Court of Appeals Upholds Ability to Charge Landlords with a Misdemeanor for Failure to Return or Account for Security Deposit

Blog post written by Atty. Jennifer M. Hayden of Petrie + Pettit S.C.

In State v. Troy R. Lasecki, the Court of Appeals upheld the ability of the District Attorney’s office to charge a Landlord with a misdemeanor for unfair trade practices for the failure to return or account for a tenant’s security deposit as required by law. 

In response to arguments that a Landlord doesn’t have notice he or she could face criminal charges, the court responded: “an ordinary person, acting as a residential landlord, would have sufficient notice that it can be a criminal unfair trade practice for a landlord either to withhold amounts of a tenant’s security deposit not reasonably necessary to pay for items authorized by statute or to fail to provide a tenant with a security deposit withholdings statement if some or all of a security deposit is withheld.”

In the Lasecki case, two tenants had complained to DATCP that Lasecki had not returned or provided an accounting for their security deposits. Lasecki failed to respond to DATCP’s inquiries and was charged by the District Attorney’s Office under Wis. Stat. § 100.20 unfair business or trade practices which carries the potential penalties under § 100.26(3): “Any person … who intentionally refuses, neglects or fails to obey any regulation or order made or issued under s. 100.19 or 100.20, shall, for each offense, be fined not less than $25 nor more than $5,000, or imprisoned in the county jail for not more than one year or both.”

While supporting the basis for the charges, in the instant case, the Court of Appeals remanded the case to the lower court due to problems with the jury instructions and instructed that “the trier of fact is to determine whether the landlord committed an unfair trade practice by either: (1) violating WIS. STAT. § 704.28—including by failing to timely return any portion of a security deposit without having a lawful basis to do so under the statute; (2) violating WIS. ADMIN. CODE § ATCP 134.06(4) by failing to provide a required withholdings statement; or (3) violating both requirements.”

While in a civil action a tenant can claim twice the value of the pecuniary loss plus reasonable attorney’s fees, in a criminal case the “primary purpose of restitution is not to punish the defendant, but to compensate the victim for his or her actual loss.” Therefore, the Court of Appeals reasoned that in a criminal action, the victim/tenant can only recover his or her actual pecuniary losses and that the victim/tenant would have to bring a civil case in order to recover more. 

What are the takeaways from this unfortunate incident? 1) Always, always, always (did I say always?) account for or return the security deposit within the time allowed by law and take only those deductions provided for by law; and 2) Always, always, always (did I say always already?) respond to an investigation by DATCP.

Wisconsin Landlords Cannot Require a Tenant to Pay A Non-Refundable Pet Deposit

Wisconsin law does not allow a landlord to charge a tenant a non-refundable pet deposit.

I know of some landlords that require tenants with a pet to post both a non-refundable pet deposit (to cover the cost of cleaning the carpets to remove dander) and a refundable pet deposit (to cover any damage caused by the pet).  Unfortunately, non-refundable pet deposits are not allowed in Wisconsin because they meet the definition of a security deposit and all security deposits are refundable.

Reasoning:

ATCP 134’s definition of a “security deposit” states that a security deposit “means the total of all payments and deposits given by a tenant to the landlord as security for the performance of the tenant’s obligations, and includes all rent payments in excess of 1 month’s prepaid rent.” Wis. Admin. Code ch. ATCP 134.02(11).

What is a pet deposit if not a “deposit given by a tenant to the landlord as security for the performance of the tenant’s obligations?”  The tenant’s obligation under this scenario would be to not allow his or her pet to damage the rental unit.  So legally speaking, a pet deposit is the same as a security deposit.

A Wisconsin landlord may only keep a security deposit, or a portion of a security deposit, for the amounts reasonably necessary to pay for:

1. Tenant damage, waste or neglect of the premises;
2. Unpaid rent which the tenant is legally responsible for;
3. Payment that tenant owes under the rental agreement for utility services provided by the landlord but not included in rent;
4. Payment for the direct utility service provided by a government-owned utility;
5. Unpaid monthly municipal permit fee assessed against the tenant by a local unit of government;
6. Any other item set for in the NSRP.

Wis. Stat. § 704.28 (1) and Wis. Admin. Code ch. ATCP 134.06(3).

So, if there is no damage, waste or neglect caused by the tenant’s pet, then a Landlord may not withhold a security deposit or a portion of a security deposit.  Charging a pet deposit to cover the cost of routine carpet cleaning, absent damage to the carpet, is not allowed.  A non-refundable security deposit is not allowed in Wisconsin and therefore neither is a non-refundable pet deposit.

So if you currently require tenants to post non-refundable pet deposits, you need to be aware that under Wisconsin law, that deposit will be considered to be a security deposit and is subject to all of the security deposit requirements, including the requirement to send a written itemization of any withholdings from the deposit. 

If you do not treat your non-refundable pet deposits as a security deposit and fail to follow the security deposit withholding laws and rules, then you run the potential risk of being sued by your tenant for making an improper security deposit withholding and potentially being liable for double damages and the tenant’s attorney’s fees. Ouch.

Court of Appeals Decision Reminds Landlords To Review Their Nonstandard Rental Provisions Before Making Deductions from A Tenant's Security Deposit

The Wisconsin Court of Appeals, in an unpublished decision dated May 9, 2013, held that a landlord wrongfully withheld a portion of his tenants' security deposit for costs incurred when attempting to re-rent the rental unit.

As I have mentioned in a prior post, Wisconsin law essentially allows a landlord to deduct only three things from a tenant's security deposit: (1) damage, waste, or neglect, (2) rent, (3) utilities. Any other items that a landlord would like to deduct from a tenant's security deposit must be included in a separate written document entitled "Nonstandard Rental Provisions" (NSRP), in order to be legally deducted. So if what you want to deduct something from your tenant's security deposit and it is not one of the 3 items listed above and not set forth in your NSRP, it will most likley be considered an illegal deduction.

In Keyes and Gruner v. Waldbillig et. al (2012AP1180), two tenants broke their lease with their landlord by moving out prior to the last day of the lease term. The landlord wrote the tenants a letter explaining to them that there would be charges against the their security deposit to cover the cost of advertising and marketing the apartment and that his property management company charged him $100 per showing to show the unit to potential new tenants.

The landlord's managment company showed the tenants' vacated unit 6 times for a total of $600 in costs to the landlord prior to finding a new tenant for the unit. The landlord sent the tenants their security deposit itemization letter explaining that he witheld $600 of their security deposit to cover the costs to re-rent the unit.

Under Wisconsin law, specifically Wis. Stats. 704.29, if a tenant breaks their lease or is evicted, a landlord is required to make reasonable efforts to mitigate the tenant's damages by trying to re-rent the unit. The same statute also says that a tenant who has broken his/her lease or is evicted can be held responsible for all lost rent and all reasonable expenses of listing and advertising the vacant unit which were incurred by the landlord while trying to re-rent the unit.

But this landlord failed to have a NSRP that allowed him to deduct for the re-rental costs. As an aside, if the landlord had just opted to withhold the lost rent incurred while trying to re-rent the unit from the tenants' security deposit instead of the re-rental costs, he also most likley would have prevailed even without having the NSRP regarding re-rental costs since rent owed is an allowable security deposit deduction. Instead, the landlord deducted $600 in showing fees from the tenants' security deposit even though he did not have a NSRP in place that allowed him to do so.

