With All of This Flood Damage Lately . . . Let’s Talk About Untenantability

Jul 28

Posted by Tristan R. Pettit, Esq. in Abatement, Untenantability | No Comments

With all of the flood damage from the July 22, 2010 storms throughout SE Wisconsin, I have been receiving lots of questions asking what will cause a rental unit to become “untenantable” and if that happens what are a landlord’s duties and a tenant’s rights.

“Untenantable” basically means that a property is not fit for an occupant, is not in proper repair, and/or is not liveable.  A rental property can become untenantable as a result of many things.  A property could become untenantable as a result of a tenant’s negligence, failure by the landlord to keep up the property, or an act of God. 

A tenant could be negligent and leave a candle burning which causes a fire and results in substantial smoke and fire damage leaving the property untenantable.  A landlord could fail to perform the necessary upkeep to his/her rental property and over time this could result in plumbing or electrical problems thus rendering a unit untenantable.  Through neither the fault of the landlord nor the tenant, a major storm could pass through causing the basement to be flooded by a combination of storm and sewer water — sound familiar???  — and this could result in a rental become untenantable in certain sitautions, if neglected.

Sec. 704.07, Wis. Stats., addresses the topic of untenantability.  The statute states that it is a landlord’s duty to:

1.   Keep in a reasonable state of repair portions of the premises over which the landlord maintains control, and

2.   Keep in a reasonable state of repair all equipment under the landlord’s control necessary to supply services that the landlord has expressly or impliedly agreed to furnish to the tenant, such as heat, water, elevator or air conditioning, and

3.   Make all necessary structural repairs, and

4.   Repair or replace any plumbing, electrical wiring, machinery, or equipment furnished with the premises and which is no longer in reasonable working condition, and

5.   Comply with any applicable local housing codes.

The same statute also sets forth the duties of a tenant:

1.   If the premises are damaged by the negligence or improper use of the premises by the tenant, the tenant must repair the damage and restore the appearance of the premises, or a landlord may elect to undertake the repair themself and in such cases the tenant must reimburse the landlord for the reasonable cost of the repairs

A QUICK ASIDE:  My personal view is that even if the tenant causes the damage, it is the landlord that should make the repairs.  It is the landlord’s property and I would not be comfortable allowing a tenant to make repairs to my property.  I want to be the person to choose the contractor, ensure that the contractor is insured and bonded and is complying with the new EPA lead renovation rules, and decide what materials the contractor uses.  If a landlord passes that responsibility onto a tenant, there are a million things that could go wrong.  The tenant could elect to perform the repairs himself/herself and not have a clue what they are doing which could result in more damage, additional costs, and possible injury.  The tenant could opt to hiring the contractor who quotes the cheapest price and who uses inferior products that won’t last.  The tenant could hire a contractor that is not bonded and insured who could then injur himself/herself and then attempt to sue me, the landlord.  I could go on and on with the potential pitfalls in allowing a tenant to make repairs to your rental property, but I won’t.  Suffice it to say that it is your rental property, and it is your investment and as such you should be in control of it and make the key decisions.

As you can see, both the landlord and the tenant may have duties when it comes to making sure that a rental property remains tenantable.  But if you follow my advice, and do not allow your tenant to make any repairs (even if s/he caused the damage), then the onus to keep a unit tenantable primarily falls on the landlord.

Sec. 704.07 also addresses the sitaution where a landlord fails to make the necessary repairs and return the unit to a liveable condition.  Sec. 704.07(4), states that if the premises become untenantable because of damage by fire, water, or other casualty or because of any condition hazardous to health, or if there is substantial violation that affects the health or safety of the tenant, then:

1.   The tenant has the right to vacate the premises, unless the landlord proceeds to promptly repair or rebuild or eliminate the health hazard,

or

2.   The tenant may vacate the premises if the nature and time of the repair, rebuilding, or elimination of the hazard, would impose an undue hardship on the tenant, if s/he stayed in the unit.

