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by: Eric E. Willison and Andrew J. Ruzicho IIA. Limits As To Amounts

There are two lines of cases in Ohio which deal with whether courts will enforce lease provisions allowing a landlord to charge tenants for late fees. These lines of cases come to slightly different conclusions, but the bottom line is that landlords need to be very careful in charging tenants for late fees.

The first line of cases comes to us from the Eighth Appellate District. In the case of Siara Management v. Nedley, 1992 Ohio App. LEXIS 5265 (Oct. 15, 1992) Cuyahoga App. No. 61433, unreported, the lease called for the tenant to pay $30.00 in late fees if he was late five days, and $70.00 more if he were late ten days. The landlord tried to charge these amounts to the tenant and litigation ensued.

The Eighth Appellate District held that there is distinction between liquidated damages (allowable) and penalty clauses (not allowable) and that the court would use a three part test to distinguish between the two. Late fees would be allowable as liquidated damages if they were designed to compensate the landlord for damages which were:

(1) uncertain as to amount and difficult of proof, (2) the contract as a whole is not so manifestly unconscionable, unreasonable, and disproportionate in amount as to justify the conclusion that it does not express the true intention of the parties, and if (3) the contract is consistent with the conclusion that it was the intention of the parties that damages in the amount stated should follow the breach thereof.

In Nedley, the landlord did not make it past the first hurdle of the test. All that the landlord argued in court was that the late payment by tenants led to late payment charges assessed to the landlord by his creditors. The Court reasoned that “Any party due money could claim that the resultant decrease in cash flow might result in late charges against it. That is unduly speculative.” Had the landlord come to the court with evidence that the tenant’s late payment had caused him to incur damages in specific amounts, then those specific amounts might have been recoverable.

The Eighth District Court of Appeals also came to a similar conclusion in 200 W. Apartments v. Foreman, 1994 Ohio App. LEXIS 4081 (September 15, 1994), Cuyahoga Co. App. No. 66107 regarding a late fee of only $2.00 per day. In that case the court also found it significant that the landlord had shown no proof of its actual damages.

However, another of Ohio’s appellate district treated the matter very differently. In the case of Calabria v. Green, 1995 Ohio App. LEXIS 3903 (September 8, 1995), Trumbull Co. App. No. 95-T-5181, the Eleventh Appellate District Court held that while late charges of $10.00 per day (for 38 days) was not enforceable, “an agreed upon, one-time late fee, that is reasonable in proportion to the rental rate, and that has a rationale basis supporting the imposition of the charge, is proper.”

The Eleventh District Court of Appeals again came to the same conclusion in the case of Wadsworth v. Starcher, 1998 Ohio App. LEXIS 2909 (June 26, 1998) Trumbull Co. App. No. 97-A-0054. In Wadsworth, the Court agreed with the trial court that $5.00 per day in late charges over 92 days was not enforceable, and that the trial court’s reduction of the late fees to $100.00 was proper.

It is clear that “parties to a lease agreement can agree to anything they wish within the limits of the law.” Village Station Assoc. v. Geauga Co. (1992), 84 Ohio App.3d 448 at 451. The real question is: what are “the limits of the law”? R.C. 5321.14 prohibits parties to a lease from agreeing on illegal or unconscionable terms.

B. No Late Fees Under Oral Contracts

Where there is only an oral contract between the landlord and the tenant, at least one Ohio Court has held that no late fees can be assessed. Neubauer v. Patzkowsky, 1992 Ohio App. LEXIS 2919 (June 2, 1992) Franklin Co. App. No. 91AP-1236.

C. Waiver of Late Fees

Some landlords will try to collect late fees which have piled up over months and months. In the case of Habegger v. Paul, 2004 Ohio App. LEXIS 1971 (April 30, 2004) Wood Co. App. No. WD-03-038, a landlord sued the tenant for late fees which accumulated over a 14 month period. The Sixth District Court of Appeals held that the landlord waived his right to collect the late fees upon eviction by continuing to accept the tenants’ rent payments and not pursuing eviction until approximately 14 months after the first late payment. The Court reasoned that:

A party may voluntarily relinquish a known right through words or by conduct. State ex rel. Ford v. Cleveland Bd. Of Edn. (1943), 141 Ohio St. 124. In Galaxy Development Ltd. Partnership v. Quadax, Inc., 2000 Ohio App. LEXIS 4651 (October 5, 2000) Cuyahoga Co. App. No. 76769, the Eighth District Court of Appeals found that the landlord waived its right to collect holdover rent from the tenant by continuing to accept the original rental payments after expiration of the lease. The Galaxy court cited Finkbeiner v. Lutz (1975), 44 Ohio App.2d 223, wherein lessees failed to make timely payments of rent on numerous occasions and lessors accepted the late payments. The Finkbeiner court held that the failure of the lessors to make timely objection to the late payment of rent amounted to a waiver.

Courts in Ohio will not allow a landlord to collect late fees which have piled up over a significant period of time.

D. Dangers for the Landlord

Where a landlord can get into trouble with late fees is in a dispute over a security deposit. Let’s say the landlord has collected a security deposit in the amount of $500.00. The tenant leaves at the end of the lease term. The landlord finds $300.00 in damages at the apartment and also assesses $250.00 in late fees. Perhaps the landlord cannot show the court actual damages in the specific amount of $250.00. Maybe there was only an oral agreement between the landlord or the tenant. Perhaps the $250.00 in fees resulted from the landlord’s practice of letting the late fees pile up over time.

