Signing a lease a month in advance, what do you collect?

19 Replies

On Tuesday, I am having my newly accepted tenant sign a lease starting 10/1.  Since the lease won't begin until October, what should I expect as far as collecting first month's and security deposit.  We agreed to a 1.5 months security deposit which they are bringing.  Do you also require first months rent even though the lease doesn't begin for another month?  I have not yet responded to the request of signing the lease on Tuesday, so I can respond to the tenant telling them what to bring.

Thanks in advance.

I always get ALL of the money upfront.  You are holding the house for them for a month, what if they decide they don't want it?  I actually won't hold it more than 2 weeks or I keep showing the house.  Many will tell you to get certified funds so they can't just put a stop payment on the check.  I will accept a personal check (I've never gotten burned yet) but I make sure that I cash the check immediately.

Do not give them the keys until October 1st or they will move in early!

I guess you are pretty certain that the unit will be vacant and ready for the move in date. And you know the PA state law regarding more than one month of rent as security deposit after the twelfth month. 

So you want to be certain that you don't give this tenant any keys until you have been paid and that tenant paid utilities have been switched into the tenant's billing. I would prefer to get paid at lease signing just in case the tenant has cold feet and backs out. But usually I am a bit flexible in that since I still have the keys; after all, I have screened thoroughly so the tenant appears to be of good character, and it can be a large lump sum for some tenants to come up with all at once. 

@Jim Shepard  Ok, I was thinking along those lines but wasn't 100% sure. 

@Steve Babiak  I know the in PA you can charge up to 2 months security deposit, however after 12 months it must revert to 1 month's rent.  If I collect 1.5 months rent, what do I have to do after 12 months.  Give the extra 500 back or can I continue to hold the funds?  I'm not sure I completely understand this law.  Also, what if the tenant gets cold feet?  If the lease is signed, am I entitled to all monies already collected? Finally, the property is already completed and ready for move in now.  I decided to accept these tenants because I thought it would be a good fit.  Two of the neighbors recommended them. They have very high incomes, long length of employment at current employer and no pets.  Also, the husband is a former vet so I have a soft spot.  However, both of their credit scores are not the greatest hence the extra deposit.

I required the pet deposit and security deposit up front in certified funds and rent in exchange for keys (again in certified funds for the first month as that is always the payment that is most likely to bounce) on the first day of the lease. We had the lease signed more than a month in advance. Everything in this situation went smoothly and I believe that having them sign the lease in advance reduces the possibility of a cancellation because the tenants have signed a legal agreement.

sounds like you got a good tenant.  But standard practice should still be followed.  Get First, Last and Sec Dep at the lease signing and turn the keys over on the first to ensure the funds have been deposited (cash or certified is better).  Not sure of your bank, but a lot of bank may release the funds to you in 1-3 days, but that does not mean the funds are actually good.....its like a good faith on the bank to let you have it sooner. 

This also allows you the right to keep re-entering the unit in September without any fear they have jumped the start date (and they tend too). 

So it sounds like I should collect first month's rent and the deposit at closing.  Give the keys on the first of October.  Say if the tenant does get cold feet prior to the move in date and the lease is signed, am I entitled to the security deposit and the rent already paid?  Hopefully that doesn't happen, but I am in just wondering.

That sounds like a good plan. 

But we typically just collect the deposit at lease signing, and the first month's rent is due when we give them the keys (usually the day before occupancy).

@Christian Bors , you need to read the lease your tenants signed and understand it. It will be very clear what monies you are entitled to keep if they back out. For me, I require 30 days notice. If a tenant notifies me with more than 30 days that they are backing out then they get all their money back. If they notify me that they will not be moving in with less than 30 days then I keep the first month rent and give back the security deposit. 

You can structure it however you want as long as you know the law in your jurisdiction and comply with it. My places are very easy to rent so I do not mind giving all monies back but I want that protection for < 30 days. 

Originally posted by @Christian Bors :

...

@Steve Babiak  I know the in PA you can charge up to 2 months security deposit, however after 12 months it must revert to 1 month's rent.  If I collect 1.5 months rent, what do I have to do after 12 months.  Give the extra 500 back or can I continue to hold the funds?  I'm not sure I completely understand this law.  Also, what if the tenant gets cold feet?  If the lease is signed, am I entitled to all monies already collected? ...

The state law expects that you only hold one month, so they either move out and you allocate the funds as needed for repairs and return the balance, or they stay and then you give them back that amount over the one month of rent. Of course if you raise the rent you want to keep the amount of the increase. And keep good records so you do not have somebody claim they have a larger deposit. 

There is a thread where @Chris Martin posted his "binder" agreement to handle the holding of a unit. Look for it. It allows you to keep the binder fee if the tenant fails to go forward. 

@Steve Babiak Thanks for the clarification. It doesn't make sense that the state forces a landlord to return the extra security deposit even if the tenants are still in the building.  The extra security deposit was triggered because of less then par requirements.  Hence, it doesn't incentivize a landlord to take risk on questionable tenants.  Anyways, I appreciate the help.  I will make sure to follow the law and I'll look for the thread.

