Orlando, FL · Member since 2009 · 2k+ posts · 282 votes
[moderators: sorry I posted this by mistake on the Commercial Real Estate forum and then reposted here. Could you please delete the one on the Commercial forum]
So far, I have been having the tenants pay the holding deposit and then only sign the lease the day before move in. However I'm thinking it may be better to have them sign the lease immediately when they provide the holding deposit. My questions are:
1) Should I demand the pet deposit up front with the holding deposit or wait until they move in?
2) If tenant pays holding deposit, signs lease well in advance of move in date, and then never moves in/pays rent, can language be put in the lease that voids the lease in this scenario or would I still need to go through the formalities of eviction/declaring the property abandoned?
Here is the clause I've come up with:
Tenant agrees to pay holding fee of ________ to reserve property until start of lease on __________. At that time holding deposit will convert to security deposit. Tenant will also have to provide additional pet deposit (if applicable) at the beginning of the lease for the lease to take effect. Tenant understands that holding deposit is non-refundable in the event that tenant does not sign lease and take occupancy of the unit.
As I posted before, my company uses a "binder" to facilitate leasing property. Similar to what people a "deposit", in a binder we collect "consideration" from an applicant to "hold" a property call. Unlike a conventional "deposit", there is no lease associated with a binder. At the lease signing, the applicant brings the deposit and we sign the lease (tenant gets possession at lease signing).
The document is intended to be as simple and single focused as possible. Also these files are in simple HTML format without any PHP or links, and the formatting is far from ideal. Feel free to improve. Side bar- Many of my company's forms are integrated into other MySQL or proprietary (e.g. Yardi P2PM) databases so I'm basically dealing with the stripped out text and putting in text (underline character) fields.
Investor · Southeast, MI · Member since 2012 · 2k+ posts · 1k+ votes
13y
I wouldn't sign any lease until all money that is required to move in gets paid. What's wrong with your current system?
If someone wants to move in at a future time, I have them give a non-refundable deposit to hold the house. When they sign the lease, I need the rest of the money that's required and confirmation numbers that the utilities have been transferred to them. At that time, they sign the lease and receive keys.
I've had tenants pay a deposit and then ask if they can start moving stuff in. I tell them absolutely not. Sometimes, it motivates them to move a little sooner.
Orlando, FL · Member since 2009 · 2k+ posts · 282 votes
13y
Rob K
Thanks. I was thinking it would be better to have a signed lease (even if they are moving in a month later) in case the insurance company inquires whether the house is still vacant. I've been told they don't like it when the house is vacant for more than 30 days.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
13y
Unless your market is really slow I would not hold a property for 30 days. A week or two, maybe. In a month I can almost certainly find a tenant to move in sooner.
I do it similar to your current process. They give me a deposit that converts to the security deposit when they sign the lease. When we sign the lease they pay me all the money needed and I give them the keys. Sometimes that's a day or two before the start of the official lease. I'll start the lease on the day we sign and add a note saying the extra days are free.
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
13y
Bienes Raices you are on the right track. We have run into scenarios like your #2... hence we use something a little different than the average lease method. The "binder" we use is similar to your initial post. Like yours, ours is a formal agreement completely separate from a lease, whereby the binder holder pays for exclusive rights to a property for a relatively short period of time, generally 10 days. In exchange for these exclusive rights, the binder holder pays the landlord (the "consideration") and agrees to meet the terms and conditions of, and sign, the lease. We keep the binder if they walk. The binder is pre-paid rent and the binder holder brings the security deposit on the day of lease signing.
For anyone taking just a "deposit", check your state laws for how applicable a "deposit" is when you don't have a lease. We learned and adjusted.
Orlando, FL · Member since 2009 · 2k+ posts · 282 votes
13y
Chris Martin
Thanks--so the binder is essentially the same as my current holding deposit arrangement, except that it's treated as rent (instead of a holding deposit that converts to a security dep. on the first day of lease)?
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
13y
Yes, pretty much. I have also adjusted our process to have the binder holder fill in (and sign) the binder agreement. Two counterparts, with the binder applying as the first month's rent.
