Commercial real estate loan and acquisition transactions are often conditioned upon a third-party opinion letter, which outlines the opinion giver’s professional judgment on the myriad legal issues related to the transaction.  Too often, the lawyer requesting the opinion asks for more comfort than is appropriate and the lawyer giving the opinion fails to appreciate the risk in giving the opinion.

When rendering a third-party opinion, practitioners must take measures to ensure the accuracy and completeness of their opinion. Counsel preparing opinion letters face potential liabilities if the opinion is defective and negligence can be shown.

Although several state bar associations have developed guidance on opinion letters for commercial real estate transactions, there is no uniform practice or standard, leaving practitioners to grapple with a number of grey areas that increase liability risks. A lawyer is required to possess the legal knowledge and exercise legal skill which is common to other legal professionals in the area and to exercise that knowledge and skill with reasonable and ordinary care. Liability arises when the opinion is negligently rendered.

New credit reporting practice tracks rent delinquencies and non-payment of rent.

Credit scores for tenants that have regularly paid rent on time might improve under new credit-reporting practices announced by Experian (one of the big three credit reporting agencies). But all tenants need to be aware of how these new policies could impact them when it comes to late payment or non-payment of rent — especially tenants who have withheld rent payment for justifiable reasons.

Experian, one of the big three credit reporting agencies, purchased RentBureau, a specialty credit reporting agency that concentrates on the multifamily rental industry. RentBureau recently initiated a program that allows participating property management companies to immediately feed positive and negative rent payment information directly to the agency on a daily basis. The information will then make its way to credit reports and FICO scores. Whether this is a boon to tenants, as asserted by RentBureau and others, will be discussed here.

RentBureau’s Pitch to Tenants

A careful look at RentBureau’s website reveals some potential red flags for renters, though you might not notice it at first glance. RentBureau’s site strongly suggests that only positive rental histories will be reported. (“In the past, only negative rental payment data such as evictions and collections were reported to consumer reporting agencies.”) The page goes on to hype the benefits of having one’s “on-time rental payments” figure into credit scores, thereby helping tenants “establish or rebuild [their] credit” and “qualify for what [they] deserve.” The only suggestion that anything other than helpful information will be transmitted comes at the end, where RentBureau describes receiving “updated rental payment data” on a daily basis. A reader might conclude that this program is meant to right the wrongs of past practices, by transmitting only helpful information.

RentBureau’s Pitch to Tenant Screeners and Property Managers

The refrain on RentBureau’s tenant screener’s page, however, carries quite a different tune. RentBureau’s line is that by accessing the “comprehensive positive and negative” data supplied by property managers, the people who screen applicants will reduce the risk that they will admit tenants who will later skip out, require an eviction, and cause bad debt write-offs. For the property management companies themselves, Experian notes the continuing need to “identify risky residents and accept more good residents.”

Why RentBureau Could Appeal to Collection Agencies

RentBureau’s network of satisfied customers doesn’t stop at property management companies and applicant screeners. Collection companies, who are urged to contribute their rental collection data to the agency, will in turn have access to current data on renters. When collectors receive “the most up-to-date identification and contact information on [their] accounts,” they’ll have an easier time finding and collecting from those debtors. And RentBureau promises not just contact information, but a real hammer that will force tenants to pay up. A benefit of participating in the program, writes RentBureau, is that the collection agency will have “Better leverage — Applicants will be prevented from getting a new lease before satisfying their debt obligations to you“.

Tried and True Methods for Checking Rent Payment Habits

Before the appearance of this real-time ability to report on late or missed rent payments, landlords had to assess their applicants’ rent-paying histories by talking to prior landlords, looking for eviction lawsuits, and ordering background reports, which sometimes would pick up on bad debt and court judgments. Some specialized tenant screening services also strive to gather information on “skips” — people who leave with unpaid rent. And landlords who take their tenants to court over unpaid rent, and obtain a judgment, can and often do report these judgments to credit reporting agencies.

Problems for Both Landlords and Tenants?

So, what’s the problem with having more granular information available more quickly? First, in Oklahoma, and practically every other state, Residential Landlord and Tenant Acts provide for a tenant’s right to utilize certain remedies when their landlords fail to make reasonable and necessary repairs and fail to maintain the leased premises in a fit and habitable condition.  The primary remedy is the right, after giving proper notice to the landlord, to withhold rents until the repairs are made, or to make the necessary repairs on their own and deduct the cost from the next month’s rent. However, what if the landlord disputes that the demanded repairs are reasonable and necessary to maintain the premises in a fit and habitable condition? What’s to stop the landlord from reporting the nonpayments immediately, while it disputes the legitimacy of the tenant’s use of the repair-and-deduct remedy? It remains to be seen whether Experian’s collecting and reporting of nonpayments under such circumstances violates the Federal Fair Debt Collection Practices Act or the Fair Credit Reporting Act, or various state consumer credit reporting acts.

If the tenant has improperly used the repair-and-deduct remedy, the landlord can evict on the basis of nonpayment, and a record of that event will be properly available to future landlords. But if the tenant is in the right, RentBureau and Experian currently offer no guarantee that their reports will not include nonpayments withheld under a claim of right under the Residential Landlord and Tenant Act.  Or that the information will be taken off the tenant’s record if the tenant is found to have properly used the repair-and-deduct remedy. RentBureau appears to acknowledge one possible effect of this virtually instant reporting on tenants’ (legitimate or not) exercise of their repair-and-deduct remedies, noting that reporting real-time late or skipped payments will “Encourage on-time payments — Report your residents’ rental histories to create a meaningful credit incentive for them to pay on-time.” Clearly, tenants and their legal counsel will have to think twice about exercising certain of their rights.  To the extent that tenants are legitimately exercising their repair-and-deduct remedies, Oklahoma law is on their side, but care should be taken to ensure that landlords and property management companies do not incorrectly report non-payments of rent under these circumstances.