If the tenant justifiably moves out of the unit for one of the above reasons then the tenant will not be held responsible for rent after the point when the premises become untenatable.  Additionally if a unit becomes untenatable, and the landlord does not make the needed repairs, the landlord must return any prepaid rent for the period of time after which the unit is untenantable.

It is very important to note however that the tenant’s ability to vacate the unit and be absolved of paying rent DOES NOT APPLY if the tenant’s negligence or improper use of the property caused the damage or unsafe condition.

If the unit is damaged, but it is not untenantable such that a tenant can remain in the unit, sec. 704,07 allows a tenant to abate the rent (i.e withhold a portion of the rent) to the extent that the tenant is deprived of the full normal use of the premises.  A tenant cannot abate rent 100% and remain living in the unit.  If the unit is in such bad shape that a tenant feels no rent is owed then the unit is untenantable and the tenant should vacate.  A tenant should be very careful before choosing to abate rent.  If proper abatement procedures are not followed a tenant can find themselves on the wrong end of an eviction.   

Whether or not a unit is untenantable is very fact-intensive.  Different facts will give rise to different outcomes.  Different judges and different court commissioners can come to different conclusions based on the very same facts. 

Let me give you some real life examples to demonstrate just how subjective a determination of untenantability can be. 

What if, as a result of the recent storms, the basement of your rental property is flooded by storm/sewer water (as occurred with my rental property this past week), does this make the unit untenantable?  I don’t think it does because we are only talking about the basement and not the living quarters.  But if, I failed to remove the standing water, clean, and dry the basement — thus preventing my tenant from using the washer and dryer for a length of time – an argument could be made that my tenant should be able to abate rent to some extent.  But if the same flood caused storm/sewer water to crest the first floor where my tenant lives and resulted in water damage to the hardwoord floors, my tenant’s personal property, etc etc., then I believe a better argument could be made that the unit is untenantable.

What if the tenant has no hot water becasue the pilot light on the hot water heater was snuffed out during the flooding (which once again happened to my tenants this past week), does this make the unit untenantable?  Probably not.  But if I ignore my tenants’ calls and fail to relight the pilot light on the water heater for the tenant, the tenant is being deprived of something that I was to provide under the rental agreement — the hot water, and an argument for abatement of rent could be made.

What if a a tree that was struck by lighting crashed through the living room of my rental property and there was a gaping hole in the roof and little birds were nesting in my tenant’s couch (thank God this has never happened to me) untenantable now?  Yes, a reasonable argument could be made that the premises are uninhabitable now.  Same goes for when there is a substantial fire resulting in smoke damage and structural concerns.  What about an infestation of bed bugs?

There are no clear answers.  Certain facts may tilt the scale in one direction or the other.  There is no black line rule as to when a unit is tenantable and when a unit is untentable.  Using some common sense and the guidance of Sec. 704.07, Wis. Stats. hopefully you will be able to evaluate any future situations that come your way.  And if you haven’t cleaned up the damage to your rental properties from last week’s floods  . . . what are you waiting for, DNS to show up?

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What Is This Mitigation of Damages Requirement That I Keep Hearing About?

Jul 22

Posted by Tristan R. Pettit, Esq. in Mitigation of Damages / Re-Renting | 2 Comments

Whether a tenant breaches his or her lease and is evicted, leaves after receiving the 5 day or 14 day notice, or skips out in the middle of the night with months remaining on the lease, a landlord has the responsibility to make reasonable efforts to mitigate the tenant’s damage under Wisconsin law.

Put quite simply – a landlord cannot just sit back and do nothing and expect to collect rent from the departed tenant until the lease term ends.  Per Sec. 704.29 of the Wisconsin Statutes, a landlord must make reasonable efforts to attempt to mitigate the tenant’s damages by trying to re-rent the unit for the tenant.

“Reasonable efforts” are defined as “those steps that the landlord would have taken to rent the premises if they had been vacated in due course . . .”  So if you typically advertise your vacancies in the Journal Sentinel then you should advertise the tenant’s vacant unit in the Journal-Sentinel also.  If you typically advertise vacancies on Craig’s List, then you should do the same for the tenant’s vacant’s unit.  If you always post a “For Rent” sign in the front of the apartment building, then you should do the same here as well.

