Rainbow Realty Grp., Inc. v. Carter - 131 N.E.3d 168 (Ind. 2019)

Rule:

Indiana residential landlord-tenant statutes apply only to dwelling units that are let for rent under a rental agreement. Ind. Code § 32-31-8-1. Unlike dwelling unit, Ind. Code ch. 32-31-8 defines rental agreement. It incorporates the definitions in Ind. Code ch. 32-31-3. Ind. Code § 32-31-8-2. And ch. 32-31-3 defines rental agreement as an agreement together with any modifications, embodying the terms and conditions concerning the use and occupancy of a rental unit. Ind. Code § 32-31-3-7.

Facts:

Plaintiff Cress Trust owns houses in Marion County. Plaintiff Rainbow Realty Group, Inc., sells, rents, and manages these properties for Cress. Plaintiffs offer four options to customers interested in their housing stock: (1) straight sale; (2) straight rental; (3) land contract; or (4) rent-to-buy contract. Katrina Carter and Quentin Lintner are a married couple living in Marion County. In response to an ad, the Couple contacted Plaintiffs to learn about housing options. Although Plaintiffs considered the Couple to have a poor credit history and told them their rental stock was not available, Plaintiffs concluded the Couple's $4,000 monthly income could qualify them for Plaintiffs' rent-to-buy program. The Couple applied and paid a $100 deposit to hold a single-family house on North Oakland Avenue in Indianapolis with a purchase price of $37,546. In May 2013, after their application was approved, the Couple signed a "Purchase Agreement (Rent to Buy Agreement)". Under the Agreement, Plaintiffs and the Couple agreed that the House "shall be used as a single-family private residence and for no other purpose whatsoever". The Couple agreed they were acquiring the House "as is", that it was not in livable condition, and that they would need to make it habitable before they could live in it. In addition, the Agreement said the House came with no warranties of condition or habitability, that the Couple would have to make or pay for any repairs themselves, that any improvements to the House would become a permanent part of the property, that payment was due on the first of the month, and that Plaintiffs could "evict" them for not paying on time. The Agreement, which said the parties' intent was to consummate a sale of the House, required the Couple to make monthly payments of $549 for thirty years at an interest rate of 16.3 percent. Despite the stated intent and thirty-year payment term, the Agreement said that the first twenty-four payments were "rental payments". If the Couple made those payments, the parties would execute a separate "Conditional Sales Contract (Land Sale)" for the remaining twenty-eight years. Notably, when the Couple signed the Agreement, the House was missing toilets, plumbing, electrical wiring, and door locks. All the windows were broken. There was no security to prevent break-ins. The basement stairs were in disrepair, the carpets were beyond repair, the property was strewn with trash, and animals had infested the property. In a separate contract, Plaintiffs agreed to make electrical and plumbing repairs for a charge. Yet by 2015, two years after the Couple entered the Agreement with Plaintiffs, the House remained uninhabitable. Even after executing the Agreement, the Couple continued to live in a motel for an unspecified period, during which they paid the motel bill and made their monthly House payment.

The House proved more costly than the Couple could afford. When they fell behind in their payments, Plaintiffs tried to evict them thrice. The third eviction case resulted in a small-claims-court order allowing Plaintiffs to retake possession, but the Couple appealed that order to the Marion Superior Court. In the trial court, Plaintiffs sought possession, damages, and attorney's fees, plus various costs to clean and "re-rent" the property—a total claim of $19,727.30. The Couple answered and asserted various counterclaims, including fraud, breach of contract, and failure to meet landlord obligations under Indiana's residential landlord-tenant statutes. The court entered partial summary judgment for the Couple, finding Plaintiffs liable on their counterclaims for breach of the warranty of habitability and for making false or deceptive statements about Plaintiffs' ability to disclaim the warranty and other obligations. The trial court later held a bench trial on the remaining issues. It reaffirmed its prior ruling that the Agreement was unlawful and unenforceable. The court of appeals reversed, concluding the Agreement is not a residential lease and thus not subject to the Statutes. For this reason, the court also reversed the judgment below that Plaintiffs committed fraud and reversed the trial court's award of attorney's fees because the Couple was no longer a prevailing party.

Issue:

Is the Agreement a rental agreement which falls under the ambit of the Statutes?

Answer:

Yes.

Conclusion:

Re: whether the property is a rental unit — The Couple say they actually "used" the House as a "home, residence, or sleeping unit", regardless of whether it was habitable or whether the Agreement authorized them to do so, thus satisfying the definition of a "rental unit" under Subsection (1): "a structure ... that is used as a home, residence or sleeping unit by ... two (2) or more individuals who maintain a common household". A unit's legal status is governed not by the unilateral action of its lessee but by its "promised" use by the owner—"any grounds, facilities, or area promised for the use of a residential tenant". In other words, a unit is not a "rental unit" under the Statutes unless the owner contemplates—has "promised"—its use for a residential purpose. Thus, what matters under Subsection (2) is not whether the contracted unit is presently uninhabitable but whether the parties, including the owner, intend the unit for a residential use. The House clearly fills that bill. Unlike a storage unit, the House was promised for—and, in fact, contractually limited to—use as "a single-family private residence and for no other purpose whatsoever" in which only the Couple could live. But this promised-for use does not end the inquiry. A "rental unit" under Section 8(2) requires not only a residential use but the use of that unit by a residential "tenant".

Re: whether the couple were tenants — The court interpreted "occupy" here to mean possess, control, dwell, or reside. Thus, the Couple "occupied" the House from day one because they possessed it and had access to it, although they did not initially live in it. In addition, the Couple's occupancy was with the consent of Plaintiffs—each one a "landlord" under the statutory definition: Cress was the "owner" of the House, and Rainbow was the property manager that, among other things, collected the rent. The Couple's occupancy was for the monthly consideration specified in the parties' Agreement—and, later, after missing several payments, the Couple agreed to increased payments to avoid being evicted. The Agreement also required that the Couple use the House as a single-family private residence—clearly contemplating an occupancy for "residential purposes".

Based on the foregoing, the Couple are tenants of a dwelling unit that is the subject of a rental agreement governed by the residential landlord-tenant statutes. Under these Statutes, Plaintiffs were required to deliver the House to the Couple in a habitable condition, which they did not do. The Statutes also render the Agreement's purported waiver of their obligation as void. If this case were simply about the parties' freedom of contract, the Couple would have no legal recourse. Plaintiffs disclaimed the warranty of habitability, informed the Couple that the House required significant renovation, and forbade them from taking up residence there before it was habitable. The Couple agreed to these terms but soon thereafter violated them. Were it not for the governing Statutes, Plaintiffs would be entitled to relief against the Couple for having breached their Agreement. But the Statutes are not about vindicating parties' freely bargained agreements. They are, rather, about protecting people from their own choices when the subject is residential property and their contract bears enough markers of a residential lease.