UPDATE (as a result of 2017 Wisconsin Act 317): Landlords may charge the actual cost, up to $25, to obtain a consumer credit report (subject to restrictions). The landlord shall notify the prospective tenant of the charge before requesting the consumer credit report, and shall provide the prospective tenant with a copy of the report. Landlords may also require a prospective tenant WHO IS NOT A RESIDENT of this state to pay the landlord’s actual cost, up to $25, to obtain a background check on the prospective tenant. The landlord shall notify the prospective tenant of the charge before requesting the background check and shall provide the prospective tenant with a copy of the report.
ORIGINAL:
Wisconsin residential landlords need to be careful when accepting application fees, as they are subject to the restrictions of earnest money deposits (unless the application fee is only for the actual cost of performing a credit check, up to $20). First, we will look at what the law classifies as an earnest money deposit, then we will look at the rules surrounding them.
What is an Earnest Money Deposit?
Under § ATCP 134.02(3), Wis. Admin. Code, “earnest money deposit” is defined very broadly and appears to encompass almost any money paid before entering into a rental agreement:
The total of any payments or deposits, however denominated or described, given by a prospective tenant to a landlord in return for the option of entering into a rental agreement in the future, or for having the rental agreement considered by a landlord. ‘Earnest money deposit’ does not include a fee which a landlord charges for a credit check in compliance with s. ATCP 134.05 (3) (the credit check provision is actually in § ATCP 134.05(4), not (3)).
Based on this definition, application fees will almost always be viewed as earnest money deposits; therefore, you will need to understand the rules surrounding them. Also note, there is no provision exempting the cost of a background check from the definition; therefore, any money collected to run a background check will be considered earnest money.
The Rules for Accepting Earnest Money Deposits
Before Accepting Earnest Money
- The landlord must identify to the applicant the dwelling unit or units for which the applicant is being considered for tenancy (§ ATCP 134.05(1), Wis. Admin. Code).
- Rental agreements and rules and regulations established by the landlord, if in writing, must be furnished to the prospective tenants for their inspection (§ ATCP 134.03(1), Wis. Admin. Code).
- If charges for water, heat, or electricity are not included in rent, the landlord shall disclose this fact to the prospective tenant (§ ATCP 134.04(3), Wis. Admin. Code).
- The landlord shall disclose to prospective tenants any building code or housing code violations to which all the following apply: (1) the landlord has actual knowledge of the violation, (2) the violation affects the prospective dwelling unit or a common area of the premises, (3) the violation presents a significant threat to the prospective tenant’s health or safety, and (4) the violation has not been corrected (§ 704.07(bm), Wis. Stats., and § ATCP 134.04(2), Wis. Admin. Code).
Upon Accepting Earnest Money
- Immediately upon accepting any earnest money, the landlord shall provide the prospective tenant with a written receipt for the deposit, stating the nature of the deposit and its amount (§ ATCP 134.03(2), Wis. Admin. Code). Unless requested by the prospective tenant, a receipt is not required if the payment is made by check with a notation stating the purpose for which it was given (such as “Earnest Money Deposit”).
Refunding Earnest Money
- The landlord must send the full earnest money deposit to the applicant by first-class mail, or shall deliver the full deposit to the applicant, by the end of the next business day after any of the following occurs (§ ATCP 134.05(2)(a), Wis. Admin. Code):
- The landlord rejects the applicant or refuses to enter into a rental agreement with the applicant.
- The applicant withdraws the rental application before the landlord accepts the application.
- The landlord fails to approve the rental application by the end of the third business day after the landlord accepts the earnest money deposit (or by a later date agreed to by the tenant in writing, but not more than 21 calendar days after the landlord accepts the deposit).
Crediting Earnest Money
- A landlord who receives earnest money from an applicant and subsequently enters into a rental agreement with that applicant must either (§ ATCP 134.05(2)(b), Wis. Admin. Code):
- Apply the earnest money deposit as rent or as a security deposit.
- Return the earnest money to the tenant.
Withholding Earnest Money
- A landlord may withhold from a properly accepted earnest money deposit if the prospective tenant fails to enter into a rental agreement after being approved for tenancy, UNLESS the landlord has significantly altered the rental terms previously disclosed to the prospective tenant (§ ATCP 134.05(3)(a), Wis. Admin. Code).
- The landlord may only withhold an amount sufficient to compensate the landlord for actual costs and damages incurred because of the prospective tenant’s failure to enter into a rental agreement (§ ATCP 134.05(3)(b), Wis. Admin. Code).
- The landlord may only withhold for lost rent if the landlord made a reasonable effort to mitigate those losses (§ ATCP 134.05(3)(b), Wis. Admin. Code).