Accepting Rent Via Electronic Funds Transfers or Direct Deposits

Posted by wasserman

I am wondering how to handle automatic electronic fund transfers for rent payments. Is there a way to ensure that the tenant named on the lease is indeed the one sending the automatic payment, so that the landlord is not accepting funds from non-tenants and thereby giving them tenancy rights? I am also wondering if there are any other issues that could arise from accepting electronic payments.

Years ago when the practice of electronic funds payment and direct deposit was new the industry fretted over it because of the concern raised by the question. The reality, though, is that in less than a decade no one will use checks anymore. Indeed, most apartment operators will already attest that now many tenants, especially younger ones, have abandoned the practice of writing checks and sending them via snail mail to the landlord. In today’s electronic age, we simply don’t pay bills in this manner, and tomorrow checks will likely go the way of typewriters and landlines.

Thus, certainly the Rent Board and likely the Superior Court are not going to penalize owners who accept electronic funds transfers or other forms of direct deposit unless the tenant has announced or otherwise made it clear that the money is coming from a subtenant. So, the simple answer to your question is: Don’t worry about it, and embrace the practice as this will be the norm in a very short period of time.

Waiver of the right to re-set rent under Costa-Hawkins arises when the landlord creates a direct relationship with a subtenant. For example, placing the subtenant on a lease, including the subtenant on correspondence and communication directed to the tenancy, accepting non-emergency repair requests from the subtenant, or knowingly accepting rent from a subtenant may create problems down the road once the last original occupant no longer permanently resides in the apartment. Conversely, even if subtenants are giving the master tenant rent money, if the landlord is led to believe in good faith that the rent payment emanates just from the master tenant there should be no issue when the time comes to impose an unlimited rent increase.

One area where you need to be vigilant with these types of automatic transfers is when the tenants are in breach of the rental agreement and a notice to cure or quit or a notice to quit has been served. Upon expiration of the notice period, if the tenant has not rectified the breach and/or vacated the apartment, the landlord must commence formal eviction proceedings in the Superior Court. The landlord will lose the case if the tenant can prove that rent was accepted after the notice period ended. As such, please remember to prevent the tenants’ ability to directly deposit or transfer funds into your account once you serve an eviction notice or otherwise commence legal action against the tenancy. In addition, if your tenants are breaching the rental agreement (for instance, unlawfully subletting the unit), acceptance of rent with such knowledge may impede your ability to object to the breach. Similarly, if you are terminating the tenancy for a “no fault” reason such as a legitimate owner or relative move-in, you need to make sure that no rent is accepted after the period in the termination notice expires. So, in sum, if you have the ability to stop the automatic rent processing, and if you have no knowledge or evidence that the payments are in fact coming directly from a subtenant, utilizing this form of commerce – which will soon completely replace check writing – is just fine.