Can A Landlord Charge an Application Fee To A Prospective Tenant In Wisconsin?

Earlier today a client emailed me and asked whether or not his property management company could charge a rental applicant an application fee, over and above the cost of a consumer credit report, to cover the company's time and energy reviewing and vetting the rental applicant.

Based on my review of Wisconsin law, a landlord may charge an application fee but it must be refundable.  So while a landlord can charge an application fee, its probably not the kind of application fee that the landlord envisioned, because that application fee must either be returned to the tenant or applied to the tenant's rent or security deposit.  

Let me explain.

Wisconsin law only identifies two costs that a landlord can charge a rental applicant.

1. A landlord can charge a rental applicant for the actual cost, up to a maximum of $25, for a consumer credit report in most situations. Wis. Stat. Sec. 704.085(1) and Wis. Admin Code ATCP 134.05(4).
2. A landlord can charge a rental applicant for the actual costs, up to a maximum of $25, for a background report if the applicant lives outside of Wisconsin, in most situations.  Wis. Stat. sec. 704.085(2).

Neither the Wisconsin Statutes (ch. 704) nor the Wisconsin Administrative Code (ATCP 134) specifically address application fees.  However looking at the definition of an "earnest money deposit" sheds some light.

ATCP 134.02 Definitions.

(3) “Earnest money deposit" means the total of any payments or deposits, however denominated or described, given by a prospective tenant to a landlord in return for the option of entering into a rental agreement in the future, or for having a rental agreement considered by a landlord. “Earnest money deposit" does not include a fee which a landlord charges for a credit check in compliance with s. ATCP 134.05(3). 

An application fee falls under the definition of an earnest money deposit, as an application fee is a "payment" that is "given by a prospective tenant to a landlord in return for the option of entering into a rental agreement in the future, or for having a rental agreement considered by a landlord."

So, if an application fee meets the definition of an earnest money deposit, then you must look to the Administrative Code provision that addresses earnest money. 

ATCP 134.05 Earnest money deposits and credit check fees.

(2)  Refunding or crediting an earnest money deposit.

(b) A landlord who receives an earnest money deposit from a rental applicant shall do one of the following if the landlord enters into a rental agreement with that applicant:

1. Apply the earnest money deposit as rent or as a security deposit.

2. Return the earnest money deposit to the tenant.

To summarize, an application fee meets the definition of an “earnest money deposit” and earnest money deposits must be returned to the tenant or applied to the tenant's rent or security deposit. 

So, while a landlord can charge an application fee to a prospective tenant, that fee cannot be kept by a landlord to cover the costs of his/her time and energy to review and vet the applicant's application. If a landlord is not interested in following these two options then it is best not to charge an application fee. 

Another way to look at it, is "no" a landlord cannot charge an application fee to a prospective tenant under the general understanding of what an application fee is (i.e., a fee that the landlord can keep to cover its costs to review and vet the applicant).

If you are charging an application fee and not refunding it or crediting it as set forth in ATCP 134.05(2) then you are violating that provision of the Administrative Code and the applicant could sue you seeking double their damages and their actual attorney's fees or you could be investigated by the Department of Trade & Consumer Protection (DATCP) and DATCP can issue a temporary or permanent injunction ordering you to stop your practice, order you to restore the applicant for any monetary loss suffered, or fined $25 - $5,000 per offense, or serve one year in jail, or both.   Wis. Stats sec. 100.20(6), 100.26(3) and (6).

I Think I Discovered a Fraudulent Tenant, What Can I do?

Drafted by Attorney Jennifer Hayden of Petrie + Pettit S.C. 

Identity theft or fraud for the purposes of renting an apartment is growing issue. We have heard there are social media pages dedicated to selling fraudulent identities to individuals specifically to rent apartments as well as sites that will produce fake paystubs, bank account information, credit reports and checks or money orders, along with the more traditional methods such as friends and family members posing as a current employer or former landlord to give a good reference.

With all of the available options, it is likely that at some point you may believe you have a tenant who used one or several of these methods to pass your screening criteria, enter into a written rental agreement and take possession of an apartment.

