Protect Cash Flow When Accepting Credit Card Rent Payments
To get an edge over your competition and reduce the hassles associated with collecting rent, you may be considering letting residents pay their rent by credit card. While accepting credit card rent payments is generally a reliable way to get paid, there are some precautions you should take before you do so to make sure you get all the rent that's due.
We'll give you two steps to take to protect your cash flow if you decide to accept credit card rent payments. We'll also give you a Model Agreement: Get Key Protections in Credit Card Authorization Agreements, that you can adapt and use to get residents' authorization to charge their rent payments to their credit card.
Step #1: Include Key Protections in Your Credit Card Authorization Agreement
If you decide to accept credit card rent payments, you'll want to be able to automatically charge residents' credit cards for these payments each month. To make such charges, you must get residents' permission to do so. To get such permission, have residents who want to pay rent by credit card sign a credit card authorization agreement, recommends Ohio attorney Jeffrey Greenberger. In addition to basic information such as the resident's name, unit number, and credit card number, your agreement, like our Model Agreement, should include the following key protections:
Express permission from resident to charge credit card for rent payments. Get the resident's express permission to automatically charge his credit card for his rent payments, advises Greenberger.
Permission to charge credit card for rent payments throughout lease term. Get the resident's permission to continuously charge his credit card for his rent payments until the lease ends or until it's terminated by you. And say that either you or the resident can terminate the agreement in writing.
Permission to charge additional rent to credit card. Get the resident's permission to charge any “additional rent”—that is, charges for, say, submetered utilities or certain repairs—to his credit card. This way, you won't have to collect these additional charges, which may vary from month to month, separately from the monthly rent.
Permission to charge late fees to credit card. It's okay to charge late fees at a tax credit site as long as you treat low-income and market-rate residents the same, comply with fair housing and all state and local laws, and don't violate any state housing agency rules. You should get the resident's permission to charge any late fees to his credit card, says Greenberger. There are several reasons a credit card transaction might not go through, causing the resident's rent to be late. For example, the rent charge may be rejected because the resident exceeded his credit limit or because the credit card expired.
Immediate reimbursement for incomplete transactions. Require the resident to agree to immediately pay what he owes you in the event the credit card transaction doesn't go through—including any fees or penalties the credit card company charges you. And specify the method in which you want to get paid after a failed transaction, such as by cashier's check or certified check.
Written notice of card cancellation, expiration. Require the resident to agree to give you written notice of the cancellation or expiration of the credit card you're authorized to use, suggests Greenberger. He suggests requiring the notice to be given at least five days before the next rent payment is due. This will help you avoid unauthorized transactions and the expenses associated with them.
Step #2: Protect Yourself from ‘Charge Backs’
Some sites are hesitant to accept credit card rent payments because they're afraid that when residents have a dispute with management, they'll ask their credit card company to credit the rent charge back to their credit card, which is called a “charge back.” Although this does happen occasionally, it's not common and shouldn't discourage you from accepting credit card rent payments, says Greenberger.
Charge backs are only supposed to be requested for unauthorized credit card transactions—for example, when a store charges twice for the same purchase. A cardholder isn't supposed to request one when the item or service charged to the credit card doesn't meet his expectations, points out Greenberger. So before a credit card company will authorize a charge back, it will ask the reason for the request. And the credit card company probably won't authorize the charge back if the resident says he's requesting it because his site's owner hasn't fixed a leak.
Nevertheless, you'll inevitably get notices from credit card companies that a rent payment is being disputed and that the resident has requested a charge back. You can prepare for such disputes by doing the following:
Requiring staff to follow procedures in processing company agreement. Make sure your staff complies with the procedures spelled out in your agreement with the credit card processing company, the company that provided your site with the credit card terminal used for transactions, or a third-party processing company. You can find out the proper procedures by either contacting the credit card processing company or reading your agreement with it. These companies have procedures that must be followed when accepting credit card payments, and following these procedures will help you win your case. For example, some companies require the resident to sign the credit card slip each month, or management to swipe the credit card through the machine each month. A resident may have more of a leg to stand on if a disputed charge wasn't processed according to these procedures.
Assigning staff member to respond to disputed charge immediately. When a resident requests a charge back, his credit card company will immediately send your site what's called a notice of dispute or a charge back notice, which will ask questions about the transaction. Make sure you assign a staff member to respond immediately to these notices. The purpose of a charge back notice is to find out whether you were authorized to make the charge—not whether you've adequately fixed a resident's sink or replaced an appliance—so you should be able to end the dispute by responding quickly to the notice and offering proof that the charge was authorized. Greenberger recommends sending the credit card company copies of the following:
The resident's lease, which will show the resident's rent, the lease term, and the resident's signature;
The rent invoice for the disputed charge; and
The credit card authorization agreement the resident signed.
Making sure lease bars resident from withholding rent. Most states' laws say that a resident can't withhold rent to protest a dispute with an owner. And apartment leases usually reiterate this point. So check your lease to see if it includes such language, advises Greenberger. If it doesn't, talk to your attorney about adding such language to your lease. Greenberger recommends using the following language.
Model Lease Language
Unless otherwise provided by applicable law, Resident's obligation to pay rent and any other charges is an independent covenant and not conditional upon the performance by Owner of Owner's responsibilities under this Lease.
Jeffrey Greenberger, Esq.: Katz, Greenberger and Norton LLP, 105 E. 4th St., Ste. 400, Cincinnati, OH 45202; www.kgnlaw.com.