The tenant is legally responsible for any costs incurred by the landlord to re-rent their now vacant unit.  Whether the old tenant is collectible and you will ever be reimbursed for those out of pocket costs is a practical matter that the statutes do not address.

If you have other vacant units at the same property, you do not need to re-rent the tenant’s old unit before you rent out the other vacant units.  But you should add your ex-tenant’s vacant unit into the mix and show it along with your other vacancies to any prospective renters.

The  Wisconsin Statutes do not provide us with a definition of ”reasonable efforts.”  What is reasonable is determined on a case by case basis and varies depending on the specific facts and the judge or court commisioner that is hearing the case.  A landlord should use common sense.  If you follow the same procedures as you always do when you have vacancies, you should be OK.

I hope it goes without saying that the following would NOT be considered to be reasonable efforts to mitigate a tenant’s damages:

1.   The arbitrary refusal to re-rent the unit to a prospective tenant.

2.   An attempt to rent the unit at a higher rental amount then other similar units in an attempt to dissuade a prospective renter from choosing the tenant’s vacant unit.

An issue that often arises in these mitigation cases is what if the landlord cannot not begin re-renting the unit because the tenant caused extensive damage and the landlord needs time to return the unit to a rentable condition.  In my experience, I have found the courts to be understanding if a landlord is placed into a catch-22 situation like this.  I have argued successfully in court on many occasions that if the tenant caused damage to the unit which requires the landlord to need more time to repair the unit — thus delaying his/her ability to attempt to re-rent the unit — that this should not be held against the landlord as long as the landlord moves forward with the repairs in a reasonable amount of time.

The argument is a simple one . . .  “your Honor, but for the tenant having caused damage to the unit, my client would have been able to begin the re-rental process immediately.  It was the fact that the tenant decided to paint the master bedroom a beautiful shade of purple, allowed their cat to use the hallway carpet as a personal litter box, and encouraged their 2 year old child to express her artistic abilities with a permanant marker on the newly refinished hardwood floors, that delayed my client’s ability to re-rent the unit the following month.”

According to sec. 704.29(3), Wis. Stats., a landlord must allege and prove that s/he made efforts to re-rent the unit for the tenant.  The tenant then has the burden of proving that the efforts that the landlord took were not reasonable.  The burden then shifts to the tenant to prove that the efforts taken by the landlord were not reasonable.  The tenant also has the burden to demonstrate the amount of money that could have been obtained as rent had the landlord made reasonable efforts to mitigate by re-renting.

The issue as to whether or not the landlord used “reasonable efforts” to re-rent the unit is frequently raised by residential tenants that appear in court to fight any money damages claims sought by the landlord.  The mitigation issue is ALWAYS raised by commercial tenants because commercial lease terms are typically for many years which could result in the tenant being “on the hook” for tens of thousands of dollars.

So if you are ever in the unfortunate situation where a tenant has vacated your rental unit with months remaining on the lease, you will want to make sure and save any documents that will demonstrate that you made reasonable efforts to re-rent the tenant’s unit.  This often includes, photos of the “For Rent” sign indicating the date it was put up, copies of advertisements placed on Craig’s List or in the Journal Sentinel, invoices for the cost of the ads, a list of the potential renters who called interested in renting the unit, the reasons why any potential tenant was rejected (this is another time when having written screening criteria is a must), and any other evidence that shows that your efforts to mitigate your ex-tenant’s damages were reasonable.

Once the unit is re-rented, the tenant’s responsibility for rent is over.  So typically the tenant will remain responsible for rent until either the end of the lease term or until you are able to re-rent the unit, whichever comes first.

While it may seem unfair that you have to expend extra time and energy to help reduce a tenant’s damages when s/he was the one in the worng — it is the law.

