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Legal Matters
Best of the Legal Hotline - Selling Properties Subject to Leases
by Debbi Conrad and Tracy Rucka
The following questions were asked of the Legal Hotline about selling properties where tenants are currently living.
| Q. Listing Checklist - What information should a listing broker have the seller assemble when the property for sale has tenants? |
A.
- Copy of deed
- An inventory of the owner's personal property in the units and in the common areas
- Any rental weatherization documentation
- Any property management agreements
- Copies of all leases, check in-check out forms, rental disclosure forms, rental application forms, information about verbal rental agreements, the amounts of security deposits, any late or outstanding rents, utility payment prorations, etc.
- LBP documentation
- Tenant requests for repairs, building inspector work orders, contractor paperwork, etc.
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| Q. Forms - What type of listing contract should be used to list an eight-unit apartment? What offer to purchase form should be used? |
| A. There is no right or wrong answer. It is a matter of the licensee's judgment as to what form best fits the individual circumstances. A licensee should use the DRL-approved form best matches the transaction with the fewest number of changes or modifications. Some licensees use the residential forms for this kind of property while others use commercial forms.
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| Q. Forms - What additional forms are available for rental property transactions? |
| A. The WRA developed Addendum R and the Assignment of Leases and Security Deposits for rental transactions. Addendum R addresses issues such as inventories, security deposits, liability, defaulting tenants, evictions, etc. The Assignment of Leases and Security Deposits was designed to be used at closing to aid in the assignment of leases, security deposits, and rents from the seller to the buyer and provides indemnification for the parties and their respective actions.
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| Q. Disclosures - An owner has never lived in the property or even been inside the property listed by Broker A, so he is refusing to fill out a real estate condition report (RECR). Broker A noted cracks in the basement when she toured the property. The tenant told Broker A that the roof leaks in one of the bedrooms, the basement has been wet in the past, and these items had been reported to professional management company that manages the property. If the owner has second-hand information from the manager, does that make him aware of the leaking roof and wet basement? Should he disclose this in the RECR? What are Broker A's disclosure responsibilities? |
| A. There is no exemption from the Chapter 709 seller disclosure law based solely on the fact that the owner does not live in the property for sale. Regardless of whether the owner lives on the property, the owner may be aware of defects that must be included in the RECR. The owner apparently has notice or knowledge from the property management company and the tenants. The owner does not have to see a defect first-hand in order to have knowledge or notice.
A non-occupying seller can either (a) complete the RECR to the best of his or her knowledge, (b) retain a professional to provide an inspection report to be used as the basis for completing the RECR, (c) refuse to complete the RECR and sell "as is", risking buyer rescission, or (d) refuse to complete the RECR and sell "as is", refusing to accept any offers from buyers who do not waive their Chapter 709 rescission rights.
To the extent that the owner does not disclose any material adverse facts, Broker A must disclose her property condition observations (cracks in the basement) and information learned from the tenant (roof leaks) in writing to all parties (see the disclosure form in
Legal Update 02.12).
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| Q. Disclosures - Re: LBP laws for multi-family properties. Broker C has a two-family property listed by a personal representative for an estate. This property has not been used as a two-family property, but it can be used for that purpose. The building was built before 1978 and has extensive peeling paint on the windows and the exterior of the garage. The personal representative has not lived in the property for over 30 years. How to proceed? |
| A. Because this is a sale of residential property, an Addendum S for LBP disclosures and the EPA pamphlet, Protect Your Family From Lead in Your Home, must be provided to potential purchasers. The duty of landlords to test for LBP, per the recent
Antwaun A. case, would not impact the current owner because there are no tenants at this time. The agent who works with the buyer, however, may share this information with the buyer. Broker C should proceed as she would with any sale of a pre-1978 residential property - she should disclose the peeling paint if the personal representative does not disclose it on the Addendum S.
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| Q. Disclosures - May the property manager of a rental property fill out the seller's LBP disclosures and otherwise take the steps necessary to comply with the LBP disclosure law? |
| A. A seller may authorize an agent, such as a property manager, to fulfill the seller's disclosure responsibilities under the federal LBP law. This includes providing any information known to the seller or agent about LBP on the premises, and the execution of the LBP disclosure form. In other words, a property manager can complete a LBP disclosure form such as an Addendum S for the owner, provided that the property manager is properly authorized. For the protection of the property manager, such authority is best given in writing such as in the property management agreement.
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| Q. Disclosures - Does the listing agent have a duty to disclose that a tenant of the listed duplex has a history of late payments? The tenant has told the agent that he has lost his job. Is the agent required to tell buyers? |
| A. Wisconsin courts have indicated that problematic tenant payment history may be a material adverse fact in the sale of an income property. See the summary of the Kailin v. Armstrong case, 2002 WI App 70, in
Legal Update 03.01.
