Collecting advance payments: PAR forms

Now that you know what you know about the payment and collection of security deposits (because of course you read yesterday’s article from Attorney Goldsmith), how do you put that knowledge into practice?

In a rental transaction using PAR’s standard forms, the process will typically begin with one of the two applications, the Rental Application (Form RA) or the Rental Application for Landlord Agents (Form RALA). Both forms allow the landlord to document different fees that must be paid, some of which can be paid in advance with only two described as non-refundable. When informing applicants of fees and what must be paid in advance, a landlord should consider the reason he or she is asking for that money. As was stated in the E.S. Management case, monies that are paid in advance and used as a guarantee for future damages, whether it is physical damage to the premises or financial damage for non-payment, are considered to be security deposits.

Any sums paid in advance should be recorded in writing, such as on the Advance Payment Addendum to Rental Application (Form APA). The form not only gives the parties a paper trail of how much was paid and when, but it provides more information about what the monies are used for and how they will be treated if negotiations fall apart. Assuming that all goes according to plan and the applicant is ready to sign a lease, all payments can be recorded in paragraph 8 of the Residential Lease, payment schedule.

Keep in mind that aside from the LTA limiting security deposits to no more than two months’ rent at the start of lease, it also limits the landlord to retaining no more than one month’s rent starting in the second year of tenancy. Landlords should already have procedures in place to retain any excess security after the first year of a lease – there is no PAR standard form for that process. Any landlord who may have collected excess funds based on the holding of the E.S. Management case should certainly consult with counsel on next steps, and may consider using a similar procedure for returning those funds.

For more information about how to use PAR Standards Forms cited in this article, download the Guidelines for Preparation & Use from the standard forms page of the PAR website. Any remaining questions can be sent to me.