Upon Further Reflection, I Think The Governor Should Veto The Landlord's Omnibus Bill

I spent several hours yesterday reviewing and thinking about the new Landlord's Omnibus Bill that is to be signed into law today by Governor Walker at 4 pm.

I then spent hours of time trying to summarize the new law in yesterday's blog post in an easy to read and understand format.

Since publishing the blog post yesterday I have a few more thoughts and concerns:

1. AASEW Board member and friend Tim Ballering pointed out to me that he believes that the new law as written will allow for any violation of Chapter 704 to be considered an unfair trade practice, thus allowing a tenant to sue his/her landlord for double damages and attorney's fees.

Here is the language at issue:

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 arising under this chapter.

In my prior post I did anticipate that this would allow for tenant's and attorney's to make arguments that any violation of Chapter 704 was an unfair trade practice and that concerned me. But after speaking with Tim and thinking about this in more deeply, and re-reading the new law - I think this is a major concern. So is this law saying that if a landlord improperly drafts or serves a 5 day notice that s/he can be sued by the tenant for double damages and attorney's fees? YES.

I believe that this is such a major problem that I will be contacting Governor Walker's office today before 4 pm and asking him to veto the bill.

2. The addition of the 8th Deadly Sin really concerns me. My friend and past Wisconsin Apartment Association President John Fischer succinctly addresses the problem with in an email that he sent to many in the industry which is reproduced below:

When the Housing Task force was looking at blight, blight went beyond just condition of the property, but it also went to criminal activity.

There has been a proposal that various apartment associations have been working on that would make it easier to evict a tenant for criminal activity. There is a “Crime Free Lease” program that started out west that is very popular with landlords and law enforcement. A few communities have started working on this program here in Wisconsin, but the biggest hurdle is that the key tool of this program is a “Crime Free Lease Addendum”. The problem is that this addendum is unenforceable under Wisconsin’s current laws.

The new law that is being signed by Governor Walker at 4 PM this afternoon (I have been invited to this private signing, but I want nothing to do with this) makes a large number of massive changes to Wisconsin landlord-tenant law. One of the most significant appears to be an answer to our attempts to allow for eviction for criminal activity. The new law would basically render a lease void if the lease contained language that criminal activity on a property would be a breach of the lease.

So there you have it. My take on this new law -- as well as many others in the industry -- is this new law will cause more harm then good. This is what happens when you try to rush legislation -- people do not have time to consider all of the different angles -- so I am planning on contacting Governor Walker and ask him to veto SB 446. I would ask that you consider doing the same.

Thank you to tim Ballering and John Fischer for their thoughts, opinions, and guidance.

Landlord's Omnibus Bill -- with Amendments -- To Be Signed Into Law Today

One of the biggest pieces of pro-Landlord legislation in quite some time was passed by the Wisconsin Senate and adopted by the Assembly recently and will be signed into law by Governor Walker today. Unfortunately some of the pro-Landlord provisions were amended, diluted, or removed.

I am certainly not denouncing this new law. Many aspects of it will be very helpful to landlords. I just wish that more time had been allowed -- the bill was fast-tracked -- to allow for more discussion, thought and input and allowing for more notice. For instance, many of us in the rental industry were given one day advance notice before the public hearing on the bill which prevented many of us from attending.

I will attempt to summarize the new law in this post. As this new law plays out in the "real world" I am sure that I will be devoting additional blog posts to each provision in more detail.

The proposed effective date of this new law is March 31, 2012. So many of us will need to make some additions and/or modifications to our rental documents prior to that date.

Bankground of Legislation

The Landlord's mnibus bill (Senate Bill 466) was put on the "fast track" for reasons unknown to me. It was introduced on February 13, 2012 by Senator Lassee. A Substitute Amendement 1 was offered by Senator Lassee on February 29, 2012. Senator Waangard then offered the first amendment to the Substitute Amendment on March 6th which was passed March 13th. Senator Lassee then offered a second amendment to the Substitute Amendment on March 12th which was passed on March 13th. The bill will be signed into law by Governor Walker today - March 21st. Approximately one month from introduction to passage into law is very fast for the legislative process.

The key provisions of the new law are:

1. Moratorium on Evictions

This provision of the original bill remained untouched by the Substitute Amendment and the two amendments to the Substitute Amendment. The new law prohibits any municipality from imposing a moratorium on eviction actions. If a municipality has a current ordinance that contradicts this new law it cannnot be enforced.

We now must hope that individual counties, courts, and commissioners adhere to this law. While I don't anticipate courts ignoring this new law, I do anticipate court's continuing to use the "stay" provisions of sec. 799.44(3) to give tenants additional time to vacate during the holidays. So while municipalities will no longer be allowed to impose moratoriums, courts can still prevent evictions during holidays, creating the same result.

2. Severability of Rental Agreement Provisions

The original bill stated that any provision could be severed from the agreement. So if a landlord inadvertantly included a provision that was found to be improper or retaliatory in nature it could be removed and the remainder of the agreement could be enforced.

The Substitute Amendment diluted the above considerably by adding that if a rental agreement contains one of the "7 Deadly Sins" set forth in ATCP 134.08, the inclusion of any of those provisions cannot be removed and will render the entire rental agreement void and therefore unenforceable.

Amendment 1 to the Substitute Amendment went a step further and added an 8th illegal provision that if included in a rental agreement will cause the rental agreement to be void. The new illegal provision would include any language that allows a landlord to terminate a tenant's tenancy if a crime is committed in or on the rental property, even if the tenant couldn't reasonably have prevented the crime.

So in the end, the new law only allows the severability of certain rental provisions. If your rental agreement contains one of the 7 prohibited provisions set forth in ATCP 134.08 or the new prohibited provision created by this new law, your rental agreement will still be be void and unenforceable. Essentially, the new law takes the regulation ATCP 134.08 and codifies it into law.

More tragic is what the "8th Deady Sin" has most likely done to some other pro-Landlord legislation that I had hoped would become law -- the "Crime-Free Lease Addendum" bill. If you read my prior post on the Crime-Free Lease Addendum bill you will see that this 8th Deadly Sin language effectively decapitates this proposed bill. This is a major disappointment as I believe that had the Crime-Free Lease Addendum bill been passed it would have been the most significant piece of pro-Landlord legislation in years. Instead the "odds and ends" Landlord Omnibus bill seems to have killed it. Hopefully, I am wrong and it can be resurrected.

3. Dispostion of Tenant's Abandoned Property

Once again, the original version of this bill was awesome. It stated that any personal property left behind by a tenant could be considered abandoned and disposed of immediately in the landlord's discretion.

The Substitute Amendment modified the original bill by adding that any medical prescriptions and/or medical equipment left behind by the tenant must be held by the Landlord for 7 days. The Substitute Amendment also added that written notice must be sent to the tenant (and any secured party) prior to disposing of any titled vehicles or mobile homes deemed abandoned. I could live with both of those modifications.

However, the amendments to the Substitute Amendment added language that will require landlords to jump through a few hoops. The new law requires that a landlord provide written notice to the tenant at the time of entering into the rental agreement, and at each renewal of the rental agreement, informing the tenant that the landlord will not hold any property left by the tenant and that such property will be deemed abandoned and will be disposed of. Failure to provide this written notice to the tenant requires a landlord hold the abandoned property fpr a period of time as set forth in sec. 704.05 (5), Wis. Stats.

