Tenant signed lease but wont pay deposit

Austin, Texas
General Landlording & Rental Properties
2yFollow

Tenant signed lease but wont pay deposit

Joseph Weisenbloom
Investor · Austin, TX · Member since 2013 · 443 posts · 174 votes

Recently a perspective tenant found a loophole in my lease after it was signed. It states that the deposit will be "paid before move in" To this effect the tenant could pay the day before move in leaving me waiting weeks with the threat of them backing out at the last minute. 

Is this lease valid without receiving a deposit? Or can I cancel? Im a little concerned as finding a lease loophole isn't the ideal way of starting a rental relationship. I have used this lease for 7 year without running into this issue. Most people want to secure the rental with a deposit in advance.

What do you guys think?

2Reply
183 views

Most Popular Reply

Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
2y
Quote from @Joseph Weisenbloom:

You can't unring the bell.

I would remind the tenant that he is on a month-to-month lease. If he wants to stay for more than 30 days, he needs to abide by the intent of the lease and pay the security deposit. If he wants to play games, give him a written 30-day notice of termination before he even moves in. That will fix his wagon.

I see two problems:

1. Why are you holding the property for "weeks" without collecting money up front? My policy is that the approved applicant has 24 hours to pay the deposit in full and with certified funds. If they don't pay, I continue marketing the property.

2. I don't hold a property vacant for more than 14 days. If they want it, they need to start paying rent, utilities, and other costs. I would only deviate from that on a rare occasion for the perfect renter that walks on water.

"I have used this lease for seven years without running into this issue."

That's because you are operating on luck instead of solid processes. Really evaluate how you run the business. Ask yourself - at every step of the way - what the worst-case scenario is and then plug the holes before your luck runs out. I'm familiar with the Texas lease and it still has holes that need to be filled with additional documents or solid policies and procedures.

The DIY Landlord Book4.7247 Reviews
WebsiteView Page
4Reply
See this reply in the discussion

25 Replies

Jump to latestLatest
  • Andrew FreedBusiness Member
    Investor · Worcester, MA · Member since 2020 · 1k+ posts · 1k+ votes
    2y

    @Joseph Weisenbloom - I normally don't counter sign leases before receiving cashier checks or the funds in my account for the security deposit and first months rent. In your particular case, I would consult with a local eviction attorney to get their take on the local laws and regulations.

    Nonetheless if a tenant tried to pull this on me, I probably wouldn't want them as a long term tenant in the future. If they are fighting you on this minor item that should be standard practice, I would assume they will be a nightmare tenant and will be difficult in most scenarios. I always establish this expecation up front, they pay on time and treat my unit right and I address issues in a timely manner and treat them with respect. Once these rules are violated, I simply move forward with getting them out. 

    [email protected]781-964-3200Podcast Guest on Show 69 Doors from ONE Real Estate Deal Using Other People’s Money
    3Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    2y

    @Joseph Weisenbloom

    What’s your termination rights in the lease ?

    7e investments53 Reviews
    WebsiteView Page
    0Reply
  • Khalid Bryan
    Real Estate Broker · Fort Lauderdale, FL · Member since 2018 · 196 posts · 191 votes
    2y

    @Joseph Weisenbloom has it been fully executed? I’d think you need a lawyer for the real answer but I can give advice on how to prevent this in the future.

    Did you have a lawyer create a custom lease for you or did you find one online? I’d use this as an opportunity to reassess your lease verbiage to see what other loopholes you have exposure to.

    I’d avoid open ended deadlines and make it as specific as possible.

    Also I saw someone else say you sign last. Absolutely true. I send the tenant the unexecuted lease to review and sign then the owner signs once satisfied Incase we need to terminate.

    Check to see if any other terms they should have done hasn’t been done resulting in a breach of contract.

    0Reply
  • Jonathan Bock
    Accountant · Bryn Mawr, PA · Member since 2023 · 409 posts · 321 votes
    2y

    @Joseph Weisenbloom

    Any monetary consideration at all?  Just want to clarify did you receive anything? 

    I can only imagine how this relationship would be if you hand over keys and possession to this prospective resident…

    1Reply
  • Joseph Weisenbloom
    OP
    Investor · Austin, TX · Member since 2013 · 443 posts · 174 votes
    2y

    @Chris Seveney Its a month to month. So I can do 30 day notice if I want to end the lease. I am going to call the tenant and level with them and see what we can work out. I think I can get them to send a deposit but at this point I don't know if I want them to given how they reacted. Below is exact language for sec deposit.

