Benign lease provisions lead to 6-year battle, $1M class-action lawsuit against Iowa City landlord

“Tenants are responsible for the cost of all damages/repairs to windows, screens, doors, carpet, and walls, regardless of whether such damage is caused by residents, guests, or others.”

At the outset, this seems like very standard lease language. However, this lease provision turned into a landlord-tenant dispute that spent six full years in the court system, before landing in front of the Iowa Supreme Court for decision.

How the Dispute Began

The backstory: Elyse De Stefano and three roommates, all students at the University of Iowa, rented a four-bedroom apartment in Iowa City in July 2010. Just three months into their lease, the apartment was broken into. The burglar kicked down the front door, damaging the door frame and lock in the process. Their landlord, Apartments Downtown, quickly repaired the door frame and lock.

Initially, it seemed as though the situation had been peacefully resolved. However, Apartments Downtown then sent the tenants a $598 bill to cover the costs of the repairs. They refused to pay. A few months later, the tenants wanted to sublet their apartment for two summer months. The landlord refused to approve the sublease on the grounds that the tenants had failed to pay for the repairs and penalties assessed for nonpayment.

Still, the tenants refused to pay. They moved out of the apartment that summer; and unable to sublet the unit, it sat vacant for the final two months of the lease.

When the lease term expired, Apartments Downtown hung onto the tenants’ security deposit (equivalent to one month’s rent, or $1635). The landlord did so on the grounds that the tenants still hadn’t paid for the damaged door and subsequent fines. The landlord also deducted $191 from the security deposit for automatic carpet cleaning, which was spelled out in a separate lease provision.

Getting the Courts Involved

De Stefano sued in small claims court, arguing that the landlord had improperly withheld the rental deposit. The magistrate agreed and awarded her $4720 in damages.

Apartments Downtown then appealed to the District Court. On most points, the District Court sided with the landlord. The District Court agreed that a landlord could charge the landlord for the replacement of an exterior door that had been vandalized by someone unbeknownst to the tenants—and consequently, they agreed that Apartments Downtown had properly withheld approval of the sublease when the tenants refused to pay for the damages. The District Court disagreed, though, with the landlord’s withholding of the security deposit for automatic carpet cleaning—regardless of the condition that the carpet was in at the time. De Stefano was awarded just $651.54 for the balance of the deposit that was improperly withheld, plus $200 in statutory punitive damages.

Both parties appealed. What seemed like benign lease provisions then went to the Iowa Supreme Court for review.

Ultimately, De Stefano came out on top. In a 4-3 ruling, the Iowa Supreme Court decided that a landlord cannot bill a tenant for the cost of repairs to make a property habitable—and a front door that locks is integral to that cause.

Justice Brent Appeal wrote:

“In light of the history of the development of landlord–tenant law, we do not think it can be fairly concluded that the legislature intended the statutory duty of the landlord to ‘make all repairs and do whatever is necessary to put and keep the premise in a fit and habitable condition’ to be satisfied by merely making repairs and shifting the costs to the tenant pursuant to categorical provisions in the original lease agreement.”

Three justices disagreed on the grounds that the lease language clearly indicated which party was responsible for said repairs.

All of the justices agreed on one thing, however: A landlord cannot automatically deduct the cost of cleaning carpets, regardless of their condition, from a tenant’s security deposit.

“It is possible,” Justice Appel wrote, “that a landlord may be able to impose a nonrefundable charge on tenants for automatic carpet cleaning.” But the charge can’t automatically come out of the deposit, regardless of whether the carpet’s condition is “beyond the ordinary wear and tear.”

Christopher Warnock, an attorney with the Iowa Tenants’ Project who defended De Stefano, called the ruling a huge win. The Iowa Tenants’ Project is now in the midst of a $1 million class-action lawsuit against Apartments Downtown for illegally charging more than 14,000 tenants for automatic carpet cleaning between 2010 and 2012.

What Does This Court Decision Mean for Iowa Landlords?

Most importantly, the ruling in De Stefano v. Apartments Downtown means that Iowa landlords may not automatically deduct from tenants’ security deposits for carpet cleaning. Instead, at the end of a lease, a landlord should inspect the unit and determine whether the carpet has been soiled beyond ordinary wear and tear. If so, then landlords may deduct the cost of cleaning from the security deposit.

Second, it means that while landlords may include a lease provision that makes tenants responsible for repairs, landlords cannot charge tenants for repairs necessary to keep the premises in habitable condition. Those property maintenance services fall squarely onto the shoulders of the landlord and cannot be “contracted away,” regardless of what the lease states. Otherwise, the court notes, “a tenant could be liable for highly expensive repairs that occur at the end of the term of the lease even though the tenant did not cause the uninhabitable condition to arise.”

Lastly, the De Stefano ruling reiterates that if a lease permits subleasing, a landlord cannot unreasonably refuse to approve of the sublease when that time comes. In this case, the court ruled that Apartments Downtown did not act reasonably when it refused to allow the sublease of the unit when it attempted to enforce an unlawful provision in the lease (e.g. illegally charging for the door repair).

As a general reminder, landlords who fail to comply with Iowa’s landlord-tenant laws can be assessed for punitive damages for knowingly and willfully using prohibited lease provisions. In a related case, Caruso v. Apartments Downtown, the Court determined that the landlord knew that it was illegal to charge for automatic carpet cleaning, and in doing so, withheld the security in bad faith—therefore subjecting the landlord to punitive damages.

We cannot overstate the importance of staying up-to-date on local, state, and federal landlord-tenant laws. Apartments Downtown is no rookie—they’re one of Iowa City’s largest landlords. Not only did the De Stefano case take years to make its way through the court system, but it also cost thousands of dollars for the landlord to defend—and now, the landlord is tied up in a messy class-action lawsuit over automatic carpet cleaning fees. Be sure to use diligence (and a good lawyer!) from the outset to ensure that your leases are clearly worded and that all provisions are lawful.