Thursday, February 6, 2014

A Tenant's Unpaid Water Bill: Who's Responsible?

Imagine this scenario. A tenant suddenly vacates her apartment and moves out of state, leaving her water bill unpaid. Who is liable for the outstanding bill?

Under Ohio law, landlords can be held responsible for a tenant’s unpaid water bills. A municipality has the power to place a lien on the property and collect the payment through property taxes or bring a lawsuit against the property owner to recoup the money.

Unpaid bills can mean a large financial loss for the city, so government leaders have a high incentive to collect. For example, a 2013 investigation in Toledo found that the city was owed almost $24 million in unpaid water bills.  If cities seek to recover these missing funds from property owners, a landlord's credit and bottom line can both be affected.

As a result, landlords should take some proactive steps to protect themselves and reduce their liability for a tenant's delinquent bills, such as:
  1. Perform credit checks on prospective tenants as part of a background check. This can eliminate potentially risky tenants who might be unable to pay a bill. 
  2. Consider requiring a co-signer for some tenants, such as students with limited income. 
  3. Rather than putting water service in the tenant's name, put the service in the landlord's name and charge additional rent to cover the cost of water. 
  4. Modify the lease to make a continued tenancy contingent on the payment of water bills. If the tenant does not pay the water bills, landlords may be able to begin eviction proceedings. 
  5. In order to monitor and prevent potential problems, ask the utility company to send the landlord a copy of the tenant’s monthly bills.
  6. Educate and encourage tenants to check for leaks or prevent wasteful water practices in order to reduce the possibility of unusually high bills.

Monday, February 3, 2014

Non-Compete Agreements: What is Reasonable?

Modern employment or franchise contracts often include a noncompetition clause or agreement which restricts an employee’s ability to compete with the employer after ending his employment. These provisions are designed to prevent a former McDonald’s franchisee from launching a new Burger King franchise down the street or prohibit a paper salesperson from soliciting his former employer’s clients from a competing company in the same building.

For example, a noncompetition clause might include language such as:
  • “For a period of one year following the termination of the employment relationship, Employee agrees not to engage in any way in a similar or competing business within fifty miles of the business location.”
  • “For a period of two years following the termination of the employment relationship, Employee agrees not to directly or indirectly solicit any person or entity who are or have been customers of the Employer.” 
These clauses are valid to protect the legitimate business interests of the employer. However, the restrictions, particularly the time and geographic restrictions must be reasonable.

In Ohio, this means that the restrictions are 1) no greater than required to protect the employer; 2) do not impose undue hardship on the employee; and 3) do not injure the public. (Raimonde v. Van Vlerah, 42 Ohio St. 2d 21, 26 (Ohio 1975)).

When determining reasonableness, a court can examine a variety of issues such as the duration and distance restraints; whether the employee has confidential information; whether the employer receives a disproportionate benefit from the agreement; and whether the covenant eliminates ordinary competition or unfair competition.  (Raimonde v. Van Vlerah, 42 Ohio St. 2d 21, 26 (Ohio 1975)).

If a court determines that the restrictions are unreasonable, it can modify the employment agreement. For example, a contract prohibiting court reporters from engaging in court reporting or stenography anywhere in Franklin County for two years was reduced by the court to a one year restriction within the city of Columbus. (Rogers v. Runfola & Associates, Inc., 57 Ohio St. 3d 5, 565 N.E.2d 540 (1991)).

Noncompetition clauses are important to include in an employment contract, but employers should ensure that their agreements are narrowly tailored, reasonable in scope, and well-drafted.