The Indianapolis Landlord’s Guide to the SCRA
In the landlord business, there’s nothing quite as exciting as filling a vacant unit. When that 1, 2, or 3 year Lease gets signed, you sigh in relief at the thought of guaranteed revenue coming in for the next 12+ months, right?
That’s probably why it’s equally, if not more disheartening when you find out that your Tenant wants to break their Lease. Suddenly, you don’t have that security and frustration tends to take over.
I think we can all agree, that our first instinct in this situation is to fight back. Raise your hand if you’ve ever said or thought something along the lines of…”I don’t care what the reason is, they signed a contract!”
Unfortunately for us Landlords and Property Managers, Leases aren’t always the end all, be all.
In previous blogs, we’ve discussed several scenarios where Tenants may have the right to legally and freely break their Lease agreement, such as domestic violence disputes or when a Landlord fails to perform certain obligations.
Well, not to be the bearer of more bad news, but there’s yet another scenario that allows your Tenant to get out of a Lease without penalty, and it’s thanks to a little piece of legislation called the Servicemembers Civil Relief Act or the SCRA.
This is a very complex, and important law for you to be aware of. Since it’s Federal, it will affect you wherever you own rental properties in the United States.
WHAT IS THE SERVICEMEMBERS CIVIL RELIEF ACT (SCRA)?
The SCRA is federal legislation that was designed to help service members, and their families, who are called to active duty, by allowing for the postponement or suspension of certain civil obligations. Some of these protections include:
- Limiting interest on existing debt to 6%
- Protection from foreclosure on existing mortgages
- Postponement of pending trials
- Reinstatement of private health insurance
- Termination or suspension of mobile phone contracts
- Termination of automobile lease agreements
Originally passed in 1940 as the Soldiers’ and Sailors’ Civil Relief Act (SSCRA), it was superseded in 2003 because of its limitations, and changed to the Servicemembers Civil Relief Act. It has been subsequently amended to expand and clarify protections.
The act has two main purposes:
- To provide for, strengthen, and expedite the national defense through protection to servicemembers of the United States to enable such persons to devote their entire energy to the defense needs of the Nation.
- To provide for the temporary suspension of judicial and administrative proceedings and transactions that may adversely affect the civil rights of servicemembers during their military service.
As a Landlord, the law could affect your relationship with your Tenant in several ways:
- Termination of residential and business Lease agreements
- Protection from eviction
- Protection from default judgments
According to the SCRA website, there are an estimated 550,000 veterans in the state of Indiana, making it one of the largest veteran populations in the U.S. The odds of you having to undergo a Lease break situation of this nature are relatively high.
WHO IS PROTECTED UNDER THE SCRA?
There are a range of individuals who are protected under the SCRA. Surprisingly, it is not just limited to military personnel.
- Members of the Army, Navy, Air Force, Marine Corps and Coast Guard on active duty as well as reserves ordered to active duty.
- National Guard members called to active service for over 30 consecutive days by the
- President or the Secretary of Defense in response to a federally-funded response to a national emergency.
- Commissioned officers of the Public Health Service and the National Oceanic and
- Atmospheric Administration when on active service.
- In limited circumstances such as evictions, Lease terminations, and foreclosures, SCRA protections extend to servicemembers’ dependents. Dependents can include a spouse, children, and any other individual(s) for whom the servicemember provided more than half of the individual’s financial support for 180 days immediately preceding application for relief under the Act
- Anyone to whom the servicemember has granted a Power of Attorney.
CAN A MILITARY TENANT BREAK THEIR LEASE UNDER THE SCRA?
Under Title III of the SCRA, servicemembers who enlist or who are called up to active duty for longer than 90 days may terminate residential and business Lease agreements if they give at least a 30-day notice.
In order to initiate this process, the servicemember must provide you, the Landlord, with a written notice of termination, along with a copy of their military orders. It is your right to request these orders and verify that your Tenant is actually being deployed.
While you should never just assume your military Tenant is lying to get out of the Lease, there are the occasional bad apples, and it never hurts to do your due diligence.
Landlord Tip: You can verify a Tenant’s active duty status for provisions under SCRA by providing the court an affidavit with a report attached, called a Certificate, which can be obtained for free from the official SCRA site, operated by the Department of Defense.
The site allows anyone to submit a request for a verification of active duty status for an individual on a specified date.
The type of Lease agreement you have in place will determine the official date that the servicemember will no longer be responsible for the property:
- For month-to-month Leases, the Lease terminates 30 days following the next date that rent is due after the notice has been delivered.
- For example, if rent is due on the 1st of every month and notice is given on any date after May 1st, the lease will terminate as of July 1st.
- For all other leases, the termination is effective on the last day of the next month after notice has been given.
- For example, if the notice is received on May 15th, the lease would terminate on June 30th.
