SBM Real Property Law Section eNewsletter

November 2011

Follow us on Linked In

Connect with us on Facebook

Section Links

Real Property Website
Officers and Council
Real Property Review (login required)
Review Cumulative Index (login required)
Land Title Standards

SBM Website

Join a Committee

Co-Editors:
Howard A. Lax, Lipson, Neilson, Cole, Seltzer & Garin, PC

Patricia Paruch, Kemp Klein Law Firm

Tenant Lockouts & Statutory Conversion

By Lawrence Shoffner

What are the liability risks associated with tenant lockouts? Michigan's anti-lockout statute (MCL 600.2918) has long prohibited lockouts and defines most lockout-related activity as unlawful, including specifically the removal or retention of personal property. In 2005, the Revised Judicature Act was amended to expand liability for conversion of personal property. MCL 600.2919a. Under the amended RJA: "[a] person damaged as a result of [conversion] may recover 3 times the amount of actual damages sustained, plus costs and reasonable attorney fees." MCL 600.2919a(1). The Court of Appeals recently examined the interplay of these statutes in J. Franklin Interests, LLC v. Mu Meng, (Mich. App. No. 296525, Sept. 29, 2011).

In Franklin, the landlord seized control of the premises, but only after the tenant had declared, in writing, that it was terminating the lease based on its dissatisfaction with the premises. The landlord acted quickly to retain the tenant's personal property as collateral for unpaid rent. Claiming abandonment, the landlord barred the doors, changed the locks, and placed a sign in the window stating that tenant's business had closed.

Rejecting abandonment, the Franklin court found the lockout unlawful. Moreover, because a wrongful exercise of dominion over another's personal property constitutes conversion, the court held that the lockout also resulted in the statutory conversion of the tenant's property. The court determined that damages for conversion are measured by the fair market value of the personal property at the time of conversion. Under MCL 600.2919a, that amount is then multiplied by three and topped-off with attorney fees.

Practice Pointers: (1) the liability risks associated with lockouts are significant and include potential liability for statutory conversion of the tenant's personal property; (2) although a legitimate defense, landlords must assert abandonment with caution.

Sign Up Today!

November 3, 2011
Homeward Bound Series
Strategies and Pitfalls Associated with Loan Workouts, Purchase of Distressed Assets, and Foreclosures
2–5 p.m.
Inn at St. John's, Plymouth

March 15–17, 2012
Winter Conference 2012
Loews Portofino Universal, Orlando, Florida

July 18-21, 2012
Summer Conference 2012
Boyne Mountain, Mountain Grand Lodge & Spa, Boyne Falls

Interested in writing a future article for the e-Newsletter?
Please contact co-editors:
Howard Lax at HLax@lipsonneilson.com or Patricia Paruch at Pat.Paruch@kkue.com.

Correction to: "How Klooster and Recent Medicaid Changes Impact Deed Planning"

By Robert C. Anderson, Elder Law Firm of Anderson Associates, PC
(Article originally published in the October 1, 2011, RPLS e-Newsletter)

In my article published in the October, 2011 edition of the RPLS e-Newsletter, I stated under Michigan Medicaid's April 1, 2011, rule change, a person's fractional interest in non-jointly-owned property is countable. This sentence should have read that this rule applies instead to jointly-owned, non-homestead property. Prior to April 1, 2011, non-jointly owned land (tenancy-in-common), being severable, was always countable under Medicaid rules. The new rule now counts the fractional share of jointly owned non-homestead land, even though non-severable. The share of homestead land is exempt. The new rule is harsh and will create problems for jointly-owned cottages, camps, and vacant land.

Legislative Note

Last spring the Michigan Legislature passed HB 4227 and 4228 (effective May 24, 2011) which prohibit transfer fee covenants from attaching to the title of any parcel of real property. The new statute also voids any lien securing payment of a transfer fee. Michigan follows at least 19 other states in restricting the use of such fees. Along with the actions by state legislatures, FHA is considering a rule prohibiting the fees on any Fannie Mae or Freddie Mac mortgage. HB 4227 applies to nonresidential property, HB 4228 to residential. The transfer fees in question were the brainchild of a private developer to generate revenue and recover costs from real estate projects. Under a transfer fee system, the builder or developer records a special rider or "transfer covenant" against the property after the initial sale. Each time the property is subsequently sold, transferred, or in any way conveyed for a period of 99 years, the transfer covenant requires that a percentage of the sales price (typically 1%) at the appreciated value at the time of the later sale must be conveyed to the beneficiary, usually the builder or developer. Subsequent buyers are frequently unaware of the existence of the transfer fee until they show up at closing. Developers and builders argue that the fees were one way to recover capital outlay, generate future revenue, and attract investors. Opponents, including title agents, real estate brokers and lawyers, and consumer advocates, argued that the hidden nature of the fees caused many deals to collapse.