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Wisconsin REALTORŪ
September 2001
Volume 17, Number 12
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Legal Matters |
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Landlord Discriminates Based Upon Perceived Disability
In the case of Kitten v. State of Wisconsin Department of Workforce Development (Ct. App. 2001, No. 00-3562), the landlord sought to apply different rent payment terms and conditions for the rental of an apartment because he perceived an eating order disability in the tenant, in violation of Wis. Stat. § 106.50. The landlord claimed any differences were due to concerns with the applicant's financial situation.
Wis. Stat. § 106.50 defines "disability" as "a physical or mental impairment that substantially limits one or more major life activities, a record of having such an impairment or being regarded as having such an impairment." A "major life activity" is defined as "self-care, walking, seeing, hearing, speaking, breathing, learning, performing manual tasks or being able to be gainfully employed."
The findings of fact made by the Wisconsin Department of Workforce Development (DWD) hearing examiner indicated that the tenant applicant (hereinafter TA) called the landlord to ask about an advertised apartment for rent. The landlord told TA that he must have a pretty good job to be able to afford $925 per month for rent. TA told the landlord that he was not working, but did have a financial statement and a letter from his banker guaranteeing his income.
After viewing the apartment, TA told the landlord that he wanted it. TA gave the landlord a copy of a Merrill Lynch account statement showing a $40,446 total balance in Merrill Lynch accounts, and a letter on Merrill Lynch stationery explaining that TA received $3000 per month after taxes.
While the landlord was writing up the lease agreement, he asked TA where he lived. TA eventually admitted that he was living at a hospital and being treated for an eating disorder. The landlord asked for a deposit of one month's rent in advance and $1000 for a security deposit. TA signed the lease and gave the landlord a check for $1925. TA knew that the landlord would run a credit check on him before he would sign the lease.
TA's credit history was brief, but good. The landlord cashed TA's check. When TA asked the landlord why he had not sent him a copy of the lease, the landlord told TA that he was concerned that he might not get his rent money because TA might go back into the hospital. He feared that TA would pay the hospital first and that the landlord would not be able to get his rent money. He wanted TA to pay six months' rent in advance. TA was afraid that if he did not agree then the landlord would not rent to him.
The landlord later requested to speak to TA's doctor, restating his concern that TA would have a relapse and go back into the hospital. TA told the landlord that he would have his doctor call the landlord, but also disclosed his doctor's name. The next day, the landlord called TA's doctor's office without TA's permission or knowledge. TA refused to grant the doctor permission to discuss his medical condition with the landlord.
When the landlord faxed a copy of the lease that TA had signed, the lease agreement still did not have the landlord's signature on it. TA called the landlord and told him that he would not pay six months' rent in advance and that the landlord did not have TA's permission to speak to his doctor. The landlord insisted that it was his right to inquire about TA's medical condition because the landlord had concerns and needed to protect the tenants in the other units. The landlord was concerned that TA's condition involved depression and described a hypothetical suicide attempt with TA's car running in a closed garage - the landlord was concerned that such a situation would damage the rental unit because of the exhaust fumes.
The landlord told TA that since TA had signed the lease, he had agreed to pay the rent, but since the landlord had not signed the lease, he was not obliged to let TA rent the apartment. TA insisted that since the landlord had cashed his check that the landlord had to abide by the original lease terms. TA told the landlord that if he wanted more financial information, he should talk to TA's financial advisor, who was TA's father. He gave the landlord his parents' home telephone number so the landlord could contact his father.
The landlord called TA's parents and talked to his mother. She agreed that she and her husband would co-sign the lease in case there was a need for TA to return to the hospital. The next time they talked, the landlord told TA that his mother had said that he should "choose his poison" between paying six months' rent in advance or having his parents co-sign the lease.
When TA called his mother, she denied having told the landlord that TA should "choose his poison." TA called the fair housing office that he had contacted earlier in the week. They wanted him to agree to pay six months' rent in advance to the landlord and to tape record the meeting scheduled with the landlord. However, as a result of discussions with a family attorney and with the hospital treatment staff, TA decided that he would not go through with the fair housing group's plan. Instead, TA called the landlord and told him that he would not pay six months' rent in advance, and that he would hold the landlord to the original agreement.
