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Landlord Case Analysis

The decision is unsound both on public policy grounds, and because it is contrary to the precedent and statutes.

It is noteworthy that, since CSS North Henry, LLC, v. Tully, 2001 WI App 8, 240 Wis.2d 534, 624 N.W.2d 847 was decided almost five years ago, the case at bar is the first court of appeals case to cite it.

The reason is simple: Tully created a bright-line rule that everybody could easily understand — if the landlord enters into a lease with another party that extends beyond the term of the tenant’s lease, then he has accepted the tenant’s surrender of the property.

It is a simple rule that attorneys and lower courts can easily follow, and was the understanding of the landlord’s attorney. The court wrote, "The landlord points out, however, that her counsel informed the tenant …that the landlord had ‘offered [the successor] a lease, but he refused to sign it. Had he signed a new lease with us, [the landlord] would have released you from your existing lease.’"

Until this decision came down, anyone reading this sentence would agree that the landlord’s attorney understood the law perfectly.

If this case is published as recommended, and not reversed by the Supreme Court, such certainty is gone; neither a landlord nor his attorney has any way to determine what constitutes acceptance of surrender.

The court lists three different acts that, together, constitute acceptance: drafting a lease that extends beyond the original lease term (even if it was never signed); accepting rent higher than the tenant was paying; and failing to notify the tenant that he was still considered responsible under the lease. These three things, in the court’s view "clearly evidenced an intent" to accept surrender.

Suppose one of these factors is missing in the next case that arises. Will acceptance of surrender still be clearly evinced? What other "actions in dealing exclusively with the successor" will show intent to accept surrender, if some of the three factors in this case are missing?

Unlike Tully, which provided a bright-line rule as to what constitutes acceptance, it should be expected that the case at bar will generate litigation, and parties will not be able to arrange their affairs with confidence as to the consequences of their actions.

The decision is also contrary to precedent.

The court wrote as follows: "A landlord’s options are to ‘accept the tenant’s surrender’ or to notify the tenant that it is re-entering and re-letting … for the tenant’s benefit.’ (emphasis added by court)(citing Tully, at par. 11)."

The court is correct that it did so state in Tully. The court there wrote as follows: "Once the premises have been returned to the landlord before the expiration of the lease, a landlord may either: (1) accept the tenant’s surrender and re-enter the premises to re-let them for the landlord’s own account, thereby releasing the tenant from any further liability for rent, or (2) notify the tenant that it is re-entering and re-letting the premises for the tenant’s benefit and therefore the monies received from the successor tenancy will be fully credited to the initial tenant’s obligation under the lease. See Kersten v. H.C. Prange Co., 186 Wis.2d 49, 53, 520 N.W.2d 99, 101 (Ct.App.1994); First Wis. Trust Co. v. L. Wiemann Co., 93 Wis.2d 258, 271 286 N.W.2d 360, 366 (1980).

However, when one looks at the Wiemann decision, it immediately becomes apparent that the court in Tully misstated the law. The Supreme Court there wrote, "when a tenant vacates or abandons the leased premises before the end of the lease term, the landlord has a right to elect (1) to accept the surrender and terminate the lease or (2) to enter and take possession for the purpose of mitigating the damages for which the tenant is liable because of his breach of the lease." Wiemann, 286 N.W.2d at 366.

As can be seen, the words that the court of appeals in the case at bar emphasizes —"notify the tenant" —are conspicuously absent from the Supreme Court’s statement of the law in Wiemann. The court of appeals added them without authority in Tully, a case in which the relevance of notice was not at issue, and now, in the case at bar, the court of appeals has attached great import to them, although they are nowhere to be found in Wiemann.

Furthermore, it is not logical to give importance to notice. Without question, if a landlord gives a notice to a tenant, saying, "I have chosen to do X," then that is an unequivocal act. Inaction, on the other hand, is the ultimate expression of indecision.

The fact that the landlord received a higher rent from the successor than the tenant is also irrelevant, because the landlord has a duty to get the highest rent that he can if he does not accept surrender.

Suppose the following: the tenant’s rent was $1,000 per month; by the time the tenant abandoned the property, the market rate for similar property was $2,000 per month; the property was vacant one month. If the landlord found a successor, and charged him only $1,000, for the tenant’s benefit, and then sought $1,000 in damages from the tenant, for the one month the property was vacant, the tenant would have a convincing argument that the landlord failed to mitigate damages by not charging fair market value.

Charging a higher rent from the successor is thus something that is a benefit to the tenant, if the landlord declines to accept surrender, not just to the landlord; if the landlord accepts surrender, then the rent he charges the successor is irrelevant to the tenant.

Therefore, this fact is not an indicia of acceptance, as the court found it was, but can reasonably considered a required act of mitigation. Section 407.29(4)(d) expressly provides that an act that is reasonably subject to being in mitigation of rent or damages does not defeat the landlord’s right to recover rent and damages. Collecting a higher rent mitigates the tenant’s damages, and thus, is not acceptance of surrender.

The fact that the landlord drafted a (never-signed) lease is also irrelevant. Signing a lease that extends beyond the term of the tenant’s lease was held an unequivocal act of acceptance in Tully. Un
successfully negotiating a lease is not a comparably unequivocal act.

Finally, the court’s decision is flatly contradictory to sec. 704.29(4)(b).

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Landlord can’t recover from breaching tenant

The court refers to the statute, and quotes from it, as follows: "The landlord further relies on sec. 704.29(4), which 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. Section 704.29(4)(b)."

The full text of the statute, however, is as follows: "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: … (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 (emphasis added)."

The statutory language, "with or without notice" —inexplicably substituted by ellipses in the opinion —makes clear that a landlord’s failure to give notice to the tenant cannot be used to defeat his right to recover damages from the tenant.

Thus, the court’s opinion is contrary to the applicable statutes, inconsistent with Supreme Court precedent, and is flawed on public policy grounds. Attorneys for landlords should vigorously contest any use of this decision in future cases, and preserve challenges to it for potential review in the Supreme Court.

– David Ziemer

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David Ziemer can be reached by email.

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