Had the landlord had such a NSRP in place, it is my opinion that his deductions from the tenants' security deposit would have been proper (assuming that the court would agree that $100 per showing is reasonable) and he would not have lost the case and been required to pay double damages and the tenants' attorney's fees.

The moral of the case is that just because the law allows a landlord to hold tenants responsible for the costs to re-rent if they break their lease, does not mean that the landlord can legally withhold those costs from the tenants' security deposit. In order to be able to legally do that, the landlord must have a NSRP in place which allows for the deduction of re-rental costs allowed under Wis. Stats. 704.29.

Does your NSRP contain such a clause? Do you even have a NSRP docuement? If not you may want to contact Wisconsin Legal Blank, which sells a very good Nonstandard Rental Provisions document which I have drafted, that will protect you.

2011 Wisconsin Act 143 (Landlord Omnibus Law) Also Applies To Commercial Landlord-Tenant Law

While this blog primarily focuses on residential landlord-tenant law, on occasion I also touch on issues applicable to commercial landlord-tenant law. This is one such instance.

Commercial landlord-tenant is more straightforward than residential in my opinion because commercial tenancies are less regulated than residential. Typically what a commercial landlord and tenant agreed to and placed into their lease agreement is what governs. The Wisconsin Administrative Code's ATCP 134 does not apply to commercial leases and most of Chapter 704 of the Wisconsin Statutes does not apply to commercial leases unless (1) the parties had no written lease, or (2) the lease was silent as to certain issues (see sec. 704.03 and 704.05 respectively).

Well, that has all changed now with the passage of 2011 Wisconsin Act 143 which was signed into law last week and will take effect on March 31, 2012.

While almost all of the attention paid to the new law surrounded its effects on residential landlord-tenant law, the law also impacts the commercial arena as well. I too was caught up in the effect Act 143 would have on residential landlords and missed the applicability of this new law to commercial landlords initially --- thanks to Bob Anderson of Legal Aid of Wisconsin for redirecting me : )

As I have mentioned in prior posts, this legislation was fast-tracked for some reason and rushing new laws through the legislative process is never a good thing. In fact it is a recipe for disaster.

It appears that the legislators did not realize that Senate Bill 466 -- the precursor to Act 143 -- was written in such a way as to encompass commercial landlord-tenant law. When it was brought to their attention, a quick amendment was made to exclude one portion of the new law (the section that makes a rental agreement void if it contains certain prohibited language) from the commercial arena, but apparently there was not enough time to deal with the other sections of the new law, which now will apply to both commercial and residential tenancies.

So what do we have?

The following provisions of Act 143 apply to both commercial landlord-tenant law as well as residential:

1. Moratorium on evictions

2. Severability of rental agreement provisions

3. Disposition of abandoned property

4. Requirement that landlords receive an award of holdover damages when appropriate

5. Acceptance of past due rents

6. Withholding from and return of security deposits

7. Making any violation of chapter 704 a possible unfair trade practice

If you are unfamiliar with the above sections of the new law you should read my prior post summarizing the new law.

Number 1-5 above actually benefit commercial landlords. However numbers 6 and 7 are problematic

By adding ATCP 134.06, which focuses on the withholding from and the return of security deposits, to chapter 704, the new law has now made these requirements applicable to commercial landlords as well. Prior to Act 143 being passed, there was no law addressing what a commercial landlord could withhold from a commercial tenant's security deposit, nor was there any law regarding when that security deposit (or an itemization as to how the security deposit was applied) had to be returned to the commercial tenant. Well thanks to Act 143, now there is.

Act 143 allows a commercial landlord to only make deductions for the following items from a commercial tenant's security deposit:

704.28 Withholding from and return of security deposits. (1) Standard withholding provisions. When a landlord returns a security deposit to a tenant after the tenant vacates the premises, the landlord may withhold from the full amount of the security deposit only amounts reasonably necessary to pay for any of the following:

(a) Except as provided in sub. (3), tenant damage, waste, or neglect of the premises.

(b) Unpaid rent for which the tenant is legally responsible, subject to s. 704.29.

(c) Payment that the tenant owes under the rental agreement for utility service provided by the landlord but not included in the rent.

(d) Payment that the tenant owes for direct utility service provided by a government-owned utility, to the extent that the landlord becomes liable for the tenant's nonpayment.

(e) Unpaid monthly municipal permit fees assessed against the tenant by a local unit of government under s. 66.0435 (3), to the extent that the landlord becomes liable for the tenant's nonpayment.

(f) Any other payment for a reason provided in a nonstandard rental provision document described in sub. (2).

So if a commercial landlord would now like to deduct anything other then the items listed in (a) - (e) above, then that landlord needs to start using a separate written document entitled "Nonstandard Rental Provisions" which must list the additional fees/costs that can be deducted from a commercial tenant's security deposit.

Additionally, Act 143 now requires a commercial landlord to either (1) return the tenant's security deposit to them, or (2) send them an itemization explaining how that security deposit was applied, within 21 days of the following:

(4) Timing for return. A landlord shall deliver or mail to a tenant the full amount of any security deposit paid by the tenant, less any amounts that may be withheld under subs. (1) and (2), within 21 days after any of the following:

(a) If the tenant vacates the premises on the termination date of the rental agreement, the date on which the rental agreement terminates.

(b) If the tenant vacates the premises before the termination date of the rental agreement, the date on which the tenant's rental agreement terminates or, if the landlord rerents the premises before the tenant's rental agreement terminates, the date on which the new tenant's tenancy begins.

(c) If the tenant vacates the premises after the termination date of the rental agreement, the date on which the landlord learns that the tenant has vacated the premises.

(d) If the tenant is evicted, the date on which a writ of restitution is executed or the date on which the landlord learns that the tenant has vacated the premises, whichever occurs first.

Commercial landlords never had to worry about that 21 day time frame before -- now they do. Needless to say it is much more difficult and time consuming to do a walkthrough of a giant commercial space and itemize any damages or cleaning charges than it is for a 500 square foot residential rental unit. I'm not exactly sure how commercial landlords will be able to comply with this time frame, but they will need to find a way, or else they may have to to their tenant double damages and attorney's fees. Which leads me to the next concern . . .

Act 143 now makes any violation of chapter 704 a possible violation of unfair trade practices, which pursuant to sec. 100.20, Wis. Stats. allows a tenant to sue a landlord for double damages and attorney's fees. Prior to Act 143 a commercial landlord was not in this predicament because unfair trade practices were set forth in ATCP 134 which only applied to residential tenancies. But now that Act 143 incorporates some provisions of ATCP 134 into chapter 704 -- and chapter 704 applies to commercial landlord-tenant relations -- things are different.

Here is the language of the new law:

704.95 Practices regulated by the department of agriculture, trade and consumer protection. Practices in violation of this chapter may also constitute unfair methods of competition or unfair trade practices under s. 100.20. However, the department of agriculture, trade and consumer protection may not issue an order or promulgate a rule under s. 100.20 that changes any right or duty under this chapter.

I guess the only positive is that the new law says "may constitute" instead of "shall constitute" however to a commercial landlord that never had to worry about anything they did constituting an unfair trade practice and subjecting themselves to being sued for double damages and attorney's fees, I'm sure this will be of little consolation.

