Acceptance of partial payment

Mini- Storage Messenger - Acceptance of partial payment

This month’s question is: I run a large self storage auction business in Florida. Recently I had a district manager for a facility challenge my decision on a partial payment. In the past, if a partial payment was made after the post-mark of the default notice, I would not sell that unit. I would consider it an intent to pay and would tell the managers they had to start the lien process over. Where (in the statute) does it say I have to stop the sale after a partial payment? I always assumed the partial payment could be argued as an intent to pay and that the tenant could argue that the sale was stopped by the acceptance of the partial payment.

There is no place in any of the state statutes that I am familiar with that specifically addresses the issue of a partial payment stopping (or not stopping) a sale. But here is what I know on the subject, partial payments are, at best, risky, at worst, they are a bad lawsuit waiting to happen.

1. If you are going to accept a partial payment and plan to proceed on a default notice sent prior to accepting the partial payment you are at risk of a judge viewing the acceptance of the partial payment as a waiver of that particular default notice and that you should have started the default process over again.

2. Any partial payment should not pay any portion of rent for the month in which you served the default notice and forward. Thus, if a tenant is delinquent for the months of February, March, April, and you serve your default notice in April and in May take a partial payment that pays all of February, all of March, and half of April, you are exposing yourself to even greater risk because the month in which you declared the default, appears to be at least partially paid.

3. Be especially cautious if your state statute has a “continuously in default” provision in it. Many of the states have statutes that say a tenant must be “continuously in default for ‘X’ days” before exercising your lien. Accepting that partial payment could certainly be construed as a cure of that particular event of default and you may have to start the 30 day “default countdown” again. You should check with a local self storage attorney in your home state to help you discern where that line exists.

4. Watch the nature of the charges you consider to still be outstanding after you accept a partial payment. Many cases swing on if the “remaining” balance was rent or other charges, for example, if a tenant owes $200.00 in rent, $40.00 in late fees, and then a bunch of other fees (that may or may not be properly disclosed in your lease and/or may not be enforceable in your state,) such as over lock fees, auction fees, advertising fees, legal fees, etc., and the tenant pays $200.00 as a partial payment and you proceed with the sale based on the fact that while you accepted the $200.00 rent, the tenant did not pay outstanding fees, you are putting yourself at a much greater risk that a judge may say that you had no right to proceed with the sale.

While not right on point, a Canadian judge recently decided that exact scenario in favor of the tenant. We have seen other similar cases in the United States, but not as recently as the Canadian decision. (Bartlett vs. Northern Self Storage)

The problem is that when you sell and the property is gone you have greatest risk for a tenant coming back and making a claim that the Tenant thought they had an agreement that you would not sell when you accepted the partial payment. It is at that same time that the tenant often “comes up” with a litany of irreplaceable, priceless type of items that were stored in the self-storage facility and creates a long expensive list of damages. There are few ways for you to refute the now sold property’s value, or the emotional attachment of the tenant. Any judge on any given day could rule against you. Because you are talking about someone’s personal property this type of case is always going to be emotionally charged. This is not the type of case where money can just be replaced with equivalent amounts of money. If a judge holds that you waived the default and should have started again, you are going to be liable for whatever losses the tenant can dream up. This will naturally be the situation when you sold the entire contents for $20.00. Thus, selling the tenants goods after a partial payment is not a wise idea. If you wish to accept a partial payment, make sure the payment is enough to compensate you for any time and expenses you may have to spend in starting over on the lien process, should the tenant not make the balance of the payment when promised. You can always use a partial payment situation as an opportunity to negotiate a move-out with your tenant, i.e. we will take the partial payment, and in exchange for the acceptance of the partial payment you, the tenant, will have everything out of the unit by 5:00 p.m. today, anything left behind is deemed abandoned. Have an attorney assist you in drawing a simple release such as this.

You can also help protect yourself against “subsequent misunderstandings” by the tenant by having a written agreement setting forth the terms for acceptance of the partial payment, such as when the balance will be paid, that the partial payment does not apply to any rent or charges due since the date of the default notice, and that the tenant understands (in writing and signed by the tenant) that this partial payment does not stop the lien sale if the tenant does not make good on the balance of the payment plan. In the agreement, reiterate the specific date and time the goods will be sold if the balance of the payment plan is not paid and honored. There is no guarantee that such a form will always protect you, but it certainly will help a court recognize that the tenant was not completely ignorant to the fact that the sale would still go forward if the balance of the payment was not made.

We always say that it is best to avoid the lien sale in any circumstance and sometimes partial payments are better than no payments at all, but be careful if you really think you want to accept a partial payment yet proceed with a previously noticed lien sale. You are correct, it is simply not a good idea.

You can send your questions, comments, or suggestions for future topics to Jeffrey Greenberger at info@selfstoragelegal.com or mail them to Jeffrey Greenberger, c/o Katz Greenberger & Norton LLP, 105 E. Fourth Street, Suite 400, Cincinnati, Ohio 45202 or you can reach Mr. Greenberger at (513) 721-5151, or visit his website at www.selfstoragelegal.com.

April, 07