Orlando, FL · Member since 2009 · 2k+ posts · 282 votes
13y
Originally posted by Chris Martin:
Yes, pretty much. I have also adjusted our process to have the binder holder fill in (and sign) the binder agreement. Two counterparts, with the binder applying as the first month's rent.
Thanks. When you say "two counterparts" are you referring to witnesses?
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
13y
Chris Martin is that binder agreement that you mentioned something that you could post under the BP fileplace? Sounds like it solves one of the problems that I've been told about very well (that scenario #2 stuff).
Orlando, FL · Member since 2009 · 2k+ posts · 282 votes
13y
Originally posted by Steve Babiak:
Chris Martin is that binder agreement that you mentioned something that you could post under the BP fileplace? Sounds like it solves one of the problems that I've been told about very well (that scenario #2 stuff).
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
13y
Originally posted by Steve Babiak:
Chris Martin is that binder agreement that you mentioned something that you could post under the BP fileplace? Sounds like it solves one of the problems that I've been told about very well (that scenario #2 stuff).
I think so. At a minimum, I'll need to remove company specific info.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
13y
Anything can be agreed to as an arrangement to hold a unit, but I was closer to Jon's position. My agreement was a seperate agreement as well, I'd give 7 days, then a per diem type charge accrued until the deposit was used. Say rent was $500, since the unit was not being used (no wear and tear issues) I might hold at costs, $300, $10 per day. Beyond the free period, $10 a day was charged to hold the unit. After 30 days if a lease was not made the hold expired and the $300 was gone.
Holding the unit and applying it to a deposit means you aren't covering your expenses while you keep it off the market! I didn't mind a few days, but no longer, at least not at my expense.
If the made a lease the amounts left over were credited toward the deposits required with them making up any difference, full rents were then charged for the lease term. :)
As I posted before, my company uses a "binder" to facilitate leasing property. Similar to what people a "deposit", in a binder we collect "consideration" from an applicant to "hold" a property call. Unlike a conventional "deposit", there is no lease associated with a binder. At the lease signing, the applicant brings the deposit and we sign the lease (tenant gets possession at lease signing).
The document is intended to be as simple and single focused as possible. Also these files are in simple HTML format without any PHP or links, and the formatting is far from ideal. Feel free to improve. Side bar- Many of my company's forms are integrated into other MySQL or proprietary (e.g. Yardi P2PM) databases so I'm basically dealing with the stripped out text and putting in text (underline character) fields.
Investor · Oak Park, MI · Member since 2014 · 299 posts · 47 votes
12y
I'm just curious why "Two counterparts, with the binder applying as the first month's rent." is not mentioned in the binder agreement? Also nothing mentioned about this "hold" deposit being non-refundable.
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
11y
@Roy Gutierrez
Sorry, I just saw your post. Regarding your questions, in our implementation the application of the binder as a credit towards rent is covered in our General Rental Binder Policy (this document is on BP via the link I posted) and in a document specific to my company (also specific to the property) that I did not upload. On the property specific document, these clauses (along with others lease parameters and tenant costs, like if a pool pass is included, pet fees (if applicable), if HOA rules apply and links to where the documents are, etc.) appear in an itemized list form of 4 or 5 items. Examples include:
At lease signing, the binder payment becomes a credit towards rent •If the binder holder does not sign the lease in the timeframe stipulated in the binder agreement, COMPANY shall retain the binder as compensation
Basically, the property specific document (entitled "Additional Binder Agreememnt Conditions") summarizes the policy document and significant parameters that will be in the lease. Our implementation generates this document via a PHP script based on the property REID and database parameters. One other binder clause that is mostly invariant is this:
The binder does not guarantee a lease hold interest in the property. COMPANY shall conduct paid screening services to verify applicant information. COMPANY reserves the right to reject the binder and return the binder consideration, less a $X application fee per occupant over 18, to the binder holder.
The two documents I uploaded contain substantially all of the non-property specific binder details. For your implementation, work with your attorney in figuring out what document or documents will meet your business needs.
This post is for entertainment, and Not to be construed as giving legal advice. Consult your attorney before using any legally binding documents.
