First Months Rent

9 Replies

I have someone who just rented a home from me and paid her first months rent but has changed her mind about moving in. (she has not paid the security deposit yet) She signed the lease 5 days ago but has yet to move in. Now she wants a refund. I believe I can keep the money until I rerent the place. What is your knowledge on this?

What does you lease say? I have a break lease clause so I would be able to keep it as part of the penalty and require more to get out (love break leases).  Most areas and states allow you to keep the tenant on the hook until the house is rented. Landlord must put forth a good faith effort in getting the house rerented 

To avoid this very situation, this is what we do.

After we approve someone for a unit we tell them we need a deposit from them within 3-5 business days. We explain to them that the deposit is 2-fold. 

1. When we get the deposit the apartment is yours and we will not show it to anyone else.

2. We have them sign a form outlining that fact.

On the form it clearly states that if they back out before they move in they do not get their deposit back.  Would it hold up in court?  Not sure, but we get no push back on it at all and it really makes people think about if they really want the apartment before they fork over the deposit money.

Your landlord/tenant laws should explain what is required of you, likely some itemized list of the extra charges you'll incur as a result of the cancellation and daily rent rate for how long it is vacant, and there's likely a deadline, like 30 to 45 days, for you to send it and the refund back to the tenant.  Not sure if it's the same as you classified it as rent and not security deposit, but I would think a court would look at it the same way for the tenant's purposes, at least in the states I rent in as they are tenant friendly.

I do the same for our SFRs. For our condos, the board has to approve the applicant after I do. The deposit hold the condo until then. The deposit receipt states they must cooperate with any requests by the board for approval in a timely manner. If they are rejected by the board (none have been), they will get it back. If they simply change their mind, they won't (none have). 

Thank you all for your replies. It seems like I can keep the daily rent amount till it rents out again plus expenses. But to keep the entire $750 sounds questionable.

Jon Holdman, I think, has a very good holding fee agreement, where the tenant pays the initial funds as a holding fee, non-refundable if they don't take the unit, credited in full towards the security deposit when they pay first month's rent and move in.  I love that system, as long as it's valid in the state where you use it.  

Here are a couple of statements in my paperwork:

My application states: By signing this agreement applicant acknowledges that any deposit made to secure the property is non-refundable unless landlord rejects the application

My contract states:  Resident agrees that all deposits are non-refundable, regardless of occupancy, prior to 6 months and 50% refundable between months 7-12. Resident also agrees to pay in advance all rent and any fees before moving into premises. 

She signed a lease, which makes her responsible for the monthly rent for 1 year (or whatever your lease period is). Re-rent it and when you do, keep the daily rent and refund the difference.

She signed the lease. Technically she is on the hook to pay the entire 12 mo lease, but you are responsible to remediate the damages and get the place rented for the same rent to someone who meets your qualifications. She doesn't get any rent back unless you can find someone who moves in on or before the day she was to move in. If they move in later than her prorate the difference by day. Going forward I would make sure you have a form and get the security deposit too, that would be nonrefundable if they back out.

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.