A landlord company that charged Navy sailors in Virginia thousands of dollars in illegal lease termination fees and extra rental payments has agreed to pay damages and stop those practices as part of a federal settlement, Justice Department officials said.
The DOJ alleges that McGowan Realty LLC which does business as RedSail Property Management, broke a federal law as the landlord for two Navy sailors in apartments just outside Norfolk, Virginia by penalizing them when they were moved to new assignments.
Those fees violated the Servicemembers Civil Relief Act, which allows military personnel to break leases with landlords if they receive Permanent Change of Station orders.
“This case should put all housing providers on notice that if a service member meets the requirements of the federal Servicemembers Civil Relief Act, they are entitled to all its benefits, regardless of what any state law may provide,” Assistant Attorney General Kristen Clarke of the Justice Department’s Civil Rights Division said in a release.
Under the settlement, which needs to be approved by the federal district court, RedSail would pay $10,225.65 to one Navy petty officer, according to a DOJ press release. He was originally forced to pay $3,408.55 in additional rent and a termination fee. Officials did not address an award for the second sailor because they did not end up paying additional fees.
The federal SCRA allows military personnel to break leases when the military forces them to move, but in charging at least two sailors termination fees and extra rent, the company cited a Virginia state law that appeared to put limits on those rights.
As part of the settlement with the DOJ, the company acknowledged in the settlement that the state law does not override the federal law and agreed to provide SCRA training to its employees and develop new policies consistent with the SCRA.
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State law caused confusion, landlord says
Brian McGowan, owner and principal broker of RedSail Property Management told Task & Purpose that he charged the tenant based on advice from his attorney.
“There wasn’t a motive here in which we can financially benefit from this. We were literally just trying to follow the law as we know how to interpret it, follow our attorney’s advice and look out for our active duty military homeowner,” McGowan said. He estimates that roughly 75% of the homes that his company manages and leases are owned by active duty military members.
As part of the settlement, the DOJ leveled a $3,000 civil penalty at RedSail. McGown said the DOJ agreed to “majorly” reduce that figure after he presented emails from his attorney “advising me to do exactly what we did” based on that attorney’s reading of state law.
According to the DOJ lawsuit, RedSail’s leases contained a clause that stated renters agreed that Virginia rental laws would control any disputes, including early terminations. Virginia’s law governing PCS moves puts a 35 mile limit on those moves, meaning renters could not break a lease if their new base was within 35 miles of the property, which would be common for a PCS orders transferring between ships and bases within Norfolk’s Hampton Roads region. The federal rules under the SCRA have no distance limitation and can be waived between a renter and landlord, though Navy lawyers caution sailors against signing any such waiver without legal advice.
But in RedSails’ case, DOJ and Navy attorneys both said that the language in RedSail leases did not meet the legal requirements to be considered a waiver of those federal rights, and therefore the federal SCRA rules — with no distance limit — still applied to RedSails’ renters.
“The more frustrating part here is any attorney that I’ve literally spoken with about this over the last 14 months is as clueless as I was about the discrepancy between state and federal law in this case,” he said.
McGown said he ended up settling with the DOJ because of the legal fees his business was facing.
“It’s unfair,” he said. “If the federal government has a problem with the state law then let’s go after the law.”
State vs Federal
“Early termination fees impose financial burdens on servicemembers and their families and negatively impact military readiness,” the DOJ said in its complaint filed Monday.
The settlement ends a DOJ civil lawsuit against RedSail that filed under the SCRA which provides “some relief to servicemembers who would otherwise be forced to pay rent for housing they cannot occupy because they have been ordered to move to another location,” according to the DOJ complaint.
“State statutes cannot deprive servicemembers of the full scope of their rights under federal law,” the DOJ said in a press release.
The DOJ alleges that one active duty sailor and his spouse were denied early lease termination for their apartment in Portsmouth, Virginia in August 2018. The issue was only settled with RedSail after Navy attorneys got involved.
Then in April 2022, the company again refused to terminate the Suffolk, Virginia lease of a Naval fire controlman petty officer and his wife after a re-assignment. The sailor was assigned to the USS Stout, which is based in Norfolk, but was re-assigned to Surface Combat Systems Training Command in Virginia Beach, Virginia in June 2022.
“Given the traffic, it would take him a minimum of 50 minutes to drive each way, which would more than double his prior commute time,” the DOJ said in its complaint.
Since 2011, the DOJ has obtained more than $481 million in monetary relief for 147,000 military members through SCRA enforcement. In October 2023, the DOJ settled with JAG Management Company LLC for illegal fees charged to nine troops in New Jersey.
UPDATE: (Jan. 10, 2024); Updates the story with comments from Brian McGowan, owner and principal broker of RedSail Property Management.
CORRECTION: (Jan. 10, 2024); McGowan Realty LLC and RedSail Property Management are based in Newport News, Virginia, near Norfolk. A previous version of this story stated the company was based in Charlotte, North Carolina.
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