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Georgia Real Estate InfoBase Contents - Chapter 52

Chapter 52

The Rent and Tenant Management System


INTRODUCTION

A rent and tenant management system (RTMS) includes a set of policies and procedures for collecting, depositing, and the record-keeping of rental payments made by tenants.   The important elements of an RTMS are the rent collection policy, the rent roll, the tenant/space ledger, a non-rent or "other" income account, and the journal for each of the trust accounts.

RENT COLLECTION POLICY

A rent collection policy manual is an important first step in a rent and tenant management system.  The concept of a rent collection policy appears initially in the discussion about tenant relationships.  That discussion presented the important elements of a rent collection policy manual. These elements are:

         

(a)     

the date the rent is due,

 

(b)

the place where the rent is to be paid,

 

(c)

the acceptable form of the rent payment,

 

(d)  

the grace period (if any),

 

(e)

late payment penalties,

 

(f)

delinquency notices,

 

(g)

procedures for collecting delinquent rents, and

 

(h) 

procedures for eviction.

 

(i)

Lease renewal/termination stipulations

 

(j)

Responsibilities of each party during the lease term

The property manager must have a rent collection policy manual or a set of guidelines that address these specific issues.  The discussion of these items should be sufficiently detailed to make the tenant aware of the requirements and the consequences of late rent payment or nonpayment.  The manual should also inform the property manager's staff of the dates and procedures for imposing late payment penalties, as well as the dates and the legal procedure for collecting delinquent rent and for eviction.

The Consumer Credit Protection Act governs debt collection practices in general and delinquent rent payment collection practices in particular. This act specifically addresses the issue of abusive practices by debt collectors.  The rent collection policy manual should contain guidelines for the property management staff informing them of acceptable and unacceptable rent collection practices.  For example, the Consumer Credit Protection Act specifically imposes five major restrictions on the debt collector.

         

(a)     

The debt collector may not communicate with the delinquent tenant at any unusual time or place or at the delinquent tenant's place of employment if the debt collector knows or has reason to know that the delinquent tenant's employer prohibits such communication.

 

(b)

The debt collector may not communicate with any third party.

 

(c) 

The debt collector may not engage in any activity that can be considered as harassment or abuse.

 

(d)  

The debt collector may not use any false, deceptive, or misleading means to collect the debt.

 

(e) 

The debt collector may not use unfair or unconscionable means to collect or attempt to collect the debt.

The rent collection policy manual should discuss these points and provide the level of detail required for the normal and reasonable operations of the property manager or the property management company.  In addition, the rent collection policy manual can instruct the property manager about the appropriate times and the appropriate procedures to get qualified legal advice and interpretation of this act for the property manager.

Potential tenants (applicants) are protected by the Fair Credit Reporting Act (and property managers need to comply with it regarding background screening, denial and conditional approval of applications, and safeguarding the applicant’s personal information.  Property managers also need to comply with the Fair and Accurate Credit Transactions (FACT) Act and its Red Flag Rules to reduce the chance of identity theft.  Former tenants are protected by the Fair Debt Collection Practices Act and property managers better be knowledgeable of this law before they try to collect unpaid balances from tenants that have moved out.

THE RENT ROLL

The rent roll is a bookkeeping journal in which the property manager records rent revenue from the units or the leased space.  The rent roll is typically kept on a month-to-month basis with a year-to-date summary.  The rent roll identifies accounts receivable, historic and prospective cash receipts, and delinquent rent payments.  The rent roll can contain a wide range of data, but typically includes the following items:

         

(a)     

identification of the unit or the space leased to the tenant;

 

(b)

the name of the tenant(s);

 

(c)

the contract rent for the leased space, identifying the form of the rent payment and any changes over the term of the lease;

 

(d)

other revenues due such as parking fees, common area charges, vending machine area receipts, and laundry room receipts;

 

(e) 

the term of the lease specifying the initiation date and the expiration date;

 

(f) 

the amount of the security deposit; and

 

(g)

the total rent receipts received.

The rent roll is basically a data file in which the line entries identify the space units such as the apartment numbers in a residential property, the identification codes for retail space in a neighborhood shopping center, or the office suite number in an office building.  The columns in the rent roll contain the information about tenant's name, the contract rent for the current period, and the other items in the preceding list.  The rent roll also provides summary information about the revenue status of the property that is useful in the financial analysis of the property.  This summary information includes the following items:

         

(a)     

the number of occupied units and space; 

 

(b)

the occupancy percentage;

 

(c)

the average contract rent per unit or per square foot;

 

(d)

additional income per unit or per square foot; and

 

(e)

collection losses and expenses.

Each property management company should prepare and use a standardized rent roll format for all of the properties it manages.  Employees need to know the proper procedure to record information and the appropriate time to record such information.  Typically, the property management staff updates the rent roll by entering information into the RTMS on a daily basis as the tenants pay the funds by mail or personal delivery to the management company.  The property manager can modify and expand the rent roll information to meet the particular needs of the owner or manager.  For example, the property manager could determine the current market rent for similar space and display it in the rent roll next to contract rent to show whether the subject property is performing better than, equal to, or at a rate below the market norm.  Recording the date of each rent payment would show the extent to which tenants use the grace period in the lease.

TENANT AND SPACE LEDGERS

While the rent roll is a record of current information, a unit or space ledger is a historical record of the rentable space in the property.  This ledger is a table that identifies a specific apartment unit or block of retail space or office space and provides a history of the rent revenue collection process from the present through the past.  The property manager decides the appropriate length of time to keep the ledger.  For example, the policy manual might show a five-year history for the ledger on a monthly basis.  For an apartment building this five-year period could show the historic information for five separate leases.  For a commercial property, the ledger could allow the property manager to record data across two or more leases.  Generally, these ledgers are kept by RTMS-centered software and historical records can be accessed for many years.  For commercial property, the property manager could keep a ledger for an eight-year period that could cover portions of two lease periods.  In any event, the rent revenue information in the commercial space ledger could show:

         

(a)     

the due date for each rent payment,

 

(b)

the date on which the tenant made each payment,

 

(c) 

the amount of rent due and the amount of rent paid, and

 

(d) 

the balance of the total rent due under the lease.

