Phil Querin Q&A: Resident Over Pays Rent - How to Account for Late Fees

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January 10, 2013

Question. We had a situation come up recently that we would like your opinion on. With this particular lease, rent is due on the 1st and a late fee is assessed if not received by midnight of the 5th. We send 72-hour notices on the 8th of the month at the earliest. In this situation, a tenant has purposely over-paid rent on a number of payments in order to build up a credit balance with us. He has accrued several late fees that have been assessed due to late payments after the 5th of the month - but before a 72 hour notice is ever sent. We recently deducted the accrued late fees from the credit balance he had built up. Because there was still a credit balance showing on his account after deducting the late fees, we did not send him any further notices about the late fees being assessed or deducted. He is now claiming that it was illegal to deduct the late fees from the credit balance without our sending him a notice or invoice. Your thoughts?

Answer. It is unclear if there ever was an actual agreement between landlord and tenant that the overpayments were to be applied toward late fees. For purposes of this question, I will assume there was an understanding of sorts [what tenant intentionally overpays, without a reason?], but presumably not in writing; hence, this dispute. The lack of any written agreement invites an argument as to how the credits were to be applied. There is an argument this was “prepaid rent” under ORS 90.100(33) (Definitions). Prepaid rent is a payment for rent not yet due. Prepaid rent is treated much like a security deposit, and must be accounted for at the end of the tenancy. See, ORS 90.300 (Security Deposits; Prepaid Rent). Rent [prepaid or otherwise] cannot be applied to such things as fees or deposits. See, ORS 100(35) (Definitions). In this situation, without a written agreement specifically defining what the prepayments were, and how they were to be applied, I would say the tenant may have an argument that without his consent, the money could not be applied to anything except a rent that is already due. In other words, you may not apply the monies to non-rent charges. The landlord-tenant statutes don’t specifically address this type of situation, so it’s a toss-up whether the practice was legal or illegal. [I assume that your rental agreement specifies whether late fees must be assessed in writing. Typically, no writing is required – the fees just become due within a certain period of time.] In any event, I don’t think this is arrangement is a good practice without having it in writing. In the future, if both landlord and tenant want to continue the practice, it should be in writing and specifically address: (a) What the payments are; (b) When, how and under what circumstances they may be applied; (c) Whether any prior notice and/or written accounting is necessary; and (d) Whether interest will accrue to the tenant for the monies held by the landlord before they are applied.