A Coupla Contract Law Issues - Tenant Resource Center



A Coupla Contract Law Issues

A while back, a tenant brought in a lease saying that if they had a keg party in their home, that they would be fined $500. Now, it makes sense to us why a landlord might want to discourage keggers, (there are actually more effective ways to do so), but this taps into a complex contract law issue: this kind of charge isn't really legal. It's called liquidated damages.

We are in a season where folks are finding unexpected things on their list of security deposit deductions, but this sort of thing can happen year-round. Below, we dive into 2 hand-slappy no-nos, where landlords aren't allowed to charge in the way they think they might be able to. For the folks who read on, tenants will learn to read into parts of your lease that aren't really legal, and landlords will learn more effective ways to get what is reasonable.

1. Liquidated damages: Wikipedia offers a definition of liquidated damages here, but to paraphrase, it's a situation where a landlord is charging a fine for non-compliance with a lease. Generally, this is not allowed. In the example above, it's quite possible, if, say, the tenant in question were a professional beer-brewer, that a keg party would not incur $500 worth of damages. Perhaps the tenants would be standing around, debating the merits (or lack thereof) of the classic shaker pint, rather than causing $500 worth of damage, so an automatic charge would have no bearing to the actual amount of monetary damages.

If someone disputed the charge (maybe it ended up on a list of security deposit deductions?), the courts would look at the following to determine if something like a $500 keg party fine would be appropriate:

  1. Did the landlord mean for the $500 to cover damages or to be an automatic penalty? (Fine meant to cover damages: fine is okay. Fine is an automatic penalty: fine is not okay)
  2. Is the amount of damages hard to guess ahead of time? (If so, it might make it so that it's okay to put the fine in the lease, as long as actual monetary damages are what would be charged)
  3. Is $500 a reasonable amount of damages that is often caused by keg parties? Or is the fine itself meant to make people choose not to have such a party? (If $500 is a reasonable amount for damages in these situations: fine is okay. If $500 penalty is meant to get people to not even try it = fine is not okay)

Judges are required to look at both the harm anticipated at the time of signing the contract and the actual harm at the time of breach.

It's not just keg parties: Please insert your own situation into these questions - this could be about fines for not mowing the lawn, fines for not shoveling snow, fines for being too loud, fines for having too many guests... etc. A common example we see is one in which the landlord charges $50 to let you in the first time you get locked out of the apartment, $100 the second time, $300 the third time. It's clearly not getting that much more expensive each time, so the motivation must be punitive, and therefore, not okay.

For Tenants: if you are charged for something like this, whether it's during the course of your lease, or showing up on a bill afterwards, what you need to focus on are the actual damages. If you can figure out what it would have actually cost the landlord to resolve the situation (by repairs, mowing the lawn, etc), that's what you should focus on. Write a letter, and if you can't resolve it directly, be prepared to argue your case in small claims court.

For Landlords: Fees seem like an easy way to resolve things, but they're pretty tricky to enforce. Say the person was perfectly content to pay damages each time, and kept throwing keg parties? You wouldn't have any further recourse. So, we recommend a 2-prong approach for landlords: 1. Make sure to put whatever rules you're hoping to enforce in the lease (so that you can give a 5-day notice if it's violated, and with repeated violations, go through the eviction process), and 2. Make sure to add to the lease and to the Nonstandard Rental Provision, that you charge for damages that you experience as a result of the lease violation (more points if you are upfront about those costs on the lease).

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2. Depreciation

An example: A tenant comes in, because they were charged for their carpet being replaced on their list of security deposit deductions. The problem is, the carpet was really old. It might be that they did some damage, but why should they be charged for the entire life of the carpet when many previous renters did damage before them?

What we recommend is that landlords charge (and tenants ask to be charged) for the amount of life lost on the carpet. So, for example, if the carpet was 20 years old, and was expected to make it for only 15 years, then it wouldn't make sense for the tenant to be charged - it probably wouldn't have mattered how well that carpet was cared for, because the landlord really wouldn't have gotten any further life out of it.

If, however:

  • the tenant did damage the carpet, 
  • the carpet was only 5 years old when the tenant left, and
  • the carpet would have made it typically for about 12 years, then the tenant could be charged for about 7 years lost, or about 58% of the life lost on the carpet due to those damages. (How come, you ask? 7 years lost, out of 12 years total expected leads to 7/12ths, or 58%, of the life of the carpet that was lost due to the actions of the tenant).

The Logic: According to ATCP 134.06(3)(a)1., when looking at damages that can be taken from the tenant's security deposit, the tenant can only be charged for damages that occurred due to the tenant or the tenant's guests or invitees. Additionally, ATCP 134.08(6)(b) says that a tenant cannot be charged for "Property damage caused by... persons other than the tenant or the tenant's guests or invitees." If a tenant is being charged for the whole life of the carpet, it seems clear that they are being charged for the damaged done by previous tenants, who are "persons other than the tenant or the tenant's guests or invitees."

For Tenants: If you are being charged for the entire cost of the carpet replacement, here are some steps we suggest you take.

  1. Research: call the (preferably original) carpet installer and ask about the projected life of the carpet that was in your unit, and when it was installed. If possible, get it in writing. If that's not possible, make guesses as well as you can by calling other carpet installers, and using information you may have about when the carpeting was installed.
  2. Write a letter: If you damaged the carpet, and wish to be charged for the life lost (the "depreciation"), write a letter and explain what you think would be a fair amount and what laws support that. Some tools to help you write a letter are here. 
  3. Take further action: If your letter doesn't work (and you should send it even if you think it won't), then you can make a complaint to the Department of Agriculture, Trade and Consumer Protection (who take some steps to enforce and mediate ATCP 134), or sue the your landlord in small claims court for double the amount wrongfully withheld. Small Claims Court tips are here.

For Landlords: 

  • Keep records about your carpet installation - the dates and the projected life of that carpet. It helps to have it up front.
  • Have some record of the state of the carpet before the tenant moves in. Photos are a great way to make this happen, but keeping a history of check-in and check-out sheets, and security deposit deductions for each unit also help.
  • Charge for life lost on the carpet: if the tenant does damage the carpet in a rental unit, and it does need to be replaced, charge by the percentage of life that was lost based on the projected life of the carpet. It will make it so you don't open yourself up to lawsuits for "double the amount wrongfully withheld." 

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Hi! Did you know that we aren't attorneys here at the TRC? And this isn't legal advice, either. If what we've written doesn't sound right to you, consult with someone you trust. A list of housing attorneys is available here

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