Question:

Are there laws about charging a pet fee, what that fee can be used for, and limits on such fees?

Answer:

The answer to each of your questions is “it depends on the laws of your state and possibly those of the city or other jurisdiction.” The bottom line is that you will need to research the landlord-tenant laws for whatever state and local jurisdiction the rental property is located in. However, I will mention a few issues that might be of concern.

Some states have no statutes regarding pet deposits or extra rent for pets. In these states, the amounts of deposits or extra rent are only limited by the amount prospective tenants would be able and willing to pay. From the landlord’s perspective this translates into how much the landlord is willing to reduce the pool of prospective qualified applicants.  In the extreme case, extremely high deposits and/or extra rent would result in no applicants.

Since by legal definition a deposit is refundable when there are no defaults of lease terms that are applicable to the deposit (e.g., no damages by the pet), high deposits will result in higher probability of tenant lawsuits when the landlord unjustifiably fails to return a deposit or a significant part thereof. If allowed, higher rent would be less of a problem.

The security deposit laws of some states include both security deposit and pet deposit (and any other deposits) within the maximum security that can legally be collected by the landlord. For example, if the maximum security deposit allowed is equal to one month’s rent and the rent is $500, the security and pet deposit can be $400 and $100 or $250 and $250 or $500 and zero, respectively, or any other combination totaling $500, but the total cannot exceed $500.

Furthermore, some jurisdictions may forbid using the pet deposit against unpaid rent or other defaults not related to the pet. For example, the pet deposit could not be applied against damage by a human. A judge may impose such restrictions even if not imposed by statute.  Another possible issue is whether the maximum deposit allowed can include both regular rent and extra rent for the pet(s). This issue may not be explicitly defined by law and might be open to a judge’s opinion of what is fair and equitable.

Some local jurisdictions (i.e., county or municipality) may have more restrictive rules. As for any other financial losses that exceed the security deposit and/or pet deposit, a landlord can file a lawsuit for any damages caused by a pet. Of course, adequate lease agreement clauses can be important to being successful in such litigation.

Question:

I have a family that just moved into one of my rental houses. It’s in the lease that they pay utilities and have the utility service put in their name. This tenant has an old $170 water bill and the city won’t let them put the water in their name until this old bill is paid. I want to leave the water bill in my name and them to pay me for their bill each month. Also I want to give them 6 months to pay the old water bill from their previous address and then to put the water bill in their name. How do I word this in an addendum to their lease?
Answer:

I will first advise you that in many states, water districts have the legal right by statute to hold the owner liable for the tenant’s unpaid water bills even when the water account is in the name of the tenant. Thus, a landlord can end up with months of unpaid bills for which the water district may, again, depending on the state and the water district, be able to file a lien against the property if the bills are not paid. Accordingly, a landlord may end up paying the unpaid water bills even if the tenant never pays the landlord and the landlord will have to evict the tenant. You should determine if this is an issue for the location of your rental property.

If the tenant fails to pay you and it becomes necessary to evict the tenant in order to terminate his use of your water, a court may be less inclined to grant an eviction when the eviction is for an unpaid utility bill compared to if it is for unpaid rent. Failure to pay rent as agreed is usually an easy eviction because the statutes of most sates explicitly make payment of rent a basic duty of tenants.

Furthermore, absent a court order to the contrary, a landlord cannot have the water (or any other utility necessary to provide a habitable dwelling – e.g., gas or electricity) turned off while a tenant is still in possession of the rental property no matter how many months the tenant is behind in reimbursing the landlord for the water or for any other lease default including failure to pay rent. If the tenant is knowledgeable regarding the court system or has an attorney and significantly
delays the judgment for eviction, unpaid rent and, in states where the owner is responsible, unpaid water bills can rapidly add up to serious losses.

For these and other reasons, it is usually better to charge a higher rent that is sufficient to cover worst case usage rather than to charge for the water bill as a separate item.  Furthermore, a higher rent allows for a higher maximum security deposit, potentially providing yet additional safety.

