The WRA Legal Action Program was established in 1978 to support REALTORS® and property owners involved in legal matters that have significance for WRA members and the real estate industry. Cases may include, but are not limited to, real estate law and practice, land-use or environmental issues, private property rights or development rights. The WRA, acting through the Legal Action Program, most often participates in a case by filing an amicus curiae, or “friend of the court,” brief, as a member of a coalition of similarly interested parties, as a party to the lawsuit, or by providing legal, environmental, land use or other research. The Legal Action Program often participates in cases that have already been tried in the circuit court and are on appeal, but participation at the trial court or administrative hearing level also has been an effective vehicle for input on important legal issues at earlier stages of the litigation process.
The success enjoyed by the WRA Legal Action Program in the courtroom may provide direct benefits to members in their daily practice, for example, in commission cases. Other times, the outcome of a case may magnify and vividly illustrate the need for certain legislation. The program also generates resources employed behind the scenes in crafting effective legislation and administrative code rules. In other words, Legal Action involvement in various cases may generate a direct benefit for REALTORS® apparent to the eye, but there are also valuable trickle-down effects in play with other decisions that seemingly always result in a positive for members.
Pending court cases that could impact you
Commission for unaccepted full price offer
The issue in Mark McNally v. Capital Cartage, Inc. looks to whether differences between the terms of a listing and the terms of an offer are classified as substantial variances that will defeat the broker’s claim to commission. The seller insisted that the rule in Wisconsin was that a broker does not earn commission for an offer rejected by the seller unless there is an exact match. The broker contended that a provision in an offer cannot avoid commission unless the provision directly conflicts with a material provision in the listing contract or the seller points it out when declining the offer.
The circuit court found that the listing contract was silent and thus not in direct conflict with offer provisions regarding a non-competition agreement, splitting of a refundable appraisal fee, and the seller’s transitional work for the buyer. The jury found in favor of the broker. The Wisconsin Court of Appeals affirmed, and the WRA is awaiting the decision of the Wisconsin Supreme Court.
Property tax assessment/use value
The issue in Thoma v. Village of Slinger is whether a property can be valued as “agricultural” under Wisconsin use value law if restrictive covenants or development agreements require a residential use A 2007 development agreement and restrictive covenants rezoned the property as residential and annexed it to the village. The land continued to be used for agricultural purposes and classified as “agricultural” for property tax purposes. The village sued and issued an order enforcing the development agreement in 2012. The developer removed row crops but maintained fields on unsold parcels by planting a groundcover crop. In 2014, the assessor changed the tax classification to “vacant residential.” The court of appeals affirmed the circuit court decision that the developer failed to demonstrate that “maintaining groundcover” was an agricultural use or that the assessor’s reclassification was erroneous. The WRA is awaiting the decision of the Wisconsin Supreme Court.
If cities and villages can override use value tax treatment through development agreements and restrictive covenants, developers’ holding costs will increase and adversely impact housing affordability.
Restrictive covenants/short-term rentals
The issue in Forshee v. Neuschwander is whether the use of a single-family home for short-term rentals violates a subdivision restrictive covenant prohibiting “commercial activity.”
Neighboring property owners sought an injunction to prohibit short-term rentals, pointing to the owner’s reported annual rental income of $55,784.93 from approximately 150 renters in the home acquired through a § 1031 tax exchange, which requires the property be held for productive use in trade or business. The circuit court found the short-term rental was a “commercial activity,” declining to construe the restrictive covenant ambiguity in favor of the free use of property. The Court of Appeals determined the subdivision’s restrictive covenant was ambiguous and reversed the circuit court.
Subjective interpretations of restrictive covenants are problematic. For example, the circuit court made a subjective interpretation of the restrictive covenant by stating it didn’t prohibit long-term or short-term rentals for events such as the “Birkie.” The circuit court’s holding that ambiguities in restrictive covenants are not interpreted in favor of the free use of property runs counter to prior case law and may unreasonably restrict the free use of private property. The WRA is awaiting the decision of the Wisconsin Supreme Court.
Tax increment financing
In Voters with Facts v. City of Eau Claire, a group of Eau Claire residents called “Voters with Facts” (Voters) sued the city claiming two tax increment financing (TIF) districts are illegal because the properties are not “blighted,” challenging the legal requisites for the formation of a tax incremental district (TID), claiming cash grants to a developer is an unlawful property tax rebate, and asserting TIF funds are being used unlawfully to reimburse for historic building demolition. The circuit court dismissed the lawsuit, finding that a blight determination is a legislative decision based upon the particular facts and that Voters did not have standing. The Court of Appeals agreed regarding standing but also ruled Voters could challenge the TIDs through a different review process. The city appealed to the Wisconsin Supreme Court and is awaiting decision.
