Daily Development for Monday, August 2, 2004
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin Kansas City, Missouri firstname.lastname@example.org
LANDLORD/TENANT; SECURITY DEPOSITS; REFUND STATUTES: Texas court awards $60,000 plus attorneys fees for failure to refund residential security deposit.
Hardy v. 11702 Memorial Drive 2004 WL 1584909 (Tex. App. 7/15/04)
Tenant negotiated to rent what appears to have been a palatial home on Memorial Drive in Houston, commencing October 1. The rent was $6500 per month, and tenant also agreed initially to pay a $6500 security deposit, but landlord determined that the tenant had a bad credit record and demanded instead a $20,500 security deposit. Tenant paid the deposit. Landlord owed a commission to the broker in the amount of one month’s rent, and asked the tenant to make out the first rent check to broker instead of to the landlord. Tenant did so, but the check was drawn on a closed account and bounced. (Maybe the credit report was accurate - but tenant had enough resources to hire a good attorney - read on.)
Subsequently, before moving in, Tenant sent Landlord a letter thanking Landlord for releasing her from the lease. Landlord denied that there had been any such release, but treated the letter as a repudiation of the lease. Landlord promptly relet to another tenant for a period about six weeks short of the original tenant’s lease, commencing only a few days after the original lease began. Tenant then sent Landlord a letter claiming that there had been a surrender, and demanding return of the security deposit, giving an address to which it should be returned.
Over a month later, Landlord had not returned the security deposit and had not sent Tenant a letter detailing its damages supporting retention of the security deposit. Landlord in fact gave the letter, backdated to thirty days after the demand, only after Landlord became aware that Tenant was gearing up to sue under the Texas security deposit law (which provides for treble damages and attorney’s fees for bad faith retention of the deposit, and makes failure to provide an itemization of damages within thirty days of demand a prima facie case of bad faith.) The letter claimed damages approximately $10,000 in excess of the $20,500 security deposit.
Landlord claimed that the letter had been timely prepared but not timely mailed. The lower court in fact had found for Landlord, but the appeals court here reversed, finding that there was no excuse for the late mailing and the landlord was subject to the presumption of bad faith under the statute. But this finding in the end mattered little, because the court went on to shoot down each and every element of Landlord’s damages claims as set forth in the letter. A few of the claimed damages items were obviously wrong (such as a claim for the first month’s rent, even though the house had been relet for apparently the same rent after only two days, and despite the fact that there was a second claim for those two days.) But some other items are interesting enough to warrant discussion.
First, the landlord claimed an amount for the $6500 brokerage fee for renting the place. The tenant, remember, had agreed to send the first month’s rent check to the broker for that fee, and the check bounced. But the court held that the lease did not impose an obligation on the tenant to pay the brokerage fee, and thus the landlord could not claim this as contract damages. The landlord also claimed the $25 NSF fee on this check, and the lease did provide an obligation for the tenant to pay NSF fees, but the court ruled that this agreement related only to checks made out by the tenant to the landlord, and the check to the broker did not qualify, even though it had been written to satisfy landlord’s obligation to the broker.
Then the Landlord claimed damages for the period of time at the end of the substitute tenant’s term that was still part of the original term. The lease had provided for the landlord to be able to accelerate rent. The court held, nevertheless, that the Landlord had not shown that it had suffered damages for this period because the substitute tenant might hold over.
Then the Landlord claimed money for a “make ready” fee in preparing the house for the Tenant. The court stated that the Tenant had agreed to take the house “as is,” and that the Landlord had not demonstrated that it any contract obligation to make the house ready. Further, although Landlord had claimed that it had incurred $6500 in expenses to relet, it did not substantiate this claim, so it lost on this issue as well.
Landlord claimed $1100 in utility costs. It is not clear to what this charge related, but the court concluded that the cost was no recoverable because the lease required Tenant to make her own arrangements with the utilities, and therefore, presumably, the Landlord was not compelled to incur any costs as a consequence of the lease.
An interesting feature of the case is that the Landlord was a limited partnership whose general partner was a corporation. For reasons not disclosed in the case, the President of the General Partner caused the partnership to transfer the property to him personally after this dispute had been joined. The court noted that the Texas statute makes successor landlords liable for return of security deposits, but makes the original landlord liable as well until the tenant has been supplied with a statement that the prior landlord has passed along such deposits to the successor. Such a statement was never supplied, so the partnership, the corporate general partner, and the President were jointly and severally liable for the $20,500 deposit, tripled to $61,500, plus costs and attorney’s fees. Sounds like a collectible judgment. A pretty good haul for a tenant with bad credit who bounced her first rent check.
Comment 1: Normally we don’t spend much time with state specific issues such as the Texas statute. It is somewhat more severe that many statutes, particularly in that it awards attorney’s fees and renders successor owners liable. But the amounts involved and the court’s ruling on the claimed damages, which are common law issues, make the case of some interest. In the editor’s view, the NSF issue was just insult to injury, but probably should have gone the Landlord’s way. After all, the apparent agreement was that the check to the agent was in satisfaction of the rent obligation. It in essence was a rent check.
Further, although the court said that there was no evidence that the $25 charge was in fact incurred by the Landlord, it would appear that this charge was in the nature of a liquidated damages agreement, and was payable even absent evidence that the charge was in fact incurred.
Comment 2: Further, is it accurate to say that the Landlord had no obligation to prepare the place for Tenant’s habitation because of the “as is” clause? The editor is not familiar with the Texas residential implied warranty of habitability, but typically the landlord’s duties under that doctrine are non waiveable. Compare Lee v. Perez, 120 S.W. 3d 463 (Tex. App. 2004) (The DIRT DD for 5/7/04) (Although “as is” clause may be adequate to waive certain implied warranties of commercial suitability in commercial lease, where clause in question refers to the condition of the premises, it is not a waiver of landlord’s implied responsibility to provide a premises with proper zoning for tenant’s business). (The editor hates the Lee case with a great passion and would welcome its early reversal or repudiation.)
Thus, although perhaps the Landlord may have no duty to paint the walls, it would have a responsibility to insure that the residential premises are “decent, safe and sanitary,” as required by a typical warranty of habitability, and this might easily involve some cost.
It could be argued, of course, that the landlord has this duty generally, and that therefore it was not required of the landlord specifically under this lease. The editor does not believe that the court reached that level of subtlety.
Comment 3: The court’s discussion of utility costs also seems off base. If the Tenant agrees from the outset of the lease to pay for utilities, and fails to take possession, the Landlord normally and foreseeably will be required to continue to keep the utilities on to protect against fire, mold, vandalism, and to facilitate the reletting of the premises. The utility costs for the period of time that a substitute tenant is not obligated to pay for utilities does appear to the editor to be a legitimate damages claim. Here, note, that the “down time” was only a few days, and the $1100 claimed does seem a bit excessive.
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