The applicant family should never have been allowed to take possession of the unit prior to executing a lease or an addendum thereto which contains adequate clauses regarding the water bills. If the tenant now refuses to sign whatever agreement is subsequently provided him, no matter how good the agreement might be, there will probably be nothing you can do about it other than to proceed to terminate his tenancy. Absent a believable witness on your behalf, the exact terms of any oral agreement regarding the water account issue you may have made with the tenants could be difficult to prove in court, particularly if you are outnumbered by the number potential witnesses within the group of occupants,
whether legally tenants or not who know of the agreement.

In order to avoid such last minute problems, I always recommend that an information sheet be attached to the application form provided to all applicants. There are a large number of other issues that should be addressed in such an information sheet. Most relevant to your current issue, it should identify each utility provider and warn applicants to verify with all utility providers that they will qualify for accounts and that the applicants have the financial ability to cover all
deposits that will be necessary based on their previous payment history with each utility. Those who have bad utility payment histories can be subject to extremely high deposits.

I would be seriously worried about an applicant who cannot come up with $170 to pay the outstanding bill, as such an amount would not usually be considered significant compared to the rent, security deposit, utility deposits, and various other costs of moving from one rental to another rental.

The subject of an information sheet is discussed in some detail in Lesson 11 of our eCourse titled “Managing Income Property” which can accessed via a member’s homepage on LandlordOnline.com.

Although I have several decades of management experience and have created documents for my own use, I am not an attorney and cannot create such documents for others. For such specialized documentation needs the landlord is usually best qualified to generate the necessary clauses. Simply put into concise language the terms you and the tenant orally agreed to.

Lease Agreements – Part 1

Landlords and property managers utilize a large number of different documents. Some are used regularly, others only occasionally, and many landlords may never have need for certain documents that other landlords use regularly.

Unfortunately, most landlords do not utilize as many documents as they should. Use of adequate documentation is important for minimizing misunderstandings and the conflicts that often result from misunderstandings as well as for providing paper trails that provide proof of what really happened in case a tenant wishes to dispute a matter.

More specifically, a large percentage of landlords fail to use adequate lease agreements, resulting in unnecessary disputes and other problems. This should probably not be surprising, as the subject of lease agreements is a large and complex one.

We won’t attempt to cover all aspects of all types of leases here, as the subject of leases can be a book in itself. However, in a series of articles we will attempt to cover a wide range of topics in enough depth to provide a good understanding of lease agreements.

Lease Basics

A real property lease agreement is a legal contract whereby the owner (or his property manager agent) gives a person (or persons) the right to occupy and use a property for a specific period (the “term”). The contract sets out the terms and conditions of the tenancy, is legally binding and enforceable against all parties.

The lease governs the landlord-tenant relationship. It transfers possession, use, and enjoyment of the property from the landlord to the tenant for a specific period of time and for a stated amount of rent. To be enforceable, the lease agreement should cover a number of basic issues which help to protect both the landlord and the tenant from fraud or misunderstanding in the event of disagreements or disputes.

The owner is called the “Lessor” (or “Landlord”) and the person who occupies the property is called the “Lessee” (or “Tenant”). A lease agreement defines the rights of lessor and lessee that are not already defined by law. The lease agreement must conform to statutes and case law and the terms and conditions stated in the agreement must be acceptable to both parties.

Importance of Lease Agreements

The lease agreement is important not only for current operation of the rental property but also for maximizing the value of the property as an asset. This is true because the value of an income property is highly dependent on the lease agreement(s) for the property. While not as important for a single-family residence, value becomes increasingly more dependent on lease agreements as the number of units increases. In fact, lease agreements are a primary factor in the value of larger properties. A primary method for valuing a larger income property is the Income Approach wherein the net operating income is capitalized to calculate value. Accordingly, the value of a property can be significantly affected by both current and future rents as specified in the lease agreements for the property as well as by many other lease issues.

The terms of lease agreements are particularly important for non-residential properties for which leases tend to be long-term and often include cost-of-living adjustments, renewal options, and other terms that can significantly affect future value, sometimes for a decade or more.

Lease agreements must include tools for enforcing timely payment of rents, proper care of the property by the tenants, and other issues important to efficient and profitable operation of the property. For example, if default provisions aren’t adequately defined, the landlord may be unable to evict a tenant who defaults on lease obligations that are important to the landlord. There must, of course, be compromises when deciding the content of a lease. If it is totally iron-clad in favor of the landlord, no thinking applicant will sign it, whereas, if it’s a one page document purchased from the local stationery store, the landlord might be left at risk in many ways.