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Don’t Miss Next AASEW Town Hall Meeting on Monday, July 19th

Jul 15

Posted by Tristan R. Pettit, Esq. in AASEW | 4 Comments

Have a question about landlord tenant law?  Property management?  Real estate investing/short sales?   Then come to the AASEW General Membership meeting on Monday, July 19th, 7:00 p.m. at the Best Western Hotel, 1005 South Moorland Road in Brookfield. 
 
Attorney and AASEW President, Tristan Pettit,  AASEW Director and Portfolio Director at StuartCo, Susan Ipsarides, and owner of Plan B Homebuyers & Tailwind Funding, Brian Meidam, will all be on hand to answer your questions and give you tips to help you manage your rental property business. 

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Wisconsin Supreme Court Rules Against Landlord in Maryland Arms Case and Chooses To Avoid Answering The Bigger Question

Jul 14

Posted by Tristan R. Pettit, Esq. in Caselaw, Rental Agreements, Tenant Damage, Uncategorized | 4 Comments

The Wisconsin Supreme Court filed its opinion in this very important case on July 7, 2010.  While the majority opinion ruled against the landlord it did not go so far as to say that a landlord and tenant could not allocate liability for damage (when neither party was negligent in causing the damage) in their rental agreement. 

If you would like to review the specific facts of the case and the arguments made by both sides please revisit my posts of May 29, 2009 and October 15, 2009.

The Court was split, so there is a majority opinion, a concurring opinion, and a dissenting opinion.  So if you are brave enough you can read all three opinions which encompass 37 pages and can be read here.  The Wisconsin Law Journal provides a very good summary of the decision if  you are not feeling ambitious enough to read all 37 pages.

As an attorney who primarily represents landlords, I must admit that I had a mix of emotions after I finished reading the opinion.  I was upset that the majority opinion held that the landlord should be responsible for damage to his rental property that was caused by the tenant leaving her hair dryer plugged in overnight.  I was also frustrated by the fact that the major issue in the case — whether or not a landlord and tenant can allocate liability through the language of the rental agreement — was not addressed by the majority opinion, thus providing little guidance to landlords in the future.  On the other hand I was also grateful that the majority decided to “pass the buck” and not address this issue becasue, quite frankly, if the majority had addressed that issue, I believe they would have said “no” a landlord cannot allocate liability on a tenant for damage that was not casued by the negligence of the tenant.

The majority opinion held that the landlord should be held responsible for the damage because the rental agreement (which was drafted by the landlord) was ambiguous when it came to who would be held liable for damage in a situation where neither the tenant not the landlord were negligent in causing the damage.  The majority rested its decision on a very well established principle of contract law that any ambiguity in a contract  should be construed against the drafter of the contract.  The majority said that since the contract terms did not unambiguously state that the tenant would be liable for the damage under the specific fact situation in this case, then the landlord should be liable for the damage.

The majority declined to address the very important issue that the AASEW and other landlord associations were concerned about in this case — whether a landlord can add a lease provision assigning liability to a tenant for damages (when the damages is not caused by the tenant’s negligence) or whether doing so would be a violation of Wis. Stat. sec. 704.07.  So essentially the “Supremes” chose to dodge the issue, which in effect means that nothing prevetns a landlord from allocating liability to a tenant for such damage in a rental agreement under similar facts.  What this also means is that should a landlord make such an allocation and hold a tenant responsible for similar damage, the tenant can argue that such contract language violates sec. 704.07, and the courts will have no guidance as to how to rule. 

It was a missed opportunity by the Supremes to add to Wisconsin Landlord-Tenant law.  However, based, on the tortured analysis (my view) of the majority opinion, if the court had addressed the allocation of liability issue it would have most likely resulted in a holding that would not allow a landlord and tenant to allocate liability — which would have been even worse.  So in the end maybe it was best that the issue was not addressed.

Justice Ziegler, who agreed with the majority opinion, wrote a concurring opinion to add that  her view of Wisconsin law is that a landlord and tenant are not prohibited from allocating liability by contract as long as it is done clearly (i.e. no ambiguity) and is otherwise enforceable by law.