So not only will Act 143 require commercial landlords to make some modifications to the language in their leases, but it will require them to completely change how they run their commercial proeprty management businesses starting March 31, 2012 ---- 2 DAYS FROM NOW!!!!!

You Will Not Want To Miss AASEW's Fourth Annual Landlord Boot Camp on Saturday Feb. 25th

Landlording can be pretty complex, with a seemingly never ending myriad of paperwork, rules, landlord-tenant laws and simple mistakes that can cost you thousands of dollars.

The Apartment Association of Southeastern Wisconsin's Fourth Annual “Landlord Boot Camp” can help you navigate these treacherous waters and teach you how to run your properties with greater profit and less hassles.

I have given similar landlord-tenant law seminars to fellow attorneys, landlords, and property manager organizations throughout the state for other state-wide semianr companies that charge attendees $300-$400. This is your opportunity to learn all of the same information at a huge discount through the Apartment Association.

Who: Taught by Attorney Tristan R. Pettit (who drafts the landlord tenant forms for Wisconsin Legal Blank)

When: Saturday, February 25th, 2012. 8:30 am – 5 pm

Where: Clarion Hotel 5311 S. Howell Avenue, Milwaukee [Map]

Included: 100 plus page manual/outline to help you put what you learn into practice plus helpful forms.

Cost: $159 for AASEW members and $249 for non-members. If you are not a member of AASEW but are a member of another landlord/apartment association the cost to attend will be $199.

Specials: Not a member? Pay just a dollar more and enjoy a 2012 AASEW membership.

Wisconsin landlord-tenant laws are constantly changing. To help keep you up to date we offer prior attendees a $50 discount.

Sign up by going to the AASEW's Landlord Boot Camp landing page where you can sign up online and pay via PayPal.

What you will learn at the Apartment Association's 2012 Landlord Boot Camp

Landlord Boot Camp covers everything that you need to know about residential Landlord Tenant law in Wisconsin, including:

1. How to properly screen prospective tenants.
2. How to draft written screening criteria to assist you in the selection process and protect you from discrimination complaints.
3. How to comply with both federal and state Fair Housing laws including how to handle with “reasonable modifications” and “reasonable accommodations” requests.
4. How to legally reject an applicant.
5. What rental documents you should be using and why.
6. When you should be using a 5-day notice versus a 14-day notice, 28-day notice, or 30-day notice and how to properly serve the notice on your tenant.
7. Everything you wanted to know (and probably even more than you wanted to know) about the Residential Rental Practices (ATCP 134) and how to avoid having to pay double damages to your tenant for breaching ATCP 134.
8. When you are legally allowed to enter your tenant’s apartment.
9. How to properly draft an eviction summons and complaint.
10. What to do to keep the commissioner from dismissing your eviction suit.
11. What you can legally deduct from a security deposit.
12. How to properly draft a security deposit transmittal / 21 day letter.
13. How to handle pet damage.
14. What to do with a tenant’s abandoned property and how this may affect whether or not you file an eviction suit.
15. How to pursue your ex-tenant for damages to your rental property and past due rent (and whether it is even worth it to do so).

. . . and much more. There will also be time for questions and answers.

You get all this for less than you would pay for an hour of an attorney's time.

Last year’s AASEW Landlord Boot Camp was filled to capacity and we even had to turn a few people away. So call early to reserve your spot.

Call the Association at (414) 276-7378, email membership@apartmentassoc.org or go to our Landlord Boot Camp landing page to sign up online and reserve your spot.

Remember that “landlording” is a business — so take the time to educate yourself on how to better manage your business and avoid costly errors!

Landlords Should Treat Tenant Roommates As One Person To Better Understand Joint and Several Liability and Resolve Tenant Disputes

I receive many calls from landlords who have questions and concerns involving issues involving their tenant roommates. While the problems are often factually different the proper way to analyze the situation and arrive at a resolution to the problem, often depends on the same thing -- something called "joint and several liability."

Joint and several liability is a legal concept that, according to Black's Law Dictionary, is defined as "the liability of co-promisors of the same performance when each of them, individually, has the duty of fully performing the obligation. A liability is said to be joint and several when the creditor may demand payment or sue one or more of the parties to such liability separately, or all of them together at his option."

Confused yet? Let me try and explain joint and several liability more clearly than Mr. Black did.

Essentially joint and several liability means that each individual tenant is responsible for the full amount of the rent as well as any and all other obligations under the rental agreement.

I think it would be easier for landlords to comprehend the concept of joint and several liability if they would just think of and treat roommates as one person.

Here is an example:

A Landlord enters into a 12 month lease with Tenant A, Tenant B, and Tenant C. The monthly rent is $750. The security deposit is also $750.

The Landlord needs to remember that he has one lease with three tenants NOT three separate leases with one tenant. As such all three tenants are responsible for the full amount of rent. All three tenants are responsible for abiding by the rules and regulations. All three tenants are responsible for paying the security deposit. All three tenants are responsible for paying the full amount of any damages to the rental unit.

Instead of taking $250 from Tenant A, B, and C for rent (or the security deposit), the landlord should insist that rent be paid via one payment for the full amount. When landlords accept $250 from each tenant, the landlord is inadvertently telling the three tenants that each of them is only responsible for 1/3 of the rent -- that is wrong. Remember treat the roommates as one person - one person pays his entire rent not 1/3 of it.

I know many of you that have tenant roommates are thinking that there is nothing wrong with accepting three separate checks for $250 from your three tenants. You are correct, nothing is wrong, there is nothing wrong with doing that . . . AS LONG AS ALL OF THE TENANTS PAY RENT ALL OF THE TIME. But problems arise is when one tenant falls on hard times and doesn't have the money to pay rent. It is at this point that the other two tenants start telling the landlord, "well we paid my portion of the rent so you can't evict us." WRONG.

Once again, think of roommates as one person. When you have one tenant (no roommates), that tenant is responsible for paying the entire amount of the rent - not just a portion of it. The same goes with roommates. One roommate is not just responsible for paying 1/3 of the rent. Under joint and several liability, that one tenant roommate is responsible for paying all of the rent if the other tenants don't pay any rent. If Tenant A and Tenant B have no money to pay rent, then Tenant C better rise to the occasion and pay the full rent amount or else all three roommates can be evicted.

Tenant roommates do not understand the concept of joint and several liability. I believe it is in the landlord's best interest to take the time to teach his tenant roommates about joint and several liability and how it specifically applies to them and their roommate situation. The best way to do demonstrate joint and several liability to your tenant roommates, after you have had the discussion with them, is to make them write one check for rent. I tell my roommate tenants that they must pay rent with one check. I don't care who pays it but I will only accept one check for the full amount of rent. The tenants can fight amongst themselves as to how they divide up the rent amount or who owes what to whom. How they do that should not be the landlord's concern. The landlord wants to impress upon his tenant roommates that he expects the full amount of rent each month and if they do that then they can remain as tenants. If not, then they will be evicted.

So while it may seem a bit much to refuse to take more than one rent check from tenant roommates, I believe by making the tenants understand that they are not responsible for just a "portion" of the rent, a landlord can avoid a lot of problems in the future.

