Landlords Beware: Municipal Liens Can Come Back to Haunt You

FLB Law      Apr. 4, 2016

Although the law is somewhat unsettled in this area, it is possible for city-owned utility companies to place liens against a landlord’s property for unpaid tenant utility bills without first providing notice to the property owner of the same.  Significantly, the Municipal Claims and Tax Liens Act authorizes municipalities to file liens on properties that will have priority over all other encumbrances, except taxes and tax liens.  Therefore, it is important for landlords to keep track on their own of the utility payments that their tenants are responsible for.

Last year, the Pennsylvania Commonwealth Court held that the City of Philadelphia was not required to provide a landlord with notice of his tenants’ nonpayment of gas bills prior to the imposition of liens against his property. In City of Philadelphia v. Perfetti, the landlord’s tenants were responsible for their gas bills, but several tenants failed to pay for a number of years.  As a result, the City of Philadelphia filed liens against the property without providing notice to the landlord/property owner.  The landlord learned of the liens nearly three years later, at which time he was unable to seek contribution from the responsible tenants due to a lapse of the statute of limitations.  The landlord argued that due process entitled him to a pre-lien hearing prior to the deprivation of any property interest.  The Commonwealth Court noted that, as a matter of first impression, the Court needed to decide whether the imposition of such liens without notice violated the landlord’s due process rights.  The Court rejected the landlord’s arguments for pre-lien notice and concluded that landlords can take numerous steps to prevent this scenario, including requiring proof of payment by tenants or by simply increasing the monthly rent to include the cost of utilities.  In the end, a property owner is liable for services that benefit his property, regardless of their incurrence by tenants, and regardless of the fact that the landlord may lack notice of the unpaid bills.

By contrast, a few weeks ago, the United States District Court for the Eastern District of Pennsylvania reached the opposite conclusion under a similar set of facts. In Augustin et al v. City of Philadelphia, the plaintiff property owners/landlords sought to challenge and enjoin the city-owned gas utility from imposing liens on their properties for unpaid utility bills incurred by their tenants.  The Court emphasized that, although Pennsylvania law does afford some due process procedures for challenging the validity of gas liens after the liens have been levied against the properties, the Due Process Clause requires that notice and opportunity for hearing be provided before an individual is deprived of a significant property interest, absent extreme circumstances.  Thus, Judge Joyner concluded that the methods employed by the city-owned gas utility did not provide the property owners with the opportunity to address their tenants’ arrearages at a meaningful time or in a meaningful manner, and granted partial summary judgment in favor of the plaintiff property owners.

As such, the law surrounding the imposition of municipal liens on leased properties without prior notice to landlords is in a state of flux at the moment. Landlords would be wise to take matters into their own hands and ensure that their tenants are up to date with their utility bill payments, rather than run of the risk of surprise municipal liens appearing against their properties in the future.

The attorneys of Fitzpatrick Lentz & Bubba are experienced in dealing with landlord/tenant issues. For additional information or assistance, please contact Veronica M. DeAngelo or another attorney from the Real Estate, Land Use & Development Group.

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