    Roommate has to deliver to Landlord a deposit in the amount of seven hundred fifty dollars ($750)
    ("Initial Deposit") before move-in. If this Lease is not accepted by Landlord or Landlord's
    authorized agent within five (5) days, the Initial Deposit shall be refunded. The Deposit shall be
    held by
    Landlord as security for the performance of Roommate's obligations under this Lease pursuant to section 14

    @Khalid Bryan Yes its fully executed. Its a standard texas real estate council lease. I will be amending the lease after this incident.

    @Jonathan Bock They paid for background/credit check. Other than that no. No deposit or anything. I am going to call the tenant and level with them. Yea the attitude is a bit concerning.

    1Reply
  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    2y

    Whatever you do, do NOT let these people become a tenant! Better to lose money than let them get into that relationship with you. People are unreal aren't they?

    4Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    2y
    Quote from @Joseph Weisenbloom:

    You can't unring the bell.

    I would remind the tenant that he is on a month-to-month lease. If he wants to stay for more than 30 days, he needs to abide by the intent of the lease and pay the security deposit. If he wants to play games, give him a written 30-day notice of termination before he even moves in. That will fix his wagon.

    I see two problems:

    1. Why are you holding the property for "weeks" without collecting money up front? My policy is that the approved applicant has 24 hours to pay the deposit in full and with certified funds. If they don't pay, I continue marketing the property.

    2. I don't hold a property vacant for more than 14 days. If they want it, they need to start paying rent, utilities, and other costs. I would only deviate from that on a rare occasion for the perfect renter that walks on water.

    "I have used this lease for seven years without running into this issue."

    That's because you are operating on luck instead of solid processes. Really evaluate how you run the business. Ask yourself - at every step of the way - what the worst-case scenario is and then plug the holes before your luck runs out. I'm familiar with the Texas lease and it still has holes that need to be filled with additional documents or solid policies and procedures.

    The DIY Landlord Book4.7247 Reviews
    WebsiteView Page
    4Reply
  • Joseph Weisenbloom
    OP
    Investor · Austin, TX · Member since 2013 · 443 posts · 174 votes
    2y

    @Nathan Gesner Hey there I usually collect the money upfront after I get the lease signed. This particular time they were giving me grief because my contract doesn't state I need the deposit right after signing the lease. The weeks I was referring to was the amount of time until their move in date. I can't risk holding the property for them without a deposit in hand. I am confident I can get the deposit from them but at this point do I even want to? If they are causing issues with the lease signing what other issues will they cause.

    2Reply
  • Jay ThomasPro Member
    Real Estate Agent · Houston, TX · Member since 2021 · 1k+ posts · 715 votes
    2y

    Looks like you've hit a hiccup with your lease agreement and a tenant who's found a loophole.The key is that technicalities matter, and while the phrase "paid before move-in" seems straightforward, it can be interpreted differently. The court might consider your intent, especially if there have been seven years without issues, strengthening your case. However, loopholes happen, and Discuss with the tenant and clarify your expectations. Can they pay a portion upfront and the rest before move-in?,Revise the lease: Amend the clause to explicitly state "deposit due upon lease signing, seeking legal advice, or even canceling the lease are options to consider. Remember, prevention is crucial, so review your lease with a lawyer to ensure it's clear, concise, and protective of your interests.

    [email protected]832-889-5607
    0Reply
  • Greg WeikBusiness Member
    Property Manager · Denver, CO · Member since 2020 · 263 posts · 327 votes
    2y

    @Joseph Weisenbloom, sorry to hear about your situation. 

    @Nathan Gesner has a good process and it's similar to ours, but here's what I propose you do moving forward (you've already gotten some good advice on how to handle this specific situation). 

    When someone is approved to rent a property, they have to pay a "holding fee."  Define the holding fee in your application language.  The way we do it:  The moment you pay the holding fee (the dollar amount is one month's rent), $500 of it is non-refundable if you back out and fail to enter into a lease, take possession, etc.  After 72 hours, the full holding fee is forfeited if you back out. 

