There was a discussion on the ApartmentAssoc@YahooGroups.com (link to home page) discussion list regarding charging a fee to a tenant who breaks a lease.
Liquidated damages, as they are referred to, are permitted in some states. For example in Florida you may give the tenant an option to be liable for the balance of the lease subject to mitigation or they can agree to liquidated damages up to two month’s rent. Most tenants seem to prefer the liquidated damages option because they know up front what they can expect if they must move before the end of the lease as opposed to needing to move to another locale and face owing perhaps eight or ten months rent.
However liquidated damages are not permitted in Wisconsin. In fact having such language in your WI lease probably invalidates the entire lease. Why is this?
ATCP 134.08 Prohibited rental agreement provisions. No rental agreement may: ….
(2) Provide for an acceleration of rent payments in the event of tenant default or breach of obligations under the rental agreement, or otherwise purport to waive the landlord’s obligation to mitigate damages as provided under s. 704.29, Stats.
The court case that supports the idea that the lease is invalid because of a provision contrary to ATCP 134.08 is BAIERL v. McTAGGART. You can read more about the effects of an invalid lease in my prior post on the subject.
All of this really emphasizes the value of hiring a knowledgable attorney to help you set up your lease agreements and paperwork. The few bucks spent upfront will save a bunch on the backend.
It does not matter what you call the liquidated damages fee, there is no way to avoid trouble with such a provision outside of changing current law. As liquidated damages actually limit the tenants’ exposure for future rent allowing such a provision should be acceptable by all sides. Perhaps this is one of those issues we should bring to Madison on our Meet your Legislators Trip Wednesday, March 16th, 2011. The trip, including lunch an the bus, is free to AASEW members. If you are interested in going call 414-276-7378 or email Paulette
Years ago the Milwaukee Small Claims Court interpreted §704.29 to allow an owner to charge for anything necessary to get the place rented including new carpet and even in one case that I sat in on waiting for my eviction to be heard, new cabinets. The mood of the court changed along with the retirement of judges and commissioners. Today it would probably be troublesome for the owner who took the bold approach on charges under §704.29.
704.29 Recovery of rent and damages by landlord; mitigation.
704.29(1)
(1) Scope of section. If a tenant unjustifiably removes from the premises prior to the effective date for termination of the tenant’s tenancy and defaults in payment of rent, or if the tenant is removed for failure to pay rent or any other breach of a lease, the landlord can recover rent and damages except amounts which the landlord could mitigate in accordance with this section, unless the landlord has expressly agreed to accept a surrender of the premises and end the tenant’s liability. Except as the context may indicate otherwise, this section applies to the liability of a tenant under a lease, a periodic tenant, or an assignee of either.
704.29(2)
(2) Measure of recovery.
704.29(2)(a)
(a) In this subsection, “reasonable efforts” mean those steps that the landlord would have taken to rent the premises if they had been vacated in due course, provided that those steps are in accordance with local rental practice for similar properties.
704.29(2)(b)
(b) In any claim against a tenant for rent and damages, or for either, the amount of recovery is reduced by the net rent obtainable by reasonable efforts to rerent the premises. In the absence of proof that greater net rent is obtainable by reasonable efforts to rerent the premises, the tenant is credited with rent actually received under a rerental agreement minus expenses incurred as a reasonable incident of acts under sub. (4), including a fair proportion of any cost of remodeling or other capital improvements. In any case the landlord can recover, in addition to rent and other elements of damage, all reasonable expenses of listing and advertising incurred in rerenting and attempting to rerent, except as taken into account in computing the net rent under the preceding sentence. If the landlord has used the premises as part of reasonable efforts to rerent, under sub. (4) (c), the tenant is credited with the reasonable value of the use of the premises, which is presumed to be equal to the rent recoverable from the defendant unless the landlord proves otherwise. If the landlord has other similar premises for rent and receives an offer from a prospective tenant not obtained by the defendant, it is reasonable for the landlord to rent the other premises for the landlord’s own account in preference to those vacated by the defaulting tenant.
704.29(3)
(3) Burden of proof. The landlord must allege and prove that the landlord has made efforts to comply with this section. The tenant has the burden of proving that the efforts of the landlord were not reasonable, that the landlord’s refusal of any offer to rent the premises or a part thereof was not reasonable, that any terms and conditions upon which the landlord has in fact rerented were not reasonable, and that any temporary use by the landlord was not part of reasonable efforts to mitigate in accordance with sub. (4) (c); the tenant also has the burden of proving the amount that could have been obtained by reasonable efforts to mitigate by rerenting.
704.29(4)
(4) Acts privileged in mitigation of rent or damages. The following acts by the landlord do not defeat the landlord’s right to recover rent and damages and do not constitute an acceptance of surrender of the premises:
704.29(4)(a)
(a) Entry, with or without notice, for the purpose of inspecting, preserving, repairing, remodeling and showing the premises;
704.29(4)(b)
(b) Rerenting the premises or a part thereof, with or without notice, with rent applied against the damages caused by the original tenant and in reduction of rent accruing under the original lease;
704.29(4)(c)
(c) Use of the premises by the landlord until such time as rerenting at a reasonable rent is practical, not to exceed one year, if the landlord gives prompt written notice to the tenant that the landlord is using the premises pursuant to this section and that the landlord will credit the tenant with the reasonable value of the use of the premises to the landlord for such a period;
704.29(4)(d)
(d) Any other act which is reasonably subject to interpretation as being in mitigation of rent or damages and which does not unequivocally demonstrate an intent to release the defaulting tenant.
704.29 – ANNOT.
History: 1993 a. 486; 1995 a. 85.
704.29 – ANNOT.
Acceptance of the surrender of premises terminated the lease and deprived the landlord of the right to seek future rent. First Wisconsin Trust Co. v. L. Wiemann Co. 93 Wis. 2d 258, 286 N.W.2d 360 (1980).
704.29 – ANNOT.
A court’s retention of jurisdiction to determine damages for rents not yet due is permitted. Mitigation expenses that may be recovered are limited to necessary expenses incurred and do not include compensation for time spent in mitigating damages. Kersten v. H.C. Prange Co. 186 Wis. 2d 49, 520 N.W.2d 99 (Ct. App. 1994).
704.29 – ANNOT.
A landlord may elect to accept the surrender of premises by a tenant, which terminates any further obligation of the tenant under the lease, but which also relieves the landlord from the obligation to apply payments from the new tenant to the former tenant’s unpaid rental obligations. CCS North Henry, LLC v. Tully, 2001 WI App 8, 240 Wis. 2d 534, 624 N.W.2d 847, 00-0546.
704.29 – ANNOT.
Whenever a landlord does not, by word or deed, accept the surrender of leased premises following a tenant’s removal, the landlord must mitigate damages by attempting to re-rent the premises. If a landlord elects to hold the tenant to the tenancy, the landlord’s re-renting the premises to another cannot, standing alone, constitute an acceptance of surrender of the premises. A landlord’s actions in dealing exclusively with a successor tenant, proposing a new long-term lease to the successor, accepting higher rent from the successor as called for in the proposed lease, and failing to communicate in any way to the tenant that she deemed him responsible for the remainder of the tenancy clearly evidenced an intent to accept the tenant’s surrender of the premises. Vander Wielen v. Van Asten, 2005 WI App 220, 287 Wis. 2d 726, 706 N.W.2d 123, 04-1788.
704.29 – ANNOT.
A landlord has an obligation to rerent when a tenant breaches a lease. Specific performance is not a proper remedy. Chi-Mil. Corp. v. W. T. Grant Co. 422 F. Supp. 46 (1976).
