Tenants moving out early....do I return their deposit.

General Landlording & Rental Properties
9yFollow

Tenants moving out early....do I return their deposit.

Megan Arzt
Investor · Moab, UT · Member since 2016 · 101 posts · 27 votes

I have tenants who just signed a year lease as of March 1st.  Now they bought a house and are moving out after only 3 months.  I specifically state in my lease in bold that "if the lease is broken for any reason (this includes leaving early) then the security deposit will not be returned."  

I mentioned this to them and now they are threatening to take me to small claims court as well as call the state of Utah for over a dozen violations (no idea what if these are made up - they won't tell me).  If I am in any violation I would want to fix them.  Also, they haven't moved out yet, so they could do damage to the house.

In their defense, they did pre-screen some tenants and find me a replacement.  I did have to spend about 10 hours checking references as it took applications to find suitable candidates.

I will have no break in tenancy.  I don't want to start a fight, but what is the reason for having a year lease if tenants never abide by them?  I have only had 3 tenants out of dozens who have finished out a lease here in Moab.  My Colorado property has never had this problem.

I want to do the right thing and would love advice from both the legal and the ethical side.

Thanks!

0Reply
128 views

Most Popular Reply

Edward Hamill
Professional · Nokomis, FL · Member since 2013 · 123 posts · 99 votes
9y

Purpose of deposit is to keep you whole in the case of damage and/or early termination.  

If you are not out any repairs or rent, you will open a can of worms keeping the deposit as far as I understand.

That being said, I would not return a penny until they are out and a walk through is completed and new tenant has moved in.  Cover any repairs, cleaning, etc as well as any days/weeks vacancy between the two and go from there.  No matter what, I would follow the letter of the law and your lease regarding timing, etc (No checks on move out date).

6Reply
See this reply in the discussion

20 Replies

Jump to latestLatest
  • Edward Hamill
    Professional · Nokomis, FL · Member since 2013 · 123 posts · 99 votes
    9y

    Purpose of deposit is to keep you whole in the case of damage and/or early termination.  

    If you are not out any repairs or rent, you will open a can of worms keeping the deposit as far as I understand.

    That being said, I would not return a penny until they are out and a walk through is completed and new tenant has moved in.  Cover any repairs, cleaning, etc as well as any days/weeks vacancy between the two and go from there.  No matter what, I would follow the letter of the law and your lease regarding timing, etc (No checks on move out date).

    6Reply
  • Account Closed
    Medford, MA · Member since 2016 · 85 posts · 44 votes
    9y

    @Megan Arzt

    You can get a lot of great input from people on here but I would look up the landlord and tenant laws for your state and consult an attorney. 

    3Reply
  • Diane G.
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    9y
    In California , once you have a replacement tenant, you can't keep charging the previous tenant...in other words, you can earn two rent incomes on one rental property... Now you have it written in the lease.. does it make a diff, I don't know... only a lawyer can tell you... But if you are not out, I would not go for the fight... just move on
    0Reply
  • Andrew Holmes
    Rental Property Investor · Chicago, IL · Member since 2015 · 275 posts · 271 votes
    9y

    @Account Closed

    Brian is right. Look up with your area has any wierd laws regarding tenants. City of chicago has all sort of rules about security deposits. Some of the other suburbs have the same in our area. Most of the suburbs follow the state guideline. 

    Barring any strange ordinances or rules by the city your lease states that specifically then you may want to consider returning the deposit minus the costs of due diligence and any other expenses you may have incurred. 

    If you are happy with the tenants they found for you and you are moving forward with them then if you go to court all the court would award you is the damages. What did you loose because of the tenants action and breaking the lease. 

    No one wants their leases broken and it's not fair yet in the real world you have pick and choose which battles are worth fighting. 

    Seems like you can work out a amicable fair deal with you previous tenants. 

    2Reply
  • Levi T.Pro Member
    Rental Property Investor · Tucson AZ / Nice FR / Washington DC · Member since 2016 · 1k+ posts · 1k+ votes
    9y
    Originally posted by @Megan Arzt:

    I mentioned this to them and now they are threatening to take me to small claims court...

     Until they file a court summons, it's all talk. If they do, you can cut them a check and dismiss the case before it ever gets to court, until that time they can pound sand!

    I would update your lease to say there is a fee for breach of lease with a set price for listing fees and other cost. Our says $375 for agent commission fees, and advertising cost. We also charge $2,000 for early termination. After damages are deducted from the deposit, whatever is left goes to those fees.

    2Reply
  • Marcia Maynard
    Investor · Vancouver, WA · Member since 2013 · 3k+ posts · 4k+ votes
    9y

    We don't use long-term lease agreements, only month-to-month, so we don't have this kind of problem. But I understand from folks who do use long-term leases that the best practice is to have a "break lease" clause that clearly outlines the terms in the event the tenant or the landlord wants to break the lease. Often that type of clause will state a specific amount that the tenant must pay to break the lease, instead confusing it with the security deposit.

    If you tell a tenant that you intend not to return the security deposit if a tenant breaks their lease, then there is less incentive for the tenant to perform well on any other term of their rental agreement for the remainder of time they are in your unit.

