Electronic direct deposits of monthly or annual cell site rent payments into a landlord’s bank account is a common enough practice.
Direct deposits saves the tenant the payment-related costs of:
- printing the check,
- getting it to and from the signer (if hand signed),
- putting the check in an envelope,
- running the envelope through the postage machine;
- getting the stamped envelope in the outgoing mail tray;
- getting the mail tray to the pick-up point or post office.
For the landlord, electronic payments are quick and relatively easy:
- You look online or check your statement to see whether the check hit, and when, and log that into your receivables as a payment.
So far, so good, but there’s a real stinker lurking. Read on…
Electronic payments are commonly describe in the lease agreement and commonly involve the landlord executing and sending the tower company a one-page form, often titled something like: “Electronic Payment Authorization” or “Direct Deposit Form”.
The authorization form will contain some legally-operative language, such as the language shown here: “By signing below, I authorize [the tower company] to make entries to my account at the financial institution indicated on the attached voided check.”
All goes well for a while, and the deposits go in mostly on time.
But then something happens…the tenant and the landlord get sideways over some payment made by the tenant to the landlord, and suddenly there is a WITHDRAWAL from the landlord’s bank account for the amount disputed by the tenant. Poof. The money is gone.
Huh? How can that occur? The landlord says that the direct deposit form was for, well, deposits.
The landlord contacts the bank and says, ‘Huh? What’s this withdrawal by my cell site tenant?! I NEVER authorized it!! You, my bank, has to fix this and put the money back into my account!”
The landlord’s banker looks through the account records, finds the electronic withdrawal, then goes into the account signature documents. The call back from the banker to to the landlord goes something like this: ‘Sorry, but you authorized your tenant to make account withdrawals.’ Then the banker tells the landlord to look at the clear and unambiguous words in the Direct Deposit Form signed so long ago and forgotten by the landlord.
Sadly for the landlord, the legally-operative words said something quite different from what the landlord understood: “By signing below, I authorize [the tower company] to make entries to my account at the financial institution indicated on the attached voided check.” (Emphasis added.)
Don’t think that an “entry” is a deposit…think about it like in accounting. An account entry can be–and in the case of monthly rent–is a deposit (called a credit in accounting talk). But also in accounting, an account entry can be a debit (or a withdrawal).
By allowing the tenant to make “account entries” the landlord gave the keys of the account to the tenant.
Not such a hot idea, and one that in the hypothetical case above, would likely force the lawyers to get involved.
Conclusion? Direct deposits are most often a very good thing. Account entries? Well … not so much. Words have legally-effective meanings, even on a simple form seemingly so straight forward and clear. Fixing the particular problem shown in the example here, which used real words from a signed document we reviewed, is easy once you understand the issue and know how to resolve it to protect the landlord.
When in doubt, and most often even if you’re not, it usually pays to reach out to an attorney who has a practice related to your issue. As the old Ben Franklin quote starts, “A stitch in time…”
Jonathan
