Tenant Backed out 2 hours before handing them the keys?

Chris LeMay

OP

Woodbury, MN · Member since 2018 · 9 posts · 12 votes

7y

John - I have plenty of money to run the business, it has nothing to do with the amount of money I have. The question was whether I have to return the security deposit due to the tenant breaking the lease. The answer, as Russell stated, is no.

7 Reply

Michael T.

Los Angeles, CA · Member since 2018 · 326 posts · 279 votes

7y

@Chris LeMay you have to go back to your contract and what was stated in the contract. If they signed a contract and there was a time frame that was listed that they could rescind you have to follow what is stated.

If there is nothing in the contract as you mentioned "help me determine what I must do legally" then you need to return to your local and state laws.

There may be someone in MN that can give you better guidance in regards to this.

Flipper/Rehabber · Minneapolis, MN · Member since 2016 · 1k+ posts · 1k+ votes

7y

@Chris LeMay you won't find a legal answer on here to this, this is a good reason to have a small retainer with an attorney. I can refer one if needed.

I personally would be planning to give it back but bouncing it off my attorney first. Last thing I would want is this tenant getting a free attorney to sue me for the deposit and legal fees.... Last thing any landlord wants is to see a letter or email from a tenant's attorney.

I would also be talking to my attorney about language to add to my lease that would make this expressly stated so it isn't an issue going forward.

Keep us posted on what happens.

9 Reply

Flipper/Rehabber · Minneapolis, MN · Member since 2016 · 1k+ posts · 1k+ votes

7y

Originally posted by @Chris LeMay:

The answer, as Russell stated, is no.

Russel mentioned it was based on state law (MN is a tenant friendly state) and you may note he is not an attorney. It sounds like his contract mentions it is non-refundable which is not really the case for most leases I read. The MN bar lease calls it a "Security Deposit". MW dictionary defines this as:

"an amount of money that a renter pays when beginning to rent property (such as an apartment) and that can be used to pay for any damage that the renter causes to the property"

As you can tell from my post, I tread softly on legal issues that can get me sued. I don't like sleeping on a hard pillow :)

4 Reply

Member since 2016 · 13k+ posts · 12k+ votes

7y

Hold the deposit and let them fight to get it back. Don't bother retaining a lawyer unless they take you to court.

Just send them a letter indicating that since they defaulted on the lease they forfeit the deposit (use what ever wording applies to your state regulations).

Flipper/Rehabber · Minneapolis, MN · Member since 2016 · 1k+ posts · 1k+ votes

7y

Originally posted by @Thomas S.:

Hold the deposit and let them fight to get it back. Don't bother retaining a lawyer unless they take you to court.

Just send them a letter indicating that since they defaulted on the lease they forfeit the deposit (use what ever wording applies to your state regulations).

My thinking is different - spend 5 minutes on the phone with an attorney and make sure you wont be heading to court :)

Guess another reason I don't fight over small amounts (one month of rent) is that I don't want them randomly damaging the property, stopping over at my house, or complaining all over social media how I wronged them.

8 Reply

Dennis M.

Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes

7y

My sister had this exact same thing happen . She kept the deposit . Tenants sued her for the money in our local court she lost ..and not only did my sister have to give it all back but she had to pay court and attorney fees which was substantial. this was in PA. so your mileage may vary

9 Reply

Ahmad H.

Rental Property Investor · New York, NY · Member since 2013 · 136 posts · 101 votes

7y

@Chris LeMay This is a good opportunity to update your lease to include a clause that determines what happens in such a case. Here's one you can reference and tweak as you like.

LEASE CANCELLATION BEFORE POSSESSION: If resident requests that the lease be cancelled before move in, all deposits will be refunded minus a third if cancellation is more than 30 days prior to lease start date, half if cancellation is between 10 and 30 days prior. If less than 10 days prior, deposits are non-refundable.

20 Reply

Ray Harrell

Investor · Chicago, IL · Member since 2016 · 1k+ posts · 930 votes

7y

In many places you cannot keep a security deposit for anything but damages. Check your local laws. Keep it and you may end up owing double or triple damages. Chances ate they have already done their research which is why they rescinded and requested the deposit.

Steve Vaughan

Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes

7y

I have a holding agreement. Step 1 upon acceptance.

It states the monies to hold will convert to all or a portion of the security deposit upon move-in, but will be forfeited (they initial) if they do not.

12 Reply

Andrew B.