Essentially landlords will now be required to add a new language to their rental agreements -- and any renewal agreements -- advising tenants that any property left behind will be considered abandoned and can be disposed of. Looks like there will be a revised Rental Agreement being sold at Wisconsin Legal Blank Co., in the near future : )

4. Information Check-In Form

This is one of the provisions of the original bill that I didn't care for. A landlord will now be required to provide a standardized information check in sheet to each tenant that contains an itemized description of the premises. The Substitute Amendment merely added that this form must be given to the tenant at the time of occupancy rather than at the time of signing of the rental agreement.

As I understand this law, this does not just mean that the landlord can give his new tenant a blank Information Check-In form to fill in -- which many landlords are already doing. Rather it means that the landlord must completely and thoroughly fill out the Information Check-In form to adequately describe the condition of the rental unit and give it to the tenant. So if you are not thorough in your description of the renal unit this document could be used against you by the tenant, after the tenancy has ended. This new provision of the law will clearly cause additional work for landlords and I fear could harm the less detail-oriented landlords out there when pursuing a tenant for damages to the unit or withholding portions of the tenant's security deposit for damages.

5. Holdover Damages Are Mandated

The new law requires that landlords be awarded holdover damages. If a tenant stays in the rental unit beyond his tenancy, the landlord is now legally entitled to -- at a minimum -- double the daily rent for the time period after the tenancy ended (i.e. the notice expired) until the tenant actually vacates the unit.

This is a positive change because current law (sec. 704.27) only states that a landlord "may" be awarded holdover damages -- and some courts would not award landlords these damages. The new law says that a court "shall" award a landlord holdover damages, at a minimum.

6. Withholding From A Tenant's Security Deposit

The new law has merely codified the provision of ATCP 134.06(3), which states that a landlord is allowed to withhold the following from a tenant's security deposit: (a) Tenant damage, waste or neglect of the premises, (b) Unpaid rent for which the tenant is legally responsible, (c) Payment which the tenant owes under the rental agreement for utility service provided by the landlord but not included in the rent, (d) Payment 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, (e) 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, (f) Other reasons authorized in the Nonstandard Rental Provisions.

The new law also adopts the portions of ATCP 134.06 which state that a landlord cannot withhold from a tenant's security deposit for normal "wear and tear" or other losses which the tenant cannot reasonably be held responsible.

7. Timing For Return of Security Deposit

The original bill indicated that in situations where the tenant broke the lease prior to the end of the term that the landlord need not return the security deposit or provide an accounting of how the security deposit was applied until 21 days after the lease term ended or within 21 days of a new tenant taking occupancy. This langauge is a substantial improvement over current law as it allows a landlord to hold the security deposit until he is able to determine if any future rent will owed by the breaching tenant if the landlord cannot locate a new tenant to re-rent the property to. I explain this issue in more detail in my earlier post on the Landlord's Omnibus Bill.

The Substitute Amendment waters this down a bit. The new law will now codifies ATCP 134.06(2)(a) and states that a landlord shall deliver or mail to a tenant the security deposit or itemization of how the security deposit was applied within 21 days after any of the following: (a) if the tenant vacates on the last day of the rental agreement, the date on which the rental agreement terminates, (b) if the tenant vacates before the end of the rental agreement, then the date on which the rental agreement terminates or, if the unit is re-rented before the end of the rental agreement, then the date on which the new tenancy begins, (c) if the tenant vacates after the last day of the rental agreement, the date on which the landlord learns that the tenant vacated, (d) if the tenant was evicted, the date on which the writ was executed or the date that the landlord learns that the tenant vacated.

So the new law kept the good part of the original bill but by codifying ATCP 134.06(2)(a) the landlord must return a tenant's security deposit or send out the itemization of how the security deposit was applied earlier than when the original bill stated in situations where the tenant was evicted.

8. Disclosure of Code Violations

The original bill required that a landlord disclose to any prospective tenant any uncorrected building code or housing code violations prior to the signing of a rental agreement, accepting of a security deposit or accepting of earnest money.

The second Amendment to the Substitute Amendment modified the original bill and as a result the new law requires a landlord to disclose to a new tenant any uncorrected building code or housing code violations if the landlord has actual knowledge of the violation (rather than if the landlord had received notice of the violation from a housing code enforcement agency as under the original bill).

Specifically the new law requires the disclosure to the new tenant if the following four conditions are met: (a) landlord has actual knowledge of the violation, (b) the violation affects the rental unit or a common area, (c) the violation presents a significant threat to the tenant's health or safety, (d) the violation has not been corrected.

9. Request for Repairs

The orginal bill required that a tenant first notify a landlord in writing of any repair or maintenance issue, and then allow adequate time for the landlord to address the issue, before reporting the problem to the building inspector, elected official, or housing code enforement agency. The Substitute Amendment removed this provision in its entirety so the law has not changed -- tenants are allowed to call whomever they want to complain about maintenance issues without any requirement that they first notify the landlord of the problem.

10. Acceptance of Past Due Rent

The new law states that if a landlord has filed an eviction against a tenant and the landlord accepts past due rent from the tenant during the course of the eviction, that the court cannot dismiss the eviction solely based on the landlord's acceptance of past due rent from the tenant.

I really like this provision of the new law becasue currently, many tenants and their attorneys argue that if an eviction is pending and a landlord accepts past due rent from a tenant, that the landlord's acceptance of that rent has effectively "waived" the landlord's right to proceed with the eviction.

11. Tenant Remedies

The Substitute Amendment added that any violation of chapter 704, including the provisions of the new bill, may constitute an unfair trade practice which may allow the tenant to sue a landlord for double damages and attorney's fees.

I don't like this new provision of the law for one simple reason. I believe it will be used by tenants and tenant's attorneys to seek double damages and attorney's fees whenever a landlord allegedly violates any provision of chapter 704, whether the violation is a true unfair trade practice violation or not. Only the provisions of ATCP 134, which will be codified in ch. 704 under this new law, deal with unfair trade practices. Nonetheless, I anticipate that we will see some very creative arguments by tenant's and their attorneys as to why a tenant should be awarded double damages and attorney's fees for violations of chapter 704 that are not unfair trade practice violations.

Now we will have to wait and see how this new law "plays out" in the real world of landlording. Some of the key things everyone will need to address before March 31, 2012, when the law takes effect are:

1. Make sure any rental agreement you enter into with a tenant after March 31, 2012, does not contain any language that would be in violation of the "8th Deadly Sin" which essentially means eliminating or modifying any language similar to that found in the Crime-Free Lease Addendum.

2. Make sure to add language in your rental agreement, and any renewal documents, stating that any property left behind by the tenant will be considered to be abandoned and will be disposed of by the landlord without any further notice to tenant (except for medical prescriptions and medical devices, mobile homes and titled vehicles).

3. Rename your Check-In / Check Out Sheet as "Information Check-In Sheet" and insure that you provide any new tenants with a completed copy of the form thoroughly documenting the condition of the rental unit.

4. Disclose any code violations that you have actual knowledge of that may present a significant threat to the tenant's health or safety before entering into a rental agreement or accepting a security deposit or earnest money.

