Posts Tagged Month to Month Tenancy

Are Wisconsin Residential Leases Worth The Paper They Are Written On?

In my personal opinion the answer is often “no.”  The reason being is due to Wisconsin’s requirement that a landlord make reasonable efforts to re-rent the unit if a tenant is evicted or decides to vacate early, and if this is not done, the landlord is not entitled to further rent from the breaching tenant.

Now don’t get me wrong, I am not saying that leases in Wisconsin are worthless and that you should never use them.  What I am saying however is that they are not as wonderful as some people think they are and landlords need to understand there limitations.

Let me digress to provide some additional background.

First, you should always have a written rental agreement in place with your tenant.  The days of verbal agreements over a handshake are long gone.

Second, a “rental agreement” is a general term that includes both leases and periodic tenancies (such as a month to month tenancy.  A lease is an agreement for a specific term.  It has a beginning date and an end date.  Periodic tenancies — like a month to month —  are not leases as there is no end date and they continue until they are terminated by either the landlord or the tenant.

So when I talk about a “lease” in this blog post I am only referring to those rental agreements that are for a specific term.  By signing a lease, a tenant is agreeing to reside in a specified rental unit until the end of the lease term and to pay rent during the entire lease term.  So what happens when a tenant decides not to fulfill the term of his or her lease?

Well, according to sec. 704.29 of the Wisconsin Statutes, if this happens, a landlord may only purse the breaching tenant for the remainder of the rent owed under the lease if that landlord has made reasonable efforts to reduce the amount of rent that the tenant is responsible for by attempting to re-rent the unit for the tenant.  Translation – if a tenant breaks the lease, a landlord is required to spend time and energy to limit the damage to the tenant for his/her own action of breaking the lease, if landlord does not do this, landlord is entitled to nothing.  Seems fair . . . . NOT.

Sec. 704.29 (1) specifically states:

“If a tenant unjustifiably removes from the premises prior to the effective date for termination of the tenant’s tenancy and defaults in the payment of rent, or if the tenant is removed for failure to pay rent or any other breach of a lease, the landlord can recover rent and damages except amounts which the landlord could mitigate in accordance with this section . . .”

The statute continues as follows:

“In any claim against a tenant for rent and damages, or for either, the amount of recovery is reduced by the the net rent obtainable by reasonable efforts to rerent the premises.

“Reasonable efforts” means those steps that the landlord would have taken to rent the premises if they had been vacated in due course, provided that those steps are in accordance with local rental practice for similar properties.”

So even though the tenant is in the predicament s/he is in due to their own actions, a landlord is not legally entitled to collect rent for the remainder of the lease from the tenant unless the landlord tries to re-rent the unit for the tenant.

If the landlord is able to re-rent the unit for the same amount or more, then the breaching tenant is officially “off of the hook” and not responsible for any further rent because the landlord now found a new paying tenant.

Yes, it is true that a landlord is entitled to recoup from a breaching tenant the costs incurred by the landlord to re-rent the unit.  So the breaching tenant is responsible for the advertising costs and maybe the costs of a “for rent” sign, or the costs of running a credit report for the new tenant.  Not very much of a payback in my opinion.

Additionally, the courts that I encounter will not reimburse a landlord for the lost time and energy spent getting the unit into shape for re-renting (unless it is damaged), showing the unit to prospective tenants, or reviewing new applications.  That non-reimbursable work  is considered to be the “cost of doing business” for the landlord.  OUCH.

So essentially, a landlord is required to do all this work to fix a problem created by a tenant, and if the landlord doesn’t do that extra work, the landlord is not even entitled to attempt to recover rent for the remainder of the lease term from the departing tenant.  If the landlord does that extra work and re-rents the unit, then the landlord is still not entitled to recovery of rent for the remainder of the lease term from the breaching tenant, because now the landlord is getting rent from someone else.  So essentially the breaching tenant, despite being the person that created the problem in the first place, gets off scot-free.

Only when the landlord does the extra work involved in re-renting the unit, and is unable to do so, is the breaching tenant legally responsible for the rent for the remainder of the lease (or until it eventually is re-rented, whichever comes first).  From a practical standpoint, that is a hollow victory as by this time the tenant is long gone, the security deposit most likely does not cover more than 1 month of the rent, and even if you can locate the tenant they may not be “”collectible.”

I would like to reiterate that the goal of this blog post is not for all landlords to tear up your leases and only enter into month to month tenancies going forward.  There are still tenants out there (I think?) that if they sign a lease, will honor it.  They will either stay for the entire lease term or if for some reason they must vacate early – they will honor their lease commitment.  Although I am sad to say that I am seeing fewer and fewer of these type of tenants these days — most cannot afford to pay rent for two homes and opt to pay the landlord that is currently keeping a roof over their head rather than the landlord that used to provide them shelter.