TA told the landlord that if he was required to pay six months' rent in advance, the deal was off, and the landlord agreed. TA asked the landlord to return his money, but the landlord refused - he planned to use the money for the October rent. The landlord raised his voice when he told TA that he did not have to return the money because TA signed the lease. TA did not get his money back, and incurred a variety of additional costs related to this situation. TA's complaint was heard by a DWD hearing examiner.
The hearing examiner found that the landlord had unlawfully discriminated against TA. When the landlord appealed this decision to the circuit court, the court affirmed the hearing examiner's decision. The landlord than appealed the circuit decision to the Wisconsin Court of Appeals.
The court of appeals concluded that there was substantial evidence to support the hearing examiner's findings of fact. The only reason the landlord requested an additional six months' advance rent, the court noted, was his fear that TA would relapse and require hospitalization. The landlord's fears and concerns about TA's eating disorder were also shown by his desire to speak to TA's doctor, and his questioning of TA and his mother about whether TA might attempt to commit suicide.
The landlord argues that even if he was concerned with the eating disorder, that condition does not rise to the level of a disability as described by law. However, there was sufficient evidence to establish that the landlord regarded TA's eating disorder as being a physical or mental impairment that substantially limited TA's ability to enjoy major life functions. He believed that TA's eating disorder would cause him to be unable to take care of himself and live on his own, would require continuing hospitalization, and would cause him to suffer from depression and attempt suicide.
The hearing examiner determined that it had not been proved that TA's eating disorder was an actual "physical or mental impairment that substantially limits one or more major life activities," or that he had any record of such an impairment. But there was sufficient evidence, however, to establish that the landlord regarded TA's eating disorder as being a physical or mental impairment that substantially limited his ability to enjoy major life functions. The court thereby affirmed the hearing examiner's finding that the landlord exacted different rental terms from TA because of a disability and not because of financial considerations.
*The decision is important because it illustrates a case of discrimination where the actor applies different terms and conditions based upon a disability that is perceived but that does not necessarily in fact exist. Wis. Stat. §106.50(1m)(g) defines a disability as "a physical or mental impairment that substantially limits one or more major life activities, a record of having such an impairment or being regarded as having such an impairment." The landlord was told of the disorder and proceeded to assume numerous dire consequences he feared might result from the disorder - and then tailored the rental terms and conditions to fit these imagined outcomes.
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Not All Restrictive Covenant Violations Created Equal
In Pietrowski v. Dufrane, (Ct. App. 2001, No. 00-2143), the plaintiff, Mary J. Pietrowski (hereinafter P), won her cause of action to enforce a restrictive covenant which she claimed prohibited her neighbors, the Dufranes (hereinafter D), from constructing a second garage on their property.
Approximately three months after D purchased a parcel of real estate consisting of a single-family residence with an attached two-and-one-half car garage, D began building a another two-and-one-half car garage on the southeast corner of their property, immediately adjacent to P's property. P informed D several times that the garage violated the restrictive covenants contained in the subdivision's Declaration of Restrictions: subdivision owners could not erect more than one family dwelling and one private garage on their land. P claimed that the construction of the additional garage violated the covenants, and D did not dispute this.
Once the garage construction was completed, P sued to enforce the restrictive covenant, asking the court to order that the garage be razed. D alleged that other property owners in the subdivision, including P, had constructed buildings on their property in addition to one single-family residence and one garage. D asserted that by violating the restrictive covenant herself, P waived her equitable right to enforce the restrictive covenant. D also claimed that numerous other violations of the subdivision's restrictive covenants demonstrated a change in the character of the neighborhood, indicating that the restrictive covenants had been abandoned.
The circuit court granted P's claim and ordered D to raze the garage. D appealed to the Wisconsin Court of Appeals.
The court observed that because "public policy favors the free and unrestricted use of property, restrictions in deeds must be strictly construed to favor unencumbered and free use of property. It is contrary to the public policy of this state to impose a restriction upon the use of land when that restriction is not imposed by express terms."
The court found that the restrictions clearly prohibit the construction of any building in addition to a single-family dwelling and a private garage. Therefore, the circuit court correctly found that the P's shed, D's garage, and the other sheds in the subdivision violated the Declaration of Restrictions.
