Tenants that are strapped for cash may send a check covering only part of the rent due for that particular month. Such partial rent checks may create a major dilemma for landlords. On the one hand, partial payment is better than no payment at all, especially in difficult financial times. The problem is that by accepting a tenant’s partial payment you may waive your right to collect the balance of the monthly rent due. And because waivers are hard to undo, if you make a practice of cashing partial rent checks, you may even be granting the tenant a permanent rent cut. 

The good news is that a Chicago leasing attorney says that you can avoid this dilemma by carrying out two simple steps:

• Including lease language that makes it clear that accepting a partial payment doesn’t waive your right to make the tenant pay the balance; and
• Delivering a letter that reminds the tenant that tenders a partial rent payment of your right to collect the balance.

Here’s a look at the strategy, along with the Model Lease Clause and Model Letter you can use to execute it.   

The Legal Dangers of Accepting Partial Rent Payments

A landlord is under no legal obligation to accept anything less than the full amount of rent that the lease requires tenants to pay each month. So, tenants that pay only part of what they owe are at the mercy of all of the landlord’s rights and remedies under the lease and the law, including the right of eviction. 

Of course, landlords don’t have to pursue these remedies if they don’t want to. By accepting partial payment, landlords effectively forgive the tenant’s breach and waive their right to enforce the lease provision requiring the tenant to pay the full rental amount. 

Waiver of Right to Collect Unpaid Balance 

Waiver becomes an even greater risk when a landlord accepts partial rent on multiple occasions. A New York City building owner is one of many landlords that have learned this lesson the hard way. The landlord allowed a tenant to pay partial rent for six months in a row. Its patience at an end, the landlord demanded that the tenant pay full rent in month seven. The tenant balked and the landlord backed down, continuing to accept partial rent checks while warning the tenant that it would end the breaks and demand the back rent at some future date. 

That future date came about two years later, when the landlord sued for the unpaid rent due. However, the court ruled that the landlord’s continued acceptance of partial rent over such an extended period constituted a voluntary waiver of its right to make the tenant pay the balance [Freidberg v. Baker, 233 N.Y.S. 2d 684].

Risk of Permanent Rent Cuts

There’s more at risk than simply the back rent. The Chicago attorney warns that accepting partial rent even on one occasion could jeopardize the landlord’s right to collect full rent from tenant in the future. In essence, the acceptance opens the door for the tenant to continue making partial payments such that the waiver constitutes a permanent and nonreversible rent cut. 

Take Two Steps to Guard Against Waiver Dangers

“The reason so many landlords get into trouble is that they think they’re simply cutting a struggling tenant a one-time break without understanding the legal implications of their actions,” the Chicago attorney explains. One option is to categorically refuse to accept any rent partial rent payments from a tenant. However, this is an inflexible approach that doesn’t give you much leeway in situations where accepting partial rent may be in your best interests. An alternative is to take proactive measures that enable you to accept partial rent without waiving your lease rights to full payment. Here’s how to do that.

Step 1. Insert a non-waiver clause into the lease. The first step is to include a lease clause that expressly spells out that cashing a partial rent payment from the tenant doesn’t affect the landlord’s right to collect the balance of the rent due. This is true even if the tenant writes “paid in full” or a similar phrase on the check purporting to indicate that the partial payment completely satisfies its rent payment obligations for the particular month the check covers. 

The clause should also state that accepting a partial payment doesn’t mean that the landlord has agreed to lower rent or that a lower payment satisfies the tenant’s rent payment obligation for that month. This is called an “accord and satisfaction” provision. In addition, the clause should specifically reserve the landlord’s rights to “pursue any and all of its remedies” to collect full rent from the tenant. Ask your attorney about using this model clause in your leases.

MODEL LEASE LANGUAGE

Accord and Satisfaction. No payment by Tenant to or receipt by Landlord of a lesser amount than any installment or payment of Rent due under this Lease shall be deemed to be other than on account of the amount due, and no endorsement or statement on any check or payment of Rent shall be deemed to constitute an accord and satisfaction. Accordingly, Landlord may accept such partial check or payment without prejudice to Landlord’s right to recover the balance of such check or payment of Rent, or to pursue any and all remedies available to Landlord.  

Step 2. Send nonwaiver letter to partially paying tenant. A nonwaiver clause alone may not be enough to protect the landlord. The tenant may still claim that the landlord waived its rights under the clause by not objecting to the partial payment. To prevent this, the Chicago attorney recommends that the landlord send a letter immediately after receiving the partial rent payment to notify the tenant of its intent to treat the check as payment on account. The letter, like our Model Letter below, should also state that in accepting the check the landlord isn’t waiving its right to collect the balance of the rent due from the tenant. 

Be sure to send the nonwaiver letter each and every time a tenant sends you a partial rent payment. In other words, you must restate your right to collect the unpaid balance for each partial payment the tenant makes. Sending a letter on each occasion of partial payment will also prevent the partial payments made from being considered the new lower rent. 

As for timing, the Chicago attorney suggests that it’s okay to cash a partial payment before sending the nonwaiver letter. But sending the letter promptly—that is, no more than one week after receiving the check, prevents uncertainty as to whether the landlord accepted the partial payment without objection. You should also send the letter by certified mail, return receipt requested so that you’ll have proof of sending it in case the tenant later claims it didn’t receive it.