MARCH 15, 1996

It has been my experience that most landlords are unfamiliar with their rights and obligations concerning their leases and as to security deposits which they hold. This paper outlines the requirements which must be complied with for leases of residential property in Michigan.

Most landlords routinely fail to meet their obligations but are never challenged since a defaulting tenant is usually unfamiliar with their rights and cannot afford legal counsel to defend in actions brought by their landlords. However, this is not a reason for a landlord to ignore their obligations since the cost and consequences if challenged even once far outweigh the inconvenience in complying with these obligations.

I. SECURITY DEPOSIT LAW

The requirements for a landlord to collect and apply a tenants security deposit are as follows under the Landlord and Tenant Relationships Act [MCLA 554.601-554.616]:

1. A security deposit may not exceed 1 ½ month's rent [MCLA 554.602].

2. A security deposit may cover both rent under the lease and any damage caused to the premises [MCLA 554.601 (E)].

3. If a landlord requires a security deposit, he must notify the tenant in writing within 14 days from when the tenant takes possession of the following (this can be included in the lease):

A. The landlord's name and address.

B. The name and address of the financial institution where the deposit will be kept or the name and address of the surety. [Note: under MCLA 554.604 landlord must deposit the security deposit with a financial institution and the landlord may not use the tenants security deposit unless the landlord files a bond with the Secretary of State in the amount of $50,000.00 plus 25% of any amount exceeding $50,000.00. Upon filing the bond the landlord may use the security deposit funds for any purpose you desire.]

C. Notice of the tenant's obligation to provide a forwarding address in writing to landlord within 4 days after they move. This notice must include the following 12 point bold type which is at least 4 points larger than the body of the lease or notice:

"You must notify your landlord in writing within 4 days after you move of a forwarding address where you can be reached and where you will receive mail; otherwise your landlord shall be relieved of sending you an itemized list of damages and the penalties adherent to that failure."

D. If the landlord does not provide this notice the tenant is not required to provide a forwarding address which creates problems for the landlord if the tenant damages the rental unit or leaves with rent owing.

4. The security deposit remains the lawful property of the tenant until the landlord establishes a right to it by compliance with the Act or a Judgment against the tenant. Note: if a bond is filed the landlord may use the funds for any purpose he desires [MCLA 554.605].

5. The requirements of the Landlord and Tenant Relationship Act may not be waived by the parties except where the act specifically allows waiver.

6. Once the landlords entitlement to the security deposit has been established, by compliance with the Act or Judgment, it may be used only for the following:

A. Actual damage to the rental unit

B. Rent in arrears or rent due for premature termination

C. Utility bills not paid by tenant [MCLA 554.607]

7. The landlord must use an inventory checklist both at the commencement and termination of occupancy which details the condition of the rental unit for which a security deposit is required. The checklist must include the following notice-

12 point bold type at the top of the first page:

"You should complete this checklist, noting the condition of the rental property, and return it to the landlord within 7 days after obtaining possession of the rental unit. You are also entitled to request and receive a copy of the last termination inventory checklist which shows what claims were chargeable to the last prior tenants."

A. When the Lease is Signed- The landlord must provide 2 blank "commencement inventory checklists" to the tenant. The checklist must list all items in the rental unit owned by the landlord including but not limited to:

[MCLA 554.608(1);(2)]

The tenant must review the checklist, note the condition of the property and return 1 copy to landlord within 7 days of receiving possession.

B. When Occupancy is Ended- The landlord must complete a "terminating inventory checklist" listing all damages he claims were caused by the tenant [MCLA 554.608 (4)]. This checklist should be identical to the commencement inventory checklist.

If damage is claimed by landlord, landlord must mail to the tenant within 30 days of the end of occupancy a notice including:

1. An itemized list of damages claimed for which the security deposit applies (the terminating inventory checklist).

2. An estimate of cost to repair each damaged item and the amount and basis on which landlord intends to assess tenant.

3. The list must be accompanied by a check for the difference between damages claimed and the security deposit, if any.

4. The notice must include the following statement (in 12 point bold type which is at least 4 points higher than the body):

"You must respond to this notice by mail within 7 days after receipt of same, otherwise you will forfeit the amount claimed for damages".

Note: If the landlord fails to provide the notice of damages within 30 days it constitutes an agreement by landlord that no damages are due and the full security deposit must be immediately returned [MCLA 554.610].

Note: If tenant fails to provide forwarding address in writing within 4 days of terminating occupancy, landlord is not required to send notice of damages [MCLA 554.611].

5. Any response to a notice of damages by a tenant must be mailed to landlord within 7 days and indicate in detail the tenants agreement or disagreement with the damage charges listed [MCLA 554.612].

8. A landlord must commence a court action to keep all or a portion of the security deposit within 45 days after termination of occupancy otherwise the security deposit must be returned. Exceptions to this are where:

A. Tenant failed to provide a forwarding address as required or

B. Tenant failed to respond to the notice of damages or

C. The parties agree in writing to the disposition of the deposit.

D. Where the action is solely for past due rent for periods in which tenant was in possession of the premises [MCLA 554.613 (1)].

Note: The 45 days statue of limitations applies only if landlord wants to keep the security deposit or a portion thereof to apply "as damages" Case law [Oak Park Village v. Gorton, 128 Mich App 671 (1983)] indicates that the landlord may still bring an action for damages or past due rent independent of the security deposit. [It appears that if the 45 day time period has lapsed, the landlord must return the security deposit but still may bring an action for rent or damages].