First, the court addressed the argument that P waived the right to enforce the restrictive covenants because she failed to object to other restrictive covenant violations. Generally, "[a] property owner does not waive the right to enforce a restrictive covenant if he does not act on violations that do not affect him [or her]. It is well established that acquiescence in slight violations of a covenant does not deprive an individual lot owner of the right to enforce observance of more material restrictions."
D argued that the distinguishing factor in the present case is that P has constructed a building on her property that is in violation of the restriction she seeks to enforce. The court, however, concluded that the distinguishing factor is that P's violation, as well as the other violations in the neighborhood, were slight violations, whereas D's violation was a material, a major violation - there is a distinction between building a storage shed and building a garage large enough to store motor vehicles. "Why, then, should he be obliged to permit one neighbor to indulge in an obnoxious violation of a restrictive covenant because he has permitted another neighbor to indulge in an immaterial violation thereof?"
D also argued that enforcing the restrictive covenants leads to unjust or inequitable results because P would be allowed to maintain a violation of the restrictions on her property while enforcing the restrictions on her neighbors. The court again called upon the distinction between minor and major violations and found that P's breach was not so great as to result in her having unclean hands. Her enforcement of the restrictive covenants against D will not lead to an unjust or inequitable result - enforcement against a major violation of the restrictive covenant by a party who committed a minor violation does not result in an injustice.
D also argued that the proliferation of prohibited buildings throughout the neighborhood and the demise of the architectural control committee, which initially had been in charge of enforcing the restrictions, demonstrated an intent to abandon the restrictive covenants. The court disagreed, concluding that the main purpose of the covenants was to limit the subdivision to single-family dwellings with one garage, and prohibit multiple family dwellings and businesses. This purpose, the court reasoned, justified the distinction between slight violations of the restrictions, such as the sheds constructed by P and the other homeowners, and a material violation such as the second two and one-half car garage constructed by D. The sheds could not be used as a second dwelling or as a place of business contrary to the purpose of the restrictive covenants. However, based on the size of the building constructed by D, it could have been used for such a purpose. Nothing in the deed's language suggested that the restrictive covenants were invalid when the architectural control committee was dissolved.
This case is a reminder to those who believe that restrictive covenants can be ignored - they can indeed be enforced in court. The distinction made between minor and major violations, however, is curious and seemingly waters down the impact of restrictive covenants. It appears that it may be all right to ignore the small-item restrictions- sheds, fences, etc. - but the major restrictions, such as garage restrictions, are enforceable. This case will be published and serve as precedent unless it is appealed to the Wisconsin Supreme Court and overruled.
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Right of First Refusal Allows Matching Offer on Land
While a right of first refusal can get confused with an option to purchase, each mechanism has its own set of rules. The case of Brennan v. Gjerdingen Farms, Inc., (Ct. App. 2001, No. 00-3028), provides guidelines for the enforcement of a right of first refusal.
In 1993, Gjerdingen (hereinafter G) granted the Brennans (hereinafter B) a "first option to purchase" a parcel of about 24 acres. Although it was called an option, it really was a right of first refusal. In 1998, G listed 2,700 acres for sale, which included the 24-acres. In 1999, third-party buyers offered to purchase the entire tract for $851 per acre, and G accepted the offer.
G's real estate broker notified B of the accepted offer. B told the broker that they wanted to exercise their first option to purchase the 24 acres for the $851 per acre price offered by the buyers. The buyers then made a second offer to purchase the 24-acre parcel for $1,400 per acre. G asked whether B was willing to match that price. They declined, and the third-party buyers cancelled their offer on the smaller parcel. G sold the larger tract of land to the buyers, minus the disputed parcel. B renewed their attempt to purchase the parcel at $851 per acre, but G refused to sell it. B sued G for specific performance, and the trial court granted B's motion for summary judgment. G appealed to the Wisconsin Court of Appeals.
The Court of Appeals characterized a right of first refusal as a conditional option dependent upon the decision of the owner to sell. It is different from an option because it gives the prospective purchaser the right to buy upon specified terms only if the seller decides to sell. The seller's willingness to sell must be proved before a party can seek specific performance - it is not necessary that the seller actually sell the property.
