Deciphering the Legality of Paying Rent in Cash
When it comes to the payment of rent, one question that frequently comes up concerns the legality of using cash as rent. Owners sometimes prefer cash under the assumption that they’re better protected against bounced checks or payment method disputes. However, this leads to the question of whether any laws prohibit the use of cash as rent, and the answer depends on where you are.
There is no federal law that addresses the general legality of cash payment, though there are laws that limit what types of payments can be considered "legal tender." For example, Title 31, Section 5103 of the US Code states that while U.S. currency and coins are legal tender for all debts, public and private, that is only if the offerer or creditor chooses to deal in it.
Some states impose limits on payments that can be made in cash, or even explicitly prohibit cash payment. In California, for example, state law requires any rental payment of $10,000 or more to be made by "a check drawn upon a financial institution." The New York City Rental Housing Court also recognizes the right of landlords to demand rent payment by either checks or money orders , and neither party is allowed to make cash payments without the specific consent of the other party – generally, landlords who allow cash payments are required to provide receipt books for tenants. Landlords in New York can require payment by more secure methods even if they do not require a formal lease to be in place.
Local ordinances and regulations may also dictate whether cash payment is permissible. Some jurisdictions may allow cash payment by default unless a landlord formally states otherwise, while others may require landlords to formally notify tenants if they will only accept cash payment. The length of time an established rental practice is maintained can also influence its perception in the eyes of the courts and juries, which means that long-established policies of accepting only cash for rent may need to be honored.
In the end, what will determine whether payment in cash is permissible is where you are and which rules apply. Consulting a qualified attorney is your best bet to avoid being caught off-guard by local or state ordinances.
The Pros and Cons of Paying Rent with Cash
Privacy
For tenants looking to keep their finances under wraps, cash is king. With the exception of a few security cameras, which themselves are admittedly only remnants of a bygone era, it is almost impossible for a landlord to know that a tenant is paying their rent in cash. With other forms of rent, there are payment processes, checks and balances, and convenient ways to trace, record, store, and handle money. Not so with cash.
From a landlord’s perspective, however, paying in cash is not ideal. "Cash only" sounds great as long as the rent is coming in the door. There are few things worse for an owner/property manager than showing up at an empty building, having the tenant promise to be current on their rent, and then not being able to verify anything. The tenant’s credibility has now been called into question, and that leads to a host of other issues, including but not limited to, how to handle it in situations where the landlord has to go into the apartment and reveal the cash payment that they requested the tenant not do before eviction.
Transaction Fees
This is one of those points that seems to be slightly on the fence. On the one hand, a tenant pays no transaction fees when making cash payments. On the other, the owner experiences transaction fees more frequently than tenants. For example, most bank branches charge a fee when a deposited check bounces. Again, this depends on the tenant’s behavior—they may be late on their rent, but will make sure that funds are available for anything else that they write a check to.
Traceability
While cash is often referred to as "free," it doesn’t mean that it won’t come back to bite a person in the future. That’s because despite the fact that cash cannot be tracked easily, people themselves can be. The traceability of cash allowing for future problems, either for the tenant (like paying a month’s rent in cash but immediately going down the street and getting something like a payday loan) or for the landlord (like a tenant using cash but later claiming not to have paid rent). Depending on how the case is handled from there, it can become very expensive and time consuming for everyone involved and can result in litigation.
Documenting Rent When Paying in Cash – What Is Legal?
If you are paying rent in cash, you might think that you are doing something wrong. Well the truth is, you are not! Paying cash is perfectly legal, with some caveats of course (notably, well intentioned tenants paying with cash may be left vulnerable to unscrupulous landlords who can simply deny ever receiving the rent). Obviously, giving cash in exchange for legal advice is also legal, but something most people do not ever need to do, so it is not a very practical point of comparison. So assuming you are paying cash for rent because you want to, and not because your landlord insists on it, you should still consider how you will document your actions.
Obtaining a receipt is one step towards ensuring you have proper documentation, but it alone may not be sufficient to avoid future misunderstandings, and unfortunately, more formal written agreements are often necessary. In fact it is recommended that tenants insist on getting a receipt for every cash rent payment. However, for even better protection, tenants should also request a written agreement that details their "unsuitable" choice of payment method.