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| Q. Tenant Rights - Broker K has an income property for sale. Does the new owner have to honor the tenants' existing leases after the property is sold? What happens if the new owner wants to occupy one of the leased units? |
| A. Wis. Stat. § 704.09 requires that the buyer take ownership of the property subject to tenant's rights. The tenants have the right to remain in possession of the premises according to the terms of their leases. Neither the owner or the buyer can unilaterally terminate the leases, but the owner or the buyer may negotiate with the tenants to change their lease terms. A buyer requiring occupancy at closing may draft the offer contingent upon the seller successfully negotiating with the tenant to amend the lease term so that it will end prior to closing.
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| Q. Tenant Rights - Entry for Showings. When Broker F shows the duplex he has listed, the tenant follows him and the buyers around and complains. Can Broker F or the seller tell the tenants that they can't be present during showings? What are the tenant's rights in this situation? Can the tenants refuse access for showings? How much time is necessary to give the tenant notice? |
| A. Landlords and their agents have limited rights to enter residential rental units. Wis. Stat. § 704.05(2) establishes the tenant's "right to exclusive possession of the premises." If the landlords give advance notice of entry, they may inspect the premises, make repairs, or show the property to prospective tenants or purchasers at reasonable times. In the City of Madison and City of Fitchburg, landlords must give notice of entry at least 24 hours in advance. In those communities without applicable local ordinances, landlords must give notice of entry at least 12 hours in advance per Wis. Adm. Code § ATCP 134.09(2). The notice may be verbal or written, but it is prudent to give tenants written notice and keep a copy of all entry notices on file.
Early morning and late evening entry arguably is not reasonable, but entry during normal business hours-8 a.m. to 5 p.m.-should usually be acceptable. It may be best for the landlord and the tenant to try to agree upon a mutually acceptable entry time.
Advance notice is not required if the tenant requests or consents to a proposed entry at a specified time, a health or safety emergency exists, the tenant is absent and the landlord reasonably believes that entry is necessary to protect the premises from damage, or entry is authorized in writing in NONSTANDARD RENTAL PROVISIONS. No landlord may enter a dwelling without first announcing his or her presence (by knocking or ringing the doorbell) and identifying himself or herself to anyone present in the dwelling.
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| Q. Issues at Closing - Broker X had a transaction that closed at the end of April. The sellers were renting the home that the buyers were going to occupy. The renters will not move out of the house even though the seller has given them an eviction notice. What recourse does the buyer have? How to proceed? |
| A. The buyer should proceed with the eviction process to remove tenants from the premises. After giving written notice to the tenants, the buyers may have to go to small claims court and file an eviction lawsuit. If the tenants still do not vacate and the court orders the eviction, the buyers will need to work with the county sheriff to remove the tenants pursuant to a writ of restitution. During this time, the buyer should not accept any rent from the tenants because this may reestablish the tenants' rights for occupancy and possession of the premises. The buyer may seek the assistance of his attorney with this process, which is set forth in Wis. Stat. §§ 799.40-.45. The seller may be sued for the damages resulting from the seller's failure to deliver possession of the premises at closing.
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| Q. Issues at Closing - An eight-unit apartment building that is about 20 years old is being sold. Is a rental weatherization inspection required? If not, what is the correct exclusion for the Wisconsin transfer return? |
| A. The code only applies to residential property when its ownership is being transferred and when its use after the sale will be rental. Because the building was built prior to April 15, 1976, contains more than two dwelling units, and will used as rental units after the transfer, it will be subject to the Department of Commerce Rental Unit Energy Efficiency Standards (rental weatherization). If the property previously received a certificate of compliance that was recorded with the register of deeds, the seller does not need to have the property certified again and may enter energy code W-12 on the transfer return.
If the property has not received a certificate of compliance, the parties must negotiate to determine who will be responsible for compliance. The parties may agree that the buyer will bring the property into compliance after the transfer, in which case there needs to be a stipulation provided at the time of closing. § Comm 67.08(4) requires that new owners acquiring property subject to a stipulation must bring the rental unit into compliance and receive a certificate of compliance no later than one year after the date of transfer.
The Department of Commerce Rental Weatherization office may be reached at
608-267-2240 for additional information see their website.
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FTC Accelerates Consumer Registration Schedule for National "Do Not Call" List
by Debbi Conrad
The Federal Trade Commission announced in June that telephone registration for the national "do not call" registry will be accelerated, and will be available to all consumers in July. Instead of using a region-by-region schedule over eight weeks as originally anticipated, registration by telephone will open for consumers in states west of the Mississippi River on July 1. Telephone registration will be available one week later for the rest of the country, including Wisconsin. Online registration will be available nationwide around July 1, as originally planned.
In September, telemarketers and other sellers will have access to the registry and will need to remove all telephone numbers on the registry from their call lists at least once every 90 days. In October, the FTC will start to enforce the national "do not call" provisions of the Amended Telemarketing Sales Rule (TSR). Violators are subject to a fine of up to $11,000 per violation. The TSR covers only telemarketing across state lines.
For additional information about the federal TSR, review Legal Update 03.03, or go to the
REALTORŪ Resource page for telemarketing solicitation rules and the no call list.
Questions regarding the amended TSR also may be forwarded to the FTC at
tsrquestions@ftc.gov, or called in to (202) 326-3737, and a FTC staff member will respond within one-to-two business days.
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