UPDATE February 3, 2017 –
Representative Gary Cross has introduced HB 705 which would repeal this legislation. Ironically, Rep Cross is the representative that first introduced the original legislation, HB 1862. I’m guessing he has come to realize the problems this legislation has caused, which I believe were unintended consequences, and has chosen to fix the issue which I praise him for!
This legislative session, the Missouri State Legislature passed HB. 1862, which modifies provisions relating to the existing landlord-tenant law in Missouri, specifically, it repeals sections 534.350, 534.360, 535.030, 535.110, 535.160 and 535.300 of the Revised Statutes of Missouri and replaces them with five new sections as described in the bill. The bill has been delivered to Governor Nixon and, if signed by him, will go into effect August 28th of this year.
Why This New Law May Force Landlords (even licensed real estate agents) To Use Property Managers:
While this bill has some good things in it, such as establishing some reasonable procedures and time lines for a landlord regaining possession of a property as well as doing a little housekeeping with regard to what can be deducted from a security deposit, the bill also makes, what I believe to be, a very damaging change to the law with regard to security deposits. With regard to security deposits held by landlords, the bill changes section 535.300 (2) to read (emphasis is mine):
“All security deposits shall be held by the landlord for the tenant, who is a party to the rental agreement, in a bank, credit union, or depository institution which is insured by an agency of the federal government. Security deposits shall not be commingled with other funds of the landlord. All security deposits shall be held in a trust established by the landlord and deposited in a bank, credit union, or depository institution account in the name of the trustee. Any interest earned on a security deposit shall be the property of the landlord. A landlord licensed under and subject to the requirements of chapter 339, in lieu of complying with this subsection, shall maintain all tenant security deposits in a bank, credit union, financial or depository institution account, and shall not commingle such security deposits with other funds of the landlord except as provided in section 339.105.”
Here’s the problem with the change above, as I see it;
- The bill states the security deposit must be held in a trust. While it does not indicate what type of trust, who the beneficiary must be (presumably the tenant I’m guessing), which in itself is a problem, this is going to put an incredible burden, and expense, on landlords and ultimately tenants. If a landlord is going to be required to hire an attorney to prepare a trust for the benefit of each tenant (which is I’m guessing the intention as otherwise I don’t see where the legislatures saw any benefit from the trust if it was not for the protection of the tenant) that is going to get expensive for landlords, particularly those that may own just a few properties.
- In addition, the bill establishes that the security deposits MUST be held in a bank (or similar) and does not give the parties the option to agree to something different, which should be their right. Under current law, a landlord is not required to deposit security deposits into a separate account and certainly not establish a trust and the parties to the lease are free to negotiate and agree as to how, and where, the security deposit is to be held by the landlord.
- Property managers (who, under state law must be licensed real estate brokers) are exempt from this requirement (the trust) as they have registered escrow accounts that money belonging to others is deposited into.
- As a result of just this one change alone, I believe many landlords are going to feel their only choice is to hire a property manager to take over their rentals rather than deal with establishing trust accounts as well as separate bank accounts, for their rentals. While I personally think many, if not most, landlords would benefit from professional management of their rentals, I believe, as a basic property right, it should be their choice though and legislation, or complicated regulations, shouldn’t force them to make that choice.
- Real estate agents – Don’t think this doesn’t apply to you as a landlord and that you won’t have to establish trust’s, deposit the security deposit into separate accounts, etc., as I read the bill, unless you are a real estate broker acting as a property manager (thereby depositing the deposits into an escrow account) you are subject to this just like anyone else. Presently, a licensed real estate agent that owns rental property may, after disclosing his or her status as a licensed agent in the lease, indicate that the money will not be held in a separate account, that it will in fact be co-mingled, or used, by the landlord, or whatever else the parties may agree to but if this bill is signed into law by the Governor those days are over as I see it.
One final caveat, I am not an attorney, just a real estate broker with 37 years experience in the St Louis real estate industry and a passion, both for the real estate industry as well as for the preservation of private property rights. So, everything in this article is simply my opinion so take it for what it’s worth. This is certainly not legal advice, or a legal interpretation of any laws (or anything else for that matter), or any other advice other than advice to read the bill and, either be prepared to comply with the new law if you are a landlord, or contact the Governor’s office and encourage the Governor to veto it if it causes you concern.