For both new and experienced rental property owners, navigating the complexities of real estate lease agreements can be challenging, and even seasoned professionals can make mistakes. Some of these mistakes can be painfully expensive as was recently demonstrated in a Wisconsin real estate court ruling.

In Koble Investments v. Marquardt, it’s mind numbing from the rental property owner’s perspective how a court could rule so harshly and against what many may consider common sense and fairness.

Regardless, this is the current state of affairs and if you want to successfully offer rental property, you best put aside fairness and equity, and play defense or pay the price as Koble Investments clearly did.

In Koble Investments v. Marquardt, Marquardt argued, and was successful, in not only having the entire lease agreement voided, albeit also received DOUBLE the rent paid to Koble Investments as damages in the suit. There are times where damages are appropriate and most will agree the outcome was just, however, in the case at hand, the plaintiff, Marquardt suffered NO ACTUAL damages and their legal theory was the landlord simply had language in the lease agreement that is not permitted.

That was it, nothing else besides impermissible lease agreement language, and it resulted in the rental property owner having to refund double the amount of rent. So the tenant in this case not only was able to live and use the property for free, they received (again) double the rental amount paid as damages.

Because the rental agreement was voided, the tenant received their rental payments in return, and then as a pecuniary loss, the same amount was awarded to the renter. To add salt to the wound, the rental property owner had to also pay for the renter’s (plaintiff’s) court costs and attorney fees (at least at the appeals level).

What was the prohibited language used? As described below, it was number 10 of the “deadly sins” of lease language. It was the ABSENCE of notice and language in the lease agreement, namely “Notice of Domestic Abuse Protections” required by Wis. Statute § 704.14.

The takeaway is that even if the tenant doesn’t suffer a loss or actual damages for a lease violation, under Wisconsin law, it doesn’t matter, the tenant can get paid, and paid well, if the landlord fails to comply with the requirements.

As a rental property owner, you may think your lease is fine if you bought a “standard lease” from a big box store, such as Office Depot and akin, albeit you may be very very wrong. Also, if you drafted your own lease (cut and paste off the internet is not your friend), which many rental owners do, or had one drafted years ago by an attorney, prior to recent statute changes you’re on solid ground, albeit again, you may be very painfully and financially wrong.

Henchey v. Wausau Landmark Corp

Take another relatively recent case (at the time of this writing) in which the rental property owner found out how wrong they were. In Henchey v. Wausau Landmark Corp (Appeal No. 21AP1684) decided on May 2, 2023. It’s VERY important to note, Henchey is not a published opinion, and is not precedent, albeit rental owners should view it as highly persuasive and ensure compliance in their rental agreements.

The Court of Appeals in this dispute held the lease which contains common lease language prohibiting tenants from engaging in illegal activity on the premises or permitting the premises to be used for an unlawful purpose as well as prohibiting tenants from making excessive noise or engaging in activities that would unduly disturb other tenants or neighbors, allowed the landlord to evict a tenant based on the commission of a crime. MANY rental agreements contain similar language.

That language in the lease violated the “9th Deadly Sin” in § 704.44(9). The unlawful purpose provision of the rental agreement would permit the landlord to terminate a tenancy if a tenant made use of the premises for an unlawful purpose or permitted another to make use of the premises for an unlawful purpose even if a person who lawfully resided with the tenant was a victim of that crime. Thus, the court found the lease violated § 704.44(9).

The Appeals Court opinion states the remedy is that the landlord has to refund all of the rent received during the course of the tenancy without offset for the value of living in the apartment rent-free.

What should rental property owners have or not have in their lease?

Here are the 10 Deadly Sins for a Wisconsin residential lease agreement:

§ 704.44 prohibits the following provisions

You can not include language in your Wisconsin residential lease agreement that includes:

1. Allows a landlord to do any of the following because the tenant has contacted an entity for law enforcement services, health services, or safety services:

a. Increase the rental amount

b. Decrease services provided to tenant

c. Bring an action for possession of the premises (i.e. eviction lawsuit)

d. Refuse to renew a rental agreement

e. Threaten to take any action described above.

This prohibition is pretty self-explanatory and really should be common sense as a property owner. “self-help” and retaliation (or what may be viewed as retaliatory action) is not permitted. You cannot have a rental agreement provision that allows a landlord to retaliate against a residential tenant just because the tenant has contacted law enforcement or a regulatory agency, to complain about something that the property owner did (when the owner should not have) or something the landlord did not do (when the owner should have).

2. Authorizes the property owner to evict the tenant using a means other than by the judicial eviction process as required by Wisconsin Statutes.

The property owner cannot put any language in the rental agreement that states that if the tenant refuses to vacate the property at the end of a lease, or after committing a breach of the lease agreement, that the landlord is able to then conduct a ‘self-help’ eviction. This includes, albeit not limited to having a lease agreement with language such as:

The property owner (or manager) can change the locks, causing the tenant to be locked out.

The property owner can remove the door to the rental.

The owner can turn off the heat or electricity to the rental.

The landlord can remove the tenant’s personal property and put them on the curb or in a storage facility.

In other words, including an actual ‘self-help’ eviction, the property owner may not have lease language that would allow the landlord to “constructively evict” the tenant neither.

