A new court ruling in a lease dispute could profoundly change Michigan contract law, according to the lawyer for the landlords in the case.
An Oakland County man and his old landlords sued one another over rent and a security deposit for a home that allegedly wasn’t up to par.
Both parties agreed the landlords didn’t have a permit to lease the space. Because of that, a three-judge Court of Appeals panel unanimously found the lease was invalid from the beginning.
“Because renting and occupying the unit was undeniably 'central to the parties’ agreement,' the entire contract is void ab initio,” Judge Mark Boonstra wrote on behalf of the court.
By finding the lease itself invalid, the court ruled the breach of contract claims also didn’t matter.
Attorney Ari Lehman represents the landlords in the case. He said that opens a whole legal can of worms, especially for people acting unethically.
“What would a court now do if somebody doesn’t have a landlords’ license or the right requirements and signs a lease with somebody?” Lehman asked rhetorically, “He would get their first months’ rent, a month and a half security deposit and say, ‘Sorry, not a valid contract.’”
Lehman questioned whether, if leases without proper permits were deemed illegal, tenants under them would be considered trespassers under the new precedent.
In regard to the security deposit in the case, the Court of Appeals found the tenant didn’t have any duty to pay it in the first place. And, without lease conditions guiding the agreement, the landlords therefore didn’t have any responsibility to pay it back under the Michigan Landlord-Tenant Act.
“The lease was void ab initio, so there was no enforceable rental agreement to establish any rights or obligations with respect to the security deposit. Nor does the Landlord-Tenant Act govern the parties’ rights in this situation because it 'applies only to security deposits held pursuant to leases,'” Boonstra said.
However, the ruling did leave the door open for the tenant to recoup some of his money by claiming "unjust enrichment" against his former landlords.
Lehman said that’s also worrying, since unjust enrichment claims don't usually apply to illegal activities.
“I don’t think you can come to court and sue for unjust enrichment if you pay for drugs and don’t get your drugs. You’re engaging in illegal activity. It’s not just the contract’s bad. You don’t have a claim for unjust enrichment either,” Lehman said.
Overall, Lehman accuses the court of overstepping its power.
The rental property was in West Bloomfield Township, where the penalty for renting without a certificate of compliance is a civil fine. Lehman argued using the statute to invalidate a lease agreement altogether went too far.
“This is clearly the courts interfering with a legislature’s ability to craft a rule and craft a specific remedy for that rule and keep it in proportion,” he said.
The appellate judges returned the case to the circuit court for further proceedings.