Rockaway, NJ · Member since 2016 · 2k+ posts · 2k+ votes

7y

Originally posted by @Ray Harrell:

In many places you cannot keep a security deposit for anything but damages. Check your local laws. Keep it and you may end up owing double or triple damages. Chances ate they have already done their research which is why they rescinded and requested the deposit.

I would follow this line of thinking and return the security deposit, but let them know that they are responsible for rent until you find a new tenant. Keep first month's rent and mitigate your losses (as is likely required by law) by finding a new tenant ASAP. If you find a new tenant before the month is up, refund any unused portion of his rent. If it takes more than one month, send him a bill for the excess.

As always, follow your local laws.

1 Reply

Member since 2016 · 13k+ posts · 12k+ votes

7y

Personally I prefer to play the odds. Chances are that the tenant will give in and walk away realising they are in the wrong. Going to court is costly and a risk they may want to avoid. However if they do have a lawyer file you always have the option of negotiating or settling prior to court. Agreeing to refund the money last minute is usually all that is needed. The tenant will be out a couple of hundred in legal fees and you lose nothing. Well worth the inconvieniance and usually pays off.

In situations like this most tenants will choose not to fight and for that reason I would play the odds. It comes down to who blinks first. Between wins and losses I am byfar ahead on the win column.

4 Reply

Joe SplitrockPro Member

Moderator

Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes

7y

@Chris LeMay two things I do to protect myself now. First is that I have tenants sign a deposit to hold agreement. That agreement states they will forfeit the deposit if they don't take possession of the property. Second thing is I get the deposit as either cash or cashiers check. That prevents them from just cancelling the check. (Cancelling the check could be considered fraudulent given that they signed a contract, but still hard to recover.)

Have you checked with our HOA to make sure that renting the property is allowed? If your HOA doesn't allow renters and that is why they cancelled, then you are out of luck.

I don't agree with the advice suggesting that you hire an attorney. That will be more costly than the lost rent. Ultimately this tenant is never going to live in your property. You need to focus all efforts on finding a new tenant. Hopefully you already have the property relisted and are actively advertising.

I would notify the the tenant that their deposit is not being returned, because they signed a lease contract with you. Their cancellation is resulting in material damages which include one months rent and re-leasing costs which is half-full months rent typically.

Again, no reason to tie an attorney into this. It is small claims court at best. An attorney will cost you more than the deposit, so you would be better off just sending it back versus hiring an attorney.

I have had this happen a couple times over the years. I actually did return the deposit in both cases, because they backed out fairly quickly. Sometimes it isn't worth the drama of the fight.

7 Reply

Ray Harrell

Investor · Chicago, IL · Member since 2016 · 1k+ posts · 930 votes

7y

Please check the local laws. In Chicago the ordinance specifically says that any agreement in violation of the ordinance is not legal, and tenants can sue for damages. In other words, if the ordinance says security can only be used for damages, and you make them sign someyhing stating otherwise, you are automatically in violation of the ordinance.

1 Reply

Steve Vaughan

Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes

7y

Originally posted by @Joe Splitrock:

@Chris LeMay two things I do to protect myself now. First is that I have tenants sign a deposit to hold agreement. That agreement states they will forfeit the deposit if they don't take possession of the property. Second thing is I get the deposit as either cash or cashiers check.

Because a deposit by definition is refundable, I removed that word from my holding agreement. In exchange for $× in holding funds, the undersigned agrees to hold exclusively for _______ until xx date. No confusion.

Kind of like pets. All my stuffs only mention animals now. Cheers!

Stephen Jeffers

Real Estate Agent · Indianapolis, IN · Member since 2018 · 41 posts · 23 votes

7y

@Chris LeMay

Sounds like a live and learn opportunity.

To secure a property a deposit and intent to lease should be signed. This should define that not moving in will not return the deposit. Of course, verifying the legality of this for your state will require an attorney and it’s well worth the consultation. At this point you need to consult your legal ability to not return the deposit if you did not have that in place.

Flipper/Rehabber · Minneapolis, MN · Member since 2016 · 1k+ posts · 1k+ votes

7y

I have a feeling that everyone above who is saying that "an attorney will cost more than the deposit" or it will cost "an arm and a leg" has never actually hired an attorney......