Good Luck Everyone

ADDITION: 3/21/12 - Make sure you read my 3/21/12 post about why I now think this new law will actually hurt landlords more than help them

ADDED 4/11/12 -- Here is the link to the new law.

ADDED 4/11/12 - Here is a link to an article I recently authored on the new law.

ADDED 4/11/12 - Here is a link to the newly revised Wisconsin Statutes Chapter 704 re: Landlord and Tenant

New Landlords' Omnibus Bill Being Debated In Madison

On February 13, 2012 2011 Senate Bill 466 (more commonly referred to as the Landlords' Omnibus Bill) was introduced by Senator Lasee and referred to the Committee on Insurance and Housing. A companion bill was also introduced in the Assembly - 2011 AB 561. A public hearing on the above bills was held on February 15, 2012.

The Landlords' Omnibus Bill addresses numerous issues affecting landlord-tenant relations in Wisconsin and if passed will greatly assist landlords.

The bill proposes the following:

1. Eliminates the ability of a municipality from enacting or enforcing any ordinance that imposes a moratorium on a landlord from evicting a residential or commercial tenant.

Such moratoriums have occurred in the past effectively preventing landlords from evicting tenants during the holiday season for instance.

2. Allows for the severability of all rental agreement provisions and prevents an entire rental agreement from being declared unenforceable against a tenant -- or void -- because it contains an unenforceable or void provision.

If passed this will effectively render the Wisconsin Supreme Court's decision in Bairl v. McTaggart moot.

3. Allows a landlord to immediately dispose of any property abandoned by a departed tenant.

Currently according to Wis. Stats. sec. 704.05(5) a landlord can choose one of three options with regard to a tenant's abandoned property, but all three involve a landlord jumping through hoops and/or holding the abandoned property for a period of time.

4. Requires a landlord to disclose to prospective tenants if there are any uncorrected building code violations in the rental unit.

5. Requires that a landlord provide a residential tenant with a standardized check-in sheet describing the condition of the property at the time of the tenant's check-in.

6. Requires that a landlord shall (i.e. MUST) recover damages for a tenant's failure to vacate after his tenancy has been terminated. The amount of damages shall be, at a minimum, double the rental value of the unit for the time that the tenant held over, but can be more.

Currently Wis. Stats. sec. 704.27 only says that a landlord "may" recover "holdover" damages.

7. Creates a new statutory section that allows a landlord to withhold the following from a tenant's security deposit: (a) tenant damage, waste or neglect, (b) unpaid rent, (c) utilities, (d) any other items listed in a Nonstandard Rental Provision document.

Currently the above is only contained in the Wisconsin Administrative Code ATCP 134.06(3) -- which is a regulation and not law.

8. Provides that if a tenant vacates before the end of his lease that a landlord will not have to return the tenant's security deposit or send the teanant a security deposit itemization letter until 21 days after the lease ends or 21 days after the unit is re-rented.

Currently per ATCP 134.06(2) the landlord must return the security deposit or security deposit itemization letter within 21 days of the tenant "surrendering" the rental unit. As this regulation is currently written there are some instances where a security deposit must be returned to a tenant that has broken a lease even though the tenant will be legally responsible for future rent but is not responsible for any rent within the 21 days after the tenant surrenders.

9. Requires a tenant to notify the landlord in writing of any repair or maintenance problem before reporting the problem to a building inspector, elected public official or code enforcement agency.

Currently some tenants are calling DNS or other building code enforcement agencies alleging that they told their landlord of a maintenance or health and safety emergency in their rental unit and that the landlord is not making the necessary repairs - when this is not the case . Tenants may do this in order to "get a landlord in trouble" with an enforcement agency or to avoid paying rent. As a result, some landlords are hearing about the maintenance issue for the first time when contacted by the building code agency. This provision will hopefully eliminate such "he said - she said."

10. If a landlord has filed an eviction action against a tenant for non payment of rent and the landlord accepts past due rent from the tenant after the eviction lawsuit was filed, the eviction may not be dismissed by the court solely because of the acceptance of rent.

Currently a landlord is in a catch-22 position. If a landlord accepts payment of late rent (either partial past due rent or the full amount after the "cure" period has ended) the landlord risks the court deciding that the landlord "waived" his right to proceed with the eviction. But if the landlord turns away past due rent offerred by the tenant after the "cure" period has passed, the landlord is essentially losing out on money owed to him that he will never see again.

Please be sure and call your state senator and state assembly person and urge them to vote in favor of the Landlord's Omnibus Bill.

HUD Issues New Rule On "Discriminatory Effect" a.k.a Disparate Impact

HUD has issued a new Fair Housing “disparate impact” rule that may cause problems for landlords during the screening process. The new rule creates a new provision entitled “Prohibiting Discriminatory Effects” which defines “discriminatory effect” as situations in which a facially neutral (i.e. not discriminatory) housing practice can become discriminatory if it actually or predictably has an effect on a group of persons that are members of a protected class.

The concern is whether or not this new rule will restrict landlord’s use of criminal background checks on prospective tenants. Recently Pepsi Co. agreed to pay $3.13 Million to resolve allegations of hiring discrimination against African-Americans based on Pepsi’s use of the African-American’s arrest records.

This recent settlement when read in conjunction with HUD’s new rule causes concern regarding whether it will be considered discriminatory to use a person’s criminal arrest or conviction as a basis for rejecting a rental applicant when such use would result in members of a protected class being rejected as tenants. For more on this issue and

please read Tim Ballering’s blog post entitled ‘Will Criminal Background Checks For Screening Be Restricted By Proposed Federal Rule?”

In light of this concern, the AASEW’s Executive Committee submitted the following comments to HUD:

The Apartment Association of Southeastern WI, Inc. is a trade association representing approximately 575 owners and managers of rental housing in the Metro Milwaukee area.

Our organization supports Fair Housing as well as community efforts to reduce the effects of crime within the neighborhoods that our members own and manage rental housing.

We are concerned that this proposed rule will restrict the legitimate and necessary use of criminal arrest and conviction records in screening tenants to exclude those who will cause disruption and harm to other occupants, the neighborhoods those properties are located in, and to our properties.

Many communities in southeastern Wisconsin have "Nuisance Property Ordinances" that hold owners accountable for the misdeeds of their tenants. For example Milwaukee's Nuisance Ordinance does not require the conviction, nor the arrest of the tenant or their invitees, rather simply repeat law enforcement activity will trigger the enforcement provisions of that ordinance.

As part of your proposed rule property owners need "bright line" guidance, establishing what background screening criteria and methods will remain acceptable under this proposed rule as well as protections from potentially conflicting local requirements.

It would be inequitable, causing unnecessary costs and harm to property owners if such guidance is not provided in advance of the implementation and enforcement of this proposed rule.

Hopefully additional guidance will be provided. If and when it is I will be sure to provide everyone an update.

CCAP Committee's Recommendation To Change Wisconsin's Expungment Laws Shot Down

Last year Wisconsin's Joint Legislative Council created a Special Committee On The Review of Records Access of Circuit Court Documents – what I affectionately referred

to as the CCAP Committee. Landlords were very fortunate that in the end the committee made no recommendations to change or alter information on CCAP or limit its access by landlords or any other group. The committee's sole recommendation was to call for the liberalization of Wisconsin's criminal expungement statute.