Let's turn our focus to tenant roommates and the security deposit. If a landlord makes the mistake of accepting $250 from each of his three tenant roommates to apply to the $750 total security deposit, I believe that the landlord is sending his new tenants the wrong message again. Whether he is aware of it or not, the landlord has unintentionally informed his tenants that each of them are only responsible for 1/3 of the security deposit and therefore only responsible for 1/3 of any damage to the unit.

How many times have you heard one tenant say that the hole in the wall was caused by the other roommate who came home drunk one night and put his fist through the drywall? And then the next comment out of that tenant's mouth was, "so you should take the cost to repair that wall out of his portion of the security deposit."

Each tenant is jointly and severally liable for paying the total amount of the security deposit and for the total amount of any damage caused to a rental property regardless of which tenant caused the damage. A tenant roommate is not just responsible for "his portion" of any damage. Under joint and several liability, if the cost to repair the wall is $500 then the landlord can keep $500 of the security deposit and the three roommates can fight over how to split up the remaining $250.

What if your tenant roommates cause major damage to the rental unit that goes well beyond the security deposit on hand. Let's say the damages total $5,000. Under the concept of joint and several liability, a landlord can choose to sue all three of the tenants for the $5,000 or the landlord can choose to sue only two of them for the $5,000 (the two that are gainfully employed, for example) or the landlord could even opt to sue just one of the three roommates for the entire $5,000.

Assuming the landlord could prove his damages and meet his burden of proof, the court could rightfully enter a judgment of $5,000 against only Tenant A, if that is the only tenant that the landlord sued. This is true even if it was Tenant C that caused the actual damage. The landlord could then pursue and collect the entire $5,000 from Tenant A. It would then be up to Tenant A to sue either Tenant B or Tenant C, or both, if he so chooses.

Please note that joint and several liability does not allow a landlord to obtain a double or triple "windfall." A landlord can't sue each tenant individually for the full $5,000 and end up with three judgments totaling $15,000. This is why the most practical course of action is typically for the landlord to sue all three tenants for the entire $5,000 and then decide which tenant is more "collectible" (and often more responsible) and pursue the collection of the judgment against only that one tenant.

Now, let's assume there is no damage to the rental unit after the three tenants move out and therefore the entire security deposit will end up being returned. How is the landlord to return the security deposit? Under Wisconsin law, specifically Wisconsin Administrative Code, ATCP 134.06(2)(d), a landlord is required to refund the entire security deposit in one "check, draft or money order made payable to all tenants who are parties to the rental agreement unless the tenants designate a payee in writing." So under ATCP 134.06(2)(d), a landlord is required to treat the tenant roommates as one person - by sending them one check made payable to all three of them. If a landlord ended up writing three separate checks to each of the tenants for 1/3 of the security deposit each, that landlord would be violating Wisconsin law.

So, if a landlord treats his tenant roommate as one person, he will not only be adhering to the concept of joint and several liability, he will make his life as a landlord more simple. Landlords should not have to get involved in trying to determine which roommate did or didn't pay "his portion of the rent" nor should a landlord be concerned with which roommate punched a hole in the drywall during a drunken rampage. It is not our job as landlords to be social workers and resolve disputes amongst roommates. Nor is it our job to be the judge or jury and determine which roommate was at fault. Fortunately, the concept of joint and several liability allows a landlord the ability to avoid all of that unnecessary drama.

NOTE: If the rental agreement you are currently using does not indicate that all tenants are "jointly and severally liability" for all obligations under the rental agreement, then it is not a well-written rental agreement and is not worth the paper that it is written on. If that is the case, you should tear it up at the first possible legal opportunity -- i.e. once the term ends if it is a lease or with 28 day's notice if it is a month to month tenancy. You should then purchase and start using a rental agreement that states that all tenants are jointly and severally liable. I hear that the Rental Agreement sold at Wisconsin Legal Blank Company, Inc. is a very good one -- someone told me that the author of it is pretty knowledgeable about Landlord-Tenant Law.

Must A Landlord Actually Repair Tenant-Caused Damage Before The Landlord Can Deduct The Cost From A Tenant's Security Deposit?

This issue keeps raising its head over and over and over . . . so I feel compelled to address it. The question: Must a landlord have completed the repair of tenant-caused damages to a rental unit before being legally able to deduct the repair costs from the tenant's security deposit?

I personally believe the answer to that question is "No" -- the repair work does not need to be completed prior to a landlord being able to deduct the repair cost from the tenant's security deposit.

Wisconsin law does not provide landlords with a direct answer to this question.

The Wisconsin Administrative Code, ATCP 134, does not address this issue. This is what ATCP 134 does say:

ATCP 134.06(2)(a), entitled Returning Security Deposit, states that within 21 days after a tenant surrenders the rental premises, the landlord shall deliver or mail to the tenant the full amount of the security deposit held by the landlord, less any amounts properly withheld by the landlord under sub (3).

ATCP 134.06(3), entitled Security Deposit Withholding; Restrictions, lists what items can be deducted from a tenant’s security deposit. I wrote a blog post on this topic previously.

ATCP 134.06(4), entitled Security Deposit Withholding; Statement of Claims, states that if any portion of a security deposit is withheld by a landlord, the landlord shall, within the time period and manner specified under sub (2) deliver or mail to the tenant a written statement accounting for all amounts withheld. The statement shall describe each item of physical damages or other claim made against the security deposit, and the amount withheld as a reasonable compensation for each item or claim.

Chapter 704 of the Wisconsin Statutes which deals with Landlord Tenant issues does address the issue.

I am also not aware of any Wisconsin case law that answers the question.

Here are my reasons for believing that it is legal for a landlord to deduct the costs to repair tenant-caused damage from the tenant's security deposit prior to the repair work being completed.

1. Nowhere in ATCP 134 does it state that the repair work must be completed prior to the landlord being able to deduct the costs of repair from the tenant's security deposit. If the drafters of ATCP 134 meant for repair work to have been completed prior to any deduction being made from a tenant's security deposit then they had the opportunity to require that in the regulation. For whatever reason, the drafters chose not to write that into the regulation. As such, such a requirement should not be read into the regulation if it is not there.

2. The repair of tenant-caused damage to a rental unit cannot always be completed within 21 days of a tenant surrendering the rental unit. There are a multitude of legitimate reasons why repair work may not be able to be completed within 21 days, such as: contractor time constraints, financial constraints, or the simple fact that the sheer amount of repair work that needs to be completed is too large to allow it to be completed in 21 days. Just because a contractor can't complete the work within the 21 days, or the landlord does not have the money to make the repairs within 21 days, or the work cannot be completed within 21 days -- such as in the case of fire and smoke damage, or water damage -- does not absolve the tenant from responsibility for the cost of repairs.

3. DATCP, in its own analysis of ATCP 134, has stated that the repair work need not be completed prior to the drafting of the security deposit transmittal letter to the tenant. In 1999, after a major overhaul was completed to ATCP 134, DATCP published a document entitled a Summary of ATCP Chapter 134 Revisions. In its summary, DATCP states on page 3:

(Note: if repair costs are not known within 21 days, a written accounting must still be provided. In this case, a "good faith estimate" may be made.

