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The 7 Actions to Take to Protect Yourself Against Run-Away Tenants

by Ken Corsini on June 20, 2014 · 19 comments

  
The 7 Actions to Take In Order to Protect Yourself Against Run-Away Tenants

Every buy and hold real estate investor hopes for a long term tenant that pays on time and abides by the terms of the lease.

Unfortunately, this doesn’t always happen and you need to be prepared in the event that you find yourself with a lease but no renter.

The 7 Actions To Protect Yourself Against a Run-Away Tenant

 

You may find yourself in a situation that is very costly if you are not properly prepared for such an event. There are actions you can take both before and after a lease is broken to protect yourself.

1. Deterrents

One way to deter tenants from breaking a lease is to set expectations before they sign on the dotted line.

Within the text of the lease you want to be sure that you are providing them with information about their responsibility under the lease. Additionally, you want to make sure that you outline what the repercussions will be if they fail to hold up their end of the lease.

You may not want to rely on them to actually read the lease papers. Sitting down with them to highlight specific points may deter renters from breaking the lease.

One option is to inform them that if they break the lease they will be responsible to locate a suitable and acceptable new tenant to take over the lease in their place.

Be sure to include, and point out, that they will be responsible for the remainder of the rent for the term of the lease if they break it and are unable to locate a replacement.

Related: 17 Vital “Rules” Your Rental Lease Should Cover

It is also important that you inform the tenant that if they break the lease you will need to keep their security deposit to help cover the cost of the unexpected vacanty. While this doesn’t cover the loss you might suffer if the tenant leaves unexpectedly it can assist you in dealing with the carryover until you get a new tenant into the space.

When writing out the lease it is vital that you are clear about the expectations.

Include information about the legally binding nature of the contract and let them know that you will take them to small claims court if they fail to hold up their end of the bargain. Attempting to discourage the tenant from breaking the lease could save you a great deal of money in the long run.

2. Records are Vital

One of the most important things that you can do to protect yourself throughout the term of the lease is to keep excellent records.

This means that if the tenant sends you a written notification that they will be breaking their lease, you want to keep it on file. If they do not, and you have a conversation about it, you should make a note yourself – complete with dates and times. You should also request that the tenant give you a formal written notice as soon as possible.

3. Communication is Essential

Make sure that you send a letter to the tenant telling them that they have to pay the rent on the lease until the term expires or that they need to find someone to take their place as a tenant.

It is important that they understand that it should be paid on time until such time as you have a new tenant in the building. Remind the tenant that if they do not do this that you will be forced to take legal action against them.

Be sure that the letter is signed and dated. I suggest hand delivering the letter to the tenant as well in addition to sending a copy by certified or registered return receipt mail to the address that you have for them or the last known address.

4. Taking Account

If you are given notice that the tenant plans to leave the property it is urgent that you make arrangements to see the property right away.

It is preferred that you do this while the tenant is still there, if at all possible. You want to go over any repairs that might be necessary to the property in order to put it back up for lease. Photographs are always a huge help for you when there is damage to the property. This is especially true if the property is abandoned.

It is important that you keep copies of all ads that you place when trying to re-lease the property. You also want to keep a solid list of potential new tenants and put it in the file for the broken lease.

Make sure you clearly note when the new tenant takes possession of the property. All of this information will be used in determining the amount of money that the previous tenant owes from the broken lease.

5. Calculations

When making your calculations for money owed by your previous tenant you want to calculate the amount of rent owed from the time they last paid rent to the time that you rented it out again.

You then need to take the amount of money spent on advertising as well as the amount you used to repair any damage to the property. Take this total and subtract it from the security deposit you held for the tenant.

If the deposit was not enough to cover this number you want to contact the tenant in writing and let them know the amount you still need from them.

I would include an accounting with your letter so that they can see the full accounting and monies owed in addition to a timeframe in which you expect to be paid (i.e. 10 days from the date of your notice). The notice should be signed, dated, hand delivered and sent via certified or registered return mail.

6. What to Do if You Don’t get Paid

If the tenant doesn’t pay you within the allotted time or you have not made some arrangement for payment with them in writing, you can file a civil suit in the county where the property is located.

Related: The Professional Tenant – Just How Painful Can Evicting One Tenant Be?

This will start the process of the court contacting the tenant and setting a hearing date. Bring all of the information you have collected with you to the hearing and present it to the judge in a calm manner.