TIF is a successful local economic development tool due in part to the flexibility provided to local governments, such as when determining whether a project would occur “but for” the use of TIF, whether an area is “blighted,” or whether a project warrants a cash grant to a developer. Under Wisconsin TIF law, these local decisions are highly discretionary and cannot be challenged as a matter of law. Preserving TIF flexibility has widespread importance.
Application of Wis. Stat. § 452.25 includes a three-year felony hold
The issue in Lynette Haman v. WI Department of Safety & Professional Services is whether Wis. Stat. § 452.25, which applies to initial licensing if a felony has been committed within the last three years, applies to license renewal.
The intent of Wis. Stat. § 452.25 is to provide a predetermination for potential real estate license applicants and not to automatically block licensees seeking renewal if a felony has been committed. Licensees convicted of a crime are required to report the conviction within 48 hours, and the Real Estate Examining Board (REEB) then has the discretion to deny renewal, limit the license or reprimand the licensee. However, the DSPS interprets Wis. Stat. § 452.25 to apply to both initial licensure and license renewals. The licensee was denied license renewal after disclosing a plea agreement for a felony conviction and was not afforded a hearing when the DSPS apparently applied the wrong standard. A lawsuit was filed in circuit court seeking correction of these apparent errors in her case, and the circuit court ruled in favor of the licensee.
It is crucial for all licensees that the DSPS correctly interpret § 452.25 and apply the correct standards for review.
Court cases that led to new legislation
The courts in these recent cases decided against the interests of property owners, thus demonstrating the need for legislation to protect the rights of property owners.
Regulatory takings/substandard lots
The issue in Murr v. Wisconsin was whether a regulation that requires the merger of two contiguous, substandard lots owned by the same person constitutes a regulatory taking.
In 1960, the Murr family purchased a parcel next to the St. Croix River and built a cabin for recreational use. In 1963, they purchased an adjacent lot. Under a 1975 St. Croix county ordinance, development or sale of adjacent, substandard lots under common ownership is prohibited unless each has at least one acre; otherwise they are merged into a single, buildable lot. The Murrs’ application for a variance was denied, so they filed suit claiming the ordinance constituted a regulatory taking. The circuit court rejected the takings claim, and on appeal, the Wisconsin Court of Appeals affirmed. The Wisconsin Supreme Court declined to hear the case, but the U.S. Supreme Court agreed to hear the case. That court looked to the contiguity and common ownership of the substandard parcels and treated the separate parcels as one unit of property, adopted a multifaceted test for regulatory takings, and ruled against the property owner.
Legislative result: The Homeowners Bill of Rights, 2017 Wis. Act 67, protects the ability of property owners to develop and sell existing substandard lots adjacent to their property that were legal when they were created but do not meet current lot size requirements. See 2017 Wisconsin Act 67 at https://docs.legis.wisconsin.gov/2017/related/acts/67.pdf.
Vested rights
One issue in McKee Family LLC v. City of Fitchburg was whether vested rights accrue when a specific implementation plan (SIP) is filed under planned development district (PDD) zoning. The developer entered into negotiations to purchase two lots to build 128 apartment units in a PDD, and in December 2008, the developer submitted a proposed SIP to the city of Fitchburg for review. Prior to the submission of a revised SIP, a rezoning application was submitted. After public hearings, the city downzoned the property, reducing the density from 128 to 28 dwelling units. The developer sued, maintaining he had vested- rights in the zoning that existed at the time the SIP was filed and that the downzoning constituted a regulatory taking. The circuit court upheld the rezoning. The court of appeals affirmed the trial court decision, declaring that the vested rights doctrine applies only in cases where a property owner applies for a building permit, not other types of development permits. The Wisconsin Supreme Court concurred.
Legislative result: Wis. Stat. § 66.10015 effectively freezes local land use regulations that apply to a specific project at the time that the property owner first applies for a local approval for the project. See the August 2017 Legal Update, “Vested Rights,” at www.wra.org/LU1708 for further information regarding the case and the statute.
Conditional use permits
The issue in AllEnergy Corporation v. Trempealeau County was whether the court should adopt the doctrine that a conditional use permit (CUP) applicant who meets all applicable ordinance conditions and standards is entitled to the issuance of the permit.