So those are my three reasons for believing that a landlord is legally able to deduct the cost to repair tenant-caused damages from a tenant's security deposit even if the repair work was not completed within 21 days.

What are your thoughts on this question? Do you have any additional reasons why you would answer the question as I did?

-------

I would like to thank Atty. Heiner Giese for providing me with a copy of the Summary of ATCP Chapter 134 Revisions published by the DATCP and for suggesting that I write a blog post on this issue many, many months ago. I would also like to thank Atty. Evan Knupp for being the most recent person to ask me this question -- within the last hour as a matter of fact -- which finally caused me to write the post that you just read.

The Ever Important Security Deposit Transmittal Letter (or "21 Day Letter")

Aside from evictions, issues regarding the failure to properly return a tenant's security deposit are, in my opinion, the single most litigated area in landlord-tenant law.

In Wisconsin, if a tenant has deposited a security deposit to his/her landlord as part of a residential tenancy, the landlord must comply with one of two options within 21 days after the tenant "surrenders" the landlord's rental unit:

1. Return the tenant's security deposit, or

2. Send the tenant a security deposit transmittal letter (which I refer to as a "21 day letter") explaining how the tenant's security deposit was applied.

Unfortunately too many landlords have gotten themselves into trouble when it comes to the issue of returning a tenant's security deposit. While there are many ways to screw up, most of the mistakes that landlords make regarding this topic fall into one of three categories.

• First, a landlord makes improper deductions from the tenant's security deposit.

• Second, the 21 day letter is sent late.

• Third, the 21 day letter is not sent at all.

Failure to abide by ATCP 134.06 of the Wisconsin Administrative Code — which deals with security deposits in residential tenancies — can result in the tenant being awarded double damages and attorneys fees.

A little over a year ago I wrote a post on the topic of how to draft a legal 21 day letter to your tenant. Due to the continued popularity of that post I thought it would be helpful to include a video clip from a seminar that I presentedawhile back on this important topic.

SECURITY DEPOSIT TRANSMITTAL LETTERS: How To Draft A Legal 21-Day Letter

Security deposit withholding issues are the second most litigated area in landlord tenant law after evictions. If a landlord makes improper deduction from a tenant’s security deposit, pursuant to ATCP 134 and §100.20, Wis. Stats., the tenant may sue the landlord for double damages and attorney’s fees. There are numerous published Court of Appeals decisions in Wisconsin dealing with this exact issue. I would like to offer a few suggestions to landlords which will hopefully keep you from making any improper security deposit deductions.

First, we need to address some basics . . .

A security deposit is defined as "any payment that is given to a landlord as security for the performance of the tenants obligations under the rental agreement." ATCP 134.01(11).

ATCP 134.06(2), states that "within 21 days after a tenant surrenders the rental property, the landlord shall deliver or mail to the tenant the full amount of any security deposit held by the landlord, less any amounts properly withheld by the landlord."

If you would like to know what a landlord may legally deduct from a tenant’s security deposit you will want to read my Jan. 17^th post.

ATCP 134.06(4), states "If any portion of a security deposit is withheld by the landlord, the landlord shall, within the time period and manner prescribed in sub.(2) – 21 days -- deliver or mail to the tenant a written statement accounting for all amounts withheld. The statement shall describe each item of physical damages or other claim made against the security deposit, and the amount withheld as reasonable compensation for each item or claim."

I will refer to this written statement interchangeably as either the "security deposit transmittal letter" or the "21-day letter."

According to ATCP 134 all prepaid rent in excess of one month is legally considered to be a security deposit. So if you require a new tenant to pay first and last month's rent plus a security deposit, legally the security deposit will also include the last month’s rent

Essentially a landlord must either return a tenant’s security deposit or send the tenant an itemization of how the tenant’s security deposit was applied within 21 days after the tenant surrenders the premises. This is mandatory. No matter what the situation – even if you are legally entitled to keep all of the tenant’s security deposit – you must still send the tenant a letter explaining to them why you can legally keep it and how it was applied. There is no situation in which you should not be sending the 21-day letter to a vacating residential tenant in Wisconsin. Even if common sense tells you it is not necessary (i.e. the tenant told me to use his/her security deposit to pay for the last month’s rent) you should still send out the letter. If you are wrong the ramification may be expensive. Be safe - send the letter each and every time.

As I mentioned in a previous post about what a landlord can legally deduct from a tenant’s security deposit, ATCP 134.06(3) states that you can only deduct the following from a tenant’s security deposit: (1) damage, waste, neglect, (2) unpaid rent, (3) utility costs, (4) any other items properly identified in a document called Nonstandard Rental Provisions (NSRP).

Note: There are two additional items listed in ATCP 134.06(3) which may be deducted from a tenant’s security deposit but they are not very common so to keep things simple I have not chosen not to mention them in this post.

So if you are not using a NSRP then legally you may only withhold for rent, utilities, and damage or waste or neglect. That is it. Nothing more. If you would like to be able to legally deduct other things from a tenant’s security deposit such as late fees, insufficient funds fees, actual costs charged by a municipality that the landlord had to pay resulting from the tenant’s failure to cut the grass or properly dispose of recyclables etc. -- then you must have those deduction listed in your NSRP and signed or initialed by the tenant.

My suggestions . . .

Now that we have covered the background information, here are my suggestions for how you should draft a 21-day letter to a tenant.

1. Mail the 21-day letter early.

Many landlords get into trouble because they wait until the last day to send out the letter. You only have 21 days from the date that they tenant "surrenders" the unit.

ATCP 134.06(2)(b) defines "surrender" as follows:

a. The last day of the tenancy provided under the rental agreement.

b. If tenant vacates before the last day of the tenancy and gives landlord written notice that they have vacated, then surrender occurs when the landlord receives the written notice.

c. If tenant vacates after the last day of the tenancy, then surrender occurs when the landlord learns that the tenant has vacated.

d. If tenant is evicted, surrender occurs when the writ is executed by the Sheriff or when the landlord learns that the tenant has vacated, whichever occurs first.

If that sounds a bit confusing to you that is because it is confusing! So the key is to not wait until the 21^st day to send out the letter. Send it out as soon as you can. Don’t wait until the 21st day to mail it to the tenant because there is always a chance that there will be a dispute as to what day the tenant "surrendered the property."

A client of mine was once sued for failing to return a tenant’s security deposit within the required time period. The tenant allegedly dropped off the keys in the rental office drop box on a Sunday before the Memorial Day holiday. The office was closed on Monday because of the holiday so my client didn’t learn that the keys were returned until she came into the office and noticed them on Tuesday following the holiday. My client considered the date of surrender to be on Tuesday. My client mailed the tenant’s entire security deposit to them on the 21^st day from that Tuesday.

The tenant sued my client arguing that the 21-day letter and the enclosed return of the security deposit was sent on the 23^rd day rather than the 21^st day after surrender. The tenant argued that the date of surrender was on the Sunday when the keys were dropped off rather than on the Tuesday when my client discovered them. The court commissioner handling the case agreed with the tenant. My client had returned the tenant’s entire security deposit to him but nonetheless was still ordered to pay double damages and a reasonable attorney fee.

