Indiana Supreme Court asked to review rent-to-buy agreements

Asserting the Court of Appeals’ ruling in a rent-to-own dispute will adversely impact tenants across the state, Indiana Legal Services filed a petition Monday to transfer its litigation against Rainbow Realty Group for the company’s rent-to-own practices.

The petition is the latest turn in a case that began in Marion County small claims court in 2015 and worked its way to the Court of Appeals. Several organizations, including the Economic Justice Project at the Notre Dame Clinical Law Center and the National Consumer Law Center, filed amicus briefs in favor of ILS’s clients, Quentin Lintner and Katrina Carter.

In its transfer petition,Indiana Legal Services argued the rent-to-buy contract is a lease governed by the state’s Landlord-Tenant Act. The legal aid provider called the Act an “unambiguous statute” and urged the Supreme Court to grant transfer because the appellate court’s decision on this statutory question of first impression will govern rental agreements of “hundreds of other Rainbow tenants and many other tenants across Indiana.”

The case is Rainbow Realty Group, Empire Holding Corp. and/or Cress Trust v. Katrina Carter and Quentin Lintner, 49A02-1707-CC-1473.  

Rainbow Realty is the defendant in other lawsuits filed by the Indiana Attorney General’s Office and Fair Housing Center of Central Indiana.   

Lintner and Carter entered into a rent-to-buy agreement with Rainbow in 2013 a few weeks after seeing a yard sign that advertised “Own a Home in Three Days. Bad Credit OK.” The house the couple signed for did not have plumbing or electricity, had no working doors or windows and was generally not fit for habitation.

Under the terms of the agreement, Lintner and Carter had to make rental payments for 24 months. They did not accumulate equity in the home during that time and they would be evicted if they fell behind in rent, losing whatever investment they made in refurbishing the residence.

Rainbow Realty had the couple evicted in small claims court, but Lintner and Carter appealed to Marion Superior Court. Ruling Lintner and Carter were treated as “homeowners when it came to maintaining the property and tenants when it came time to evict them,” the trial court found the company violated the Landlord-Tenant Act and granted partial summary judgment to the couple.

Before the Court of Appeals, Rainbow Realty argued the agreement signed by Lintner and Carter is not a lease but a contract for sale.

A unanimous appellate panel agreed with Rainbow, holding the agreement did not have a definite term and the property did not revert to the lessor, which are the statutory requirements of a lease. The Court of Appeals found the definition of “rental agreement” in the Act provided only “limited guidance,” and instead adopted a common law definition of lease from an 1845 case requiring leases to have a definite term and end with reversion to the landlord. 

Although the panel acknowledged the agreement does contain elements of a lease, it held that the concern that such agreements prey on unsophisticated “buyers” who stand to lose both their home and their money is best addressed by the General Assembly, not the courts.

Indiana Legal Services believes the Statehouse has already covered the matter.

“The arrangement in this case is just the kind of abusive practice that the legislature was trying to outlaw by enacting the Landlord-Tenant Act,” ILS wrote in its petition to transfer. “Rainbow deceptively dressed up as a sale what is actually a rental agreement that provides substandard housing at an inflated price. The arrangement allows Rainbow, which buys hundreds of uninhabitable properties, not only to have them occupied and therefore less prone to vandalism, but also in many cases to have them improved by the tenants before they are evicted, improvements Rainbow retains after evictions without compensating tenants.”