Here we discuss Rent Ledgers. These bookkeeping devices have become ubiquitous in the rental housing industry. They are helpful, but they can also hurt landlords.
What is a Rent Ledger?
A rent ledger is a written record detailing the payment history of a tenant in a particular rental unit. It creates a record of the rent and other charges due each month, payments made for rent and other charges, and a running balance of money due from the tenant or owed to the tenant.
Really good ledgers will include information about when a payment was made, how it was made (check, auto deposit, cash, etc.) and how it was received (regular mail, personal delivery, direct deposit, etc.).
Before personal computers, landlords would keep track of payments due and made on paper. Later, they would use a computer to keep a record. Some landlords use an Excel spreadsheet to keep track of the rental obligations.
Several companies offer software ledgers to track how much rent is due. They market their products by saying a rent ledger can be used as evidence of unpaid rent should an eviction case ever go to court.
However, it is important to remember that these ledgers and the reports they produce are secondary evidence of payment history. The best evidence would be copies of envelopes, checks and letters sent by the tenant and the testimony of the landlord saying he or she did or did not receive rent for a particular month.
How is a Ledger Used at Trial?
Many of our clients use ledger software to generate reports. When rent is due, the client will send us a report and tell us to prepare a 3-day notice to pay rent or quit based on the information in the report. We always review the report for accuracy or contradictions.
Ultimately, the person most knowledgeable about the ledger or report must come to court and explain when rent was and was not paid. This person must be available to testify based on their own personal knowledge. The ledger or report can be used to refresh their recollection while testifying.
If the witness testifying at trial lacks personal knowledge of the rent payment history at issue, which is common with property management companies or large landlords, the ledger or report can be introduced as a business record.
There Are Dangers When Using Ledgers at Trial to Prove Rent Owed
If the testimony of the landlord or other witness concerning the amount of rent demanded in the 3-day notice to pay rent or quit contradicts the testimony of the witness, the Plaintiff’s case will suffer.
The tenants will claim they were confused, or the landlord is wrong about the amount due. If the landlord is confused, the tenant’s claim of confusion will be corroborated.
The law requires that a 3-day notice state the precise amount of rent due. The landlord has the initial burden of proving the amount of rent due. After presenting evidence of rent due, the tenant will then respond by presenting evidence that the rent stated in the notice was not due either because it was paid, or the amount demanded in the notice contradicts the ledger.
Sometimes a landlord might be better off not presenting the ledger as an exhibit in court. Do not use a ledger to prove the amount of rent due if the ledger or payment history is confusing. Testimony might be the better evidence. This determination should be made before the 3-day notice is served on the tenant.
If the ledger is wrong or confusing, don’t use it in court.
How Might a Ledger Be Erroneous?
The obvious ledger error is where a payment is not recorded or improperly recorded in the ledger. But the other common errors include misapplying payments to the correct monthly obligation, or including things like bills for repairs, late fees, and utility charges.
Some of these charges are properly owed but cannot be included in most 3-day notices to pay rent or quit. If a ledger mixes miscellaneous fees with rent due, the ledger might still be useful for knowing which months rents are due and owing, but the running balance is useless.
Should an Erroneous Ledger be Corrected?
We have seen cases where a corrected ledger has led to more confusion and credibility issues at trial. If a tenant was given a copy of a ledger which was later corrected, the tenant will use the change to prove confusion or that payments were made. Most of the time, it doesn’t make sense to correct a ledger that contains errors.
How Do Rent Ledgers Work?
Ledgers and related software products all have nuances to them. But they all apply general accounting principles. One column will list a contractual debt that is due, and another will list payments made to satisfy that particular debt.
Entries are made for rent, late fees, garage and storage fees if separate from the rent, and utility charges if permitted by law. The far-right column of the ledger shows the balance. If there is a positive amount in this column, the tenant owes rent (and/or other fees). If there is a negative amount, the tenant has overpaid rent at some point in time.
Should Landlord Be Using a Ledger?
Ledgers are an extremely useful tool that all landlords should be using. Software ledgers are best. They are accurate and easy to use. But even tracking payment histories in Excel or on paper are better than not using a ledger at all.
Contact your rental housing association for recommendations on available software. And if you ever need to serve a notice for nonpayment of rent, make sure that you provide your eviction attorney with a copy of the ledger.