We had a customer break his lease 6 months early. He sent us a text letting us know that he found a bigger place and planned to move. We found a new tenant before he moved and rented the office at a higher rate. He stated that we could keep his security deposit because he broke the lease. We've estimated approximately 50% of his security deposit will go towards repairs, removing furniture, management fees and rekeying. Since he broke the lease, are we still obligated to send him the remaining amount of the security deposit and a letter confirming our intentions?
you need higher management fees. There lots of small issues that take our money, take it when it comes in easy. Also, your lease should have a penalty when someone breaks lease.
Operate in compliance with the laws for your jurisdiction. They should have some say in how security deposits are handled. If not, find out from other real estate investors in your locale as to what is customary.
Marcia Maynard, Fischer Properties | Podcast Guest on Show #83
You still need to send the previous tenant a explaination of costs on what you did with the security deposit. Lets say it was $1,000 and you have $500 in broken down garbage disposal fees, repairs, rekeying. Then put the remaining $500 down as mutually agreed upon early termination fee. In your future leases, clearly spell out the early termination.
If there are repairs need to be done take pictures before and after and provide the tenants a list of repairs along with receipts, just in case they sue you.
The lease should clearly state what happens in this type of situation, which is not uncommon with rental properties. In the absence of clear language in the lease, the real estate laws in your state will prevail.
Thanks, I appreciate the feedback. Several lessons have been learned from this experience. For others facing the same situation, especially with commercial property, a solid lease is the key. Many customary leases, even NOLO, are very vague when it comes to terms like this. Each state has different rules.
Consulting with an attorney who has experience in commercial leasing is worth the fee. Unfortunately, we worked with an attorney who specialized in housing. Although he provided us with valuable information, commercial leases are completely different. Escalation clauses, Re-letting fees, and possibly larger security deposits are in the works for those who do not follow the rules.
It's unfortunate, we aim for 100% customer satisfaction and go the extra mile by giving new business owners an affordable lease. We even provide extra services that other companies do not offer. However, I'm discovering that there are a few out there that ruin it for others. This particular tenant has a lot to learn and tends to be more reactive instead of proactive. He really pushed the limits during his 5 month tenancy. Perhaps it's good that he decided to move. It really could have been worse.
Once again, thanks for the feedback. I have learned quite a bit on this site.
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