The proposed bill, if passed would have done the following:

1. Defined what is meant for a court to expunge a court record (and yes, this did include removing any reference to the conviction from CCAP)

2. Clarified that an expunged record may not be considered for employment or housing matters.

3. Stated that a person may petition the circuit court at any time to expunge the following:

- any court record of a person who was under the age of 25 at the time the crime was committed and who was found guilty of a forfeiture, misdemeanor, and certain (lessor) felonies, that are punishable by up to 6 years in prison.

- any court record of a person charged with an offense punishable by a forfeiture, misdemeanor, or felony in which all charges were dismissed or for which the defendant was acquitted AND the court determines that the person will benefit by the expungement and that society will not be harmed by the expungement.

So as you can see, the proposed bill would have negatively affected landlords in the screening process and if passed would mean that a landlord would find no record of the applicant having ever been charged and convicted of crime x, y or z (or charged and acquitted or charged and the later dismissal of the case), if the applicant had applied for and received an expungement.

It also would have meant that even if the landlord somehow learned of the conviction (or acquittal or dismissal) and the later expungement, that the landlord could not use that information when making a decision on whether or not to rent to that individual.

Furthermore, it would have meant that a landlord would be precluded from inquiring as to the existence of any expunged record from a rental applicant whether that question

be on the rental application itself or verbally when talking to the applicant.

Thankfully we do not have to worry about this proposed bill being passed as it never even got introduced. In a notice dated January 20, 2012, the Director of the committee wrote to the members of the committee to inform them that their recommended bill was not approved for introduction by the Joint Legislative Council by a vote of 13 to 6. While a petition can be circulated to have the matter reconsidered, I have not heard of that happening.

"Landlord Preemption Bill" Signed Into Law

It is nice to finally see some landlord-friendly laws being passed in the state of Wisconsin.

On December 7, 2011, Senate Bill 107 (commonly referred to as the “Landlord Preemption Bill”) was signed into law by Governor Scott Walker as 2011 Wisconsin Act 108. This new law creates Section 66.0104 of the Wisconsin Statutes and prohibits municipalities from enacting an ordinance that places certain limits or requirements on a landlord.

Specifically, section 66.0104 prohibits any city, village, town or county from enacting an ordinance that prohibits a landlord from obtaining and using any of the following information with respect to a tenant or prospective tenant:

1. Monthly household income
2. Occupation
3. Rental history
4. Credit information
5. Court records, including arrest and conviction records, to which there is public access
6. Social Security number or other proof of identity.

The new law also prevents a municipality from limiting how far back in time a prospective tenant’s credit information, conviction record, or previous housing may be taken

into account by a landlord. It also prevents a municipality from prohibiting or limiting when a landlord can enter into a rental agreement for a rental unit with a prospective tenant or show a rental unit to a prospective tenant during the tenancy of a current tenant.

Additionally, the new law prohibits a municipality from enacting an ordinance that places requirements on a landlord with respect to security deposits, earnest money or pre or post tenancy inspections that are in addition to the requirements currently set forth in Wisconsin Administrative Code ATCP 134.

If a municipality has an ordinance on its books that conflicts with sec. 66.0104 than that ordinance is no longer applicable and may not be enforced.

This new law will positively affect landlords throughout the state, but most especially in Madison and its environs. I think as a result of Wisconsin Act 108 the city of Madison's Code just lost a few pounds.

Governor Walker Signs 2 Pro-Landlord Bills Into Law

Just wanted to let everone know that in the last few days Governor Walker has signed into law two bills that will positively affect landlords.

- On December 7th, Governor Walker signed SB 107 (2011 Wisconsin Act 108) which relates to prohibiting municipalities from creating ordinances that put limits on landlords. If you would like more detail on this law please see my prior blog post on the topic. Here is a link to the legislative history of the bill.

- On December 7th Governor Walker also signed into law SB 12 (2011 Wisconsin Act 92) which creates a presumption that a tenant's attorney's fees should be capped at 3 times the amount of damages at issue when a tenant sues a landlord for an alleged violation of ATCP 134. If you would like more information on this see my prior blog post. Here is a link to the legislative history of the bill.

New Federal Bill Would Add Two New Protected Classes To Federal Fair Housing Act

On September 26, 2011 both chambers of the U.S. Congress introduced legislation that would extend housing discrimination laws to include protections based on sexual orientation and gender identity. The HOME (Housing Opportunities Made Equal) Act was introduced by Sen. John Kerry and others. The bill would amend the Fair Housing Act to prohibit housing discrimination and intimidation on the basis of sexual orientation and gender identity.

Wisconsin is one of 13 states and the District of Columbia that already outlaws housing discrimination on the basis of sexual orientation. However, currently only 8 states afford fair housing protection based on gender identity and Wisconsin is not one of those states.

New Bills Would Limit Tenant's Attorney's Fees When Suing Landlords

There are two new proposed laws that if passed would limit the amount of attorney’s fees that could be awarded to a tenant that has sued his/her landlord for violation of ATCP 134 to 3 times the amount of compensatory damages in Wisconsin. The proposed legislation (Special Session Assembly Bill 12 & Special Session Senate Bill 12) was introduced by the committee on Senate Organization and the Committee on Assembly Organization at the request of Governor Scott Walker, Senator Rich Zipperer (R) and

Representative Robin Voss (R).

Currently if a tenant sues his landlord for a violation of ATCP 134 – which typically is due to the landlord’s alleged improper withholding of the tenant’s security deposit – and prevails, the court must award the tenant double damages, the costs of the lawsuit, and the tenant’s reasonable attorney’s fees. In almost every instance, the tenant’s reasonable attorney’s fees are much larger than the compensatory damages awarded.

In the United States we follow what is referred to as the American Rule which states that a person pays for their own attorney’s fees regardless of the outcome of the lawsuit. This is very different from the English Rule, which is followed in England, which requires the losing party to pay for the prevailing party’s attorney’s fees in addition to their own.

Despite following the American Rule in the United States, there are certain situations in which a state or federal statute will allow for the shifting of one’s attorney’s fees to th other party. These statutes are referred to as fee shifting statutes. Sec. 100.20(5) of the Wisconsin Statutes is an example of a specific type of fee shifting statute, called the private Attorney General statute, which requires that a landlord that has been found to have violated ATCP 134, to pay his tenant two times the tenant’s compensatory damages and the tenant’s reasonable attorney’s fees.

It is argued that the private Attorney General statute, which is codified as sec. 100.20 (5), Wis. Stats., has many purposes, such as: (1) it encourages a tenant that is damaged financially by the acts of their landlord to file a lawsuit to enforce their rights even if the alleged damages are small, (2) it allows a tenant to enforce his own rights as well a well as the public’s rights, (3) it deters improper conduct by landlords, (4) it strengthen the bargaining power of a tenant, and (5) it provides a much needed backup for th State as there are too many violations for the Attorney General’s Office to enforce alone.

These new bills would limit a tenant’s attorney’s fees to 3 times the amount of the compensatory damages awarded in all cases in which only compensatory damages are awarded. If non-monetary relief is awarded in addition to compensatory damages (such as injunctive or declaratory relief, rescission or modification, or specific performance the court must “presume” that reasonable attorney’s fees do not exceed 3 times the amount of the compensatory damages awarded, however that presumption may b overcome after the court analyzes 13 factors which the bills will allow a court to consider when setting the amount of attorney’s fees.