While I disagree with the decision of the court commissioner (based on the definition of "surrender" and for equitable reasons - the tenant got the entire deposit back) that is not the point. The point is that my client should never have waited so long to return the security deposit to the tenant. Since my client was returning the entire security deposit to the tenant there was no need to obtain estimates for damage to the unit or have repair work completed. They could have easily mailed it back 2 days earlier, or 5 days earlier, or 2 weeks earlier for that matter. There is no reason to wait the full 21 days.

Yes, I realize that sometimes you may need additional time in order to properly identify all the tenant damage and obtain estimates for those repairs. Sometimes that will be the case. But oftentimes there will be no reason to use the entire 21 days to return the deposit or send the letter, but yet this is what many landlords do. This leads to my second suggestion.

2. Your 21-day letter need only explain how the security deposit was applied and nothing more. You do not need to list all of the damages that the tenant owes you - just enough to cover the security deposit.

ATCP 134 only requires that a landlord account for how the security deposit was applied. It does not say that you must provide the tenant with a complete written list of all damages or money owed – just enough to explain how the security deposit was used.

Here is an example:

Tenant, Joe Smith, vacates the property on the last day of the month of January. While the tenant provided proper notice to terminate his tenancy he failed to pay January’s rent. Mr. Smith left the rental unit in a mess. There was damage, beyond normal wear and tear, to the carpeting, walls, and floors. There were window screens missing. Window blinds were trashed. The place was essentially left a mess and the cost to repair the damage will be very expensive.

Question: Under this scenario, when should the landlord send out the 21-day letter?

Answer: The landlord should send out the 21-day letter the day after the tenant vacated - Feb. 1st.

If rent is $500 and the tenant failed to pay the last month’s rent then you have all of the information that you need to notify the tenant why they are not getting their security deposit back. Remember you are only required to explain how the security deposit was applied. You are not required to notify the tenant within 21 days of all the damages that the tenant owes you because he trashed the place.

In the above example, the tenant failed to pay January’s rent in the amount of $500 which just so happens to be the same amount as the tenant’s security deposit. So even if there are lots of damages to the unit you can still send out the 21-day letter the day after the tenant surrenders the unit because you have enough information to account for the application of the security deposit. Your letter should simply state that the tenant failed to pay the last month’s rent for which he was legally responsible and that you will be applying his security deposit of $500 toward the last months’ rent and no portion of his security deposit is being returned. You have now complied with the ATCP 134 regulations.

Now you can take your time, if needed, to obtain estimates for all the tenant-caused damage to the unit and send the tenant a separate letter on a later date notifying him of the additional money he owes you.

By remembering this simple rule it has been my experience that many 21-day letters can be mailed out well before the 21 day period closes.

3. If you are able, make only "slam dunk deductions" from a tenant’s security deposit.

"Slam dunk deductions" are deductions that the tenant would have a difficult time arguing about. If you have enough "slam dunk deductions" to cover the entire security deposit then the tenant is less likely to sue you for allegedly making an improper deduction from his/her security deposit. Examples of "slam dunk deductions" would be items such as rent and/or utilities. As long as you have a written rental agreement with the rent amount listed and it indicates what utilities the tenant is responsible for paying, these two types of deductions tend to be the safest to make. This is not always the case (especially if there are arguments about if proper notice to vacate was given by the tenant) but for the most part rent and utilities are safe items to deduct.

In my 15 years of representing landlords, I have found that most tenants will be truthful and admit if they did not pay rent and if they failed to pay their utilities. However, tenants are rarely willing to concede that they left the place a mess or that they caused damage. I am not sure why this is - someone should conduct a study of this! As such, deductions for repairs or cleaning charges are NOT "slam dunk deductions." Rather they are deductions that often are disputed by tenants - so try to avoid them if possible. Keep things simple and you will lesson you exposure to a lawsuit.

Let’s take the example mentioned above and change the facts. Assume that the tenant, Joe Smith, did pay the last month’s rent and did not owe any utilities, and therefore the only possible legal security deposit deductions that you could make are the non-slam dunk items related to the property damage. Under this scenario, my "slam dunk deductions" theory is not helpful, so you must proceed to my next suggestion.

4. Itemize all deductions separately and clearly, and enclosing all invoices for the cost of repairs (or estimates if the work has not been completed), photographs, copy of the Check-In/Check Out Sheet, and always error on the side of caution.

If the only legal deductions that can be made from a tenant’s security deposit are for damages to the unit then you very well may need most of the 21 days to obtain your estimates and or make the repairs. If you are unable to have the repairs completed or even obtain estimates within 21 days you still are required to send out the 21 day letter. In that situation I caution you to error on the side of under-estimating the cost of the repairs.

You 21 day letter should be clear and detailed. The purpose of the letter is to explain to the tenant what happened to their deposit. If you are clear in your explanations as to how that deposit was applied there is less of a chance that your tenant will sue you. If the tenant cannot understand the deductions that you made because you did not clearly explain them in the letter or your handwriting is illegible then s/he may think that you are treating them unfairly and that will increase the chances that they will sue you.

Take photos of the damage left behind by the tenant. Hopefully you also have photos that were taken prior to the tenant moving in which will show that the damages caused by the tenant were not preexisting. A Check-In/Check-Out form which you and your tenant completed at the outset of the tenancy, noting any pre-existing damages prior to them moving in, will also be helpful.

If you take the above precautions there will be a better chance than not that a tenant will not sue you for making improper security deposit deductions because s/he will be able to understand the deductions that you made and s/he will also know that you have evidence to support your deductions. Even if the tenant does decide to sue you, you will now be better prepared to defend yourself in court if that is where you end up.

Keep in mind, that if you are unsure whether you can adequately prove that your tenant caused the damage then it is safer to not make the deduction from their security deposit. You will need to engage in some cost-benefit analysis as well as analyze your willingness to take risk. Ask yourself if the $100 deduction that you want to make (and which you cannot adequately support) is worth the chance of having to pay the tenant double damages ($200) plus the hundreds or thousands in attorney’s fees if a court commissioner or judge disagrees with you.

ADDED ON APRIL 21, 2010 --- The law does not require that all damages be prepared prior to you making a deduction from a tenant's security deposit. Unfortunately many courts do not realize this. It should be noted that the Department of Agriculture, Trade and Consumer Protection, the governmental entity that drafted ATCP 134 and the encompassing security deposit regulations, stated in its 1999 Summary of ATCP 134 Revisions, that "if repair costs are not known within 21 days, a written accounting must still be provided. In this case, a 'good faith estimate' may be made."

5. Send the 21-day letter via certified mail.

I always recommend to my clients that they send the 21-day letter (whether it includes the return of security deposit money or not) via certified mail. Why? Because the certified mail receipt is proof of the date that you mailed it. You do not want to be stuck in a "he said - she said" argument with your tenant as to the date you mailed the letter when you are before a court commissioner or judge. The certified mail receipt gives you additional evidence besides "your word" as to when you mailed the letter. Yes, it does cost more to mail a letter certified. And yes, if you have to mail out many 21-day letters this cost can add up. Once again, you will need to evaluate whether or not foregoing the certified mail option is worth the possibility of having a court rule that you did not mail the security deposit transmittal letter timely.

6. If no forwarding address is provided then mail the 21-day letter to the tenant’s last known address.

Send the letter to the tenant’s new address if they provided you with one. But if they didn’t, which seems to be the norm, then ATCP 134. 06(5) says that you should mail it to their last known address. Yes, I do realize that the tenant’s last known address is the address of your rental unit which the tenant just vacated - but as silly as that may seem you should still do it.