    Why calling it a holding fee matters:  Security deposits are subject to state laws regarding their disposition.  If you call it a security deposit, you have to treat it like a security deposit.  If it's a holding fee, however, it's a quid-pro-quo and it makes more sense.  Approved applicant pays the HF, you pull the listing for them and the applicant already has agreed (in their signed application) that a lease must begin no more than two weeks from the property's availability date. 

    Using this method, you'll never wonder if a property is actually rented. If someone pays the HF, they have rented the property. If they back out, they have a lot to lose and you can put the property back on the market without losing money. 

    We do hundreds of a leases a year and this process has proven to be very successful.  

    In the case at hand, I think you need to consult a real estate attorney to find out if there is consideration.  I would venture there is consideration here, because there was value for value - you pulled the rental listing for this new tenant, thus exchanging something of value, and the lease should therefore be enforced.  You may be sweating waiting on this deposit, but hopefully, you have teeth in your lease in terms of what happens if the new tenant walks.  

    303-586-5560
    Real Estate Solutions4.4387 Reviews
    WebsiteView Page
    0Reply
  • Mackaylee BeachPro Member
    Real Estate Agent · Kansas City, MO · Member since 2020 · 1k+ posts · 492 votes
    2y

    Starting a lease agreement this way is not ideal. I've discovered that explaining our requirements to potential tenants even before they view the property has been extremely beneficial.

    [email protected]
    0Reply
  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    2y

    Another easy fix other than saying you don’t have valid lease until you sign it would be to simply add a line saying the room remains available to others until the deposit is received. 

    I also like the idea of delivering either a non-renewal before they move in, or a rent increase. 

    0Reply
  • Ned J.Pro Member
    Investor · Manteca, CA · Member since 2017 · 1k+ posts · 2k+ votes
    2y

    Yeah, this relationship is over if this is how it starts day one.... playing games and jerking me around over some small wording interpretation just kicked you out of my unit ASAP. Good things its a MTM.

    I dont sign anything until I have every penny of certified funds in my hand. Until then the lease is not valid. 

    3Reply
  • John Ojo
    Real Estate Agent · Northern California · Member since 2021 · 17 posts · 15 votes
    2y
    I just left court today for an eviction. You'll most likely need an attorney. However, consider yourself fortunate as they are showing you their true colors in the beginning. Get them out asap, and get a new agreement or write in your preferred language. Money before keys.
    0Reply
  • Account Closed
    Property Manager · San Diego, CA · Member since 2024 · 65 posts · 42 votes
    2y
    Quote from @Ned J.:

    Yeah, this relationship is over if this is how it starts day one.... playing games and jerking me around over some small wording interpretation just kicked you out of my unit ASAP. Good things its a MTM.

    I dont sign anything until I have every penny of certified funds in my hand. Until then the lease is not valid. 


     100% agree. I also don't sign anything until I have the money in my hand.

    0Reply
  • Steve K.
    Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes
    2y
    Quote from @Joseph Weisenbloom:

    @Nathan Gesner Hey there I usually collect the money upfront after I get the lease signed. This particular time they were giving me grief because my contract doesn't state I need the deposit right after signing the lease. The weeks I was referring to was the amount of time until their move in date. I can't risk holding the property for them without a deposit in hand. I am confident I can get the deposit from them but at this point do I even want to? If they are causing issues with the lease signing what other issues will they cause.

    Yeah I agree, red flags all over the place. Look into whether or not consideration is required for a contract to be binding in your state. That could be your out. “Sorry the contract was never binding because I got nothing of value from you.” Consideration doesn’t have to be money, but both parties have to get something of value. If they’re being flaky on their promise to pay the deposit, what have you really gotten of value? Probably a lawyer question though. Do they happen to be a lawyer or a paralegal/ wannabe lawyer? Sounds like a paralegal tenant I once had, trying to be smart in a weird way. I wouldn’t give them the keys. I’d give them the happy clause, “It seems that you’re not happy with our agreement because you’re not delivering the security deposit as required, so let’s just terminate the lease and go our separate ways. Good luck in your search for a place to rent.” Change the language in your lease to “this agreement is not valid without security deposit in the form of good funds”or something along those line, and next time don’t sign the contract without the deposit in the bank. Good luck! 
    2Reply
  • Tony Savage
    Real Estate Broker · San Diego, CA · Member since 2016 · 187 posts · 117 votes
    2y

    I do not sign the lease and continue to market my rentals until I have the deposit in hand. I tell the prospective tenant that as well.  It's not an executed contract until both parties sign.