Critics of the two new bills feel that if passed, they will essentially “gut” Wisconsin’s consumer protection laws. Their argument is that no attorney will be able to afford to tak a tenant’s smaller damage case due to the limitations of their fees. As a result, it is argued that tenants will no longer be able to challenge the improper behavior of the landlords and therefore” bad” landlords will be able to do whatever they want and get away with it.

UPDATE - 10-28-11 -- On Thursday, Oct. 27, 2011 the aforementioned bill was passed by the Senate 17-15 (on a party line vote). The bill was softened a bit to allow for atty. fees greater than 3 times damages to be awarded by a judge BUT the presumption would still be that three times damages is sufficient.

Crime-Free Lease Bill On The Horizon

On September 12, 2011, on behalf of the AASEW, I traveled to Madison to meet with the Wisconsin Rental Housing Coalition, several legislators’ aides, and an attorney from the Legislative Reference Bureau to assist in the review of and drafting of a new piece of legislation that will greatly affect residential landlords.

Not yet a bill, this proposed legislation is referred to as LRB-2098/1 or informally as the “Crime-Free Lease bill.” Initiated by fellow landlord and South Milwaukee Police Officer Brian Fleming, this legislation if passed, will change current Wisconsin law to allow a landlord to terminate the tenancy of any tenant (even those under a lease for term) that engages in criminal activity in their rental unit or on the rental property. A new type of 5 day notice would be created under this legislation which would not allow the tenant the opportunity to cure the breach and stay. It would basically be a “1 strike” law similar to what is in place in federal Section 8 site-based housing.

Criminal activity under the proposed legislation would be defined as any act or behavior that is punishable in Wisconsin by a fine or period of imprisonment or that is a violation of a municipal ordinance.

If the tenant fails to vacate the unit after being served with this new 5 day notice, the landlord would still be required to prove the criminal activity in eviction court.

The impetus for this legislation was the National Crime Free Lease Addendum that has been adopted and used in many counties outside of Wisconsin. Under this initiative, a tenant agrees not to engage in criminal activity on the rental property -- or allow any of their guests to do the same -- and signs a contract with the landlord to that effect. If the tenant or the tenant's guests engage in the prohibited criminal activity, they agree to vacate the property upon notice by the landlord.

Current law in Wisconsin conflicts with the Crime Free Lease Addendum as tenants under a lease for a specific term, must be afforded the opportunity to correct the breach and remain a tenant the first time that they violate their lease -- even if that violation is a crime.

Sec 704.17(2)(b) of the Wisconsin Statutes, allows a tenant under a lease who engages in criminal activity, to remain a tenant as long as s/he ceases the criminal activity within 5 days of being served the notice of breach. Thus, a landlord can be stuck with a tenant that he knows engages in criminal behavior until that tenant commits a second crime and can be served with a 14 day notice (which does not afford the tenant the opportunity to "cure" the breach and remain a tenant).

This puts Wisconsin landlords in a very difficult position and opens them up to liability. It also prevents a landlord from protecting his/her other tenants from the tenant that is engaging in criminal activity.

Once the bill is officially introduced and has obtained co-sponsors I will let you know so that you can begin calling and writing your state representatives to encourage them to vote in favor of this very important legislation.

Update on Landlord Pre-Emption Bill

It has been awhile since I updated everyone on the pro-landlord legislation that is being addressed in Madison. Senate Bill 107 (SB 107) -- referred to as the Landlord Pre-Emption Bill -- has been passed by the Wisconsin Senate and is currently being reviewed by the House this term (AB 155).

You may recall that SB 107 prohibits any municipality from enacting any ordinance that limits a landlord from obtaining or using various types of information about a tenant or prospective tenant, such as household income, occupation, court records, rental history, and credit information, or limits how far back in time a prospective tenant's

credit information, conviction record, or previous housing may be considered.

The bill has received much opposition from local municipalities and their lobbyists, not for the substance of the bill, but rather for the fact that if passed, the law will

restrict a municipality’s ability to draft certain ordinances. Essentially the municipalities feel this to be a breach of their own sovereignty and an example of the state overstepping its bounds. Many feel that this is really just a Madison problem -- since it is the City of Madison that has enacted many of these restrictions on what information a landlord can consider when making a rental decision – and therefore should be dealt with at the city level.

Another group of critics believe that the bill discriminates against African-Americans. Four Dane County Board Supervisors, two Madison City Council members and one Madison School Board member, sent a letter to Governor Walker and legislators on September 7, 2011, asking that the provision of the bill that will allow landlords to deny housing to tenants with criminal histories be removed because is discriminates against African Americans.

They argue that allowing a landlord to deny a rental applicant housing based on his/her criminal convictions will unfairly affect African-Americans because while they

only comprise 6% of the state’s population they account for almost 50% of those with arrest and conviction records. Thus the critics of the bill argue that to allow a landlord to deny a rental applicant based on his/her criminal record is to allow landlords to deny housing based on race.

The critics are relying on the doctrine of "disparate impact." The disparate impact doctrine holds that certain laws may be discriminatory and illegal – even if the law is neutral on its face -- if they have a disproportionate "adverse impact" on members of a minority group.

This disparate impact argument is ignoring a key ingredient – one’s choice to engage in criminal activity. One’s race is not something that a person has control over – we are born into a certain race. On the other hand, individuals do have control over whether or not they engage in criminal activity. Committing a crime is a volitional act. Being born African-American is not. We are dealing with apples and oranges here.

Disparate impact arguments are often raised when a law unintentionally affects a minority group through no fault of their own. This small group of critics, are trying to apply the disparate impact doctrine to individuals that made a voluntary decision to engage in criminal activity.

UPDATE - 10-28-11 -- On Wed. Octo 26, 2011, By a vote of 59-34 the Assembly voted to suspend a rulling on AB155. An amendment was made by Rep Chris Taylor (D-Madison) that would protect some local control within the bill - the amendment was tabled by a vote of 60-33.

City of Madison Proposes New Legislation That Will Make A Landlord Become His Tenant's Babysitter

In an attempt to curtail house parties or "keggers" in the city of Madison, a new ordinance has been proposed. Legislative File Number 23310, would create section 25.10 of the Madison General Ordinances to prohibit what is referred to as "nuisance parties." The ordinance would require the police to provide a landlord with notice of a nuisance party that occurred at his rental property and require the landlord to take appropriate measures to prevent future nuisance parties from being held by his tenant at the rental property. The ordinance would also allow the police to fine the landlord between $100-$5,000 if his tenant held a second nuisance party within a 12 month period.

A "nuisance party" is defined as a social gathering that, by reason of the conduct of the persons in attendence, results in one of more violations of 17 enumerated ordinance violations, including but not limited to: selling or giving away intoxicating liquors without a license, procuring and furnishing alcohol to minors, intentionally encouraging the comsumption of alcohol by minors, disorderly conduct, obstructing street and sidewalks etc. etc.