ATCP 134 says that you must mail or deliver the security deposit transmittal letter to the tenant - it does not say that the tenant needs to receive the letter. Yet another reason why I suggest certified mail. If the letter is returned to you - do not open it. Keep it in your files for a while to see if the tenant contacts you. If the tenant decides to sue you - having the unopened letter with a date from the U.S. Post Office on it showing when you mailed the letter - should be all the evidence you need to prevail in court.

7. If you have multiple tenants then the refund should be made payable to all of the tenants.

If more than one adult is on the rental agreement, assuming that you are returning their security deposit, you should make the refund payable to all of the adult tenants.

Your check could read:

Made Payable To: Tenant A, Tenant B and Tenant C

It is not your role as a landlord to decide who contributed what portion of the security deposit. The tenants entered into one rental agreement with you (not three individual agreements) for the entire rental unit and they paid one security deposit as a group. You should return the security deposit to all of them and let them determine how to split it up. The only exception to this rule is if the tenants provide you with notice, in writing, signed by all of them, advising you who the return of the security deposit should be made payable to.

_______________________

The above suggestions cover the most common mistakes that I have witnessed regarding security deposit deductions over the years. While I cannot promise you that if you follow my suggestions that you will never be sued by a tenant for making an improper security deposit deduction, I can tell you that you will significantly reduce your exposure to such a lawsuit.

What May A Wisconsin Landlord Legally Deduct From A Tenant’s Security Deposit?

I have received many calls from both landlords and managers over the years asking me if they are legally allowed to deduct X, Y, or Z from a tenant’s security deposit. I fielded such a question just last week – sounds like a good topic for a blog post.

Wisconsin Administrative Code, ATCP 134.06(3) states that a landlord may deduct from a tenant’s security deposit for the following:

1. Damage, waste, or neglect of the unit

2. Unpaid rent

3. Unpaid utilities for which the tenant is responsible

4. Payment for which the tenant owes for direct utility service provided by a government-owned utility (to the extent that the landlord becomes liable for the tenant’s nonpayment)

5. Unpaid mobile home parking fees which a local unit of government has assessed against the tenant (to the extent that the landlord becomes liable for the tenant’s nonpayment), and

6. Other reasons as set forth in a document entitled "Nonstandard Rental Provisions."

For the majority of landlords and managers out there, items #4 and #5 are not often applicable, so I will focus my attention on the remaining items.

Damage, Waste or Neglect: There is no bright line rule or definition of what constitutes damage, waste, or neglect. This is determined on a case-by-case basis and each court commissioner or judge may have a different view on the topic. The best way to prove that a tenant damaged, wasted or neglected your rental property is to (1) use a "Check-In Check-Out" form and (2) take lots of photographs.

If you want to hold a tenant responsible for damage that they caused to your rental unit then you must first demonstrate that the damage was not pre-existing. To do this you should take photos of the entire rental unit prior to a tenant moving in. You should also complete a Check-In form yourself prior to the tenant moving in. Essentially a Check-In form lists the various rooms and areas of the rental unit and provides space for you to note any damage or problems. Once the tenant has moved in you should then provide the tenant with a blank Check-In form and ask them to complete it fully, date it, and sign it and then return it to you promptly.

Upon receipt of the tenant’s completed Check-In form you should compare it to the one that you completed earlier. If there are major differences between the two you should address this immediately with your tenant. Oftentimes the discrepancy will be due to the tenant causing damages during the move-in process.

If the tenant fails to return the Check-In form then a landlord should document this in the tenant’s file. If there is a dispute at a later date, the landlord will now have proof (a contemporaneous document) demonstrating that s/he did provide the tenant with the form and that the tenant, for whatever reason, chose not to complete it.

After your tenant moves out of the unit you should take the time to fully inspect the unit and take photographs of any and all damage, waste, or neglect that you see. Digital cameras (and some of the better phones which include cameras) are great for this purpose. Be sure and use the time/date stamp function if you have it. For those of you that are partial to using a camcorder to record the condition of the rental unit instead of photographs, I would caution you that most commissioners do not have the time or inclination to view a 20 minute tape of you walking around the apartment. Additionally, landlords that I have represented that have opted to videotape the move-out condition of the unit often make inappropriate statements while they are taping which if heard by the judge or commissioner could hamper your case. Furthermore, most courts do not supply the playback equipment needed to view a recording. So unless you want to haul around a VCR and television ("old school") or a digital camcorder and possibly a computer ("new school") - stick to photos.

After the landlord has inspected the unit and taken photos s/he should also complete the Check-Out portion of the Check-In Check-Out form. By doing so, the landlord will now have a "before and after" view of the rental property in one single document to submit as an exhibit in court should it become necessary.

By having photos taken before the tenant moved in, photos taken after the tenant moved out, a Check-In form completed prior to (or immediately after) the tenant moved in, and a Check-Out form completed after the tenant moved out, a landlord should be in pretty good shape to prove any tenant damage, waste, or neglect, if needed.

Do not forget that a landlord is not allowed to deduct for "normal wear and tear." This phrase has never been defined in any Wisconsin statute, administrative rule, or case. Once again, the determination of what is "normal wear and tear" is left to the discretion of the commissioner or judge and may vary from day to day (or even hour to hour - as I have had the misfortune of experiencing)

Unpaid Rent: Deducting unpaid rent from a security deposit would seem pretty straight forward but that is not always the case. Prior to deducting unpaid rent from a tenant’s security deposit a landlord should be sure that s/he can prove what the monthly rent amount is. If you are using a written rental agreement that should do the trick. If you do not have a written rental agreement – a cardinal sin in the rental industry – then you will most likely need to provide proof of your tenant’s rent payment history to demonstrate what the monthly rental amount is.

The issue regarding deductions for rent payments often centers on the determination of when the tenant is no longer responsible for paying rent. This can arise in many different contexts.

One such context would be whether or not the tenant is still responsible for paying rent after they vacate the unit. Another relevant context would be whether or not the tenant is responsible for paying the full rental amount because of the poor condition of the property. Determining whether or not a tenant is responsible for rent in the above contexts (and the myriad of other situations) often depends on a number of factors such as: (1) was the rental agreement a lease for a specific term, (2) did the tenant leave prior to the ending of the term, (2) did the tenant provide the landlord with proper notice of their intent to vacate, (3) was the rental unit uninhabitable, (4) was there sufficient damage to the rental unit such that a tenant could be entitled to "abate" some of the rent, and (5) did the landlord make reasonable efforts re-rent the unit after the tenant vacated.

Unpaid Utilities: This deduction would seem to be fairly straightforward, either the tenant paid their utility bill or they didn’t. But before you make any deduction for utilities from a tenant’s security deposit you should make sure that you have adequate proof to demonstrate that the tenant was responsible for paying the utility. Once again this is where a written rental agreement is a necessity. If you don’t have a rental agreement that clearly states whether or not the utilities are included or not you will often find yourself in a "he said - she said" situation. The person that usually wins that credibility judgment is the party that is the best at lying. Avoid being stuck in such a situation and always use a written rental agreement (even if your tenant is on a month to month tenancy) and always indicate in that rental agreement who is responsible for the utilities.