We have a new tenant getting the keys (and paying the first full month's rent by money order) on September 15th, with a move in date of October 1st. October's rent will be pro-rated. We told him we will only hold the unit for 2 weeks. 

He is paying the full security deposit, money order or cashier's check, today when he signs the lease, which has a starting date of 9/15/15. 

The lease states that what he is paying today will hold the rental unit until he is approved by the condo association. He needs a signed lease to apply with them; he's already approved by us. After their approval, the deposit becomes the security deposit. 

The lease states that if he changes his mind after being approved by the association, he forfeits the deposit. We have stopped showing the unit.

@Christian Bors

I do not allow signing a lease that early. You are inviting trouble that way. I create a binder contract and collect consideration money to hold the property for them. That way, if they get cold feet I keep the money, which is more than the lost rent for holding it, and I don't have to worry about a professional tenant saying that I have to evict them, I held keys, and so on. When it is actually time to get them in, then we sign the lease, do the walk through, and provide keys.

I disagree @Bryan O. ,

Maybe it's different in your area, but I strongly believe that the better quality tenants are getting their housing arranged a couple months in advance of their move. For August 1 occupancy, we show and sign leases in June.

Hi @Tanya F. . Are you saying you would stop showing a unit and lose rent for a month on the hope that they perform? Or do you mean signing leases 1-2 weeks in advance? I will sign leases 1-2 weeks early, but anything longer than that gets a binder and then a lease. Using a binder for those same better quality tenants does the exact same thing for them, but covers you in case they decide they don't want to move in. It doesn't cost them any additional money and is very easy to do.

Everyone has their own preferences, but when you can do something that requires almost no extra time, no extra money, doesn't change the tenants that you are screening, and lowers your risk, I can't see any logic in doing it otherwise.

Originally posted by @Bryan O. :

Hi @Tanya F.. Are you saying you would stop showing a unit and lose rent for a month on the hope that they perform? Or do you mean signing leases 1-2 weeks in advance? I will sign leases 1-2 weeks early, but anything longer than that gets a binder and then a lease. Using a binder for those same better quality tenants does the exact same thing for them, but covers you in case they decide they don't want to move in. It doesn't cost them any additional money and is very easy to do.

Everyone has their own preferences, but when you can do something that requires almost no extra time, no extra money, doesn't change the tenants that you are screening, and lowers your risk, I can't see any logic in doing it otherwise.

I have zero vacancy, and lose no rent. I show the units while they are still occupied, several months before the previous tenants move out. I stop showing the place as soon as I have a signed lease. I collect the deposit upon lease signing, and collect the first month's rent when they move in.  I've never heard of tenants backing out after signing a lease. Does that happen in your area?

I'm not sure what you mean, unless you don't start showing places until previous tenants move out. I'm also not sure what you mean by a binder.

Christian Bors this is exactly what we do in this situation. I apologize in advance for the spacing issues. I am in my phone. 1. They give the equivalent of 1 months rent to hold the apartment (this money goes towards their security deposit. 2. When giving their security deposit make them sign a form that basically states that the apartment is theirs upon giving the deposit (you won't show it anymore) but if they fail to sign a lease before or on the 1st then you retain the right to rent the apartment to someone else and that their deposit is non-refundable. 3. Get the lease signed in advance so the day of move in they give you the remainder of the security deposit money and the first months rent and they give you the keys. Do not stop showing the unit until you get a deposit.

I spoke with the tenant and they are bringing the 1500 deposit tomorrow (cashier check).  They said they are going on vacation in a week and would like to wait until next pay period to pay for Oct's rent.  I'm fine with collecting the rent on the first.  Honestly coming up with 2500 a month prior to the move in date is probably difficult for most.  I agree with @Tanya F. , collect the deposit and when they give 1st month's rent on 10/1 I will hand them the keys.  However, I think I will have them sign a separate piece of paper stating if they do not come up with 1st months rent on OCT 1st they forfeit the security deposit.  

@Bryan O. what's the point of the binder?  If the lease states they forfeit the security deposit if they change their minds, what else do you have to worry about?  You don't have to evict them, they changed their minds.  Also, they don't have the keys to the house so how can the move in?

@Michael Noto thanks mike!

Hi @Christian Bors . If you sign a 1-year lease with the tenant and accept their deposit, does it matter who has the keys? What happens when they claim you are not performing and want 3x damages because you have refused them access to the home that is legally theirs? They have paid a deposit and signed a contract! Is it even worth the risk of being in that situation? The binder gives them the same peace of mind as a lease that they have a home and it gives you more peace of mind that you have no risk if they walk. It is done to prevent the "professional tenant". What you have said in your post is the essence of the binder: you collect "something" to hold the place, and you will give them the keys once they give you the rest of the money. The binder is that interim document.

I do thorough screening and have never had a problem, but "past performance is no guarantee of future returns", especially when it comes to people. I choose to mitigate the risk rather than accept it. It does require an extra 1-page sheet, but it is worth it to me.

@Bryan O. ok so it's an extra precaution. I can see the value. You are basically trying to protect yourself from someone who knows how to work the system. I like the idea, seems a bit excess but I think I will do something similar.

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