    0Reply
  • Abe Loveless
    Member since 2023 · 2 posts · 0 votes
    2y

    In Brandon Turner's book "The Book on Managing Rental Properties" he talks about accepting the initial deposit as a deposit to hold the unit and has verbiage that the "deposit to hold" will automatically convert to the security deposit upon move-in.

    I'm working my way through the book now, so it's fresh in my head.  

    0Reply
  • Khalid Bryan
    Real Estate Broker · Fort Lauderdale, FL · Member since 2018 · 196 posts · 191 votes
    2y

    @Joseph Weisenbloom nice and now you know you signed the lease last

    0Reply
  • Melanie P.Pro Member
    Rental Property Investor · Member since 2023 · 1k+ posts · 922 votes
    2y

    We do not issue a lease until all move in money has been paid, in cash or certified funds ONLY. We will allow you to do a holding agreement up to two weeks the "holding fee' converts to the 'first month's rent' upon deposit payment and lease signing within the timeframe. 

    Don't call holding fees deposits. Deposits are, by definition, refundable.

    I say this for next time. For this time you'll have to see if they bring the deposit to you prior to the lease commencement. I would tell them that due to their delay you will not release possession until the deposit clears or else it must be cash/certified funds for same day release.

    0Reply
  • Joseph Weisenbloom
    OP
    Investor · Austin, TX · Member since 2013 · 443 posts · 174 votes
    2y

    Guys I want to update the forum. So I ended up getting the deposit. I also leveled with this tenant and reset expectations. I talked to my lawyer and while I could have backed out of the contract, this could caused other issues. I will be amending my contract to eliminate any issues with this in the future. I also will be more careful with sending fully executed contracts. The lease is month to month so I will let the forum know how this tenant behaves. 

    3Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    2y

    A bit of rewording on your lease should cover you, but even with the current wording, it implies that the deposit is provided before the lease is signed

    "Roommate has to deliver to Landlord a deposit in the amount of seven hundred fifty dollars ($750) ("Initial Deposit") before move-in. If this Lease is not accepted by Landlord or Landlord's authorized agent within five (5) days, the Initial Deposit shall be refunded."

    0Reply
  • David BennettBusiness Member
    Property Manager · Bothell, WA · Member since 2024 · 49 posts · 31 votes
    2y

    A suggestion, subject to your local laws:

    "As time is of the essence of this Agreement, a resident’s failure to pay a security deposit or any move-in fee prior to move-in is a breach of the rental agreement."

    [email protected]425-541-8456
    PMI Equitas512 Reviews
    WebsiteView Page
    0Reply
  • Mak J.
    Member since 2018 · 234 posts · 44 votes
    2y
    My understanding as a realtor agent is if the tenant signs the lease, it does not matter if landlord signs or not because tenant signing the lease is pretty much acceptance of the lease by the owner. I forgot the term but per law, it counts as if both parties agreed in the court. I may be wrong but there is a clause in general in the law. For example if a agent stands outside a open house, you approach them, they show you the property and makes a offer, it automatically binds Agent-Client relationship although there was no specific contract entered between parties.

    Quote from @Khalid Bryan:

    @Joseph Weisenbloom has it been fully executed? I’d think you need a lawyer for the real answer but I can give advice on how to prevent this in the future.

    Did you have a lawyer create a custom lease for you or did you find one online? I’d use this as an opportunity to reassess your lease verbiage to see what other loopholes you have exposure to.

    I’d avoid open ended deadlines and make it as specific as possible.

    Also I saw someone else say you sign last. Absolutely true. I send the tenant the unexecuted lease to review and sign then the owner signs once satisfied Incase we need to terminate.

    Check to see if any other terms they should have done hasn’t been done resulting in a breach of contract.


    0Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    2y
    Quote from @Mak J.:

    I disagree with that. For example, when a buyer presents an offer to purchase a home, that offer is not binding until the seller signs the offer AND returns it to the buyer. If the buyer rescinds the offer before the seller has returned it, then it is void.

    Regardless, the Landlord should have a clear policy and procedure to prevent this from happening. I require payment and a signed document within 24 hours of approval. If they don't meet those requirements, I offer it to the next applicant.
    The DIY Landlord Book4.7247 Reviews
    WebsiteView Page
    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free