My aim is to insure that landlords using leases understand the legal limitations and requirements involved when a tenant breaks that lease.  A landlord cannot just sit back and do nothing to re-rent the unit and expect to collect future rent from the exiting tenant.  A lease is not some panacea that guarantees you the right to collect future rent when a tenant ditches.  You are only entitled to that rent if you make reasonable efforts to re-rent the unit for the breaching tenant and then only if the tenant can be located and is collectible.

So you need to ask yourself, is my lease worth the paper that it is written on?  Only you can answer that question.

 

Tags: , , ,

With A Month To Month Rental Agreement A Landlord Has More Options Than Just The 5 Day Notice

One reason many landlords choose to enter into a month to month tenancy (m2m) with a tenant rather than a 1 year lease (or other term lease) is because it is easier to remove a tenant under a m2m tenancy.

In a m2m tenancy a landlord has the choice of serving a tenant with a 5 Day Notice, a 14 Day Notice, or a 28 Day Notice.  One of the notices — the 28 Day Notice — can legally terminate a m2m tenancy without the tenant even having committed a breach.

The 5 Day Notice:

Under a m2m tenancy a landlord has the option to serve the tenant a 5 Day Notice if the tenant commits a breach.  A 5 Day Notice allows the tenant the right to cure the breach within the 5 day cure period and if that is done then the tenancy continues and the tenant can remain.  If the tenant fails to cure the breach within the 5 days then the tenancy is terminated and the landlord may file an eviction action against the tenant if they have not already vacated.

     NOTE:  I am not sure why, but many landlords believe that they are required to serve a tenant with a 14 Day Notice after the tenant has been served — and not cured – a 5 Day Notice.  This is not true and is not required under Wisconsin law.  If a tenant is served a 5 Day Notice for committing a breach and does not cure the breach within 5 days the landlord is NOT required to then serve the tenant with a 14 Day Notice.  If a 5 Day Notice is not cured (and the tenant has not voluntarily vacated the property) then the landlord should immediately file an eviction action to remove the tenant.  This is true whether the tenant is under a m2m tenancy or under a term lease.   

The 14 Day Notice:

If a tenant commits a breach under a m2m tenancy the landlord can legally bypass the 5 Day Notice and proceed directly to a 14 Day Notice.  Under a 14 Day Notice the tenancy will terminate at the end of the 14 days and the tenant has no right to cure the breach and remain.  At the end of the 14 days the landlord is entitled to file an eviction to remove the tenant if they have not vacated.  A 14 Day Notice is basically a “1 strike and you are out” notice.  Landlords using m2m rental agreements do not have to give a tenant the opportunity to cure the breach.

This is a key difference between a m2m tenancy versus a term lease.  If a tenant commits a breach for the first time under a term lease, the tenant must be given the opportunity to cure the breach.  A landlord using a term lease can only serve a tenant with a 14 Day Notice if this is the tenant’s second time committing breach within a 12 month period and the tenant was previously served a 5 Day Notice for the same or similar breach. 

The 28 Day Notice:

The other major distinction between a term lease and a m2m tenancy is that a tenant under a m2m can have their tenancy terminated even if they have not committed a breach with a 28 Day Notice.  So a landlord using a m2m rental agreement has the option to issue his/her tenant a 28 Day Notice to vacate for any reason or no reason at all.  The only restriction is that the landlord cannot serve a 28 Day Notice to retaliate or discriminate against a tenant.

Summary:

Under a lease for term a landlord may only terminate the lease if the tenant has committed a breach.  If it is the first time that the tenant has committed a breach, a landlord must serve the tenant with a 5 Day Notice which allows the tenant the opportunity to cure the breach.

A tenant under a m2m tenancy is not afforded the same protections.  A m2m tenant can be removed even if no breach has been committed by simply serving them with a 28 Day Notice.  If the tenant has committed a breach, the landlord can choose to serve a 14 Day Notice (which does not allow the tenant the opportunity to cure the breach), a 5 Day Notice (which does allow the tenant the opportunity to cure the breach and remain as a tenant), or a 28 Day Notice if the tenant has not committed a breach but the landlord still wants the tenant to vacate (or if the landlord does not want to have to prove that a breach occurred if the tenant would contest the eviction).

The ease in removing a tenant under a m2m tenancy is a significant reason for first time landlords, landlords that have had difficulty with past tenants, or any landlord that wants to have flexibility to consider using a m2m rather than the ol’ standby 1 year lease.  I personally only offer my new tenants a m2m rental agreement.  It is only after a period of time has passed and the tenant has proven to me that they will pay their rent on time and that they will treat my rental property with care — in other words they have demonstrated responsibility — that I will offer them the opportunity to enter into a 1 year lease.

Tags: , , , ,