WHAT QUALIFIES AS MILITARY SERVICE UNDER THE SCRA?
This is an important aspect of the law to understand. Knowing what does and does not constitute as military service will help you make the right decision when faced with a military Tenant who wants to break their Lease.
- For members of the Army, Navy, Air Force, Marine Corps, and Coast Guard, active military service is defined as: “Training or duty under federal laws in the active military service of the United States. This includes full-time training duty, annual training duty, and attendance (while in the active military service) at a school designated as a military service school.” The SCRA applies regardless of duty location.
- For members of the National Guard, military service is defined as: “Federal calls to active service authorized by the President or Secretary of Defense for a period of more than 30 consecutive days, in response to a national emergency declared by the President supported by national funds.”
- Military service also includes time periods of servicemember’s absence from active duty due to sickness, wounds, leave, or other lawful causes.
WHAT IS NOT CONSIDERED MILITARY SERVICE?
Military service does not include:
- Absence from active duty while incarcerated in a military prison
- Absence without leave
- Citizens working as contractors
- Reservists or National Guard members on “drilling status”
CAN I EVICT A MILITARY TENANT UNDER SCRA?
In some instances, a servicemember or their family will want to continue on with the Lease while they carry out military service. This sometimes leads to inability to pay rent or other issues that would otherwise give you the right to an eviction.
While the SCRA does not prohibit evictions outright, it does allow the courts to postpone any proceedings for up to three months; or longer if the judge sees fit.
You have the right to serve a termination notice if a servicemember or dependent falls behind on rent. However, you must inform the court of the Tenant’s active duty status. Failure to report this information, or knowingly reporting false information, could result in a fine and up to one year in prison.
Once the court has all the facts of the case, a judge will have to determine whether the servicemember’s military status affects his or her ability to pay rent, and whether to delay the eviction or allow it to proceed.
As if evictions under regular circumstances aren’t grueling enough, you have to be able to prove that the Tenant’s military service has NOT interfered with their ability to pay you on time, or at all.
Since we rightfully hold our servicemembers in high regard here in the USA, trying to evict one could be an uphill battle.
There will always be people who abuse the system, and they shouldn’t, by any means, get away with it. But, just know you’re headed down a long, expensive road when you decide to evict someone protected under the SCRA.
6 WAYS TO MINIMIZE RISK WITH MILITARY TENANTS
While there is risk with any Tenant, this is a unique situation and as a business owner, you owe it to yourself to put precautions in place.
Here are a few things you could consider implementing to minimize the risk of renting to a servicemember protected under the SCRA:
- Know your local and state laws regarding the SCRA – Having a good understanding of your rights and your Tenant’s rights, will help foster a good relationship and will ultimately keep you out of any unnecessary legal trouble.
- Don’t offer a lease longer than 12 months – In this circumstance, the only person who ends up being locked into a long-term Lease, is you. It might even make sense to offer 3 or 6 month Leases. This way, if they do end up having to break their Lease, it’s not really a huge blow.
- Don’t offer discounts or incentives – Offering rental incentives such as $200 off first month’s rent, encourages military Tenant’s to be dishonest and sign Leases they know they can’t fulfill just to get the discount. You can also run into other Fair Housing issues when providing rental discounts in general.
- Request orders – While not every member can provide their orders up front, the majority of them should be able to. You can ask to see an applicant’s orders to verify that they are not on temporary duty and that they are not signing a Lease longer than their orders date.
- Demand proper notification – As I discussed earlier in the blog, the SCRA provides a very specific process and way to go about issuing a Lease break notification. Follow it exactly and require that your Tenants do the same. This law is in place to protect servicemembers, but there are provisions in place to protect you as well, so use them.
- Have a Lease break clause in your rental agreement – This is a fairly common practice, but in case you haven’t gotten around to it yet, include a Lease break policy in your agreement.
- This lays out specific ground rules for both you and your Tenant on what is expected of both parties should the Tenant need to break their Lease. This policy needs to be consistent no matter who the Tenant is, or what the reasoning.
- If a military Tenant wants to break their Lease but they do not meet the SCRA requirements, then it’s good to have an alternative in place to protect your best interest.
SHOULD I RENT TO A MILITARY TENANT IN THE FIRST PLACE?
For me, the answer to this questions is simple: Of course you should. The fact that they are in the military shouldn’t even really be a factor.
The most important thing here, is that you remain consistent. Screen them thoroughly, ensure they meet all of your requirements and hold them to the same standard as any of your other non-military Tenants.
There is inherent risk when you rent a property to anyone.
Anyone could end up needing to break their Lease, anyone could fall behind on rent payments, it comes with the territory.
As a Landlord, I think you have to strike a balance between strictly treating it as a business, and having a little humanity.