Breaking the lease, could we deduct for a new tenant placement?

5 Replies

Could we deduct 50% of the security deposit as a new tenant placement expense when the previous tenant breaks the lease?  or only cleaning and damage expenses?  Thx

Generally no, the way you put it.. It depends on how quickly you can re-rent. While you can hold the tenant responsible for the rent till the end of the lease, it's your duty to mitigate damages.

I have an early termination penalty written into the lease, one month's rent. I usually re-rent in a month anyway. To make it fair, this penalty applies only to the first year of tenancy, though you can make it regardless how long they're there. When I was younger, I had promotions and job re-location, and that's a sore point for me if the landlord grabs my raise for having to move to a better job. But back then, employers help with such penalties.

You can always charge for damages. But cleaning, not so much, as I watched enough court shows on TV and landlord always get into trouble over cleaning that judges see as normal wear and tear. You got to be careful with damages too. Some landlord expect rentals to be in perfect re-rent condition, so it depends on how long they been there. I once re-rented a SFR practically in a day after we cleaned and repainted the place, and was told by people coming by that no one bothers with it anymore, at least in my neck of the woods. Well, it's good for me.

I also have an early termination policy written into my lease.  Breaking the lease = forfeiting the deposit. 

Be careful even if you have a clause in the lease regarding forfeiting a deposit as many states don't honor that clause, and some allow the tenant to sue for x times the amount contested (in MD, for instance, it's 3x the disputed amount).   In most states where I've done business, if there is no early termination clause, usually you can charge for the costs to advertise and the time it is vacant including utilities if tenant was responsible for them up until lease end, itemized with the rest of the damage above normal wear and tear.  You can't just pick an arbitrary number and keep it.  I have a break-lease fee equal to 2 months' rent in the ones I self-manage, which actually deterred at least one tenant from leaving months early, but I will also work with them if they have been great tenants and allow me to advertise and find qualified replacements to take over when they leave.  

You definitely should ask this question to an attorney. In many cases, the state may feel differently about what is and is not an acceptable use of a tenant's deposit regardless of what you put in your lease. I've heard stories of landlords keeping deposits to cover real and actual expenses related to damages and/or a tenant breaking a lease and a judge not agreeing with that use of the deposit and awarding damages to the tenant. What we've done to mitigate some of that is including some non-refundable fees for cleaning, rekeying, etc, in addition to the deposit. Generally, a deposit is thought to be refundable, and every tenant fully expects to get 100% of their deposit back regardless of how they leave the property or if they break the lease, but fees are not considered refundable.

Thank you, everybody, the common practice over here is that when tenants break the lease they do not expect the deposit back at all, but usually they leave some kind of mess behind, so they owe money anyways.  My current case was with the high-end property, good quality tenants, and a high deposit.  My investigation of law shows that I could deduct other than cleaning and damage expenses associated with breaking the lease, if I would pay the realtor to find the new tenant, probably it will be a good justification of the expense caused by breaking the lease.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here