The court noted that it was undisputed that G initially accepted the third-party buyer's offer to purchase the 24-acre parcel, along with other land, at the rate of $851 per acre. G's real estate agent notified B of the proposed sale. This evidence is sufficient to establish G's willingness to sell the land at that price. Therefore, B's response indicating their desire to exercise their first option at the same price was sufficient to trigger an enforceable contract that G could not unilaterally revoke. The court concluded that because the first option involved unique real estate adjacent to other land owned by B, specific performance was available as an equitable remedy.
* In this case there was confusion about the difference between an option and a right of first refusal. An option agreement drafted by a licensee would be on the WB-24 Option to Purchase form. In an option, the seller agrees that the prospective buyer is entitled to buy the property at an agreed upon price and within the time frame stated in the option. During this time period, the seller cannot revoke the option. The option becomes a contract only if the prospective buyer exercises the option in the manner specified in the agreement. Although the seller is bound during the option period to sell the property to the buyer, the buyer is not bound to purchase the property.
* The first right of refusal most often given in real estate transactions, like the one in the Brennan case, provides that the potential purchaser has the first right to buy the particular property upon the terms and conditions offered by another buyer. The person given the first right of refusal has the right to match the price, terms and conditions offered by the other buyer. This presumes that the terms of the offer made by the other buyer must be given to the person holding the first right of refusal so he or she can decide whether to match those terms and buy the property or let the other prospective buyer purchase the property.
* Although the opinion doesn't give many details, it sounds as if G's real estate agent did not follow the license law rules. At the time of this case, § RL 24.12 did not allow a licensee to reveal the terms and conditions of one prospective buyer's offer to purchase to any other prospective buyer or to any person with the intent that this information be disclosed to any other prospective buyer.
Since that time, this rule has been amended and § RL 24.12(2) requires any licensee in a transaction who has knowledge of a right of first refusal to disclose that fact in writing, in a timely manner, to all interested prospects - as if it were an adverse material fact. Once the disclosure has been made, an agent may deliver a copy of that prospect's offer to the person holding the right of first refusal. The requirement for timely disclosure dictates that a party must have had notice of the right of first refusal before submitting his or her offer.
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Best of the Legal Hotline
By Debbie Conrad & Tracy
Rucka
The following questions were recently asked of the Legal Hotline:
| Q. How long must an agent keep a record on file? When can a record be thrown out? |
| A. The broker must retain copies of documents and correspondence related to transactions and trust account records for three years for licensing purposes. See Wis. Admin. Code § RL 15.04. This runs from the date of the closing or the date of listing, if the transaction does not close. For tax audit and possible litigation purposes, a longer holding period of at least six years is advisable.
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| Q. Are there any special licensing or office supervision requirements for a temporary sales trailer in a condominium resort sub-division? |
| A. Pursuant to § RL 17.02(1)(a), the definition of a branch office does not include an office that is located in the immediate proximity to subdivision lots or condominium units which it has been set up to sell. Although the broker owner remains responsible for the acts of employees working at the trailer, the branch manger supervision requirements of § RL 17.10 and Wis. Stat. § 453.12(3)(b) would not apply if the sales trailer meets this exception to the definition of a branch office.
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| Re: Disclosure concerning status of offers accepted/pending on a property. |
| A. § RL 24.12 states, "(1) Except as provided in sub. (2), a licensee acting as a principal or an agent in a real estate or business opportunity transaction shall not disclose any of the terms of one prospective buyer's offer to purchase, exchange agreement, or option contract proposal to any other prospective buyer or to any person with the intent that this information be disclosed to any other prospective buyer. Licensees shall encourage all prospective buyers to submit their best offers. A licensee may, but is not required to, disclose information known by the licensee regarding the existence of other offers on the property, the fact that a seller has accepted an offer, that the offer is subject to contingencies and that the offer is subject to a clause requiring the removal of certain contingencies upon the occurrence of an event such as a receipt, acceptance or conditional acceptance of another offer."
Thus, § RL 24.12 provides that a licensee may, but is not required to, disclose that there are other offers which have been submitted on the property, that the seller has accepted an offer, that an accepted offer is subject to contingencies, or that an accepted offer has a bump clause. The licensee is still prohibited from disclosing any terms of a submitted or accepted offer other than disclosing that an accepted offer may be subject to contingencies and may contain a bump clause. Thus, a licensee cannot tell a potential secondary buyer, for example, that the primary offer has a subject to sale contingency or is $2,000 less than list price.