Another issue with RentBureau’s system is that it does not reach the many tenants who do not rent from larger-volume landlords (500+ units) or owners who use property management companies. Small landlords who run their own shop are not likely to have the sophisticated computer systems needed to push the data directly to Experian. These tenants, many of whom are on-time payers, will not enjoy the benefits of having their positive rental history boost their credit reports or FICO scores. And, conversely, those renters from small landlords, who do frequently pay rent late or skip, will fly under Experian’s radar and get a credit report and score that misses their bad behavior, thereby potentially misleading prospective landlords who have increasingly come to rely on the credit report or score.

So, who should be happy about RentBureau’s new system? Landlords certainly, and also good tenants who:

• always pay the rent on time;
• rent from landlords who participate in Experian’s program;
• don’t have to withhold rent due to the landlord’s failure to make necessary repairs and maintain the premises in a habitable condition; and
• don’t compete for rental units against poor-risk tenants whose bad rent-paying history never made it into RentBureau’s databank.

Depending on the condition of the rental property and the professionalism of the landlord or property management company, tenants will have to assess the final two of the above four factors on a case by case basis.

Huddleston Law Offices offers legal and practical tips relating to the rental market, for tenants and landlords alike.

Boilerplate clauses are often simply cut and pasted from one agreement to another. These “standard” provisions conceal significant legal and business implications that can produce unwanted future results if not tailored to specific circumstances of the transaction. Such boilerplate provisions are often placed into a miscellaneous category. They may include, among other things, choice of forum, choice of law, force majeure, liquidated or limitations of damages, dispute resolution, assignment, notice, merger, and amendments.

Best practices necessitate negotiating and drafting such clauses, as well as others, in anticipation of future disputes. Automatically transplanting a boilerplate provision from an existing contract or form into a new agreement can unintentionally defeat the contractual intent of the parties and cause significant losses. Anticipating potential pitfalls of boilerplate provisions can avoid litigation when a future dispute arises.

It is standard practice to include a number of general provisions in any legal document, and given their common use and function they are referred to as boilerplate clauses. It is common practice to place these more fundamental legal clauses at the back of the document while ‘interpretation’ boilerplate is usually included at the front.

Boilerplate clauses are more general in nature than other clauses in the body of the contract and they normally relate to legalities of the contract rather than the particular transaction. There can be a temptation for a client’s eyes to glaze over once they see such provisions. It is fair to say that sorting through such complications is the reason a lawyer is hired in the first place.

The importance of these clauses should not be underestimated. Clients often demand short, succinct documents and they may see such provisions as ‘unnecessary”. Judicious use is required, but the elimination of boilerplate would not be wise. Deleting any boilerplate clauses should be throughly and carefully considered with the risks and benefits being carefully weighed.

Some common boilerplate clauses are:

• This is the entire agreement between the parties in relation to its subject matter and it supersedes all previous written or oral negotiations, promises and understandings.
• No modification of the recorded terms will be binding unless it is in writing and signed by each party.
• If a court considers any provision unlawful, invalid or unenforceable that will not affect the validity and enforceability of the remaining provisions.
• If the document is signed in counterparts, each is deemed an original and together they constitute one instrument.
• Each party must do all things required to implement the provisions of the document and to give effect to the parties’ stated intentions.
• Each party is to pay its own legal costs related to preparing and signing the document.
• Nothing in the document constitutes a partnership among the parties or authorizes any party to act as agent or to bind another or contract in another’s name.
• The assignment (changing ownership) of the rights and obligation are restricted unless written consent is given.
• Successors (such a future owners) will be bound by the relevant undertakings and obligations, but they’ll also enjoy the same rights.
• The other party must execute any documents required to give effect to the undertakings in the document.
• The rights, powers and remedies set out in the document are in addition to any existing rights.
• Failure to take action does not mean a party has consent to another party’s actions nor does it prevent a party from taking action later.
• Rights will only be waived if that waiver is in writing.
• A certain jurisdiction’s laws are selected to govern the document.

Commercial leases and purchase and sale agreements are examples of the types of contracts where a qualified attorney can assist a client to strategically use boilerplate clauses, and to identify the pitfalls in using standard contract clauses without adapting them to the unique circumstances of the deal at hand.

One of the most unfortunate situations faced by a landlord or tenant in a rental relationship is a forcible entry and detainer (FED) action. In Oklahoma, an FED is more commonly known as an eviction. It is important to know that there are strict laws that govern the eviction procedure. Among them are the (i) Oklahoma Residential Landlord and Tenant Act found at Section 101 et seq. of Title 41 of the Oklahoma Statutes and (ii) Sections 1148.1 thru 1148.16 of Title 12 of the Oklahoma Statutes governing the Forcible Entry and Detainer procedure. Such laws were made to protect the rights of the landlord and the tenant. If you are a landlord or a tenant facing an eviction, it is IMPORTANT that you consult with someone who is familiar with the eviction laws and process. A procedural or substantive misstep can be costly or even illegal.

Huddleston Law Offices has the experience needed to assist you (as a tenant or landlord) in protecting your rights throughout the eviction process.