Under the proposed ordinance, if a beer barrel is visible to the public, even if it is located in the back yard, side yard, or on the porch of the property, and one or more of the above-noted ordinance violations is present, that gathering will be considered a nuisance party. Looks like the days of sitting on the porch drinking from a keg are over for the college kids.

Any person who is the "owner, occupant, tenent or otherwise has rightful possession . . . of any premise, who either sponsors, conducts, hosts, invites or permits a social gathering or party on said premises which becomes a nuisance party . . . is deemed to be in violation of the ordinance." By this wording it appears that the city thinks that a landlord is inviting, permitting or encouraging a tenant to have a house party if the landlord does not prevent it from occurring. How about a different possibility ----- the landlord was not aware of the party.

Essentially this ordinance, if passed ---- heck, it is MADISON, of course it will be passed ---- will make a landlord responsible financially for any tenant that has a 'kegger." Yes, I understand that these parties can be dangerous and can be a nuisance to neighbors, and I am not taking issue with the need to stop so called "nuisance parties." But trying to hold a landlord responsible for his tenant's actions is not the way to solve the problem of house parties. Landlords are not their tenants babysitters. While a landlord may wear many hats . . . housing provider, bill collector, maintenance person, social worker etc . . . we are not babysitters.

An article in the Daily Cardinal from July 27, 2011, quotes Alderman Scott Resnick, who is against the proposal, as saying "it makes the landlord play babysitter to a number of house parties." Resnick indicates that he is against the proposal because there are already laws and ordinances available that prevent overcrowding and disturbing the peace." Resnick also stated that involving landlords is not the way to address problems with underage drinking and large house parties near campus.

The part of the ordinance that concerns me the most is the sub-part entitled (6) "Owner's Failure To Prevent A Second Nuisance Party." The first sub-section states that within 10 days of the police breaking up a nuisance party, the police must notify the landlord of the violation of the nuisance party ordinance. It also states that the landlord must give the tenant a 5 day notice for breach of the rental agreement for having the nuisance party. But the kicker is contained in the second sub-section which states that if another nuisance party occurs at the same property within a 12 month period and the same occupants are responsible for the party, the police SHALL send the landlord a second notice of the nuisance party ordinance violation and the landlord SHALL be subjected to a forfeiture.

So under this proposed ordinance, a landlord can be fined even though legally he is unable to terminate his tenant's tenancy or file an eviction prior to the tenant hosting a second nuisance party.

Unless things have changed since I went to college, most tenants operate under a one year lease agreement with their landlords. When a tenant is under a lease agreement for a specific term (as opposed to a month to month tenancy) and breaches the term of his rental agreement, a landlord is required to serve the tenant with a 5 day notice which allows the tenant the right to cure the breach and remain a tenant. A landlord legally cannot terminate his tenant's tenancy after the first breach if the tenant is under a lease for a specific term.

So let's walk through this in the context of a nuisance party:

1. A tenant hosts a nuisance party

2. The landlord is notified of the party by the police or neighbors and serves the tenant with a 5 day notice for breach of lease.

3. The tenant cures the breach by not having another party within the "cure" period.

4. That same tenant decides to host a second house party within 12 months of the first shindig, thus committing a second breach of the lease.

It is only at this point that a landlord can serve the tenant with a 14 day notice (which does not afford them the right to cure the breach) terminating the tenancy and proceed to evict the tenant if he fails to vacate the rental property at the end of the 14 days. But by this time, under the proposed ordinance, the landlord can already be hit with a fine from the city for his tenant's actions.

Now, Madison's proposed ordinance does include a section (8) entitled "Affirmative Defenses" which states that "it shall be an affirmative defense to a charge of violating the ordinance, if the landlord has evicted or is dilligently attempting to evict all tenants and occupants of the property who are responsible for the nuisance parties."

Based on this language it would appear that some leniency may be given to a landlord who is attempting to evict a tenant that has hosted two keggers within a 12 month period. But why not draft the ordinance so that the landlord cannot be fined until after he is legally able to remedy the problem under Wisconsin landlord-tenant law. A landlord should not be able to be fined by the city for violating a municipal ordinance for failure to control his tenant, when state law prevents him from doing anything about the problem yet.

Personally, I think the entire ordinance is ridiculous. Landlords are not their tenants babysitters. People should be held responsible for their own actions. But if the city of Madison is going to attempt to hold landlords responsible for their tenants behavior, then it should at least make sure that a landlord has the legal ability under state landlord-tenant law to rectify the tenant's behavior by terminating his tenancy and filing an eviction action against the tenant, before the police are allowed to fine the landlord for allegedly not handling the problem.

Small Claims Jurisdictional Limit Increased To $10,000

Wisconsin's small claims jurisdictional limit was increased from $5,000 to $10,000 effective July 1, 2011. This increase was included in Governor Walker's 2011-2013 Budget Bill.

The jurisidictional limit for small claims in Wisconsin was set at $5,000 back in 1995 and has remained the same for 16 years.

I see this as a positive change for debt collectors and potentially landlords.

All eviction actions -- regardless of the amount of rent owed -- must be brought in small claims court as small claims has exclusive jurisdiction of all eviction actions. Because of this, a landlord is allowed to receive a judgment for past due rent well beyond $5,000. So this jurisdictional change will not affect the amount of any past due rent judgement. But until now, a landlord was limited to obtaining a judgment for $5,000 or less in small claims for any physical damages to the rental property caused by the tenant. So this increase in small claims jurisdictional limit will be advantageous for landlords in such a situation.

Additionally, this change will also positively affect landlords bringing straight collection actions (which does not include a cause of action for eviction) against ex-tenants that skipped out owing past-due rent and/or damages greater than $5,000.

Since most tenants are not collectible, I am not sure if this change will greatly affect landlords . . . but it certainly won't hurt them.

It should be noted that this increase in the small claims jurisdictional amount does NOT apply to third-party complaints, personal injury lawsuits, or tort claims.

Two Pro-Landlord Bills Are Proposed

Two new bills have been proposed in Madison and both of them are pro-landlord.

Landlord Pre-Emption Bill

Rep. Robin Voss has proposed what is being referred to as the Landlord Pre-Emption Bill (LRB 1296/3). This bill prohibits any municipality from enacting an ordinance that does any of the following to a residential landlord:

1. Prohibits or limits a landlord from obtaining or using various types of information about a tenant or prospective tenant, such as household income, occupation, court records, rental history, and credit information.

2. Limits how far back in time a prospective tenant's credit information, conviction record, or previous housing may be considered by the landlord.

3. Prohibits the landlord from showing a rental property to a prospective tenant, or from entering into a rental agreement for a rental property with a prospective tenant, while the current tenant is living there.

Rep. Voss is currently seeking co-sponsors for this bill.

UPDATE - 6/14/11: This propsed bill (Senate Bill 107) was referred to the committee on Insurance and Housing on 5/26/11. A public hearing was held on 6/8/11. Two amendments were made to the bill and the proposed bill passed committee by a vote of 4-3. Here is a recent article in the Capital Times on the bill.

Water/Electric Bill (LRB 1393/1)

The second pro-landlord legislation that is out there would help landlords who have had the unfortunate experience of having a tenant's delinquent utility bill place on their property tax bill.