It should be noted, generally, the only option available for a rental property owner if a tenant refuses to leave the property, is to file an eviction action against them in the appropriate court, obtain a judgment of eviction, and if necessary involve the Sheriff’s Department to physically remove the tenant.  That is the only way a property owner should evict to ensure it is done legally.

3. Acceleration of rent payments if the tenant defaults or breaches the rental agreement or otherwise waives the landlord’s obligation to mitigate damages as required under Wis. § 704.29

Acceleration of Rents clauses are permitted in commercial lease agreements, albeit the same are prohibited in residential leases. If a tenant breaches their rental agreement the property owner cannot require the tenant immediately pay all future rent through the end of the lease term.

Furthermore, under Wis. § 704.29 the property owner has a duty to mitigate the owner’s and tenant’s damages by attempting to re-rent the unit. If successful in re-renting the rental, the former tenant will no longer be responsible for the future rent once the new tenant moves in and begins paying (although, if unable to rent at the same amount, it’s possible the former tenant may still have some liability).

If the owner is unable to find a new renter then the previous breaching tenant will be responsible for all of the rent through the end of the lease agreement. Regardless, since the owner is not able to determine if that will be the case at the time the first tenant violates the lease agreement, the owner cannot include language in the lease that the tenant must pay all future rent immediately upon a breach.

It is not only illegal for a landlord to avoid their duty to mitigate the breaching tenant’s damages (i.e. make effort to re-rent the unit) by putting such language in the rental agreement, the owner has a requirement/duty to attempt to rent the property.

4. Requirements the tenant must pay the landlord’s attorney’s fees or costs that are incurred in any legal action or dispute arising under the rental agreement.

This is the illegal provision that is often placed in residential lease agreements. Be very careful regarding standard lease agreements from Office Depot contain this prohibited language. This is also the same prohibited language in a Wisconsin Supreme Court case of  Baierl v. McTaggart. In this case, again, the tenant was awarded the entire amount paid in rent.

As a rental owner, unlike residential leases, you are permitted to have reasonable legal expense terms in your commercial lease.

5. The landlord is authorized to confess judgment against the tenant in any action arising under the rental lease.

Unlike some other states, Wisconsin residential rental agreements are not permitted to include language authorizing the landlord to automatically take a judgment against the renter and the tenant has no right to defend against such action by the owner.

6. Transfers the owner’s liability for damage or personal injuries as a result of the owner’s negligence.

If the owner or an agent of the owner (ie manager) causes damage or injury to a renter, then the landlord will be responsible for it, and the owner cannot require the renter to assume the risk and liability of the owner. An owner cannot remove their liability in a rental agreement from the renter waiving the owner’s responsibility.This is especially important regarding needed repairs or updates the owner should perform on the property. Any language in the lease that attempts to transfer such liability will be considered void (along with the rest of the lease agreement).

7. Attempts to transfer liability on the renter for any of the following:

(a) Personal injury arising from causes clearly beyond the tenant’s control.

(b) Property damage caused by natural disasters or by persons other than the tenant’s the tenant’s guests or invitees.

Lease agreements cannot have language transferring liability to a renter for personal injuries that were caused by something beyond a tenant’s control. While the renter remains responsible for their own conduct, they are not responsible for faulty repair work performed by others or the weather. That said, if the renter has a responsibility to clear the sidewalk, and they fail to do so in a timely manner, renter may have liability. However, the tenant is not responsible for things outside their control, or beyond the reasonable lease requirements.

8. Waives the legal requirements that the owner deliver and maintain the property in a habitable condition.

A rental property owner has a responsibility and legal duty to provide a renter with an rental property that is habitable and reasonably safe. An owner additionally has the responsibility and legal duty to repair and maintain the rental property to insure that it remains safe and livable during the lease agreement. A landlord cannot require the renter to waive this responsibility and legal duty even if the tenant is willing to allow and or waive the habitable condition requirements.

9. Permitting the owner to terminate the tenancy and lease agreement based solely on the commission of a crime in or on the rental property, EVEN if the tenant, or someone who lawfully resides with the tenant, is a victim of that crime.

It’s important to note the difference between allowing a renter to commit crimes, and not allowing the renter to be the victim of a crime. While an owner is allowed to prohibit crimes on the property by the renter (or their guests and invitees), the property owner is not allowed to evict and/or terminate a rental agreement simply because any crime occurred on the property.

10. Permitting the owner to terminate the tenancy and lease agreement for a crime committed in relation to the rental property and the lease agreement does not include the notice of domestic violence protections as required under Wis. § 704.14

Many, if not all lease agreements contain language along the lines of “Tenant shall not engage in or allow others to engage in any criminal activity on the property.”It is good practice by the rental owner to have such language, albeit it’s not complete under Wis. § 704.29 unless additional language is included. Under Wis. § 704.14 if you have a crime committed clause in your rental agreement, you must have, and it must be exact (no summary to replace the actual required language).

A rental owner that has failed to include the domestic abuse protections language will face their rental agreement as voided if the lease also includes language allowing the owner to terminate the lease and evict if the tenant or their guest have engaged in criminal activity.

Make double sure that your rental agreement contains the mandatory notice of domestic abuse protections as required in Wis. § 704.14

Failure to comply with any of the above Wisconsin “deadly sins of a lease agreement” may result in financial ruin, or at least more pain than most rental owners wish to bear.