Happy Friday, all!
Last weekend I was in Chicago for the Big Ten Tournament and got to see the river turned green. It was an amazing sight – particularly if you are a Spartan fan like me.
I was reviewing a recently published Court of Appeals decision that affects any real estate investor, property manager or landlord who rents out residential real estate and holds onto a security deposit.
The law provides for some procedures to follow, and penalties for failing to abide by the law.
Check out the March 7, 2019 decision of Tree Hill Properties, LLC v Perkey
Neither the Court Appeals nor the Michigan Supreme Court has ever interpreted the double penalty provision in MCL 554.613(2) until this case.
in Tree Hills Properties, LLC the Court of Appeals reversed the lower courts, holding the lower courts both misinterpreted and misapplied the double penalty provision in MCL 554.613(2).
The Landlord Tenant Relationship Act
As the Court noted, ” The Landlord Tenant Relations Act (LTRA), MCL 554.601 et seq., regulates relationships between landlords and tenants relative to rental agreements and the payment, repayment, and use of security deposits. ” See, Tree Hill Properties, at page 1.
Double Damages.
Failure of the landlord to comply fully with certain requirements concerning a tenant’s security deposit constitutes waiver of all claimed damages and makes him liable to the tenant for double the amount of the security deposit retained.
Summary of Facts:
- Plaintiff owns and manages several rental properties.
- In May of 2013, defendant signed a lease to rent one of plaintiff’s rental properties from September 1, 2013, through August 20, 2014.
- Pursuant to the lease, Defendant paid a $2,150 security deposit.
- In August of 2014, defendants signed a lease to rent the same property from August 20, 2014, through August 20, 2015.
- Defendant’s previous security deposit was transferred to the new
lease. - Defendants moved out of the rental property on or before August 20, 2015.
- Plaintiff’s agent inspected the rental property after defendants’ departure and thereafter sent defendants a letter claiming that that it was entitled to retain the entire $2,150 security deposit because of
physical damage to the rental unit, unpaid utility bills, late fees, multiple check charges, and nonsufficient fund charges. - Defendants objected to almost all of the charges that plaintiff
proposed to make against the security deposit. - On October 2, 2015, plaintiff filed in small claims court , seeking a judgment against Defendant in the amount of $2,186.55.
- The matter was transferred to district court and the parties could not agree on the late fees, the multiple check charges, and the nonsufficient fund charges, all of which totaled $1,480.
- The court held that plaintiff was not entitled to collect the late fees or the multiple check charges but was allowed to recover the nonsufficient fund charges of $90.
- The court further found that plaintiff, because it wrongfully withheld $1,390 from the security deposit, was subject to the double penalty provision of MCL 554.613(2).
- The Court entered a judgment directing plaintiff to pay defendants the $1390 and an additional $1390 penalty.
Wow. as a Landlord, the threat of potentially being penalized if, after a hearing, the Judge determines that you were not entitled to all of the security deposit withheld – that is a stiff penalty.
But is that what the law requires?
No.
According to the Court of Appeals:
- There was no dispute that plaintiff complied with the statutory notice requirements with respect to its intent to retain defendants’ security deposit.
- It is also undisputed that plaintiff filed its claim to retain defendants’ security deposit in the small claims court within the 45 day time frame required in MCL 554.613(1).
- The only disagreement was whether the lower courts erred in finding that plaintiff was liable to defendants for double the amount of the security deposit wrongfully retained.
- The Court of Appeals found that the trial court erred.
MCL 554.613(2)
According to the Court of Appeals: “The provision relied upon by the lower courts appears in subsection MCL 554.613(2), and holds a landlord liable to a tenant for double the amount of the security deposit retained if the landlord fails to “comply fully with this section.”
As the Court of Appeals held: “This” is defined as a term “used to refer to the person or thing present, nearby, or just mentioned.”
“The term “this section” is plainly self-referential and is thus read to mean that compliance with MCL 554.613 is required and that it is the noncompliance with the requirements of MCL 554.613(1) that creates the double penalty liability set forth in MCL 554.613(2).
The language is clear and unambiguous, the plain meaning of the statute reflects the legislative intent, and judicial construction is thus not permitted. See, Univ’l Underwriters Ins Group v Auto Club Ins Ass’n, 256 Mich App 541, 544; 666 NW2d 294 (2003).
The record reflects that Tree City complied with and did not violate MCL 554.613.
Accordingly, because it complied with the strictures of MCL 554.613(1), the double penalty provision prescribed in MCL 554.613(2) plainly did not and does not apply.
There are some lessons to be learned for landlords, property owners, managers, and real estate investors.
Two takeaways from this Court Decision:
1. The Double Penalty Provision Does Not Apply if Landlords Comply with MCL 554.613(1).
Providing the requisite notices to the Tenant, and commencing a legal action within 45 days. That is what is required.
2. Residential Real Estate Investment is highly regulated.
If you are a landlord leasing out “residential” property as opposed to purely commercial property (business tenant), you are under much more stringent regulations. You must comply with Federal laws, like the Fair Housing Act and state laws, like the Michigan Truth in Renting Act, and Landlord Tenant Relationship Act. Make sure you are operating lawfully.
Questions? Comments?
email: Jeshua@dwlawpc.com
Twitter: @JeshuaTLauka
Purpose Driven General Counsel 