LRB 1393/1 would prohibit a municipal utility that provides electric or water service to a rental dwelling from using the current arrearage collection procedure , as long as the lwner of the property has provided the utility with written notification of the name and address of the tenant who is responsible for paying for the service. th eutility service may also request a copy of the rental agreement in which the tenant assumes responsibility for paying for the utility charges. Once the owner has provided the written notice of the tenant's name and address, the utility may not use the current arrearage collection procedure.

UPDATE: 6/14/11 - This propsed legislation (AB 182) was referred to the committee on Energy and Utilities on 6/13/11.

Repeal of Expanded 1099 Requirements Signed Into Law

President Obama has officially signed H.R. 4, the “Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011” into law. This new law retroactively repeals prior 1099 reporting rules for landlords that were added by 2010 legislation (i.e. the Small Business Jobs Act of 2010 and the Patient Protection and Affordable Care Act -- better known as Obamacare).

Prior to the 2010 legislation, it was generally required that if you were a landlord that was engaged in the trade or business of landlording, that you were then required to report to the IRS via a 1099 form any payments totalling at least $600 to a single person. Typically, this involved paymetns for services. It should be noted that there were a number of exemptions from the law's reporting requirements notably including payments to corporations.

This essentailly meant that unless you were a full-time landlord, you did not need to comply with the reporting requirements as you were not in the trade or business of landlording.

Then in 201, two pieces of legislation were passed.

Under Obamacare, as of 2012, it was added that payments for goods more than $600 in a 12 month period needed to be reported as well as services. Obamacare further provided that, beginning in 2012, payments to non-tax-exempt corporations—which had previously been exempt from the reporting requirement—would be subject to information reporting.

Additionally, the Small Business Jobs Act of 2010 provided that, subject to limited exceptions, a person receiving rental income from real estate would be treated as engaged in the trade or business of renting property for information reporting purposes. In particular, rental income recipients making payments of $600 or more to a service provider in the course of earning rental income would have to provide an information return to the service provider and the IRS. This would included all landlords, even if they worked full-time doing something other than landlording, and just rented out a duplex on the side.

After much backlash, the House introduced, H.R. 4, which repeals the provisions of Obamacare and the Small Business Jobs Act referenced above.

Essentially, with President Obama, signing into law H.R. 4, the reporting rules now revert back to what they were before the 2010 legislation (Obamacare and Small Business Jobs Act) was passed. We are now back to where we were before the government started monkeying around with things in the first place.

I guess if nothing else it gave me some topics to blog about : )

CCAP Might Be Affected by Governor's Proposed Budget

Just when we thought CCAP would be left alone for awhile (after the dismantling of the CCAP Comittee) word comes of another potential attack on CCAP --- this time it is financial. The Wisconsin Law Journal recently published a post by Jason Smathers of the Associated Press indicating that court officials are concerned that CCAP may be affected if the governor's proposed budget breaks up its funding.

The Governor's proposed budget apparently would end a dedicated funding source for CCAP along with other state data management systems. Currently CCAP receives $6 out of every $21.50 charged as part of the Justice Information Systems Surcharge included in most court filing fees, says the recent article. Under the Governeor's proposed budget, all fee revenue would go to the Department of Administration, which could decide how to allocate the money, thus ending any dedicated monies to CCAP.

The article explains that if the budget as written is passed, that CCAP may not be updated as frequently as it currently is. Others, including the Chief Justice of the Wisconsin Supreme Court, worry that the changes could result in CCAP being jeopardized.

The article indicates that the spokesperson for CCAP, feels that CCAP would have to consolidate or cut back on non-essential services and that CCAP would be on a short-list of cuts, if the budget goes through as written. A spokesperson for the Governor says that a 10% cut is all that CCAP will face and that such a cut is the same type that all departments will face in order to balance the budget. According to the article, the CCAP spokeperson indicated that no decision has been made with regard to making cuts to CCAP but that as a result of the proposed budget, there are no new plans for any expansion to CCAP.

CCAP averages 2- 3 million hits per day according to the article -- with that type of popularity -- this is one user that hopes CCAP is left alone.

Make sure and read the full article here.

U.S. Senate Votes to Repeal New 1099 Reporting Requirements for Businesses and Landlords

The U.S. Senate has passed H.R. 4 which repeals the new 1099 reporting laws for businesses and rental property owners. The vote was 87-12. Since the House had already passed this bill -- and no modifications were made by the Senate -- the bill will now go to the President for his signature. While the President has indicated that he did not care for the "pay for" (offset) provisions that were included in H.R. 4, he has supported the repeal of the 1099 reporting requirements, so it is believed that he will sign the bill into law.

If you would like to read more about the new 1099 reporting requirements and see prior updates on this law please see my earlier and more exhaustive blog post on the topic.

CCAP Committee Disbands Without Any Major Changes Negatively Affecting Landlords

On March 9, 2011, State Rep. Ed Brooks, the newly appointed Chair of the State of Wisconsin's, Joint Legislative Council's Special Committee on Review of Records Access of Circuit Court Documents (CCAP Committee) sent a memo to all members of the committee indicating that he had decided not to reconvene the committee for any additional meetings.

For the most part, landlords came out unscathed by the reccomendations of the CCAP committee. While the committee considered many issues --- the most troublesome being limiting access to CCAP and removing records of evictions that resulted in a dismissal --- the only issue that the committee is pursuing has to do with the ability of person to seek expungement of certain criminal records under certain situations.

It should be noted that while the committee voted to require that all persons whose CCAP records were accessed during a rental application check or or credit check be notified of this, the chairman of the CCAP committee rejected that suggestion and chose not to include it in the draft bill that was produced as a result of the committee's work.

The proposed bill that was drafted as a result of the CCAP committee's reccomendation, proposed or clarifies the following:

1. Defines what is means for a court to expunge a court record (i.e. yes, this does include removing any reference to the crime from CCAP)

2. Clarifies that an expunged record may not be considered for employment or housing matters.

3. States that a person may petition the circuit court at any time to expunge the following:

- any court record of a person who was under the age of 25 at the time the crime was committeed and who was found guilty of a forfeiture, misdemeanor, and certain (lessor) felonies, that are punishable by up to 6 years in prison.

- any court record of a person charged with an offense punishable by a forfeiture, misdemeanor, or felony in which all charges were dismissed or for which the defendant was acquitted AND the court determines that the person will benefit by the expungement and that society will not be harmed by the expungement.

So if this proposed bill is eventually passed, an individual who was convicted of a crime, and who meets the criteria for expungement, could have his/her criminal record expunged including its removal from CCAP. What does this mean for a landlord conducting a background check on that specific rental applicant? It means several things:

1. It means that the landlord would find no record of the applicant having ever been charged and convicted of crime x, y or z (or charged and acquitted or charged and the later dismissal of the case).

2. It means that even if the landlord somehow learned of the conviction (or acquitall or dismissal) and th elater expungement, the landlord could not use that information when making a decision on whether or not to rent to that individual.

3. It means that a landlord is precluded from inquiring as to the existence of any expunged record from a rental applicant whether tht be on the rental application itself or verbally when talking to the applicant.

So while the proposed bill, if passed as written, will make screening certain rental applicants more problematic, considering all of the items/issues that were up for discussion by the CCAP committee, landlords remained relatively unscathed. Now let's hope that the Wisconsin Supreme Court stays out of the fray . . .