AllEnergy submitted a CUP application for a non-metallic mine, and the county zoning committee deemed the application “complete.” The majority of the comments received at the public hearing were in opposition. A motion to approve AllEnergy’s mining application was rejected, stating reasons such as the permit was incomplete, the mine raised environmental and health concerns, and the mine would have adverse effects on wildlife and recreation. AllEnergy sought review in circuit court but was denied. The court of appeals affirmed, stating that the committee was acting reasonably in relying on public testimony opposing the CUP as the basis for determining whether AllEnergy met the ordinance criteria for granting the CUP. The Wisconsin Supreme Court agreed.
Legislative result: The Homeowners Bill of Rights, 2017 Wis. Act 67, creates a statutory framework for CUPs and provides certainty for property owners by establishing a fair and reasonable approval process.
Challenging property tax assessments
The issue in Milewski v. Town of Dover was whether Wis. Stat. §§ 70.47(7)(aa) and 74.37(4)(a), which prohibit property owners from appealing a tax assessment if they do not allow property tax assessors to enter their homes for interior inspection, violate the due process clause.
The tax assessor sent a notice to all property owners asking to view the interior of their properties. The homeowners only allowed the assessor to view the property exterior. The assessor valued the properties at $307,000, a 12 percent increase from the previous assessment. The homeowners objected to their assessment, asking to appear before the town board of review. They were refused because they didn’t let the assessor see the property interior.
The homeowners filed suit with the circuit court arguing § 70.47(7)(aa) is unconstitutional because it violates their right to privacy and denies them due process, based on the Fourteenth Amendment. The circuit court upheld the assessment. On appeal, the court of appeals affirmed the circuit court’s ruling. In split opinions, the Wisconsin Supreme Court ruled the statute violates the U.S. Constitution.
Legislative result: The Housing Affordability Act, 2017 Wis. Act 68, restores the fundamental right of all homeowners to challenge property tax assessments they believe to be incorrect, regardless of whether they deny assessors entry into their homes. See 2017 Wisconsin Act 68 at https://docs.legis.wisconsin.gov/2017/related/acts/68.pdf.
Relief in other forms
Judicial recusal — Wisconsin Supreme Court rules
In April 2017, the Wisconsin Supreme Court scheduled a hearing on a petition filed by a group of 50 retired judges to amend the Code of Judicial Conduct to establish a new standard to require judges to recuse themselves from a case when they have received a lawful campaign contribution from a party or attorney involved in the case. Contributions to Wisconsin Supreme Court candidates would be capped at $18,000.
The WRA believed it is necessary for the Wisconsin Supreme Court to clearly state that an endorsement and political support alone do not warrant judicial recusal. The WRA began efforts to prepare to weigh in at the hearing but never formally appeared as the court declined the petition.
Water regulation reform
The WRA’s 2017-18 legislative priorities include a number of initiatives relating to water usage and activities in or near waterways, including:
- Restrictions on the use of high-capacity wells.
- Controlling phosphorus runoff into lakes and streams.
- Developing a general permit for minor dredging activities in lakes and streams.
- Creating a general permit for wetland disturbances in dormant construction sites.
- Other significant regulatory reform measures related to artificial wetlands.
To reform Wisconsin’s water regulations in the most effective manner possible, the WRA continues to retain the legal services of a legal expert on federal and Wisconsin water law to assist with research, analysis and negotiation.
Sprinkler requirements for multifamily residential dwellings
Wis. Stat. § 101.14(4m)(b) requires an automatic sprinkler system for every multifamily dwelling with more than 20 dwelling units. In 2007, Wis. Admin. Code § SPS 362.0903 (5)(b) was modified to require an automatic sprinkler system for multifamily dwellings with more than four units and three stories above grade in height. In 2011, Wis. Stat. § 227.11(2)(a)3 was enacted to specifically prohibit administrative rules from being more restrictive than a standard or requirement contained in a related statute. In 2017, the DSPS proposed new sprinkler rules to make them consistent with state statutes by requiring automatic sprinklers for every multifamily dwelling with more than 20 dwelling units. The Wisconsin Builders Association hired outside legal counsel to prepare a legal memorandum explaining the law and the WRA paid for half of the memorandum expenses. The DSPS sought an Attorney General’s opinion, and the Attorney General ruled that the rule is more restrictive and cannot be enforced.
Debbi Conrad is Senior Attorney and Director of Legal Affairs for the WRA.