7. What to Expect

You will need to wait for a judgment from the court.

They will notify you of the decision and will decide whether the tenant is to pay you a monthly payment until all is paid, whether to garnish the tenant’s pay if they feel it is necessary, or if they will collect all the money at one time. It is important to abide by the judge’s ruling in collecting from your tenant.

As an investor, you want to do everything you can to choose good tenants for your properties. Unfortunately, you cannot foresee the future and eventually you’ll find yourself in a situation that requires the management of a delinquent tenant and/or broken lease.

While it may be uncomfortable to work through this type of situation, it’s important to be prepared and educated so that you can protect yourself from potential monetary damages that typically occur.

Do you have a story where a tenant disappeared while still under a lease?

Be sure to leave your comments below!

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{ 19 comments… read them below or add one }

Forrest June 20, 2014 at 8:33 am

About 8 years ago, I had a tenant break lease because she moved overseas and got married. She left about $5,000 in damages and unpaid rent, for which I got a judgment. Even though she’s back in the states and the judgment is valid, the fact that it’s in another state (NC), which seems to be very debtor friendly, and she’s now married to someone who wasn’t a part of the judgement have made it very unlikely that I would see a dime if I chose to move the judgment to NC and try to enforce it.

If anyone’s had a different experience in NC, I’d love to hear about it.

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Adrian Tilley June 20, 2014 at 1:21 pm

Great article, just wanted to point out that the Court process you outlined is different from my state. Here, once you file (probably in small claims), you need to make sure the defendant (tenant) gets served. One way to do that is have the Clerk of court mail the complaint to the defendant.
Then, once you get a judgment, the court will not enforce it, that’s up to the plaintiff. Also, as Forrest pointed out, if someone leaves the area (especially if they leave the state), it will be very difficult to recover, and probably not worth the hassle unless they owe you a lot and you know they can pay. No blood from a turnip and all that. Just be aware that the Court process will vary from place to place.

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Ken Corsini June 21, 2014 at 8:35 am

Great point – legal process will differ from state to state. Also, the reality of chasing down tenants that don’t have any money is often fairly slim.

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Kimberly H. June 20, 2014 at 9:21 am

Great article. I read through the lease with people. It’s a takes a while and is a pain, but then I know they know that I know that they know the terms of the lease. I have heard of people even video tape reading them the lease!

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James June 20, 2014 at 10:04 am

Document! Document! Document!

It may seem like a pain at the time, but it will really help should you need it.

This is another reason why I do not use a PM. No PM is going to take the time to do this for you! They are only worried about getting a body in the unit and then handling all the problems as they come. This keeps them in a job.

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Ken Corsini June 21, 2014 at 8:37 am

Can’t say we’ve ever video taped an initial meeting with a tenant … but good for them for being proactive!

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Loren Whitney June 20, 2014 at 9:57 am

Great read Ken! I don’t like to think of the worst case scenario of a running tenant but it’s good to stay on point to be prepared. I’ve taken your blog and added a few to my new tenant checklist.

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Ken Corsini June 21, 2014 at 8:37 am

Thanks Loren!

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James June 20, 2014 at 10:19 am

Ken, this is really good information. The only thing that I would be cautious on is:

“Make sure that you send a letter to the tenant telling them that they have to pay the rent on the lease until the term expires or that they need to find someone to take their place as a tenant.”

In my state, a rental property owner cannot do this. He/she has to prove that the unit is being advertised and that he/she is doing everything possible to mitigate the situation. The tenant is under no obligation to find a new tenant and telling them to do so puts the rental property owner at a HUGE risk. Take the bull by the horns and find a new tenant asap. Sitting around and hoping the current tenant will pay the rent is foolish. Once he/she has moved they will no longer pay rent and you will be looking for a new tenant with an empty unit on your hands. Thinking that you can take them to court to fulfill the lease term will get you lost rent and a HUGE fine for trying to do so.

The property owner is obligated to mitigate the loss not the tenant. Also, security deposit cannot be withheld as rent. By law, a rental property owner cannot hold a tenant hostage in their unit or responsible for the remaining term of the lease. That is the law where I live.

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Kimberly H. June 20, 2014 at 10:30 am

Where I own rental property, the tenant is responsible for the rent for the entire term of the lease, HOWEVER, the landlord is responsible for “mitigating the damages” aka getting another tenant as soon as possible. Tenants don’t know that landlords need to mitigate the damages, so it does help keep them where they are until the lease runs out. But if someone leaves early, and you let the house sit vacant without trying to get someone in there, no judge in this area is going to give you the time of day. However, if you can prove you tried to get someone in who met your qualifications and it took several months, via proof of advertising, denied applications, etc., then that’s a different story.

