relevant laws and rules. To do this, have your attorney draft the agreement. Include essential terms in the agreement, such as:
- The total amount of arrears.
- Payment schedule with due dates.
- Consequences of non-payment or default.
- A clause stating that the payment plan does not modify the original lease and that failure to comply with the plan could result in eviction proceedings.
- Require the tenant to sign the agreement.
See Sample Payment Plan Agreement at the end of this article.
9. Monitor
Keep track of payments as they are received, ensuring that the tenant adheres to the payment schedule timely. Maintain communication with the tenant throughout the payment plan period and address any issues promptly to avoid misunderstandings.
10. Default
If the tenant defaults on the payment plan, the landlord should proceed with filing the eviction action. Keep in mind, the landlord can still enter into a settlement agreement during the eviction case if the landlord and tenant still want. See our article on Settlement Agreements.
11. Document Everything
Landlords should keep detailed records of all communications, agreements, and payments related to the payment plan. This documentation will be necessary if disputes arise with the tenant or if eviction action is filed.
Conclusion
Entering into a payment plan with a tenant who is behind on rent can be a practical solution for both the landlord and the tenant. By carefully evaluating the situation, drafting a clear and fair agreement, and maintaining open communication, you can create a plan that helps the tenant catch up on payments while protecting the landlord’s interests. Always ensure that the process is in line with Florida law and seek legal advice if necessary.
Sample Payment Plan Agreement:
