Automatic and online rent payments – What landlords need to know about acceptance

When determining whether a tenant has paid rent on time, not all methods are considered equally.  For instance, a mailed check is considered received when the landlord physically gets the check in his hand, not on the date the check was mailed.  In contrast, online payments go through instantly and are considered received as soon as the tenant initiates payment.  With technology and the use of apps becoming increasingly acceptable ways to pay rent, is rent paid through an “automatic payment method” considered acceptance or can it be returned?

The payment of rent by a tenant to a landlord is contractual in nature.  The terms and conditions are spelled out in the lease.  Simply stated, if the landlord and tenant have agreed in the terms of the lease that the payment of the rent can be done via an “automatic payment method” (whether that is direct deposit or an “app”), then rent is considered “accepted” once the tenant initiates payment.  Once that tenant has initiated payment, the issue of whether the landlord can return rent becomes a grey area.  (That said, it is important to note that in California, a landlord cannot compel a tenant to pay rent via electronic transfer.  The landlord must provide an alternate means by which the tenant can make payment.  See California Civil Code Section 1947.3(a)(1)).  If a tentant pays via online or through an online bill pay, a confirmation email showing proof of payment indicates acceptance.  If a tenant pays through an online app, like cozy, the rent payment will automatically be taken from their bank account on the same date every month.

When a tenant makes an electronic payment, he or she is telling the bank to transfer money to his or her landlord on a specific date to pay rent.  When done with a credit card, automatic payments act simply as a recurring charge on one’s account.  If you are a landlord receiving payments through online pay, you have “accepted” the payment the moment the tenant makes that transfer.  There are no returns or refunds to the tenant if it is after the date on which the rent is due.

Because a landlord cannot just refund the money to their tenant and go after the full amount of the rent, he or she should never, under any circumstances, accept rent payments following the day rent is due.  Accepting any amount of money during the eviction process could void your ability to evict your tenant, thereby requiring you to start over.  If you do receive a partial payment, you should notify the tenant as quickly as possible and instruct them that you rejecting the partial payment.  You will also want to check with your bank account and see if it can place a “return to sender” note on your bank account. 

If you agree to accept a partial rent payment prior to or on the due date, put in writing what the agreement is.  State exactly the amount of rent the tenant pays you (the partial amount) and the date that the balance is due.  In addition, if you charge a late fee per the terms of your lease, make sure to hold your tenant to the late fee.  You do not want to waive any of your rights or set a precedent for a future code of conduct.  It is okay to accept partial payments before the due date as long as your tenants pay in full by the due date.

In black letter law, the tender of rent is the “offer” and the “taking” of rent is the “acceptance.”  Acceptance “occurs when an offeree agrees to be mutually bound to the terms of the contract by giving consideration, or something of value like money, to seal the deal.”  If a tenant renders payment through auto-pay that is, except under very limited circumstances, considered acceptance.  In this situation, the payment is accepted once the tenant pays the rent.  Landlords should make every attempt possible to present their tenants with clear and unambiguous lease agreements in order to avoid any confusion.  If you are a landlord with any questions, you should obtain the advice of an attorney who is knowledgeable and experienced in these matters.  Contact Eileen Kendall at Kendalllaw.net at (310) 619-4941.