Landlord can’t recover from breaching tenant

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“The landlord’s actions in dealing exclusively with the successor, 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 tenancy through May 31, 2001, ‘clearly evidence[d] an intent’ to accept the tenant’s surrender of the premises.” Hon. David G. Deininger Wisconsin Court of Appeals

Where a landlord charged a successor tenant higher rent, and failed to inform the original tenant, who breached the lease, that he was re-letting the premises for the tenant’s benefit, the landlord unequivocally accepted surrender of the premises, and cannot recover damages from the original tenant, the Wisconsin Court of Appeals held on Sept. 22.

Susann M. Vander Wielen (landlord) owns a commercial building in Appleton. She leased a portion of the building to Ronald E. Van Asten (tenant) for his laundry and dry cleaning business in 1991. They extended the lease in 1997 through May 31, 2000. The extension allowed for an additional extension if the parties could agree to it by Mar. 1, 2000, but no extension was agreed to before that deadline.

Instead, before the lease expired on May 31, the tenant informed the landlord that he was attempting to sell his business and did not wish to enter into another long-term extension of the lease. The tenant told the landlord that he wanted to stay only until he sold his business.

The tenant continued to occupy the space through June and July of 2000, paying the rent called for in the expired lease for those two months, which the landlord accepted without comment. When the tenant’s August rent payment was late, the landlord contacted him. The tenant informed the landlord that he had sold his business and that his successor would be paying the rent thereafter.

The landlord sent the successor a copy of the existing lease and a proposed new lease, to begin in September 2000 for a five-year term at a rent higher than the original tenant had been paying. The successor did not sign the new lease, but he did pay the landlord the higher rent specified in the proposed new lease from September 2000 through January 2001.

The successor vacated in January, and rent was not paid by the tenant or the successor for February through May 2001.

The landlord brought suit against the tenant for the unpaid rent. Outagamie County Circuit Court Judge Dennis L. Luebke agreed with the tenant that he did not become a year-to-year tenant in May 2000 and was thus not liable. In the alternative, even if a year-to-year tenancy was formed, the court held that the landlord accepted surrender of the premises and termination of the lease. The court also awarded attorney fees and costs to the tenant.

The landlord appealed, but the court of appeals affirmed, in a decision by Judge David G. Deininger. The court agreed with the landlord that a year-to-year tenancy had been formed, but agreed with the tenant and circuit court that the landlord had accepted the tenant’s surrender of the premises, and that attorney fees and costs were recoverable.

The court first agreed with the landlord that the tenant became a year-to-year tenant, liable for rent from June 2000 until May 2001.

Section 704.25(2)(a) provides, “If premises are leased for a year or longer primarily for other than private residential purposes, and the tenant holds over after expiration of the lease, the landlord may elect to hold the tenant on a year-to-year basis.”

Subsection (2)(c) elaborates: “Accept-ance of rent for any period after expiration of a lease or other conduct manifesting the landlord’s intent to allow the tenant to remain in possession after the expiration date constitutes an election by the landlord under this section unless the landlord has already commenced proceedings to remove the tenant.”

The court agreed that the plain language of the statute leads to the conclusion that the tenant became a holdover year-to-year tenant, reasoning, “The parties’ lease was of non-residential property for a term of more than one year… although the tenant informed the landlord of his intention to stay beyond May 31st only for so long as it took him to sell his business, the parties reached no agreement ‘expressly or otherwise’ concerning the tenant’s status as a holdover tenant. Thus, when the landlord, having not commenced proceedings to remove the tenant, accepted rent from him for June of 2000, that act constituted her election ‘to hold the tenant on a year-to-year basis.’”

However, the court agreed that the landlord accepted surrender of the premises.

Section 704.29(1) provides: “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, … 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.”

Subsection (4) provides that a landlord may “[r]erent[] the premises … with rent applied against the damages caused by the original tenant and in reduction of rent accruing under the original lease,” and that acceptance of rent cannot be used to “defeat the landlord’s right to recover rent and damages and do not constitute an acceptance of surrender of the premises.”

The court then looked to prior precedent addressing what constitutes acceptance of surrender, First Wisconsin Trust Co. v. L. Wiemann Co., 93 Wis. 2d 258, 286 N.W.2d 360 (1980); and CSS North Henry, LLC v. Tully, 2001 WI App 8, 240 Wis. 2d 534, 624 N.W.2d 847.

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In Wiemann, the court held that a landlord accepted surrender by selling the property after the tenant vacated it. In Tully, the court held a landlord accepted surrender by entering into a lease with another party for a term that extended beyond the term covered by the tenant’s lease.

Applying the statutes and the precedents, the court concluded that the landlord also accepted surrender in this case, reasoning, “the landlord’s actions in dealing exclusively with the successor, 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 tenancy through May 31, 2001, ‘clearly evidence[d] an intent’ to accept the tenant’s surrender of the premises.”

The court rejected the landlord’s argument that the failure to enter into a lease with the successor meant there was no acceptance, stating, “Although it is true that the landlord and the successor never entered into a lease agreement for a fixed term, the landlord permitted the successor to occupy the premises for five months and accepted the rent payments he tendered in the amount the landlord had specified. We conclude that the landlord plainly accepted the successor as her tenant, either as a month-to-month ‘periodic tenant’ or as a ‘tenant at will.’”

After upholding the award of attorney’s fees, the court affirmed.

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David Ziemer can be reached by email.