Accepting Rent Payments from Venmo or Zelle

Posted by  wasserman 

Residents would like to pay rent using Venmo or Zelle.  What if a non-tenant deposits funds into my account?  Would that automatically create a tenancy?

The answer is maybe.  Understandably, members are constantly and rightfully mindful of establishing a direct owner-tenant relationship with subtenants or “subsequent occupants.”  For the past twenty-five-plus years, housing providers have enjoyed the benefits of the Costa-Hawkins Rental Housing Act, which permits unlimited rent adjustments when the last person who was an original occupant no longer permanently resides in the apartment.  An “original occupant” includes all persons who signed the rental contract as well as anyone, regardless of age, who moved into the housing when the tenancy began.  All other persons who came in after the tenancy’s inception are termed subsequent occupants.  Once all original occupants permanently vacate, rent may be adjusted to market levels as to any subsequent occupants that remain in occupancy.

However, there is what is known as the “Waiver Rule.”  Costa-Hawkins states that the right to adjust rent as to subsequent occupants is waived, or lost, if the property owner accepts rent after receiving some type of written notice from the original occupants that they had permanently vacated.  The Rent Board’s position is that rent may only be accepted and processed after a notice of rent increase has been served, meaning once you are noticed that the original occupants have left, you must issue the rent increase announcement before processing monthly rent remittances.  Otherwise, the Waiver Rule could preclude you from decontrolling the apartment.

Seems simple enough, right?  Well, over time, the Rent Board began making additional expansions to the Waiver Rule.  For example, creating any type of direct relationship between ownership/management and the subsequent occupants before all original occupants have vacated is now potentially problematic.  A direct relationship may be established by the following actions that occur prior to the last original occupant vacating and prior to the issuance of a Costa-Hawkins rent adjustment notice:  (i) accepting rent from the subsequent occupants; (ii) entering into a rental agreement or sublease contract with the subsequent occupants; (iii) accepting non-emergency repair requests from subsequent occupants; (iv) naming subsequent occupants on communications, such as notices to enter or annual rent increase letters; and (v) otherwise treating the subsequent occupants as though they were co-tenants.  Consequently, many legal practitioners advise their clients to have as little contact as possible with anyone who is not an original occupant.

That said, the Waiver Rule is usually not applied to situations where management is legitimately unaware of a subsequent occupant’s participation or involvement in the owner-resident relationship.  In other words, simply because the subsequent occupant may be contributing funds to an electronic rent payment unbeknownst to management staff does not trigger the Waiver Rule.  With that in mind, do not share your account information or password with a subsequent occupant prior to the issuance of a Costa-Hawkins notice.

In sum, the Waiver Rule comes into play when you knowingly and consciously accept a subsequent occupant as a party to the owner-resident relationship.  Setting up Zelle or Venmo with the original occupants does not jeopardize your rights to utilize Costa-Hawkins in the future unless you share your account information with subsequent occupants.  And simply because non-original occupants may be contributing rental dollars “behind the scenes” is not problematic unless you disseminated your account information to subsequent occupants or processed transactions from accounts identifying them as the payor.