This article will discuss fees, liquidated damages, and other charges under Wisconsin tenant-landlord law.

Money Paid at the Time of Signing the Lease

When a tenant and landlord are signing the lease, the tenant is usually paying a substantial amount of money. (Note: This is different from the fees that may be charged as part of the rental application to a prospective tenant. The laws on earnest money deposits apply to fees charged before a lease is signed in addition to a credit check and background check.)

Usually, a tenant pays first month’s rent at the time of signing the lease. All other money paid at this time in addition to the first month’s rent, no matter the name, is considered a security deposit for your obligations as a tenant. It must be treated like a security deposit and refunded to you when you move out. (How do security deposits get treated when it's time to leave? That's right here.) This is because the definition of a security deposit under ATCP 134.02(11) is “the total of all payments and deposits given by a tenant to the landlord as security for the performance of the tenant's obligations, and includes all rent payments in excess of 1 month's prepaid rent.”

Fees Charged in the Lease

Once the lease has started, landlords sometimes charge fees that are covered in the lease. This may include fees for a service, rule-breaking, or an inconvenience. Here, we are talking about the fees authorized in the lease after the lease starts. These fees are not automatically illegal. However, they are not automatically allowed, either.

Late Fees and Service Fees

Late fees are explicitly allowed in tenant-landlord law. Landlords may charge late rent fees if the fee is included in the rental agreement, although landlords may not charge a fee for nonpayment of a late rent fee. ATCP 134.09(8). While the law does not include a cap on late fees, judges may frown on excessive fees. There is one case in Wisconsin where a $50 late fee was upheld (Three & One Co. v. Geilfuss, 178 Wis.2d 400, 504 N.W. 2d 393), but beyond that, there is no further guidance. Landlords should be cautious if late fees are unreasonably high.

Similar to late fees, fees for a service, such as parking or having a pet are also generally lawful if they are included in the lease.

Other Fees & Liquidated Damages

Other fees that are charged to prevent rule breaking or an inconvenience require more careful review.

A lease is a contract. A contract can include fees for breaking part of the agreement. For example, if a tenant loses their key, the landlord can include in the lease that they will charge the tenant the actual cost of getting them a new key. Contracts can also include a set fee or calculation for a fee if the cost would be difficult to predict. These are called liquidated damages.

The general rule is that liquidated damages can be included in an agreement, but the fee (1) must be a reasonable prediction of what it will take to compensate for breaking a promise in the agreement and (2) cannot be a penalty. Kernz v. J.L. French Corp., 2003 WI App 140, ¶ 30, 266 Wis.2d 124, 667 N.W.2d 751; Wassenaar v. Panos, 111 Wis. 2d 518, 521, 331 N.W.2d 357 (1983).

Fees that are unreasonable or used to punish the tenant may be invalid. This is because the purpose of liquidated damages is to set a reasonable estimate of damages for breaking the contract when those damages would be difficult to predict or calculate. The purpose is not to impose a penalty fee. Liquidated damages should not be confused with punitive damages.

Examples:

• Landlord charges $100 to let a tenant into their apartment when locked out. If you get locked out of your apartment during the day when the property manager can easily let you into your apartment, the cost of letting you is less than $100. But if you lose your key and locksmith needs to be called or a property manager needs to be called at night, the $100 fee may be reasonable.
• Landlord charges charging $500 as a penalty for any keg party. The damage, if any, from a keg party varies widely and could be calculated after the landlord discovers a party happened.
• Landlord charges escalating fees starting at $100 when a tenant does not pick up their dog’s poop. An escalating fee for dog poop is intended as a penalty for a tenant who continues to not pick up after their pet.

For each of these examples, the question is: Is the fee an accurate estimate of the costs to the landlord, or is it unreasonably high or intended to punish the tenant? If unreasonably high or intended to punish the tenant, it may be an invalid fee.

Steps for Tenants to Take When Dealing with Invalid Fees

If you believe you may have an invalid fee in your lease, you have options. You can contact us if you are in Dane County and have questions about what a landlord can charge.

You can write an email or letter to your landlord explaining why you believe the fee is invalid. If the landlord responds and demonstrates actual damages allowed under tenant-landlord law, you may decide to pay those.

You can also decide to sue in Small Claims Court. Or, you can contact an attorney if you need legal advice.

Steps for Landlords

Fees that try to deter tenant from engaging in certain activities may not create the result landlords are intending. For example, a $500 fee for keg parties might fail to deter that activity if the tenant decides to just pay the fee and still have the party. If the tenant pays the fee, there is no lease violation.

An alternative is a clause in the lease restricting the activity you wish to discourage (along the lines of: “no keg parties”). You could add that those who throw keg parties will be charged for damages caused by the party (which is allowable even without that language). This allows a landlord to issue a notice of lease violation for the behavior they don't like and still charge for damages caused by those activities.

Another Rule of Contracts

In the rental context, the landlord decides on the terms of and prepares the rental agreement. They present the agreement for the tenant to accept or reject. Generally, there is no negotiation about the terms. In addition, there is a power difference between the landlord and tenant because the landlord holds the power in determining if an applicant can live in the home.  As a result, the principle of contra proferentem applies to residential leases.

Contra proferentem is a Latin term meaning that courts should interpret “ambiguous [contract] language ‘most strongly’ against the maker or drafter.” Moran v. Shern, 60 Wis.2d 39, 49, 208 N.W.2d 348 (1973). The rule is often applied to “aid a party whose bargaining power was less than that of the draftsperson.” 5 Corbin, Corbin on Contracts §§ 24.27, at 292 (Kniffen & Perillo ed. 1998). There are different ways to interpret the language in a lease when looking at something like fees. However, because of the legal concept of “contra proferentem,” ambiguous language may be read in a way that benefits the tenant because the landlord drafted the contract.