Collecting the Last Month’s Rent at the Start of a Lease Could Cost You
A recent ruling from the Pennsylvania Superior Court in E.S. Management v. Gao, 176 A.3d 859 (Pa. Super. 2017) clarifies that payment of the last month’s rent at the start of a residential lease must count as security deposit for purposes of the Landlord and Tenant Act of 1951, as amended. Additionally, the Superior Court upheld the application of the Pennsylvania Unfair Trade Practices and Consumer Protection Law and its treble damages and attorney’s fees penalties against a landlord who collected the last month’s rent in addition to the two month maximum.
To review, PA’s Landlord and Tenant Act restricts the collection of security deposits to a maximum of two months’ rent for the first year of occupancy. In addition, at the start of the second year of occupancy, the legal maximum is reduced to one month’s rent. The relevant section of the law is Section 250.511a, which reads as follows:
Escrow Funds Limited
(a) No landlord may require a sum in excess of two months’ rent to be deposited in escrow for the payment of damages to the leasehold premises and/or default in rent thereof during the first year of any lease.
(b) During the second and subsequent years of the lease or during any renewal of the original lease the amount required to be deposited may not exceed one month’s rent.
[. . . ]
The most notable ruling in the Gao case is that collecting the last month’s rent at the initiation of a lease falls under the limitations of subsection (a) above and the Unfair Trade Practices Law. Although the Unfair Trade Practices law was first envisioned as a exclusive tool for the PA Attorney General, with its incredible six-year statute of limitations, its scope has been continually widened by legislative amendment and court decisions. The law was legislatively amended to allow application by private consumers and their attorneys for what are construed to be “deceptive” actions by those dealing with consumers. Thus, creative application of the word “deceptive” and an ascertainable loss by a tenant is usually all that is needed for a tenant’s attorney to make a claim under the Unfair Trade Practices Law. The law carries stiff penalties which include three times (treble) damages and the shifting of reasonable attorney’s fees.
A more troubling aspect of this case is that the court upheld the decision of the Allegheny County trial court that two days is an insufficient time for a tenant to review a residential lease before signing if the court finds the lease to be complicated. The court further upheld the theory that requiring such a short time period was “deceptive” or likely to create misunderstanding. Granted in the Gao case it was stressed that the landlord’s lease was 15 pages in single spaced type. The Pennsylvania Association of Realtors has been capitalizing on this aspect of the case and encouraging use of its form residential lease, which one would assume, it believes would be found to be uncomplicated by a court. That remains to be seen; however what is clear is that a landlord who uses a shorter, double-spaced, plain-language lease will have a better chance of a favorable court ruling.
If you are unsure if your lease would be considered “plain-language,” the PA Attorney General’s Office will review it and issue a determination. The procedure for having your lease pre-approved by the Attorney General can be found here:
Tkacik Law Office was directly involved in E.S. Management v. Gao, 176 A.3d 859 (Pa. Super. 2017) in representing the interests of the landlord, starting with the appeal to the Superior Court. David M. Tkacik, Esq. is a real estate attorney and landlord. He can be reached at 412-414-9644 or DTkacik@TkacikLawOffice.com.