Frequently, the potential for fraud comes to light because of other issues with the tenancy. In most cases, there will be a corresponding failure to pay rent, bounced payments or non-rent breaches occurring some amount of time after the tenant has been residing in the apartment. Unfortunately, once the tenant has been residing in the apartment, it is likely that you will need to issue notice and proceed with filing an eviction action as it is unlikely the police will take any action to remove the tenant, though you can certainly file a police report if you have a sufficient basis to do so. In certain circumstances, the police may be able to provide the actual identity of the person residing in the apartment, which can be helpful in proceeding.

If your rental agreement contains a provision regarding providing accurate and complete information in the application and rental documents as the basis for an eviction action, you could issue notice and, if necessary, file an eviction action based on that provision. You will have to be prepared to prove what information was provided by the tenant and what was fraudulent or inaccurate. We do not believe that this is the type of criminal activity which threatens the health, safety or peaceful enjoyment of other tenants or immediate neighbors such that a Non-Curable Notice for Criminal Activity could be used but, particularly if there is a police report, you may be able to allege that criminal activity provisions of your lease have been breached by the fraud.

Alternatively, if you do not have sufficient evidence of the fraud or rental agreement provisions to proceed on that basis, you can wait until the tenant fails to pay rent or “bounces” a rent payment and serve notice and file an eviction action based on the non-payment. You will want to do so promptly, as collecting charges for any unpaid rent or physical damage to the apartment in these cases is obviously next to impossible.

If the tenant happens to be paying rent, you can wait until there are non-rent breaches such as noise complaints, fights with other tenants, or other activities for which you would normally issue a Notice to Quit or Vacate. You would issue the notice and then file an eviction action on that basis, if the tenant fails to cure or vacate after the notice period.

It is relatively common in these instances that tenants tend to stay in the apartment as long as possible, fail to appear in court but frequently seem to have largely vacated by the time the Sheriff executes the writ. We cannot, of course, guarantee what any particular tenant will do, so, as in all instances, you must proceed as though the matter will be contested in court and it will be necessary to proceed through the eviction case and having the sheriff execute the writ of restitution.

Drafted by Attorney Jennifer Hayden of Petrie + Pettit S.C. 

How Long Should You Retain A Denied Rental Application?

I am often asked by landlords and rental property managers how long they should hold on to the rental applications of applicants that were denied.  

The answer to that question depends on something called the "statute of limitations."  A statute of limitation is a law which sets the maximum period of time in which a person can wait before filing a claim/complaint or lawsuit against another person.

The statute of limitations for a rental applicant to file a federal fair housing (discrimination) complaint against a landlord for failing to accept his/her application is 2 years.  The statute of limitations for a state fair housing (discrimination) claim to be filed is shorter -- only 1 year. 

So what this means to you is that you MUST retain all rental applications and any other related documentation, such as credit reports, criminal reports, questionnaires sent to current or prior landlords, CCAP printouts showing past evictions etc. etc., for at least 2 years from your last interaction with an applicant that did not become your tenant.  You will also want to save for the same period of time, the specific written screening criteria that you were using at the time that you processed and rejected the application.

If you fail to do this then you may end up in the unenviable position of trying to defend yourself against a fair housing (discrimination) claim brought by a disgruntled applicant that you have no memory of and you will not have any documentation that you can refer to in order to defend yourself.  While there is a strong likelihood that you will not remember each and every rental applicant that you have interacted with in the last 2 years, it is important to note that a denied applicant will always remember you because in their mind you are the person that denied them housing for discriminatory reasons.

You never, ever want to be stuck in a  "He Said, She Said" situation.  A "He Said, She Said" scenario is one where the denied applicant is saying that you denied their application for reasons in violation of the Fair Housing laws and all you can say in reply is "No, that is not true" but you have nothing but your word to refute the allegations.  Landlords and Property Managers always want to be in a position where they can produce written evidence to support their non-discriminatory reasons for denying an application.  And that can only be done if you retain all denied rental applications, written communications, and other relevant documents related to your decision, until the statute of limitations has run.