It is not enough to have a good lease agreement. A landlord must thoroughly understand his/her lease agreement and apply the terms uniformly and firmly to all tenants who have signed that lease.

Lease Agreement vs. Rental Agreement

It is our opinion that there is no legal difference between a “Lease Agreement” and a “Rental Agreement.” Some property management writers and document publishers use the term “Lease Agreement” for tenancies originally written for a term of more than one month and the term “Rental Agreement” for month-to-month tenancies. However, typical state statutes do not differentiate between the lengths of tenancy in choosing which term to use. Historically, legal references have more often used the term “lease agreement” no matter the length of tenancy specified in the document.

It is the content of a lease agreement that matters, not the title. In this article and in future articles of the series we will use the term “Lease Agreement” or simply the term “Lease” to mean a contract for tenancy of either residential or commercial income properties for any period of time.

Types of Tenancy

The landlord may offer one of four different types of “tenancies” or “leaseholds.” The type of tenancy can affect the parties’ rights to terminate or alter the landlord-tenant relationship.

The four types of tenancies are:

Fixed Term Tenancy – The fixed term tenancy is the most common type of leasehold and is usually an annual (12 month) lease. This type of tenancy has a fixed duration and terminates automatically at the end of the period. A fixed term tenancy can run for any period of time, as long as the lease terminates automatically at the end of the period. In some jurisdictions, it is important that the total rent for the entire lease period be stated in the lease agreement.

Periodic Tenancy – This type of leasehold runs for a fixed period of time (e.g., weekly, monthly, six months, one year, five years) and renews automatically at the end of the lease term. A month-to-month rental is the periodic tenancy most often used. A periodic tenancy does not terminate until the landlord or tenant gives notice of termination. Notice must usually be equal to the rental period term. If the agreement is weekly, a seven day notice would suffice; if it is monthly, the party who wishes to terminate the agreement must give at least one month’s notice. However, some states provide for longer notice periods by only the landlord or for both parties, sometimes depending on certain circumstances.

Tenancy at Will – A tenancy at will has no fixed duration and can be terminated by the tenant or the landlord at any time. In some jurisdictions, a tenancy at will is restricted, usually for benefit of the tenant, and in some jurisdictions this form of tenancy is not permitted.

Tenancy at Sufferance – A tenancy at sufferance occurs when the tenant wrongfully remains on the premises, or “holds over,” after the lease has expired. Unlike the other types of tenancy, the tenancy at sufferance is not the result of an agreement between the landlord and tenant. Therefore, the tenant should have no legal right to remain on the property and the landlord should be able to evict. However, some jurisdictions now address a hold-over tenancy by statute and conclude that by accepting rental payments the landlord is deemed to have entered into a new lease contract with the tenant. The laws of some states specifically say that if the tenant makes rental payments during the hold-over period, and the landlord accepts those payments, a new tenancy is created. Some states even make the renewal lease period equal to the previous lease. In other states a landlord retains his right to evict and, in fact, may be entitled to damages as well.

Question:

The tenant in one of my units is complaining that there is currently mold around a bath tub where the tile meets the tub. She wants me to clean it up. Who is responsible for cleaning up the mold?

Answer:

That might depend on what type of mold it is, the source of the moisture that results in mold, and/or whether there was evidence of the mold at the time the tenant moved in.

The type of mold that almost always appears around a tub at its interface with tile or other material is not usually of the type that the landlord must clean, at least not if mold was not there when the tenant moved in. In most, perhaps all states the tenant is legally responsible for keeping the premises in clean and safe conditions. This includes keeping the plumbing fixtures clean (and free of mold). Of course, if the problem is caused by a leak in the wall or from a unit above, the landlord should take care of the problem. Taking care of the problem includes repair of the leak source, not only because the mold is more the fault of the landlord rather the tenant, but more importantly because continuation of the leak will ultimately result in the landlord having to pay for very expensive repairs or rebuilding of walls, ceilings, and/or floor.

Question:

I own a 4-plex on which various improvements have been made during the 8 years I have owned it.  Many of these improvements were done without permits. Will this cause me problems when I sell, presently planned for next year?