Another issue that arises with utility fee deductions is whether or not the utility bill became due prior to the 21 day period in which a landlord must either return a tenant’s security deposit or provide the tenant with a written itemization as to how their security deposit was applied. Landlords need to remember that they cannot just hold onto a tenant’s security deposit indefinitely while waiting for the utility bill to arrive. Once your tenant vacates, you will need to contact the applicable utility service and find out what amounts are owed as of that date. Attempt to obtain a written record of this amount if possible. A landlord is not excused form the 21 day requirement under ATCP 134.06(2) just because he or she didn’t yet receive the utility bill for which the tenant is responsible.

Other Reasons as stated in the Nonstandard Rental Provisions: As was mentioned above, if a landlord wishes to be able to legally withhold from a tenant’s security deposit anything other then items 1-5 above, then the landlord must have those additional items set forth in a written NSRP document. There is no such thing as a verbal NSRP. So those landlords that are handling everything verbally - you have limited yourself as to what you may deduct from your tenant’s deposit.

The items in the NSRP should be specifically identified and discussed with the tenant and you must have the tenant either sign or initial the provisions. Examples of items that are often included in a NSRP include: fees for the late payment of rent, the resulting costs to the landlord if a tenant's check is returned for "insufficient funds," any fees charged to the landlord by the local municipality for the tenant's improperly disposing of recyclables, fees for a tenant's failure to permit access to rental unit, the costs to rekey the locks should the tenant fail to return the keys to the unit after vacating, fees for smoking in a non-smoking unit etc. Some landlords charge a flat fee if the tenant fails to clean the stove or refrigerator but other landlords feel that such "liquidated damages" are illegal and if deducted from a tenant's security deposit might open the landlord up for being sued for double damages and atttorney fees. From recent case law it appears that it would be legal to charge a tenant for the actual costs incurred by the landlord for cleaning - at least if the landlord uses an outside company to do the work. The issue of deducting fees for cleaning from a tenat's security deposit is somewhat of a "grey" area so prior to placing such a provision in your NSRP you should consult with your landlord-tenant law attorney.

For those of you that are thinking creatively, I hate to squash your creativity but "no" a landlord may still not deduct for "normal wear and tear" even if there is a specific NSRP saying that such a deduction can be made and it is signed or initialed by the tent.

So that is it - those are the items that a landlord may legally deduct from a tenant's security deposit in Wisconsin.

Two additional notes of caution. First, if you make an improper deduction from a tenant’s security deposit Wisconsin law allow for your tenant to recover double damages and their attorney's fees if they prevail. attorney’s fees. So be careful. Second, security deposits are just that - security. A security deposit should not be treated as an additional source of income - something that a landlord can keep at the end of every tenancy. If you are withholding the entire amount of your tenant’s security deposit after they leave - every time and with every tenant - then it is just a matter of time until you will be sued and have to defend yourself against "double damages" and "attorney’s fees." You do not make money in this industry by keeping your tenant’s security deposits; nor is that the purpose of a security deposit.

To read about a landlord that got burned by not following the above information please go to my January 7, 2010 post.

Landlords Should Not Play Games With Tenants' Security Deposits

A new landlord-tenant decision has been reccomended for publication. The case of Boelter v. Tschantz involves a tenant suing her past landlord for double damages and attorney’s fees for making improper deductions from her security deposit.

The essential facts are as follows:

1. Tschantz (the landlord) withheld money from the tenant's security deposit.

2. The key deductions that were made were: (1) $323.84 for the tenant's water bill and (2) $85 to repair a clogged toilet.

3. After withholding a portion of the tenant's security deposit to pay her water bill, the landlord then failed to pay the bill timely. As such, the tenant opted to pay the utility directly to avoid late fees.

4. The landlord then sent a refund check to the tenant -- three weeks later -- for the amount that he deducted from her security deposit to cover the water bill along with a Post-It note that said “Oh, too bad no double damages for you.”

5. The landlord then stopped payment on the check prior to the tenant cashing it.

The Court of Appeals held that the landlord violated ATCP 134 as a result of his "game-playing" with the tenant's security deposit.

First violation of ATCP 134: The court held that it was unreasonable for the landlord to withhold money from his tenant's security deposit in order to pay her water bill and then not use that money to pay the water bill timely. The court specifically stated, “A landlord cannot indefinitely retain a deposit -- merely as a deposit -- after a tenant vacates."

Second violation of ATCP 134: The landlord then failed to promptly refund his tenant’s security deposit once he learned that she paid the water bill. Tschantz returned the water bill monies to Boelter three weeks later with a taunting note.

Third violation of ATCP 134: Finally, the landlord placed a "stop payment" on the refund check to the tenant. The court stated that, whether intentional or not, this constituted a further improper withholding of the tenant’s security deposit.

The Court of Appeals has admonished this type of "game playing" with a tenant's security deposit in prior decision. So while the court's decision here is not anything new, it does serve as a reminder to all landlords that they are taking a big risk if they choose to play games with a tenant's security deposit. Remember DOUBLE DAMAGES AND ATTORNEY'S FEES - need I say more.

The more noteworthy aspect of this case concerns the court's holding with regard to the repair charge deducted from the tenant's security deposit. Tschantz deducted $85 from his tenant's security deposit to repair a clogged toilet. The $85 was itemized as follows: $40 service call fee plus 45 minutes of labor at a rate of $60 per hour for the actual work. Tschantz stated that this deduction was “less than or equal to what an area plumber would bill.” Problem was that Tschantz didn’t hire a plumber to do the work, instead opting to hire his son’s (handyman) company which only billed Tschantz $15 per hour for the work it performed.

The court emphasized that the applicable law, Sec. 704.07(3), Wis. Stats., states that a tenant is only responsible to reimburse a landlord for the "reasonable cost" of the damage. The court then added that the "reasonable costs" would be the actual costs that the landlord had to pay for the repair work. Since a plumber's fee also includes overhead and profit, the court said that Tschantz was not entitled to reimbursement of that amount. Tschantz was only charged $15 per hour by his (handyman) son to clear the toulet - $12 total per the court's calculation -- so that is the amount that he was entitled to legally deduct from his tenant's security deposit.

Since there is no other published Wisconsin appellate decision that have addressed this specific issue 9at least not to my knowledge) - this is really the key holding of the case. A landlord may not charge a tenant for repairs at the rate that a professional laborer would charge if the landlord does not actually incur those charges.

Finally, the court also explained that when a landlord improperly withholds money from a tenant’s security deposit that the tenant is entitled, as a matter of law, to an award of his/her attorney’s fees. Here, the trial court chose not to award the tenant her attorney's fees because the judge felt that the attorney's fees were too far out of propertion to the claimed damages. The Court of Appeals "slapped the hand" of the trial court judge and reminded him that an attorney’s fee award is mandatory if there is a violation of ATCP 134 even if the attorney’s fees are far greater then the actual damages at issue.

Expensive lesson for Mr. Tschantz.

NOTE: Since Mr. Tschantz lost his appeal in this matter he will also be responsible for paying his tenant's attorneys fees through the appeal per Shands v. Castrovinci, 115 Wis.2d 352, 340 N.W.2d 506 (1983)