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Ken Corsini June 21, 2014 at 8:40 am

James – you make a great point – while you may ask a tenant to help find a replacement … the reality is, investors need to be on the ball advertising to fill the unit themselves (and realistically, I don’t know any investors that would rely on a tenant to fill the unit)

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Dawn Anastasi June 20, 2014 at 2:37 pm

“One option is to inform them that if they break the lease they will be responsible to locate a suitable and acceptable new tenant to take over the lease in their place.”

I wouldn’t trust my tenant, who has no tenant screening skills, to find a suitable and acceptable new tenant. They could pick anyone off the street as they want to get out of their lease as soon as possible.

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Ken Corsini June 21, 2014 at 8:41 am

I agree – I don’t know any investors that wouldn’t advertise like crazy to find a replacement tenant. … that said, it doesn’t hurt to ask your tenant to put the word out.

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Eric June 20, 2014 at 7:21 pm

And the best way to protect yourself is to get great tenants to start with. A minimum of 625+ credit scores and a decent income.

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Ken Corsini June 21, 2014 at 8:43 am

Eric – thanks for the input. I know in my market we wouldn’t lease half of our properties if we waited for 625 credit scores. We look at income, references, criminal background, previous evictions and credit … but our credit research has more to do with what’s actually on the credit report and what are their current payment patterns.

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Sharon Tzib June 21, 2014 at 8:17 am

I’m with the others – no way I’m letting and/or expecting my tenant to find a suitable replacement – that’s absurd. Most tenants that break a lease will sneak out in the middle of the night with no forwarding address anyway, so your chances of being able to serve them for a judgment are slim to none; ditto for sending them an accounting of what they owe you. When tenants break leases,they do so knowing they are forfeiting their S/D, since a good lease will make it clear if they terminate the lease, the S/D will automatically be kept as penalty for doing so (altho you need to know your state laws, as they vary widely).

Landlords also need to know their local/state laws for judgments as well. For instance, it is next to impossible to garnish wages in Texas.

The scenario you are describing does not always apply to a tenant breaking a lease either. A lot of month-to-month tenants will bolt without 30 days notice because they don’t want to deal with trying to get their S/D back from the landlord and want to instead use it as last month’s rent, even though most leases clearly spell out this is not acceptable.

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Ken Corsini June 21, 2014 at 8:46 am

Sharon – I agree that I wouldn’t “rely” on a tenant to find a replacement – but I would ask them to put the word out. Granted, if they bolt in the middle of the night or break off communication, they probably aren’t interested in helping to get the word out.

Also, you’re right that laws vary from state to state regarding the collection of judgments and the keeping of security deposits.

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Geoff Van Dusen June 24, 2014 at 10:27 am

My first rental, in NM, had tenants that not only trashed the property, but left after 4 months. I got a Lawyer that assured me I would be lucky to get the lost rent, and wouldn’t get the remaining months of the lease. My contract stated that the tenant owed me $12000 for the year rent, payable in monthly installments. The Judge said he had never seen a contract written this way, said it was very clear what the tenants owed to me, awarded the entire amount, including damages. My Lawyer was blown away, did not expect the judgement. We were able to garnish wages, and I was permitted to re-rent on top of it. Turned my first of many experiences into positive situations, and lessons learned.

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nora June 28, 2014 at 1:40 pm

There should be a registry for “wicked tenants” and “wicked landlords”. I know of a guy and his wife who left a huge back rent, have a good city job, and then wrecked the next owners house. These people are professional and they know what to do what to say and how to get out of their wicked ways. Court should not be tenant friendly or land lord friendly, they should be open minded. Of course we have wicked land lord and wicked tenant, but to be in favour of one over the other is also wicked. Landlords have mortgage to pay, and amenities for tenants and insurance. Tenants pay and have a right to comfort.

Advocating once for a 90 year old citizen who lived in an apartment for over 35 years, and it could be classified as horrible , needed lots of repairs and even a new stove. It took two years of calling, the owners taking photographs, and after they agreed, It took more than a year to even get a paint job, and after two or more years they have not completed the repairs in the apartment. Friends took care of making the apartment livable.

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