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
11y
One of the key things in what @Chris Martin does there is that the money used to hold the unit, the binder, is credited to RENT and not to the security deposit; that is what better supports the landlord's position that the money to hold the unit off of the market is to be kept to compensate for the rent lost due to keeping the unit off the market.
Tenant agrees to pay holding fee of ________ to reserve property until start of lease on __________. At that time holding deposit will convert to security deposit. Tenant will also have to provide additional pet deposit (if applicable) at the beginning of the lease for the lease to take effect. Tenant understands that holding deposit is non-refundable in the event that tenant does not sign lease and take occupancy of the unit.
Generally, we use "security deposit" as a deposit to ensure performance under a contract, you can have a lease signed to be effective for future dates, I can sign today to begin my lease period on Dec. 1st. There is no "holding fee" and no "reservation", this isn't a hotel.
An additional pet deposit is applicable when a tenant acquires a pet, the way that is written a deposit is paid when the lease is signed if I had a pet and implies that since the pet deposit must be paid at the beginning for me to acquire a pet in the future and if I don't pay that deposit I won't have a valid lease, so do I need to get a pet?
In a standard lease with possession given in the future the security deposit may be forfeited if the tenant fails to take possession on the date of the lease. You can also pay a security deposit in part, if your rental security is $750, that may be rather excessive to secure financial risks without a tenant taking possession, you could accept $250 today and the balance due upon the date of the lease term prior to possession.
Keeping deposits must be justified as to some financial damage suffered, a tenant who fails to perform by taking possession in just a few days doesn't create a loss equal to a month's rents as they never took possession.
I suggest you drop the idea of any "holding deposit" execute the lease with the security deposit being split according to the actual financial risk assumed by holding the unit and paying the difference prior to possession.
A pet deposit is usually a separate paragraph outlining the terms of accepting pets and deposits are provided prior to keeping the pet on premises.
I also suggest you never describe any requirement or condition to be met or avoided by a tenant with reference to creating or having a valid lease, you can, as you did here, put into question the validity of your lease. Such language shouldn't be used.
I suggest you have a local attorney review your lease agreements prior to using them. I know everyone fears a bill from an attorney, but consider what you have at risk, then realize that after you have a well drafted contract, it is used multiple time so the initial costs of obtaining good, valid, enforceable documents is spread over years of operations. It's not prudent to take legal advice off real estate forums from non attorneys. Deposits are generally coved by state law, you can't just dream up some fee to address some perceived risk in leasing, your perceived threat of loss is most likely covered as a security deposit. And, check the treatment of such deposits as you may be required to treat deposits through an escrow account. :)
[moderators: sorry I posted this by mistake on the Commercial Real Estate forum and then reposted here. Could you please delete the one on the Commercial forum]
So far, I have been having the tenants pay the holding deposit and then only sign the lease the day before move in. However I'm thinking it may be better to have them sign the lease immediately when they provide the holding deposit. My questions are:
1) Should I demand the pet deposit up front with the holding deposit or wait until they move in?
2) If tenant pays holding deposit, signs lease well in advance of move in date, and then never moves in/pays rent, can language be put in the lease that voids the lease in this scenario or would I still need to go through the formalities of eviction/declaring the property abandoned?
Here is the clause I've come up with:
Tenant agrees to pay holding fee of ________ to reserve property until start of lease on __________. At that time holding deposit will convert to security deposit. Tenant will also have to provide additional pet deposit (if applicable) at the beginning of the lease for the lease to take effect. Tenant understands that holding deposit is non-refundable in the event that tenant does not sign lease and take occupancy of the unit.
I have spent lots of time trying to find statement like this one. Thanks for posting it. I will use something similar with a new tenant this week.
Portland, OR · Member since 2015 · 1 post · 0 votes
10y
as most attorneys charge $250-$275, so goes payment of the landlord. if a prospective tenant request to hold exclusive right to the rental above all others, there forms a consideration. to cater to such request is time consuming and a value. because you are giving something above others and if such consideration is not performed, there is a cost other than damage. that is the cost of doing business.
as any market heats up and demand out paces supply, these considerations are far more than just deposits, binders, and or earnest and if the requesting party does not perform, there is a cost and damage.
there is no current law that defines said cost and would therefore be interpreted as such.