Property Management Practices Under Scrutiny: Md. Attorney General Reaches $80,000 Settlement With Management Company Plus Restitution

State Attorney Generals are scrutinizing property management leasing and maintenance practices. The risk of an enforcement action can reduce your bottom line. Thus, every property management company should ensure that they are compliant with the Attorney Generals’ interpretation of state landlord and tenant law. Otherwise, you may find yourself facing civil penalties, requests to reimburse state investigation costs, and claims for restitution.

Md. Enforcement Decisions

For example, on October 16, 2008, Attorney General Douglas F. Gansler’s Consumer Protection Division reached a settlement agreement with JPI Apartment Management Company (“JPI”) for alleged violations of the Maryland Security Deposit Law and the Maryland Application Fee Law. http://www.oag.state.md.us/Press/2008/101608.htm

After investigating JPI management practices, the Attorney General’s Office found JPI violated state law by:

• Collecting security deposits from prospective tenants with their rental applications and then refusing to refund the deposit if the tenant declined to sign the lease;
• Deducting liquidated damages from security deposits;
• Failing to provide consumers who paid security deposits with receipts that contained all notices as required pursuant to Md. Code Ann. Real Property § 8-203.1 http://mlis.state.md.us/asp/web_statutes.asp?grp&8-203.1 ;
• Collecting security deposits from consumers in excess of the statutory limit of two months rent Md. Code Ann. Real Property § 8-203(b) http://mlis.state.md.us/asp/web_statutes.asp?grp&8-203 ;
• Charging application fees that exceeded the statutory limit Md. Code Ann. Real Property § 8-213(b) http://mlis.state.md.us/asp/web_statutes.asp?grp&8-213 ; and
• Failing to include a statutory notice informing consumers of their rights when they signed rental applications as required by law.

Even though JPI denied violating any laws, they agreed to modify their management policies. In accordance with that agreement, JPI will no longer deduct liquidated damages from tenants’ security deposits, retain security deposits from prospective tenants who do not sign leases, or charge tenants application fees in excess of $25, unless the fee represents actual costs for processing lease applications which exceed the statutory limit. JPI must also fully disclose tenants’ rights in its lease applications.

As a result, JPI must recompense residents and past prospective tenants monetary amounts deducted from the security deposits, overcharged in applications, or paid for security deposits in excess of the state limits, on top of the Attorney General’s Office $30,000 bill for its investigation costs and a $50,000 civil penalty.

This decision follows two prior settlements in 2007 against Property Management companies for charging excessive application fees, improper deduction of fees for early termination of the lease agreement, and assessment of improper charges for cleaning fees. (See, February 6, 2007 Press Release, Attorney General Settles with Horning Brothers, Winterset Apartments, L.L.C., and Owings Park, L.L.C., http://www.oag.state.md.us/Press/2007/020607c.htm January 26, 2007 Press Release, Attorney General Settles with Associated Estates Realty Corporation (“AERC”) http://www.oag.state.md.us/Press/2007/012607.htm).

Each company was assessed fines. “AERC agreed to pay restitution equal to the termination fees it deducted from consumers’ security deposits, as well as the cleaning fees it charged consumers,” along with a $30,000 assessment for the Attorney General’s Office investigation costs and a $75,000 civil penalty. Horning Brothers was also responsible for payment of restitution, costs of the investigation and a $15,000 civil penalty. Whereas, Winterset and Owings Park’s civil penalty was reduced to $5,000 for complying with their settlement terms.

Similar Enforcement Decisions

Several other State Attorney Generals are also monitoring property management practices, assessing civil penalties and fines and requesting reimbursement. A few examples:

• June 11, 2008 Texas Attorney General settled with Rainier Management, Ltd., for violations of the Texas Deceptive Trade Practices Act by failing to honor residential lease contract terms. A fine of $5,000 was assessed and Rainier has a duty to file an accounting and provide full refunds to tenants for service payments. See, Copy of Assurance of Voluntary Compliance, http://www.oag.state.tx.us/newspubs/releases/2008/061108rainier_avc.pdf
• On June 2, 2008, the Vermont Attorney General settled with Black Ink Property Management, LLC for violations of the Consumer Fraud Act for noncompliance with Vermont’s lead paint law. Black Ink was required to pay a $5,000 civil penalty and perform essential maintenance practices to comply with existing law. http://www.atg.state.vt.us/display.php?pubsec=4&curdoc=1471; (See also, http://www.atg.state.vt.us/display.php?pubsec=4&curdoc=1405, December 28, 2007, Vermont Attorney General Press Release announcing settlement with Parkside Properties for similar charges and penalties).
• On May 16, 2008, the Maine Attorney General obtained a court-ordered consent decree that bars Port Property Management from automatically charging an early termination fee. Not only were they ordered to stop charging early termination fees and assessed a $10,000 civil penalty, but they are also obligated to refund money to tenants who were improperly charged those fees between January 1, 2005 and December 31, 2007. http://www.maine.gov/tools/whatsnew/index.php?topic=AGOffice_Press&id=55984&v=article
• On October 25, 2007, in Idaho, owners property management companies were alleged to violate the Idaho Consumer Protection Act, for misrepresenting the safety of tenant security deposits by commingling those fees with the general operating account, and Idaho’s landlord-tenant laws for refusing to refund those security deposits. Not only must those owners reimburse the Attorney General’s Office $2,049.80 for investigative fees and costs, but the owners are now restricted to managing no more than 50 properties. The owners must also provide to the state an accounting of their business income and expenses for the past two years. http://www2.state.id.us/ag/newsrel/2007/nr_oct252007.htm

Whether it is leasing practices or maintenance provisions, Attorney Generals are monitoring property management companies to ensure compliance with landlord-tenant law. To avoid costly investigations and enforcement penalties and refunds, ensure that your practices are compliant with local law and practices.

(This entry posted by Erin Miller, John Sweeney and Sky Woodward, all members of Womble Carlyle's Products Liability Litigation team)

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