Can Landlord hold a unit for a new Tenant? Can Landlord ask for a deposit?
Answer:
For the landlord’s protection, holding deposits should always be in cash, cashier’s check, or money order and for the protection of both parties there should always be a written agreement detailing the conditions related to the deposit even if not required by law.
When the landlord holds the rental unit for an applicant, it should be considered off the market and unavailable to other qualified prospective tenants who may have to be turned away. If the applicant later changes his/her mind, the landlord may have suffered financial harm. In such a case, the landlord is justified in retaining all or part of the holding deposit within the limits allowed by state law. However, be sure that this scenario is discussed in a signed agreement.
The written holding deposit agreement should be in accordance with any applicable state law and unambiguously cover the following issues:
- The address of the rental unit,
- The names of landlord and applicant,
- A clear statement that the deposit is a “holding deposit” rather than a security deposit.
- The amount of the deposit,
- The length of time (including exact ending date/time) the landlord is willing to hold the rental, taking into account the size of the deposit and other qualifying information,
- The basic terms of the lease agreement,
- The conditions under which the landlord will rent the unit to the applicant – e.g., verification of identity, a fully completed application form, satisfactory results on all applicable screening reports, verification of employment, and full payment of the security deposit and first month’s rent by the end of the holding period,
- What will happen to the deposit if the applicant signs a lease agreement – usually, that the full holding deposit will be credited to the security deposit,
- What will happen if the applicant decides not to rent the unit before being notified whether or not his/her application has yet been approved,
- What will happen to the holding deposit if the applicant fails to pass screening – usually the full deposit should be returned if the failure is evident within a couple of days after the landlord has accepted the holding deposit – and
- What will happen to the holding deposit if the applicant defaults on the holding agreement – specifically, how much the landlord will retain, this being in accordance with any applicable state law, and when and how the portion not being retained by the landlord will be returned to the applicant. It is best to include a short discussion within the agreement regarding reasons why the full deposit will not be returned – e.g., compensation to the landlord for financial damages.
Some states that cover holding deposits by statute specifically allow a landlord to retain an amount related to the landlord’s cost of holding the unit. This might include the costs of additional advertising, prorated rent for the holding period, and perhaps a reasonable charge for the time related to paper work and inconvenience to the landlord. Holding a larger amount puts the landlord at risk for a lawsuit. Some states specifically require that there be a written contract that states the terms and provides a receipt for the amount of the deposit. The receipt can be included within the agreement, of which a copy must be provided to the applicant.
The amount of the holding deposit should be reasonably related to the rent of the unit, the holding period, and the potential inability of some applicants to immediately put up significant deposit funds in addition to application and/or screening fees.
In most states a landlord can take holding deposits. However, considerable care must be exercised when taking them.
Although holding deposits may be legal in your state, they can often lead to misunderstandings or even legal hassles. A major problem is that most states do not cover the subject adequately in their statutes, if at all, and it is often unclear regarding how much of the deposit may be retained by the landlord in the event screening results are unsatisfactory or the applicant cannot come up with the necessary funds or simply changes his mind about wanting the unit.
Some states that cover holding deposits by statute specifically allow a landlord to retain an amount related to the landlord’s cost of holding the unit. This might include the costs of additional advertising, prorated rent for the holding period, and perhaps a reasonable charge for the time related to paper work and inconvenience to the landlord. Holding a larger amount puts the landlord at risk for a lawsuit. Some states specifically require that there be a written contract that states the terms and provides a receipt for the amount.
For the landlord’s protection, holding deposits should always be in cash, cashier’s check, or money order and, even if not required by law, for the protection of both parties there should always be a written agreement detailing the conditions related to the deposit.