In addition, the unit or space ledger can contain information about the space itself.  For an apartment building, the ledger could include the types of units in the building, the square footage in each type of unit, the physical age and condition of appliances, floor coverings, window treatments, wall coverings, light fixtures and other fixtures, and the date of the last renovation.  The ledger can also contain important information about the current tenant such as the tenant's name and telephone number for the apartment resident or the name, address, and home telephone number for an emergency contact person in commercial space.  The space ledger can also contain other information about the lease agreement such as the term of the lease and any special agreements or provisions needing periodic attention.  Although a tenant ledger focuses on the tenant rather than the apartment or commercial space, the information in a tenant ledger is the same as the information in the space or unit ledger.
 
The property manager should assure that the software selected is appropriate for the type of management they are performing.  For managing single family homes some managers use PropertyWare, Property Boss, AppFolio, Builium and Promas.  Apartment managers use applications including AMSI, Yardi or others.  All management software is not the same.

RECORD KEEPING USING THE RENT ROLL AND THE LEDGER

The property manager should record the rent payments to both the rent roll and the ledger on at least a daily basis.  Besides these two record keeping documents, the property manager may also use a daily rent receipt log.  This log is a table for rent receipt information on a daily basis for a specific property for a specific time.  The line items in the table are the apartment numbers or office numbers and the columns containing the name of the tenant, the amount of rent received, and the form of the rent (cash or check).  As the property manager receives rent payments, the person receiving the payments should record the pertinent information on the rent receipt log. Then, at the appropriate time, the property manager can transfer the information from the log to the rent roll and the ledger.  As a cross check for accuracy, one staff employee should handle the rent receipt log while another employee handles the rent roll and the ledger. Many companies require copies be captured (and sometimes stored electronically) of all payments received.

THE RENT BILL

The property management company may wish to send a rent bill to each tenant.  The rent bill identifies the name of the tenant, the name of the property, and the tenant's unit or space.  It also identifies the amount of rent and any specific additional charges or payments that are due, the total amount due, and the due date for the payment.  The rent bill can also identify the grace period and any applicable late payment penalty.  Some rent bills also include notes from the management to the tenants such as holiday hours, helpful reminders and invitations to tenant functions.

RENT RECEIPTS

Some property managers use rent receipts to acknowledge the rent payment.  The receipt identifies the person paying the rent, the person receiving the rent payment, the amount paid, the date of the payment and the remaining balance. 

OTHER SOURCES OF REVENUE

In addition to rent revenue, the property manager may also receive payments for other services or reimbursements from tenants.  Some other sources of revenue include parking fees, common area maintenance fees, utility reimbursements, application fees, security deposits, late fees, lost key charges, clubhouse rental fees, income from vending machines, income from laundry rooms, damage reimbursements, and charges for returned checks.  The property manager should also use a daily receipts log for these non-rent revenue sources. 

DELINQUENT RENT RECEIPTS

The rent collection policy and manual should also discuss the procedures for handling delinquent rent payments and late charges.  Late charge and delinquent rent policies are an important part of tenant relationships.  The simplest record keeping process is a list of delinquent tenants.  However, many property managers go beyond the simple list and construct a delinquency report that provides information on the delinquent tenant, the apartment number or identification number for the retail or office space, the amount due, the amount delinquent, the number of times the tenant was delinquent over the term of the lease, the nature and extent of collection efforts, any payments received against the delinquent amount and any balance due.  The collection efforts section in the rent collection policy manual should identify the actions for the property manager to take to collect delinquent payments.  The rent collection record should allow sufficient space for the property manager to note when he or she made the requests for delinquent payments and if these requests were by mail, personal telephone call, or personal visit.  The record should also show whether any legal action is pending such as a claim for rent or a writ of possession.  The first action the property manager generally takes when dealing with a delinquent tenant is to send a friendly note as a reminder that the rent is due and to attach a rent bill to that note.  If there is no response to the informal or friendly note, then the next step should be a formal request for payment of the balance due or the return of possession to the management company.  If the tenant does not pay the delinquent rent or return possession of the rented space to management, the property manager should start legal proceedings.

The first step in the legal proceedings is the formal demand letter informing the delinquent tenant that he or she is in default of the lease provisions.  The letter should state a definite amount of time to clear up the delinquency and the default and that if the tenant does not clear up the default, then he or she must vacate the premises and remove all personal belongings before a specified date.  If the letter demanding payment of the rent or surrender of possession of the property does not cause the defaulted tenant to pay the rent or to vacate the property within the time period allotted, then the manager should continue with legal proceedings by filing a dispossessory warrant at the appropriate court.  If the tenant vacates the premises but does not pay the amount in default, then the property owner may instruct the property manager to begin legal action for the defaulted payment and any lost rent until the property manager finds a replacement tenant.  If the defaulted tenant does not cure the default and remains in the property, then the property owner and the property manager must continue eviction procedures culminating in a court-ordered writ of possession and physical eviction.

DISPOSSESSORY PROCEEDINGS AND EVICTION

A discussion of dispossessory proceedings and constructive eviction by the landlord appears in another section.

JOURNALS FOR THE TRUST ACCOUNTS

Any licensee performing the duties of a property manager must abide by the requirements for a trust account as set out in the license law (O.C.G.A. 43-40-20) and the rules and regulations (Chapter 520-1-.26).