    I would be careful not to confuse the matter by using a security deposit in this way. Instead, have a break lease clause that charges the tenant a specific amount of money if they chose to break the lease early. If they don't pay that charge, then deduct it from the security deposit when you prepare your final report regarding the return of the deposit.

    The purpose of the deposit is to cover the cost of damages, unpaid rent/utilities, unpaid fees, unpaid rent, etc. If you won't be out any rent, there are no outstanding unpaid fees, utilities are paid up, and the place is left clean and without damages, then you should return their deposit. You won't know that until they have vacated the unit and returned possession to you.

    Also, review the landlord-tenant laws for your jurisdiction, to make sure you do what is required when handling security deposits.

    At this juncture, don't do anything to rile them. I would even tell them you will reconsider the matter considering the work they did in locating potential renters and that you appreciate their effort.

    On the matter of the "over a dozen violations" for which they want to take you to small claims court, that's a separate matter. You should have a procedure tenants can follow if they want to lodge a complaint and address them in a timely manner if they do. Courts don't take kindly to tenants who bring something to court that they have not in good faith already tried to resolve with their landlord. But I would venture to guess, the tenant is just blowing smoke and that their comment was reactionary to when you told them they would not be getting their deposit back.

    Good luck!

    3Reply
  • Matthew Paul
    Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes
    9y

    You say the tenants screened the new tenants ?     That wouldnt fly with me 

    0Reply
  • Megan Arzt
    OP
    Investor · Moab, UT · Member since 2016 · 101 posts · 27 votes
    9y

    They pre-screened the tenants and had suitable options (in their opinion) submit an application to me.  Then I screened them.  

    I thank everyone for their advice.  Every time I have a "problem" I learn something new.  My inclination is to give them back most of their deposit (provided they leave the place in good shape), less some for time I had to put in to screen the tenants.  And from now on I will have an early termination fee that is separate from the security deposit.  How do you structure that?  Does it come out of the deposit or is it something else that you collect up front?

    Thanks!

    1Reply
  • Levi T.Pro Member
    Rental Property Investor · Tucson AZ / Nice FR / Washington DC · Member since 2016 · 1k+ posts · 1k+ votes
    9y
    Originally posted by @Megan Arzt:

    They pre-screened the tenants and had suitable options (in their opinion) submit an application to me.  Then I screened them.  

    I thank everyone for their advice.  Every time I have a "problem" I learn something new.  My inclination is to give them back most of their deposit (provided they leave the place in good shape), less some for time I had to put in to screen the tenants.  And from now on I will have an early termination fee that is separate from the security deposit.  How do you structure that?  Does it come out of the deposit or is it something else that you collect up front?

    Thanks!

     Everything works like a waterfall in this business. It works in the format that they owe you money on an account balance, whatever money they owe they can pay it, if they don't pay it, any account credits/prepaid rents or security deposits go towards that balance. Most will setup their lease to say all payment made first go to any outstanding balance, then rent. This insure things work on a first owed first paid, so a tenant does can not say they paid rent and ignore your other fees or balances. The deposit works on the same concept normally, pays for repairs, and if anything is left it goes towards that balance, then finally if they still owe you money, you send them a bill, maybe charge interest if it's not paid in 30 days, etc.

    1Reply
  • Linda S.
    Investor · Richmond, VA · Member since 2016 · 1k+ posts · 2k+ votes
    9y

    @Megan Arzt,

    If your contract had a lease termination fee, you could charge that, but you don't get to keep the security deposit. I'd suggest putting one in, where they can break the lease for 1-2 months rent. I don't know your state laws, but I know in VA, it's very clear that security deposits are only taken to compensate for damages above normal wear/tear, and to take rent if not paid.

    It sucks, and you feel screwed  (I just had to kick out a tenant after **`1** month, I understand), but if they have found you decent replacements,  then you as a landlord aren't really being hurt financially.   I've seen way too many cases about security deposits on people's court, this isn't an area I'd mess with, and lawyers are chomping at the bit to sue you.. so I'd absolutely return them it  (plus interest if in your state) once they move out and you determine if any damage is done.    

    1Reply
  • Chris Purcell
    Investor · Philadelphia, PA · Member since 2010 · 739 posts · 372 votes
    9y

    If there's no damage to the property and ZERO days of vacancy why would you not return in full?

    Have a moral code and it will go a long way 

    0Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    9y

    As a business you charge for all your loses/expenses including any costs associated with screening and replacing tenants when a tenant breaks a lease. Unfortunately a landlord can not bill for their time. A landlords time is worth nothing.

    Term leases have very little value. Tenants come and go as they please without regard for a lease. I personally only use M2M leases as they are to my advantage. You will learn that tenants are far more forthcoming with their future plans when they know they will not be breaking a lease.

    As long as you establish a business code there is no need for a moral code. Business first.

    0Reply
  • Jack B.
    Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
    9y
    Originally posted by @Matthew Paul:

    You say the tenants screened the new tenants ?     That wouldnt fly with me 

     I had a real genius who put down a holding deposit, signed a receipt stating he would lose it if he backed out, then not only backed out and demanded his money back, but tried to find a tenant for me. I declined his help repeatedly and finally had to tell him to go away as I don't want an unreliable person with no interest in my property picking new tenants for me. Some of these people really are idiots.

