Property managers often face situations where tenants cause significant property damage—beyond ordinary wear and tear—during the lease term. The natural instinct is to pursue recovery of those costs, especially when the damage is obvious and occurred during tenancy. But before you send those charges to collections, be aware: not all claims for damages are “debts” under the law.
The Scenario
A property manager recently dealt with a tenant who caused approximately $15,000 in damage to the exterior of a building. The tenant’s vehicle insurance had lapsed and did not cover the damage. Despite six months of emails and attempted negotiation with the tenant and their attorney, no agreement or payment was made. The lease eventually expired and the tenant moved out.
The property manager, understandably, wanted to send this charge to a collection agency as part of the tenant’s final account. However, the collection agency declined. Their reasoning was legally sound: without a court judgment, they cannot treat this claim as a collectible “debt”.
Why a Judgment Matters
Debt collectors are subject to the Fair Debt Collection Practices Act (FDCPA) and other state and federal consumer protection laws. These laws draw a distinction between:
- Debts arising from contractual obligations (e.g., unpaid rent, utilities, lease-breaking fees, late charges), and
- Claims arising from torts or negligence (e.g., property damage caused by carelessness or intentional acts).
The former is clearly a debt and may be sent to collections if valid and properly documented. The latter—unless a judgment is obtained—remains a legal claim, not a debt.
Until a court determines liability and orders the tenant to pay, there is no enforceable obligation. A collection agency—as well as the property manager that requested the debt collection–that attempts to collect on such a claim without a judgment may be exposed to liability under consumer protection laws for attempting to collect a non-existent debt.
What Can You Include in the Final Account Statement?
You can include actual debts on the final account statement:
- Past-due rent
- Lease violations or fees specified in the lease
- Cleaning, repair, or utility charges backed by lease provisions
However, you should not include disputed, high-value property damage claims—particularly those that are not clearly tied to the lease agreement—as collectible debts. Listing such amounts may raise legal issues and expose you or your collection partner to FDCPA and Consumer Protection Act violations.
How to Properly Handle Tenant-Caused Damages
Here is the recommended course of action for handling large property damage:
- Document the damages thoroughly with photos, repair estimates, and a detailed incident report.
- Send a demand letter to the tenant outlining the damages and requesting payment. Include any applicable lease language if relevant.
- Attempt to negotiate a resolution or payment plan.
- If no resolution is reached, file a small claims or civil lawsuit to establish liability and obtain a judgment.
- Once judgment is obtained, send the judgment to collections or pursue garnishment or lien procedures where allowed.
Avoid These Common Pitfalls
- Do not list tort-based damage claims as “debt” in tenant ledgers or credit reporting systems without a judgment.
- Do not send unadjudicated claims to collections—even if you believe the tenant is clearly at fault.
- Do not conflate breach of contract (debt) with negligence (tort)—they are treated differently under the law.
Final Word: Get Legal Clarity Before Acting
If you’re ever unsure whether a charge qualifies as a debt or merely a legal claim, consult your legal counsel. Your attorney can help you evaluate whether the damage claim is supported by the lease or if it must go through the court process to become collectible.
Sending the wrong kind of claim to collections doesn’t just waste time—it can trigger legal liability for your company. Stay compliant and consult legal professionals to protect your rights and your bottom line.