Of course, this type of agreement can be considerably more awkward for a tenant to write than a receipt, so here is a sample you could adapt if you have to:
I, [insert tenant’s name], having provided [insert landlord’s name] with $X for the rent due on [insert due date] for [insert description of premises], want to confirm that I agreed to provide rent in cash instead of by credit card, or sourced from a company savings account where I am nonetheless interested in paying off any credit card debt or getting a lower interest rate. The undersigned tenant understands that this decision is a personal one and agrees to take full responsibility for any legal consequences or risks that result from this agreement being signed.
Tenant: _________________________________ Date: _________________________
Landlord:_________________________________ Date: _________________________
In the case of a landlord, a receipt can be a rather standard document. You can fill in your standard templates, but be sure to specify what the receipt is for, and what form of payment was provided by the other side. For the more awkward part of the business, the sample agreement above is recommended, but you can certainly find other options online. In this context, however, you may especially want to make it clear that you have refrained from paying using other means because of your hesitation about these kinds of payments. Therefore, the text reproduced above, which makes the lack of enthusiasm evident, will likely improve your defence when the landlord eventually realizes what kind of arrangement he has gotten into.
Legal Considerations for the Landlord When Accepting Rent in Cash
In the legal sense, tenants have to pay rent on time, and landlords have to keep records showing payment amounts. If there are late payments, those must be recorded as well. Rent is considered a source of income for landlords, so this really only boils down to keeping accurate records of when rent is paid, what payment method was used and when the payment was received. This applies to all forms of payment , but especially cash because it is so easy to say rent wasn’t paid because you can’t prove that you received it.
If you are a landlord, consider putting a formal payment arrangement in writing that both you and your tenant can sign. You can also include the language that requires tenants to provide documentation of the payments on specific dates or you can document it into your lease.
What Tenants Should Do to Stay Protected When Paying Rent in Cash
If you are going to pay your rent in cash, it is advisable to seek extra protection. Ensure that you get a signed receipt datestamped for the full amount you are paying, and the date of payment on top of your signature. Make sure you also jot your name, both first and last, clearly on the receipt. You have a right to get a receipt for your payment no matter how you are paying it. Getting a receipt is not enough, however. Always carefully check the math on the receipt. The receipt should be full of the rent period, not just the dollar amount (as discussed above).
The lessor might not want to give you a receipt at all. You may want to consider using other means of paying rent if you see that is the case, or the lessor is reluctant to sign the receipt. There is no way to ensure that you have paid the rent if they won’t confirm or sign the receipt you provide.
Be very careful about paying other fees in cash, or fees including rent. Be certain that what you think is rent is in fact rent. Are you totally sure? Make sure you have proof that anything in cash is rent payment, and confirmed with your rent receipt.
Examples of Paying Rent in Cash – How Different Countries Approach the Issue
For example, in Germany, the law allows for rental payments to be made in cash as long as the agreement is mutually agreed upon by both landlord and tenant. However, Germany does require that over 500 euros be paid by cheque or in bank transfer. In Berlin, the action of paying your rent in cash is fully accepted and landlords are known to count the cash in front of their tenant and provide a receipt with their stamp at the end. This contrasts starkly from the law in cities such as London, England, where payment in cash is illegal if the amount exceeds a maximum limit.
In London the maximum allowable amount that can be paid in cash is 1,000 pounds. Over this limit must be paid by cheque, credit card or other traceable manner. Although there is no official information on the matter in Spain, residents are increasingly skeptical towards the idea of paying their rent in cash . The idea of handing an amount of money over to their landlord without any sort of traceable proof has most residents in places such as Barcelona conflicted. A similar situation can be seen in Australia, where renting sectors have had a recent brush with paying rent in cash with hundreds of tenants and landlords falling victim to a nationwide scam it. Residents in cities such as Sydney and Melbourne looked to pay their rent in cash only to end up with no rental property (and no cash). The culprits in the scam advertised sham apartments using stock photos only to have the tenant transfer their rent money via Western Union or MoneyGram. Once their payment was received, the scammers would delete the online ad and disappear. The rental scam that has rocked Australia is just one example of the potential dangers involved in handing over rent money in cash.