    0Reply
  • Jack B.
    Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
    9y

    OP, they signed a lease that clearly states that they lose the deposit if they break the lease, then 3 months later they break the lease because they bought a new house and they have now threatened you with small claims court and other deficiencies only AFTER you try to enforce the lease terms they signed and curiously they had no issues with the house until then?

    I'd state it to them just like that and ask them what judge they think is going to rule in their favor? Then ask them if they think the judge would rule in the favor of your counter claim...

    Seriously, with these kind of morons, you have to really lay out some critical thinking blue prints for them.

    3Reply
  • Ben Soutas
    Real Estate Professional · Salt Lake City, UT · Member since 2017 · 14 posts · 3 votes
    9y

    I am actually a tenant and just found a new apartment that I will be moving into before my lease was up. I am only moving out about a month and a half early though, not 9 months early like your tenants. My landlord was kind enough to not charge me the fee because it was so close to the end. 

    That being said, in my contract, he only would have docked me half the deposit instead of all of it for moving out early. I think that will be a better option for you going forward as well. 

    0Reply
  • Jeffrey Stasz
    Investor · Charleston , SC · Member since 2014 · 160 posts · 142 votes
    9y

    Let me add to this by asking you a question: 

    How certain are you that you have zero code violations on your property? How eager are you to have a code enforcement officer come out and inspect with a fine tooth comb? How prepared are you to deal with the ramifications of a CEO's findings? What if they want you to install a sprinkler system? Have you measured all of your egress openings? What if they are having a bad day and just feel like hitting you with a $10,000 fine? Do you understand that regardless of written code the determination of the local Code Enforcement Officer is gospel? If they want you to put in a fire escape guess what? Or a fire suppression system? Or replace all of your windows with code compliant new construction windows? 

    Chances are, unless you built this property, you are in violation of something. And their is also a good chance that the fine and or jail time accompanying that violation will wipe out your rental income on this unit for at least a year.

    It actually sounds like your tenants are being reasonable. They informed you they were leaving, found a replacement and are leaving because they bought a home! Congratulate them and move on. 

    1Reply
  • Rebecca Belnap
    Rental Property Investor · Lehi, UT · Member since 2015 · 195 posts · 133 votes
    9y

    https://le.utah.gov/xcode/Title57/Chapter17/57-17....

    I looked for a while for an area that specifically talks about leases broken by the tenants, but didn't find it.  This is a good site to see Utah state law.  What I do know is that you can only charge them for actual losses.  I have seen several contracts that have a termination fee on a lease and they state that there is one cost if they help find the new tenant, and a separate one if they want the landlord to find the new tenant.  Your deposit is supposed to cover the condition of the property.  If you tell them in advance that they are getting nothing back even though they helped you find a new tenant, they have no reason to clean.

    If it was me, I would give them the entire deposit back (assuming their is no damage at the final walk through) and change your next lease agreement to say maybe $100 for a broken lease agreement if they refer tenants that you then pre-screen, and maybe $300 if they don't.   My numbers may not match with yours since my rentals are in Utah county and I know I can rerent in a day. 

    2Reply
  • Jonathan Johnson
    Rental Property Investor · Charleston, WV · Member since 2013 · 262 posts · 109 votes
    9y

    Landlordology.com has good state-specific landlord-tenant laws broken down in plain english to read. Very helpful.

    In this case, I don't think you have to give the deposit back. They signed, which means "agrees to", the paragraph stating they'd lose the deposit if lease breaks. What you have to ask yourself is, "Is it worth the deposit to pursue this?" 

    1Reply
  • Megan Arzt
    OP
    Investor · Moab, UT · Member since 2016 · 101 posts · 27 votes
    9y

    Thank you so much to everyone.  It can be a bit daunting doing this all on my own.  It's really nice to have a community to turn to for advice.

    0Reply
  • William Hochstedler
    Broker · Logan, UT · Member since 2013 · 1k+ posts · 1k+ votes
    9y

    A few thoughts:

    • Always talk to an attorney before putting a clause in a lease (like keeping an entire security deposit) that may conflict with statute.
    • The answer to how a tenant's security deposit is handled is always, "In accordance with state law".  Nothing more, nothing less.  You never have to verbally discuss the security deposit disposition with a tenant and doing so usually causes problems.
    • Many landlords choose not to put a termination fee in the lease because then tenants may think it's okay to terminate the lease.  Early terminations can always be negotiated.  Also, think about your assignment policy which is what is happening here.
    • Be polite about the "violations."  They need to put these in writing if they are going to use them for negotiating leverage.  As @Marcia Maynard suggests this is hot air, but don't let the conversation turn sour because of it. 
    • All in all, you're doing pretty well here if you have a qualified tenant moving in without losing rents. 
    • Consider joining the Utah Apartment Association or thegoodlandlord.net for $50-100/year to get a very good lease.  

    Good luck!

    4Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free