The dissenting opinion, which begins on page 18 and is authored by Justice Prosser, stated that not only are a landlord and tenant allowed to allocate liability in a rental agreement but that that is exactly what the parties to this lawsuit did and that the majority opinion is ignoring the clear meanign of the language in the rental agreement.  The dissent did not find the lease to be ambiguous at all.  The dissent, quite correctly in my opinion, points out the absurd nature of the majority opinion by saying that ”imposing responsibility on the landlord for damage caused by a tenant, when the landlord cannot control risks created by the tenant” (like keeping a hair dryer plugged in overnight) defies economic logic.

The dissent, being very pragmatic, actually takes the time to address what the practical effect the majority decision will have on landlords by stating, “When the landlord is made responsible for abnormal damages that is actually caused by tenants, the landlord must spread the resulting expense among all tenants by charging higher rent.  When a tenant is made liable for damage that is caused by that tenant, the landlord is better able to control rent and the tenant has an economic incentive for prudent stewardship of the premises.” 

Which of the three opinions seem more reasonable and logical to you?

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BED BUGS: Everything That You Wanted To Know . . . and More

Jul 7

Posted by Admin in AASEW, Bed Bugs | 1 Comment

If you have not heard — bed bugs are making a comeback.  Bed bugs are wreaking havoc on hotels, apartment complexes, and anywhere else where people congregate.  I have even been told that 75% of all of the hotels in Las Vegas are infested with bed bugs – I don’t know if that is true or not – but with the influx of people entering and exiting that city daily, it would not surprise me, since bed bugs are the ultimate hitchhiker.  Unlike roaches or other varmits, bed bugs are attracted to people – not dirty living conditions, so you can have a perfectly clean apartment that still may be infested with bed bugs.  In the past very strong chemicals (DDT) kept the bed bug population at bay, but with many pesticides now outlawed, bed bugs have made a comeback, much to the dismay of the rental community.

The pesky bed bug has appeared at more than a few of my client’s rental complexes and trsut me when I tell you they are expensive and difficult to indicate.  The best way to eliminate bed bugs is to prevent them from even showing up in the first place.  But prevention is difficult since they hitch rides on furniture, clothing and other personal belongings.

Whereas, bed bugs used to be the specialty of exterminators who would spray chemicals around the infested rooms to kill them and their eggs, there are now other contractors that have entered the field.  There are bed bug sniffing dogs that can be rented to sniff around your rental unit and alert you to any possible infestation and other companies that are killing bed bugs by different means then chemicals – such as heat treatment.

Because of the huge increase of bed bugs being found in rental housing lately, the AASEW’s June membership meeting included a presentation on this “itchy” subject by AASEW business member, Giertsen Company of Wisconsin.  Giertsen Co. is primarily a remediation company (wind, water and fire damage) however they have learned that the heating equipmen that is used to dry out a water damages property also can be used to kill the pesky bed bug. 

Below is the PowerPoint presentation that Patrick Meyer of Giertsen Co. shared with the AASEW on June 21, 2010.

The old saying that my parents would tell me prior to going to bed when I was a kid — “Don’t let the bed bugs bite” — has a whole new context for me after viewing this presentation.

Giertsen Bed Bug Blog

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Compiling a List of “Bad” Tenants – a/k/a “Blacklisting” – Can Cause A Landlord A World of Hurt

Jun 29

Posted by Tristan R. Pettit, Esq. in Blacklisting | 10 Comments

Every so often it is suggested that landlords begin compiling a list of bad tenants to share with one another.  This topic often arises after a landlord has been “burned” by a bad tenant that skipped out on a lease owing rent, caused severe damage to the landlord’s rental property, or any number of other breaches of their rental agreement.  It is argued that such a list could prevent other landlords from renting to the same “bad” tenant and hopefully avoid being burned as well.  While this seems like a great idea on its face, blacklising tenants is full of legal ramifications.