Standard of Practice 3-6 states: "REALTORSŪ shall disclose the existence of an accepted offer to any broker seeking cooperation. (Adopted 5/86)" However, a seller may direct the broker, pursuant to Wis. Stat. § 452.133, to keep the accepted offer confidential. This direction from the seller will override the duty of disclosure under Standard of Practice 3-6 because in a conflict between state law and the Code, the obligations of the law take precedence.
Licensees should remember that even though license law does not require that an agent tell the buyer if any other offers are submitted, if the agent tells the buyer or the other agent that he or she will let them know if more offers come in, the licensee has created a duty to provide this information.
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| Q. An agent is listing a property across the street from a group home for the elderly. Does this need to be disclosed to potential buyers? |
| A. Under Wis. Stat. § 452.23, the presence of certain family homes, community-based residential facilities and nursing homes need not be disclosed to potential buyers. The definition of group homes is technical in nature. This section does not prohibit disclosure but merely clarifies that the licensee has no duty to disclose. Any licensee considering disclosure should first determine whether that disclosure would violate fair housing rules and thus be prohibited (i.e., are the occupants members of a protected class such as occupants with a disability or elderly occupants).
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| Q. The seller had an accepted offer. When the buyer did not submit a loan commitment by the deadline, it was assumed that the offer was done because of the "time-is-of-the-essence" provision in the contract. No notice or CAMR was given to the first buyer. The seller accepted another offer as primary. One week later, the first buyer submitted his loan commitment. Are there two primary offers? |
| A. If time is made of the essence as to a particular deadline, failure to perform by the precise moment of the deadline will be a breach of the failing party's duties under the contract. Immediately thereafter the party awaiting performance can give notice that the contract has been cancelled due to the breach of contract.
The loan commitment provision in the offer to purchase, however, alters this result: "If Buyer does not make timely delivery of said commitment, Seller may terminate this Offer if Seller delivers a written notice of termination to Buyer prior to Seller's actual receipt of a copy of Buyer's written loan commitment." Even though the buyer's failure to provide a loan commitment by the deadline initially appears to make the offer unenforceable against the buyer, the offer permits the buyer to cure this deficiency by delivering a written loan commitment before the seller delivers a termination notice. Consequently, the deadline for the buyer's delivery of a copy of the loan commitment is indefinite, absent the seller's termination of offer notice.
Where the buyer has not delivered a written loan commitment and the seller has given buyer a written notice of termination, it may appear that the offer is terminated. The seller, however, needs to be sure that the buyer does not retain some sort of claim with respect to the offer based on the seller's failure to follow procedures or some other event that has occurred during the offer process. This assurance can best be obtained if the buyer executes a mutual release and cancellation agreement. If the buyer refuses to sign a mutual release, the seller may obtain an attorney's opinion that the offer is terminated before accepting another offer as primary.
Unfortunately, it appears in this case that there may be two accepted primary offers. The agent must immediately notify all parties and agents and refer the parties to legal counsel. The agent may also wish to see if there is any inducement that will convince one of the buyers to take a secondary position or if one of the buyers can be persuaded to buy another property.
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Vacant Land Soils Contingency
Recently the Legal Hotline has received several questions about the correct way to complete the soils test contingency in the vacant land offer. The contingency reads:
"This offer is contingent upon Buyer obtaining the following:
Written evidence at (Buyer's)(Seller's) [STRIKE ONE] expense from a certified soils tester or other qualified expert that indicates that the Property's soils at locations selected by Buyer and all other conditions which must be approved to obtain a permit for an acceptable private septic system for: ___________________ [insert proposed use of Property; e.g., three bedroom single family home] meet applicable codes in effect as of the date of this offer. An acceptable system includes all systems approved for use by the State for the type of property identified at line 277. An acceptable system does not include a holding tank, privy, composting toilet or chemical toilet or other systems (e.g. mound system) excluded in additional provisions or an addendum per lines 179 - 188."
What is or is not an acceptable system is up to the discretion of the parties. The contingency states that an "acceptable system" does not include holding tanks, privies, composting or chemical toilets, or any other type of septic system designated in the offer as not acceptable. This means that the buyer may modify this provision by crossing out or adding reference |
