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    What is Rent Escrow? Can a Tenant Withhold Rent?

    Reasons Tenant May Withhold Rent (Rent Escrow)

     
    At times, tenants may not pay their rent because the landlord has not, or allegedly has not, maintained the premises in a “livable condition.” Livable condition is often interrupted to mean: premises that have outstanding code violations that have not been cured and/or outstanding repairs that a tenant claims have not be made. When tenants do not pay the rent, they will often tell the landlord they have put the rent in “escrow”. However, only a judge can “approve” of rent being placed in escrow. See ‘Escrow Orders’ below.

    Three Requirements for Withholding Rent

     
    Before the tenant can properly withhold rent, three (3) requirements must be met:

    1. the lack of maintenance or repair has made the premises unlivable (or not maintained in good repair);

    2. the problems were not caused by the tenant or their guest, either deliberately or through neglect;

    3. the landlord has been told about the problem and has not fixed it within a reasonable time or the minimum amount required by state or local law.

    Escrow Orders

     
    A judge may order or allow the tenant to place rent into escrow if:

    a trial is adjourned more than seven (7) days;
    and the plaintiff (landlord) shows a clear need for protection.

    If the judge orders/allows the rent to be placed in escrow, the defendant must pay a “reasonable rent” for the premises from the date the escrow order is entered, including a pro rata amount per day between the date of the order and the next date rent ordinarily would be due. In other words: The tenant must place all past due rent into escrow and begin making current and future rent payments into escrow until a final judgment is entered into.

    The tenant must pay the initial amount into escrow within seven (7) days of the order and must pay any future payments into escrow within seven (7) days of the date when rent would normally be due.

    The landlord/plaintiff cannot interfere with the obligation of the tenant/defendant to comply with the escrow order.

    What if the Tenant Doesn’t Comply with an Escrow Order?

     
    If the tenant does not comply with the order, the tenant waives the right to a jury trial only as to the possession issue, and the landlord is entitled to an immediate trial within 14 days which may be by jury if a party requests it and if, in the court’s discretion, the court’s schedule permits it. The 14-day limit need not be rigidly adhered to if the landlord is responsible for a delay.

    Disbursement of Escrow Funds: Who, Why and When

     
    Only the court may order the disbursement of money collected under an escrow order. The following three things will be taken into account:

    The court must consider the tenant’s defenses.
    If trial was postponed to permit the premises to be repaired, the court may condition disbursement by requiring that the repairs be completed by a certain time.
    Otherwise, the court may condition disbursement as justice requires.

    Source: Michigan Court Rules

    Subchapter 4.2 Landlord-Tenant Proceedings; Land Contract Forfeiture

    Interim Orders – Sub Rule (H)(2)(a-b)

     

    Disclosure: This Knowledge Base article is accurate as of the last update. Laws and policies are subject to change. If you have any questions, please call the office. Click here for contact information.