3 tenants sign lease, 1 moves out, new 1 moves in-new lease?

Question

I am interested in hearing other landlords thoughts on this.  I don't see it often, but just had it happen to me and got me thinking maybe I am putting myself in a bad situation.

Three roommates move in and sign the lease on July 1.  September 1, two of the three call and say they kicked the 3rd one out (and they say she agreed to move out).  They found a new roommate and want to put him on the lease.  They can't find 1st tenant now as she has disappeared with boyfriend.

Give me your thoughts on how to minimize my exposure.  Do you sign a new lease noting that it cancels the first lease?  Do you stay out of it and have them sign a sublease with the new roommate?

Richard F. · Answer

You really need to document the change, and have ALL parties sign off on it. This starts with your original lease...where you specifically address "substitutions". Failing to do so can lead to a costly problem.

If you have, for example, three adults on a lease...call them A,B, and C, and B moves out, you have several issues:

Do A, C, and new roomy D now meet your original approval requirements? What if B was the primary income producer? What if D is a poor credit risk? Or a felon? What about Security Deposits? Do YOU pay B his portion, and collect new from D? How do you determine who is responsible for damages? And when? What if B comes back to you later demanding "their" security deposit refund? Without proper documentation, this can become a huge can of worms.

To prevent this, you must document, document, document! For starters, I charge a $200 administrative fee to process a substitution, and this is clearly spelled out, in the original lease, AND DISCUSSED at the time of original application when dealing with this type of situation.
Next, you REQUIRE that all substitutes complete an application, and must meet or exceed the qualifications of the person they are replacing, INCLUDING co-signers, and you process and approve/deny them as usual.
Now, you get signatures from all parties on a form that spells out the substitution, indicating which party is moving out, who is replacing them, and that each of the other original parties approve and agree to the substitution. 
I do not ordinarily refund security deposit money to the person moving out...the roomates must work that out among themselves. I MAY provide refund ONLY after receiving deposit from new roomate. I also make clear that a damage assessment is ONLY done when the unit is entirely vacated. If they know of damage that B is responsible for THEY need to have B take care of it, or they will ALL be responsible at final moveout.
Regarding security deposits...if the lease states A,B,and C are tenants, without documentation similar to what I have shown, you better make the deposit refund out to A,B, and C NOT A,B and D. Without documentation, D has NO legal right to B's portion of the deposit (assuming here that you did not originally allocate X dollars of deposit to each individual), and, furthermore, B can sue for damages long after the others have moved out if you can't prove you met the requirements to return the deposit to B in a timely manner.

Having said all of that, realistically, it is not uncommon for substitutions to take place without your knowledge or consent. If that happens, and at moveout the tenants want the security deposit check made out to different names than on original lease, DON'T DO IT. Make it out exactly as the lease shows, let them forge the missing tenants name to cash it if they want! Not Your Problem.

Michael Rossi · Answer

Scott,

I actually do this differently than most landlords.  When I have roommates (mostly college students) move in, I make ONE student and his/her parents responsible for the lease.  I don't think I've ever had college students move in without them playing musical roommates.  In this day, people change roommates and boyfriends/girlfriends with great regularity.  I want one person that is responsible  -  much simpler.  If that person doesn't pay, I evict everyone and only have to sue one parent for any damages..

Mike