This issue came up last week on the “AASEW Listserv”  (a Yahoo groups community that includes 800+ landlords and property managers primarily located in the SE Wisconsin area that discuss all things rental).  The list serv is expertly moderated by Tim Ballering.  If you are not a member of this list serv (and you are invovled in the rental property industry) then you should definitely join by sending an email to ApartmentAssoc-subscribe@yahoogroups.com

Below is the question posed by a landlord and the moderator’s response.

QUESTION: 

Does our group have a policy about sharing names of problem tenants?  I am sure some landlords would love to know who is a problem and others may feel differently about that.

ANSWER: 

Short Version:   We do not permit it.

Long Version (why we do not permit something that would be a great tool for all of us):

Posting deadbeats names to a list violates the Federal Fair Debt Collection Practices Act (FDCPA).

“Blacklists” are quite illegal and potentially costly to those involved with maintaining the list or those sharing the names that end up on the list.  If you keep a list of who has been naughtly or nice, that list must contain both good and bad information about the tenant.  Additionally, those named tenants must have the ability to review and challenge the validity of their inclusion.  Finally, all provisions of the Fair Credit Reporting Act must be complied with that any other credit bureau must adhere to. 

Fines can be as large as $50,000 per offense plus the poosibility of being sued civilly.

The pertinent rules under the FDCPA are:

§ 805. Communication in connection with debt collection 
 
. . .
 
(b) COMMUNICATION WITH THIRD PARTIES. Except as provided in section 804, without the prior consent of the consumer given directly to the debt collector, or the express permission of a court of competent jurisdiction, or as reasonably necessary to effectuate a postjudgment judicial remedy, a debt collector may not communicate, in connection with the collection of any debt, with any person other than a consumer, his attorney, a consumer reporting agency if otherwise permitted by law, the creditor, the attorney of the creditor, or the attorney of the debt collector.
 
§ 806. Harassment or abuse 
 
 A debt collector may not engage in any conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of a debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section:
 
. . .
 
(3) The publication of a list of consumers who allegedly refuse to pay debts, except to a consumer reporting agency or to persons meeting the requirements of section 603(f) or 604(3)
 
  
__________________________
 
So as helpful as a listing of bad tenants might appear on its face, it is illegal.  The best way to avoid renting to problem tenants legally is to properly screen all rental applicants – to read more about this please see my April 17th post and refer to these helpful internet sites.
 
 

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New Law Limits Landlords From Pursuing A Deceased Tenant’s Estate

Jun 25

Posted by Tristan R. Pettit, Esq. in Collections, Legislation | 1 Comment

Governor Doyle recently signed into law 2009 WI Act 323 which creates a new section to Chapter 704 of the Wisconsin Statutes regarding Landlord-Tenant Law.

The new section 704.165, Wis. Stats., is entitled “Termination of Tenancy at Death of Tenant”

Below is a summary of the new law:

1.     If a residential tenant dies and had a term lease, his/her tenancy will be terminated  60 days after the landlord learns of the death or the expiration of the rental term, whichever occurs first.

2.     If a residential tenant dies and was under a periodic tenancy (i.e. month to month) then the tenancy will terminate 60 days after the landlord  becomes aware of the death.  If the deceased tenant’s estate provides proper notice to terminate the tenancy under sec. 704.19, Wis. Stats. then the tenancy may be terminated even earlier as outlined in 704.19, Wis. Stats.

3.     Neither the deceased residential tenant nor his/her estate will be liable for any rent after the tenancy is terminated.

4.     The landlord must still attempt to mitigate the deceased tenant’s damages by making attempts to re-rent the unit before the tenancy terminates.

5.     Nothing in this new section relieves another adult tenant who resides at the rental property (and who did not die) from their obligations under the rental agreement or otherwise.

6.     A landlord may not contact or otherwise communicate with a member of the deceased tenant’s family in an attempt to obtain rent for which the family member has no liability.

7.     This new law first applies to tenancies and rental agreements that are entered into on or after May 12, 2010.

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