5 Reply

Stephen Jeffers

Real Estate Agent · Indianapolis, IN · Member since 2018 · 41 posts · 23 votes

7y

@Chris LeMay

Also you said they actually already signed the lease? What was the date of the lease. Was possession defined in the lease? To me it sounds like you have a legal contract. I know some states allow backing out of certain types of contracts within a period of time so though. But that is for purchases to my understanding.

With a signed contract they should be more concerned with you trying to enforce and wary termination assuming you have one than getting their deposit back.

And I don’t agree with those saying you shouldn’t consult an attorney, this is a long game, you may pay now to ironclad your lease for future issues, well worth it IMHO.

3 Reply

Member since 2016 · 13k+ posts · 12k+ votes

7y

When legal advice becomes free that is when a lawyer should become the first go to solution. Until then how about landlords sit down and learn their state landlord tenant regulations for them selves. Most business people would probably learn their business regulations before they begin. I know landlords get a bad rap but I personally believe most of us can actually read. If not maybe call a friend before you call a lawyer.

When you become a prime suspect in a murder play the lawyer card, anything less try reading the facts first.

Landlord tenant regulations will define what you can and can not do. Where it is silent it falls back to the lease. When neither regulations or lease address the matter it falls to logic and precedent. Unless this is the very first rental property in the history of your state the precedent is already out there. Read, read, read , go find it.

Unlike millennials needing to take their parents with them to job interviews landlords should not need a lawyer on speed dial.

1 Reply

Flipper/Rehabber · Minneapolis, MN · Member since 2016 · 1k+ posts · 1k+ votes

7y

Originally posted by @Thomas S.:

When legal advice becomes free that is when a lawyer should become the first go to solution. Until then how about landlords sit down and learn their state landlord tenant regulations for them selves. Most business people would probably learn their business regulations before they begin. I know landlords get a bad rap but I personally believe most of us can actually read. If not maybe call a friend before you call a lawyer.

When you become a prime suspect in a murder play the lawyer card, anything less try reading the facts first.

Landlord tenant regulations will define what you can and can not do. Where it is silent it falls back to the lease. When neither regulations or lease address the matter it falls to logic and precedent. Unless this is the very first rental property in the history of your state the precedent is already out there. Read, read, read , go find it.

Unlike millennials needing to take their parents with them to job interviews landlords should not need a lawyer on speed dial.

I guess it all depends how you value your time. All of us "experienced" landlords on here don't have an answer for him, yourself included. You simply said you would wait and see if they come after you inviting them to a game of chicken. Why wouldn't you research your local landlord rules for what to do if it is that simple?????????????????????????????????? Sounds like chicken is your better approach and waiting to see who flinches?

To me it seems easier to grab the phone - spend 15 minutes on the phone with an attorney, pay $75 ($300 * .25), and feel comfortable that I know I have the correct answer. For $75 I sure am not going to start digging through state statutes, court precedent, and take on the costs associated with being wrong... Having to take a day off work would cost me more than $75. Same holds true if the charged me $200 for the answer.

Maybe I look at this differently as I am paid for my time. I feel I am better off putting my time to CPA services, property acquisitions, etc instead of becoming the ultimate landlord and trying to keep up with all the regulation changes...

3 Reply

Kanu Patel

Member since 2019 · 3 posts · 0 votes

7y

If you didn't disclose the HOA terms then they have right to cancel it! My opinion I would just return the deposit and move on! This people may be leaving on month to month pay check, why take money from some one who does not want live in your property, yes, you may charge small fees but still not worth it! Good Luck!

Member since 2016 · 13k+ posts · 12k+ votes

7y

John

I know my landlord tenant regulations inside out and backwards as any self respecting landlord that self manages should. All PMs should know them as well. The only time a lawyer is required to interpret the codes is in the case of a landlord or PM that has not taken the time to learn. Arm chair investors are wasting their time learning and when necessary should have a lawyer on call, landlords should not.

Unfortunately since the OP does not know his business and can not site the codes as he should you are right none of us outside of his state can advise. If no one in his state posts I will assume none have bothered to learn their state codes. That does not bode well for our business.

Admittedly I do gamble in cases when I know I am in violation of my codes hoping the tenant will walk away and surprisingly it often works. Usually I am attempting to make a bad tenants life more miserable and relent when I have pushed to the limit. I have also forced them to take me to small claims to get back money I have unjustly withheld but that was a very special circumstance with a very bad tenant. I had a running battle with the welfare lawyer and I did it to pi** him off. In the end it was rewarding for me since my time was free and I found it entertaining..