Misrepresentations During the Rental Application Process Do Not Preclude a Tenant from Rights and Remedies Under the ORLTA

From the desk of Jeff Eberhard: Under the ORLTA, during an eviction action for nonpayment of rent, a tenant may counterclaim. If that happens, the ORLTA provides a withholding remedy where the tenant may pay their rent into a court fund. At the end of the proceedings, if this fund contains enough to cover the outstanding rent, the tenant may retain possession of the premises. However, to invoke this remedy, the tenant must act in good faith. But how far-reaching is this requirement?

Claim Pointer: A tenant’s misrepresentations during the application process is not a violation of the duty of good faith that would allow for the tenant’s defenses under the ORLTA to be disregarded. Landlord Tenant; Good Faith; General Litigation.

Lopez v. Kilbourne, 307 Or. App. 301 (October 21, 2020)

FACTS

The parties involved in the underlying case are a tenant and landlord who entered into a lease agreement beginning in April 2018. Before entering into the agreement, the tenant sent the landlord a text message that included the statement “I have never been evicted, I always pay my rent.” A few months into the lease, the tenant failed to pay her rent in August and September. On September 11, 2018, the landlord served the tenant with a 72-hour notice of termination of tenancy if the tenant did not pay the outstanding rent in the next seven days. The tenant claimed that in the proceeding days she made multiple attempts to pay the landlord the outstanding rent, but the landlord rejected the offers. Which led to the landlord filing a forcible entry and detainer (“FED”) proceeding.

The tenant responded to the landlord’s suit with a counterclaim that the landlord had unlawfully entered her premises on multiple occasions without proper notice. The tenant also raised the affirmative defense that she had tried to pay her rent before the deadline, but the landlord had refused acceptance. Additionally, in an attempt to retain possession under the ORLTA, the tenant paid her outstanding rent to the court while the case was pending. In response, the landlord argued that the tenant had breached her duty of good faith, which is required under the Oregon Residential Landlord and Tenant Act (“ORLTA”), when she misrepresented certain facts in the text message sent during the application process. Particularly, the landlord argued that the tenant misrepresented her rental history because it appeared that the tenant had been involved in prior eviction proceedings.

The trial court ruled in favor of the landlord, finding that the tenant had failed to act in accordance with the duty of good faith, as required in the ORLTA, when she misrepresented certain facts in the application process. As a result of finding the tenant breached her duty of good faith, the trial court ignored her affirmative defense. Also, as a result of breaching the duty of good faith, the trial court held that the tenant did not retain her right to possession and the premises were returned to the landlord. Additionally, the court held that the tenant failed to prove her counterclaims, which were dismissed with prejudice. The tenant then appealed.

LAW

Under the ORLTA, a tenant may counterclaim against a landlord in an action for eviction resulting from the nonpayment of rent. When a tenant counterclaims against the landlord, the tenant can then pay into the court the amount of outstanding rent. Thus, if the damages on the tenant’s counterclaims, plus the rent that the tenant paid the court is greater than or equal to the amount of outstanding rent, the tenant has preserved her right to possession of the premises. Additionally, even if the tenant does not succeed on her counterclaims, as long as the tenant has paid the court enough to cover her past rent, the tenant may retain possession of the premises. However, in order to preserve this right to retain possession, the tenant must bring the counterclaims in good faith. There is a duty of good faith in the ORLTA that requires good faith in the performance or enforcement of every duty or action that must be performed as a condition precedent to the exercise of a right or remedy under the Act. The duty of good faith under the ORLTA is a subjective standard. Under the trial court’s interpretation of the duty of good faith, the parties must act in good faith at all times, without any qualification, in order to not lose their rights as tenants or landlords under the ORLTA. However, the court of appeals found this to be an incorrect interpretation of the duty.

The Oregon Court of Appeals held that the duty of good faith under the ORLTA is not broad enough to extend to the application process. The court clarified that the duty of good faith only extends to every duty and every act that is a condition precedent to exercise a right or remedy under the ORLTA. As for the tenant’s misrepresentations in the application process, neither the tenant nor the landlord made clear what duty or act of condition precedent the tenant was performing. Thus, the statutory duty of good faith does not apply to actions during that part of the rental process. The ORLTA does not condition the tenant’s right to argue that she paid rent in an eviction action, or the right to pay outstanding rent to the court, on the honesty of the tenant’s statements in the application process.

Ultimately, the Oregon Court of Appeals held that the trial court erred in ignoring the tenant’s affirmative defense that she made attempts to tender the rent to the landlord. Additionally, the trial court erred in not allowing the tenant to retain possession of the premises even though she paid more than the amount of outstanding rent to the court. Thus, the decision of the trial court was reversed and remanded.