Tenants submitted payment for security deposit, now have to leave

25 Replies

Have in interesting scenario.  Put the property on the market for rental, did an open house, found some renters that we liked.  Took it off market.  They submitted their security deposit, but have not signed the rental agreement.  Now they have to move out of state.  Can I keep any of the security deposit since it's been a week that I missed while this is happening?  I'm a bit agitated because we cancelled an open house.

@James Taylor really depends on your state and I did noted that you are from California which is not known for being landlord friendly. But technically if they signed a lease yes, you could keep a portion and in some cases all of the security deposit. This will be dictated in how long it will take you to find a new tenant and the now 'tenant(s)' would be responsible for rent up to and including the start of the new lease however, I don't believe you can charge for anything that would have fallen outside of the lease in any instance. For example if the current lease is due to start on 1 July but you find get a new lease to start on 5 July then the current tenants would only be responsible for 4 days. I hope this helps. 

@James Taylor I don't suppose you had them sign a 'deposit to hold' agreement that states they forfeit their deposit should they decide to not rent the property? Realistically they could just cancel the check. If you keep it, the risk is them going after you in court. My guess is they would win and you could be on the hook for damages beyond the deposit amount. In a situation like this I would give back the deposit and move on. It is frustrating but not worth the headache of fighting them.

I have good news and bad news. Bad news: In the absence of a deposit to hold agreement, you are most likely going to have to return the deposit. Good news: You just learned why a deposit to hold agreement is important, and you now know what to do in the future to protect yourself!

@James Taylor   On my side, I don't accept a security deposit until the lease signing.  And I keep showing the property until there's a signed lease.  That way it's much more clear to both parties.

- Tom

Originally posted by @James Taylor :

a receipt for the security deposit wouldn't qualify as a deposit to hold right, as there is no legal verbage?

 No. A receipt just acknowledges you have the money. You need an agreement that states what happens to the money.

A good agreement would state that the deposit is non-refundable if they do not execute the lease. It would also state what happens to the money when they move in. usually the deposit is equal to the security deposit, and the agreement would state that upon execution of the lease, the deposit becomes the secutiry.

Yeah unless they signed some form of contract that stated any penalty for bailing, then you are pretty much stuck.

Could you withhold some and roll the dice? Yeah.... you could..... but its probably not worth it....

NOTHING is a done deal until the lease is signed and ALL the $$ is exchanged.....so never take it off the market or turn someone else away until the deal is finalized...

I would even be careful with that cash...... make sure you give them back the actual cash they handed you....... bogus bills is still a possibility...... the really quick "oh now I have to move out of the state" is kind of a big red flag to be careful....... either that or they just found a different place and they want to bail on you but wont be honest about it.

In Ohio, anything that contains the word 'deposit' is risky, since deposits are generally to be returned.  We charge a non-refundable reservation fee = to 1/2 month's rent and will hold a unit for up to 15 days before lease start. The reservation fee is applied to the first month's rent at lease execution. We collect all money prior to move-in in cash. I jump up and down about non-refundable when I collect the NON-REFUNDABLE reservation fee -- we also have the prospective tenant sign a reservation form that clearly specifies the nature of the payment.

Originally posted by @Jill F. :

In Ohio, anything that contains the word 'deposit' is risky, since deposits are generally to be returned.  We charge a non-refundable reservation fee = to 1/2 month's rent and will hold a unit for up to 15 days before lease start. The reservation fee is applied to the first month's rent at lease execution. We collect all money prior to move-in in cash. I jump up and down about non-refundable when I collect the NON-REFUNDABLE reservation fee -- we also have the prospective tenant sign a reservation form that clearly specifies the nature of the payment.

you wouldn't be able to upload verbage for that would you?? :) 

Originally posted by @James Taylor :
Originally posted by @Jill F.:

In Ohio, anything that contains the word 'deposit' is risky, since deposits are generally to be returned.  We charge a non-refundable reservation fee = to 1/2 month's rent and will hold a unit for up to 15 days before lease start. The reservation fee is applied to the first month's rent at lease execution. We collect all money prior to move-in in cash. I jump up and down about non-refundable when I collect the NON-REFUNDABLE reservation fee -- we also have the prospective tenant sign a reservation form that clearly specifies the nature of the payment.

you wouldn't be able to upload verbage for that would you?? :) 

This happened to me in May. They paid their full $1,400 deposit and gave me first months rent. I had a flea infestation problem outside the house and didn’t want them to move in until we got the flea problem under control. After 3 major spraying outside treatments, my pest control guy told me they could move in the next morning . The house got broken into that night (copper stolen in the attic from my HVAC system) and my tenants decided to back out. I gave them all their money back and thought that was the fair thing to do. They had signed a two year lease and I was excited about them as good solid tenants. However, things happen and I didn’t feel right keeping all their money under this circumstance.

