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Tenant “Paid in Full” Check

What happens if a tenant writes a check for less than full amount due, such as not paying late fees, but writes “paid in full” on the check? Can the landlord deposit the check, or must it be returned?

Naturally, landlords want to get what money they can as soon as possible, and so do not want to return the check. But, does that mean they are giving up the right to collect the unpaid sums?

The short answer is, “No, the landlord is not giving up its rights to additional sums due if it deposits the check.”

In the Alabama Supreme Court decision in Madden v. Deere Credit Services, Inc., 598 So.2d 860 (Ala. 1992) Madden signed a promissory note for a cable skidder purchased from John Deere, and then made payments on an irregular basis. At some point, he wrote a check for approximately $2,400 and wrote “paid in full” on it. Deere Credit deposited the check. They then claimed additional money due, Madden refused to pay it, and Deere repossessed the equipment. The court held that the amount due on Madden’s note was “readily susceptible of precise, mathematical calculation. Madden, therefore, …had no grounds on which to base a good faith argument that he owed” a smaller amount than claimed by Deere Credit.  “We conclude that the debt was liquidated; therefore, Deere’s unqualified endorsement of Madden’s check, which was marked ‘paid in full’ … did not extinguish Madden’s liability.”

In other words, there was no real dispute about the calculations for the amount due, so accepting the check was not a settlement of a dispute. Because it was not a settlement of a dispute, it didn’t matter what Madden wrote on it, the check was not legally a payment in full.

I think that makes it fairly clear that accepting a “paid in full” rent check when there are still outstanding rent charges, late fees, or other fees, does not hurt you. Check with an attorney to be sure, but don’t have a heart attack if you accidentally deposit a check with such a notation. If, on the other hand, a tenant disputes some charges and then marks a check “paid in full,” you should not deposit it. If it is accidentally deposited, then refund the money as soon as you are sure their check will not be returned NSF or some other reason.

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Default After Renewal

College StudentsThis is a problem in college areas because leases are often signed 9-10 months in advance. Is the renewal lease enforceable if the tenant defaults on his or her current lease?

In other words, what happens if a tenant is a good tenant from August through November of 2018 and then signs a renewal lease for August 2019 through July 2020. Then, in May or June of 2019, the tenant defaults on his first lease.  Can the landlord cancel the renewal lease, assuming it wants to do that?

We don’t know. It seems like the landlord SHOULD be able to cancel the renewal lease. On the other hand, I cannot find anything that authorizes that.  My advice: Talk to your lawyers. If recommended, maybe write a new clause into your forms so if a current lease is terminated for any reason, then the landlord will also have the right to terminate a renewal lease.

By the way, don’t forget about purchase options. I recommend that landlords who give purchase options in their leases have a clause saying it is null and void if the tenant defaults.  Some landlords say any default, even if cured. Some say only uncured defaults. Some don’t even think about this issue. At least think about it!