Sign lease or sign deposit to hold agreement

12 Replies

I apologize if this has been asked and answered already.  I searched and didn't find a response to this particular question.

I have an existing tenant who's lease expires July 31, and she will be moving out.  I have recently begun marketing property with availability August 1.  Funds to move in are first and last months rent plus a security deposit.  My question is, if I line up a qualified tenant now (or soon):

Do I have them sign a lease now (for a lease term obviously beginning Aug 1) 

or 

Do we sign a deposit to hold agreement now, then sign the lease Aug 1 when they move in, hand over keys, and provide first and last month rent via certified funds.

In either case I plan to take a deposit to hold now that would roll into their security deposit.

Obviously the above assumes their application, credit check etc. all checks out.    

You have them sign the lease and pay at the same time. Your risk here is if the existing tenant doesn't bail you are going to have some problems, because you have legally agreed to rent a place that isn't available for the tenant. They can sue you for damages, which might include everything from staying in a hotel trying to find another place to having to eat at restaurants because they don't have a kitchen. You could attempt to recover that money from the tenant that didn't leave, but I wouldn't count on it.

If it were my property, I would leave some space between the last tenant leaving and new tenant coming in, at least a few days to allow for proper cleaning and repair of anything that needs done. Unless your rental market is so bad that you need a whole month to try to find a qualified renter. In general, I don't bother marketing our properties until the tenant is gone and the unit is empty. We might lose a week's worth of rent with this approach but the couple of hundred dollars is just the cost of doing good business. 

Originally posted by @JD Martin :

You have them sign the lease and pay at the same time. Your risk here is if the existing tenant doesn't bail you are going to have some problems, because you have legally agreed to rent a place that isn't available for the tenant. They can sue you for damages, which might include everything from staying in a hotel trying to find another place to having to eat at restaurants because they don't have a kitchen. You could attempt to recover that money from the tenant that didn't leave, but I wouldn't count on it.

If it were my property, I would leave some space between the last tenant leaving and new tenant coming in, at least a few days to allow for proper cleaning and repair of anything that needs done. Unless your rental market is so bad that you need a whole month to try to find a qualified renter. In general, I don't bother marketing our properties until the tenant is gone and the unit is empty. We might lose a week's worth of rent with this approach but the couple of hundred dollars is just the cost of doing good business. 

Thanks.  The market is pretty strong, and I have had a high level of interest.  The reason for listing now vs. waiting is, in my limited experience (mostly listing the same property last year), it seems the most qualified tenants don't wait until the last minute to look.  i.e. IME if someone has an existing lease coming up and wants to move in early August, they're not gonna wait til July 31 to look.  I can easily afford to eat a month of vacancy, but don't see why I would do that if I can get a qualified renter lined up with no vacancy or only a few days vacancy.

Existing tenant has been a great tenant, great communication, great credit, keeps the place well kept, paid on time every month etc.  I don't see it as likely she would squat post her lease end July 31, but I guess anything is possible.  I did a walk through prior to listing so I am up to speed on the condition and it's essentially move in ready, I will have it professionally cleaned prior to turnover and there's one discretionary thing I might have done.  I have had great cooperation from this tenant any time I need to get a contractor in so I do not anticipate problems addressing any unforeseen repairs that come up (and again, I just walked through the house last week). 

Main reason I am asking is I re-read the ultimate guide to renting your house https://www.biggerpockets.com/renewsblog/2013/01/0... and it mentions a deposit to hold agreement, but it doesn't discuss the pros/cons of doing that vs. just signing the lease.  At what point do you take a deposit to hold and sign a deposit to hold agreement, vs. just sign a lease?  

Fwiw the new applicant also has some flexibility on time, they do not have to move in Aug 1 ... I supposed I should not have said lease "obviously beginning Aug 1" in my OP, I mean't Aug 1 or after.  I could leave a few days breathing room if I don't think the two can cooperate in giving me time to have it professionally deep cleaned either July 31 or Aug 1, that is something I will discuss w/ both before signing anything.

I would not (and don't) do a deposit to hold. I hold nothing; either a lease is signed and paid or it's not and I move on to the next qualified applicant. Based on this, that you have some flexibility, I would leave a couple of days space. Any number of things can go wrong with one day of access and you don't want to have to give a dirty/unrepaired unit to a new tenant. 

Don’t sign lease yet.  Use a holding agreement with a clause that gives you an out of the current tenant fails to vacate.  Something along the lines of, if landlord is unable to deliver property at Xxx by Xxx, then landlord shall refunding holding fee to perspective tenant, without any further liability to landlord.

Originally posted by @Dick Stevens :

Don’t sign lease yet.  Use a holding agreement with a clause that gives you an out of the current tenant fails to vacate.  Something along the lines of, if landlord is unable to deliver property at Xxx by Xxx, then landlord shall refunding holding fee to perspective tenant, without any further liability to landlord.

 That's a good idea if you're going wire to wire with tenants. Personally, I would never sign it as a tenant, but if you can get the tenant to sign that you're in good shape. 

I would have them sign a lease now and take a holding deposit at the same time. This ensures you have renters after your existing tenants move out. This is what we did for all applicants at the apartment complex where I worked. I have to agree with JD that you should maybe leave a couple of days in between tenants just to be safe. 

Don’t sign a lease and only take a holding deposit.  If you’re going to sign the lease collect 100% of the move in funds via certified check.  Why would you sign a contract with the tenant giving them legal possession as of a certain date if they are only paying a fraction of the move in cost?

Originally posted by @Dick Stevens :

Don’t sign a lease and only take a holding deposit.  If you’re going to sign the lease collect 100% of the move in funds via certified check.  Why would you sign a contract with the tenant giving them legal possession as of a certain date if they are only paying a fraction of the move in cost?

This makes sense.  

@Walt Dockery We have tenants sign a deposit to hold agreement with payment of deposit to hold in order to take the place off the market. The agreement states they have 7 days to sign the lease. Payment is non-refundable if they back out or it becomes the security deposit (1 month's rent). So far these are all occuring at least 1 month out from move-in but I might shorten the number of dahs if its closer. They pay 1st and last months rent on move-in day via cashier's check in order to get the keys. We always give ourselves a few days to get the place cleaned and change locks, etc. between tenants.