Here's a template I use:

Property Address: _______________________________________________________________ 

Approximate Move-In Date: __________________________

Holding Fee: $_____________________

(Holding period expires 30 days from the date the holding fee is deposited by landlord.) 

Monthly Rent: $_________________________

Applicant Name(s): _______________________________________________

Applicant understands and agrees that the Holding Fee will be returned if applicant is not approved as a tenant. Application fees, however, are non-refundable. If Applicant is approved for occupancy, the applicant agrees to sign Landlord’s Lease and take possession of the property. If the Applicant is approved for occupancy but fails to sign a Lease or take possession of the property within 30 days from the date the holding fee is deposited by landlord, $500 of the Holding Fee shall be retained by Landlord as liquidated damages.

Applicant acknowledges that the Holding Fee is NOT a security deposit. Upon signing a Lease, then $1000 of the Holding Fee will be applied toward the security deposit specified in the Lease. In the event Applicant defaults under the terms of this Application, Applicant acknowledges that Landlord shall keep $500 of the Holding Fee as liquidated damages which are compensation for holding the property off the market. Applicant agrees that the amount of lost rent in holding the property off the market is unknown and that this provision is intended as a good faith estimate of Landlord’s damages in the event of Applicant’s default.

Properties are taken off the market and reserved for approved applicants on a first-come, first served basis according to the order in which Holding Fee and signed Holding Fee Agreement are received by xxxxxxx. Both this form and the holding fee must be received to reserve a property. In the rare cases when a holding fee and forms are received for more than one tenant simultaneously or nearly so (in general, within the same business day), xxxxxx will reserve the property for the strongest applicant based on credit score, income, employment, criminal background, and rental history.

_____________________________________________ ______________

Applicant’ s Signature Date

_____________________________________________ ______________

Applicant’ s Signature Date

_____________________________________________ ______________

Representative Signature Date

@James Taylor, I think you got the advice you were looking for already, but I would like to add the following for that next conversation with your property manager in WI. It may vary state by state, but holding deposits (a deposit to take a rental off the market for an interested potential tenant) may potentially be tricky because regardless of what the document states and whether it is a "deposit" or "fee", the applicant may be able to dispute the amount that is not returned.

In California, the amount that can be withheld must be "reasonable" and reflect the landlord's costs or losses. For example, if the rental is $1,500 per month and the landlord can argue a loss of 7 days, a reasonable cost may be $350 ($1,500 / 30 days = $50 per day, $50 x 7 days = $350).

My suggestion is to try to avoid holding deposits and simply receive security deposits upon lease signings. Of course, my suggestion may not be the best approach for your property and situation.

Here's mine:

CONTRACT TO HOLD

Property Address: __________________________________________________

City: ______________________, State _________Zip_____________

This agreement is between_________________________________________, hereafter referred to as

“Prospective Tenant(s),” and ____________________________, hereafter referred to as “Landlord.”

Landlord acknowledges receipt of payment in the amount of $___________ from Prospective Tenant(s) as a non-refundable binder the property listed above. Prospective Tenant(s) understands the binder reserves the property for the Prospective Tenant(s) until a Lease and all move-in requirements have been properly completed. The Lease and all move-in requirements must be completed before 5:00pm on _____________________. Prospective Tenant’s move-in date will be on or about ____________________.

Landlord’s Right of Rescission

Landlord has a right to rescind this agreement at any time between the date of its signing and the mutual signing by Landlord and Tenant(s) of a rental agreement offered by the Landlord. If Landlord exercises this Right, binder funds will be mailed within 7 days to Prospective Tenant(s) at the address listed on their application.

Move-In Requirements

First Month’s Rent must be paid in full in the amount of: $__________

Last Month’s Rent must be paid in full in the amount of: $__________

Security Deposit must be paid in full in the amount of: $__________

Other Move-in Fees must be paid in full in the amount of: $__________

All tenant paid utilities must be transferred into Prospective Tenant’s name.

Background checks done on all occupants aged 18 and above.

A Lease must be executed and signed by all parties.

When all move-in requirements have been met and Prospective Tenant(s) given possession of the property, the binder will be used as the last month’s rent. Prospective Tenant understands and agrees that no possession of the property will be granted until all move-in requirements have been completed.

Binder funds will be held in a trust account by the Landlord. If for any reason, the Prospective Tenant(s) fail to complete all move-in requirements by the above listed date, the Landlord will return the property to public offering and the entire binder sum will be forfeited to the Landlord for expenses including, but not limited to, lost rent, holding costs, advertising costs, and marketing costs.

______________________________________ ______________________________________

Prospective Tenant Date Landlord/Landlord’s Agent Date

______________________________________

Prospective Tenant Date     

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