If any of these are the case, there is a good chance that even in the more landlord sympathetic appellate districts, the landlord will only be allowed to charge the tenant a greatly reduced amount if the facts fit the first example, and perhaps nothing at all if the facts fit the second or third examples.

This will leave $100.00 or more that should have been returned to the tenant, entitling the tenant to double damages and attorneys fees under Ohio Revised Code Section 5321.16. While double damages in the amount of $200.00 might not be all that big of a deal, wait until you get to the mandatory hearing on reasonable attorneys fees. Now we’re talking real money.

If you are trying to evict a problem tenant and your only basis is a failure to pay late fees, then the arguments above may have a bearing upon the issue of who has the right to possession when you get to the F.E.D. hearing. If a tenant can show the court that he stood ready at all times to pay the late fees, but that the landlord was holding out for an unreasonable amount, or if the tenant can show that he and the landlord engaged in a pattern of conduct of acceptance of late payments without protest, this could defeat the eviction action.

E. Lessons to Be Learned

One of the lessons to be learned from all of this is that late fees are something of a minefield when it comes to using them to reduce the amount of the security deposit returned to a tenant. The same is true when we are talking about evictions based upon a failure of the tenant to pay late fees.

Landlords should be aware of the problems that may arise when late fees are argued. Informing your attorney of your past practices with regard to late fees can save you both a lot of embarrassment, and perhaps allow the attorney to alter course in his arguments to get around potential hurdles.

Find this and more information at http://www.ohiolandlordtenant.com

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by: Martin TrumanIf you set up in business with one or more other people but do not wish to set up a limited company, a partnership arrangement will be deemed to exist at law without the need for a formal contract. However, whilst a written partnership agreement is not required to form a partnership, if you wish to avoid uncertainty and the automatic application of potentially unsuitable statutory law, a formal agreement is a wise investment.

What happens if we don’t sign a Partnership Agreement?

In the absence of a written agreement, the provisions of the 1890 Partnership Act will apply. In essence, these state that all the partners are equal and share profits, losses, start-up and running costs as well as the workload equally. Whilst the provisions are intended to provide an equitable framework for running your business, in reality, there are significant implications. For example;

- all partners will be entitled to share the profits equally regardless of how much capital, effort or skill they bring into the business

- any partner can bring the partnership to an end just by giving notice to all the other partners and the partnership will automatically dissolve if a partner dies

- all partners will be jointly and severally liable for the liabilities incurred by the company. This means that if one partner takes on a commitment and fails to deliver on it, you will be equally liable to remedy the situation. And if a debt cannot be paid, then the creditor may pursue each of you individually, meaning that one of you may be forced into the position of paying the whole debt by yourself

- should a partner get into financial difficulties then his or her creditors can take assets from the partnership to settle them

- all partners will be considered “agents” of the business and so can act on behalf of the other partners. This means an individual may enter into contractual and financial arrangements which are not good for the business, but these will be binding

- all partners have an equal say in the business, which means that it can take time to reach decisions. Unresolved disputes may result in the break down of the business.

What benefits will a Partnership Agreement offer?

A partnership agreement will provide a written structure for your business clearly setting out each partner’s responsibilities, rights, profit/liability sharing, rules relating to business entry and exit, and also the terms on which disputes are resolved and the partnership can be terminated. Carefully drafted, it will ensure that you have a common vision for the business with mutually agreed goals. Critically, it will help avoid costly misunderstandings and conflict.

Key areas to cover in your partnership agreement include:

a) ownership interests, taking into account any cash, assets, loans or investments made by individual partners

b} salaries and compensation: how will profits or losses be allocated?

c} how the partnership will be managed

d) each partner’s specific responsibilities within the business, and what level of performance is expected from them

e) whether partners expected to make a full-time commitment to the venture, or are permitted involvement in other business activities

f) what processes should be followed if one partner wants to leave the partnership or a new partner is admitted

g) whether partners will be allowed to sell their interests in the business to outsiders and, if so, how will their share be valued

h) on what grounds a partner can be expelled from the partnership (e.g. misconduct, non-performance of duties)

How do I put a Partnership Agreement in place?

While there are many internet sites offering seemingly cheap pro forma partnership agreements, this can be a false economy for several reasons:

1) there are three different kinds of partnership: general partnerships, limited liability partnerships and limited partnerships – you need to be sure that you set up the appropriate vehicle for your needs;

2) no two partnerships will be alike in terms of specific requirements;

3. you are unlikely to reach amicable consensus on an agreement without involving an impartial third party advisor;

4) without using a solicitor, you can’t be sure that the agreement complies with partnership laws.

A better way to save money is to do some preparation before instructing your solicitor: get together with your partners and compile a list of provisions that you wish to include in your partnership agreement. Your solicitor will then have a good starting point from which to clarify your requirements and draft a suitable agreement. However, since one lawyer cannot represent the interests of all partners, each partner will need to instruct their own solicitor to review the final document on their behalf.

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by: David CantHealth and safety culture is often seen as an obstacle to making money. However, by doing nothing each business is taking a major risk in leaving its assets exposed to other third parties. By making a reasonable investment each year, you can protect your hard won assets.

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Would I be prepared to let the company be “named and shamed” through failings that could easily be avoided?

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