Note: This section of the act [MCLA 554.613] indicates that if a landlord fails to fully comply with it constitutes waiver of all claimed damages and makes landlord liable to tenant for double the amount of the security deposit retained. Since there is little case law on point and the Oak Park holding could be modified by future cases, it is advisable to bring an action within 45 days of the termination of the occupancy.

9. If the landlord transfers title to the property (sale, assignment, death, appointment of receiver or otherwise) the landlord remains liable to the tenant for the security deposit until:

A. Transfer of the security deposit to the successor with written notification to tenant by mail of the transfer including the successor's name and address or

B. Filing of a bond by the successor under MCLA 554.604 or

C. Return of the security deposit to the tenant.

II. TRUTH IN RENTING ACT

In addition to the Landlord and Tenant Relationships Act (governing obligations with regard to security deposits), a landlord must also comply with the Truth in Renting Act [MCLA 554.632]. These requirements may not be waived. An outline of the requirements under that act is as follows:

1. A rental agreement (lease) may not include the following provisions: [MCLA 554.633].

A. One which waives the statutory covenant requiring that the leased premises be fit for use and habitability.

B. One which waives any rights established by the Landlord Tenant Relationships Act (re: security deposits).

C. One which discriminates in violation of Michigan's Civil Rights Act (on the basis of sex, race, etc.) or in violation of the Michigan Handicappers' Civil Rights Act.

D. One which provides that the tenant automatically agrees to a judgment against them in the event of default.

E. One which release the landlord for any breach of law or the lease except that a provision releasing landlord for loss or casualty covered by insurance is permitted.

F. One which waives or alters the right to a trial by jury in the event of a dispute.

G. One which requires either party to pay attorneys fees in connection with a dispute (in addition to those specifically allowed by statute).

H. One which grants landlord a security interest in tenants personal property to secure payments under the lease.

I. One which accelerates all rent payments in the event of tenants breach UNLESS it also includes a statement that the tenant may not be liable for the total amount depending on landlord's obligation to minimize damages and that either party may have a court determine the actual amount owed.

J. One which waives or alters the rights of the parties regarding possession or eviction under Michigan's Summary Proceedings Statutes (governing eviction procedures).

K. One which releases a party from a duty to mitigate (minimize) damages in the event of breach (e.g. landlord attempting to re-lease rental unit if tenant wrongfully abandons).

L. One which provides that lessor may change any provision of the lease without consent of the tenant.

Note: There is an exception for the following changes upon 30 days notice:

1. Changes required by Federal, State or local law, rule or regulation.

2. Changes in rules relating to protection of physical health, safety or enjoyment of tenants and guests.

3. Changes in the amount of rental payments to cover costs of operation because of increases in taxes, utilities, insurance or workers compensation insurance.

M. One which violates the Michigan Consumer Protection Act.

N. One which requires tenant to give landlord a power of attorney.

O. One which has been prohibited by statute or published decision of the Michigan or U.S. Supreme Court more than 90 days before the lease is signed.

A provision violating this section [MCLA 554.633] is void. However, a landlord may cure a violation of this section by giving written notice by first class mail to all tenants that the provision is void and/or alter the provision to bring it into compliance [MCLA 554.635].

2. All rental agreements in Michigan must include: [MCLA 554.634].

A. the name and address of lessor to which notices may be sent

B. The following notice in a prominent place on the lease in 12 point type or legible print (no smaller than 1/8 inch):

"NOTICE: Michigan law establishes rights and obligations for parties to rental agreements. This agreement is required to comply with the Truth in Renting Act. If you have a question about the interpretation or legality of a provision of this agreement, you may want to seek assistance from a lawyer or other qualified person."

3. Tenants Rights upon violation of Act.

A. If a lease contains a provision prohibited by MCLA 554.633 (paragraph 1 of this section of the letter) a tenant may give written notice to the landlord of the reason the provision is prohibited. If the landlord does not cure the violation within 20 days of the tenant's notice, the tenant may bring an action to:

1. Void the rental agreement and terminate the tenancy.

2. To prevent the use of the provisions in subsequent leases and require landlord to cure the violation.

3. To recover actual damages or $250.00 whichever is greater per action.

B. If the lease does not contain the notice required by MCLA 554.634 or contains a provision which blatantly violates MCL 554.633 (prohibited provisions) and the tenant provides written notice to the landlord which is not cured within 20 days, a tenant may bring an action to

1. Void the lease and terminate the tenancy.

2. To prevent the landlord from using the provision in subsequent leases and require landlord to cure the violation

3. To recover actual damages or $500.00 whichever is greater.

C. A tenant may bring an action without notice to the landlord if:

1. The provision in question has previously been determined by a court as violating MCLA 554.633 or

2. The lessor actually knew that the provision violated MCLA 554.633 at the time the lease was signed, or

3. The lessor actually knew that the notice provision [MCLA 554.634] was required but not included at the time the lease was signed.

D. A party who prevails in an action is entitled to recover court costs plus statutory attorney fees.

E. A landlord can limit his liability for statutory damages for a lease provision which is challenged by court action. In order to do so, the landlord before judgment must send notice to all tenants that the provision has been challenged. This does not limit actual damages which can be proven.

F. If the lease contains the notice provision required by MCLA 554.634 and a provision is determined to be in violation of the prohibited provisions section by a court, a landlord will not be subject to the penalties of this act if a notice is provided to all tenants curing the defect within 30 days of the courts decision.

G. This Act does not limit a tenant or landlord's right provided by other law. In other words the remedies and penalties herein would be in addition to damages for breach of the lease.

H. If the lease form is a commercial pre-printed form and violates this act either by including a prohibited provision or by failing to have the required notice provision, the commercial seller will be liable for damages suffered by a purchaser (landlord) under this act.