U.S. Senate Repeals A Second New 1099 Reporting Law That Would Have Greatly Affected Landlords

About a week ago I blogged about a new federal law that will require landlords to issue 1099's to any individual or business that provides the landlord with more than $600 in services in any 12 month period. While this new law isn't going away anytime soon, another new federal 1099 reporting law has fortunately been repealed.

Included in the new health care reform law known as the Patient Protection and Affordable Care Act (more commonly referred to as "Obamacare"), was a provision that would have required landlords (and other small businesses) to report to the IRS any purchases of goods over $600 per year from any other business or individual.

Under this law, which would have commenced in 2012, a landlord would have been required to issue 1099's to Home Depot and Menard's if the landlord purchased more than $600 in goods from either of these stores. A landlord would have also been required to issue 1099's to the municipal water department and WE Energies --- since water and electricity are considered to be "goods." The additional paperwork required of landlords under this new law would have cleared several rain forests.

Fortunately, the U.S. Senate -- with broad bipartisan support -- approved an amendment on February 2nd, 2011 to repeal the expanded 1099 information reporting requirements contained in the health care reform law.

So while a landlord will still be required to 1099 business and individuals that supply more than $600 in services within a 12 month period, landlords will no longer be required to 1099 a business or individual that supplied more than $600 in goods in that same 12 month period.

New 1099 Law Will Greatly Affect Landlords In 2011

A new federal will greatly affect how landlords do business in 2011.

In September 2010, a small provision affecting landlord was tucked into the Small Business Jobs Act of 2010, which has now become a subject of concern to many of us. Not only will this new law create a lot of additional paperwork for landlords, but it may open up Pandora’s Box should you be audited.

The new law requires all people who own rental property to issue a form 1099 to any service provider that is paid more than $600 per year starting as of January 1, 2011. The 1099 would have to be issued to the service provider and to the IRS.

Prior to this new law being passed, only landlords whose real estate activities were considered to be a "trade or business" had to issue 1099's to service providers. Now, even if you own only one duplex or a single-family rental property, and continue to maintain a full-time job doing something other than landlording, you will need to comply with this new law.

Landlords will now be required to obtain certain information from their vendors/contractor, such as their name, address, and social security number or tax identification number. You will also need to keep track of the amount of money that you pay the vendor/contractor over the course of the year. If you pay them more than $600 within the tax year then you must reflect that income on a 1099.

Under this law, landlords will need to issue a 1099 to most all contractors/vendors regardless of whether they are a corporate entity or an individual. This will include handymen, plumbers, carpet cleaners, electricians, painters, gardeners, landscapers, accountants, lawyers etc. etc.

If you give one of your current tenants a discount on rent for looking after your rental property, shoveling snow in the winter, and mowing the lawn in the summer, and that discount adds up to $600 or more over the course of the year, you will need to 1099 them as well. Basically you will need to issue a 1099 to all service providers who you pay $600 or more within a year and who are not employed by you and already receiving a W2.

The proposed penalty will be $100 per instance and possibly higher if the Feds believe that you intentionally failed to comply with the law. You could also lose the ability to deduct the payments to the service provider from your taxes, if you do not have a matching 1099.

As my friend and fellow AASEW board member Tim Ballering, so accurately pointed out, this new law has much deeper consequences than a $100 fine for failing to issue a 1099 to your handyman.

If you submit a deduction on your taxes without a matching 1099 you have just tipped off the IRS or your state taxing authority, and increased the possibility of being audited. Additionally, once you file a 1099 for each service provider that did work on your rental properties — just think how many 1099 this could potentially be — the Feds may very well look at all of that new paperwork and wonder if some of those so called independent contractors shouldn’t more properly be classified as a statutory employees instead.

Essentially, all of the 1099's that you will be required to file may now alert the IRS and the Wisconsin Department of Revenue to investigate whether or not these contractors should be reclassified as "employees." If such a reclassification would happen, a landlord could be placed in a very painful and expensive predicament. Fines can be as large as $5,000 per employee. You would also be required to pay both the employer and employee’s taxes (that should have been withheld had the contractor been properly classified as an employee), penalties, and interest. The IRS has indicated that they expect to collect an additional $7 billion per year as a result of this provision.

Not only can improperly classifying an employee as a contractor involve the IRS or Wisconsin Department of Revenue, but it could also provoke other government entities to investigate the independent contractor vs. employee issue – think unemployment compensation and worker’s compensation insurance.

While the tests for whether or not someone is an employee for purposes of UC, WC and tax purposes are slightly different, there are commonalities. If you are paying the service provider by the hour, if you provide them with supplies, if you provide them with tools, if you control how and when they do the work – there is a strong likelihood that they are statutory employees and you should have been doing withholding, and paying both unemployment insurance and workers compensation insurance.

So not only will this new law result in a lot of additional paperwork for landlords, it could put many of you in a position to lose everything that you have worked so hard to build. I would strongly recommend that all landlords take the time and effort to determine if they are improperly classifying an employee as an independent contractor. Any money that you think you are saving up front by avoiding the proper withholdings will be greatly overshadowed by the back taxes, fines, interest, and potential loss of your business, if the government later determines that your classification was wrong.

2/22/11 - UPDATE: On February 17, 2011, the House Ways and Means Committee, by a vote of 21-15, approved H.R. 705, the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayment Act of 2011. Among other things, H.R.705 seeks to repeal IRS Code section 6041(h), which was added by the Small Business Jobs Act of 2010, and which treats recipients of rental income from real estate (i.e. landlords) as engaged in the trade or business of renting property for information reporting purposes starting in 2011.

So this new 1099 law may still be repealed. Stay tuned . . .

3/8/11 -- UPDATE

On March 3, 2011, the House approved a repeal of the expanded 1099 information reporting requirements by a vote of 314-112. The bill, called the Small Business Paperwork Mandate Elimination Acot of 2011 (H.R. 4) would repeal the 1099 provisions of both the Affordable Care Act ("Obamacare") and the Small Business Job Act which required business -- including rental property owners -- to file a 1099 with the IRS reporting any purchases of services or goods over $600 per year.

The rub is that the new bill attempts to pay for the alleged costs of the repeal by requiring people who had received tax credits to pay for health insurance under the health care reform bill to repay the subsidies if they end up earning too much during the year to qualify. Seventy-six Democrats in the House opposed H.R. 4 because of this offset provision.

Apparently everyone -- Republicans and Democrats alike -- favor the repeal of the new 1099 laws, now it is just a matter of finding a way to pay for the repeal that everyone can live with.

4/7/11 -- UPDATE

The U.S. Senate has passed H.R. 4 which repeals the new 1099 reporting laws for businesses and rental property owners. The vote was 87-12. Since the House had already passed this bill -- and no modifications were made by the Senate -- the bill will now go to the President for his signature. While the President has indicated that he did not care for the "pay for" (offset) provisions that were included in H.R. 4, he has supported the repeal of the 1099 reporting requirements, so it is believed that he will sign the bill into law.

4/18/11 - UPDATE

President Obama signed H.R. 4 into law today. So all new 1099 reporting requirements for landlords are gone. The law now goes back to what it was prior to the 2010 legislation (Small Business Jobs Act and Obamacare). For more detail refer to my 4/18 post on the topic.