Answer:

It would be best to correct this problem before marketing your property for a number of reasons and I will briefly discuss some of the issues.

Some jurisdictions now require a physical inspection and record search by the city or county building department before any escrow can close. Depending on the specific jurisdiction, the result may require getting the improvements
permitted at a cost that will include the current permit fees and may include penalties, sometimes the penalties accrue from the year when the improvements were made. Code violations found during the inspection must usually be corrected
and re-inspected in such jurisdictions. So, failure to take care of the problem before signing a contract can create significant problems when escrow is scheduled to close. At a minimum it will result in a significant delay while
getting permits, even a longer delay if the inspection discloses code violations that must be corrected. At worst, the seller may be sued by the buyer.

Sometimes an electrician, plumber, or other licensed contractor called in by a new owner long after close of escrow discovers code violations. Some unpermitted improvements could result in being sued. At the worst would be an improvement that was improperly done that results in injury or death following close of escrow, for which you would almost certainly be sued, possibly even criminally charged. or if the problem is only discovered when the buyer has a licensed contractor work on the property at some date after closing escrow and the contractor points out previously performed work that does not meet building codes.

Also, many states require sellers to furnish the potential buyer with a boiler plate disclosure document that will include a question regarding whether any improvements were made without permits, sometimes whether or not completed by
licensed contractors.

If you decide to market the property without correcting the problem, you should disclose the issues up front, at least before signing a contract, even if the location is in a jurisdiction that does not require building permits (as is true for some
rural counties) in order to reduce ramifications of any issues occurring at some future date. Not making a deal is far better than defending against a lawsuit for failure to do so when (probably not if) the buyer discovers the issue, particularly if discovered after closing escrow rather than in the course of performing due diligence. Even if discovered by the potential buyer’s due diligence and he/she invokes a contingency to cancel the offer, you may have a couple of angry real estate agents whose time you’ve wasted.

Question:

This is a follow-up question to the one I recently posted regarding holding deposits.

My intent is to have a holding deposit agreement from these potential tenants, as I want to be sure that these people are not going to back out if I take the house off the market for other potential renters.

I’ve written up a short agreement for myself and the potential tenants to sign.  Basically, it says that I am receiving a specific dollar amount from them to hold the house until they sign the lease and move in on a particular day in the future.  As long as they fulfill their agreement and move in, I will take those monies and apply it towards the security deposit.  If they, for whatever reason, decide not to sign a lease and move in, they forfeit those monies. I wanted to be sure that,
legally, I would be allowed to keep those monies since I took the house off the market, assuming that they were going to honor our agreement of signing a lease and moving in to the property.

I thought this was a fair and equitable agreement for both parties, but I don’t want to do anything that is not legal! Any further advice that you can provide me will be greatly appreciated.

Answer:

The following is a shorter version of an article I once wrote regarding holding deposits. In my efforts to reduce the article to a reasonable length within a reasonable time I may have ended up with something that is not as well organized, as I’d have liked, but I think it will be adequate for your needs.

Sometimes, when the rental market is tight, applicants may offer a holding deposit to take the rental unit off the market until the applicant’s screening and verification is complete. Other times, a holding deposit may seem appropriate when an applicant appears committed to the rental, but must make arrangements for the move-in funds. The holding deposit is not a security deposit, but is to compensate the landlord for damages suffered for holding a unit off the market in the event that the applicant fails to meet screening qualifications or rescinds his/her agreement to rent the unit.

It is best to avoid the use of holding deposits, particularly now that most verifications of qualification can usually be done within a relatively short time utilizing today’s technology. Although holding deposits may be legal in your state, they often lead to misunderstandings or even legal hassles. A major problem is that most states do not cover the subject adequately, if at all in their statutes 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.

Although holding deposits are best avoided, sometimes they are helpful because of market conditions. A landlord can take holding deposits in most states.  If allowed by your state, it might be better to utilize a holding deposit rather
than lower qualifying standards or reduce the rent. 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 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.

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. 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 and should take into account the potential inability of some applicants to immediately put up significant deposit funds in addition to application and/or screening fees.

In summary, landlords must follow any laws of their states and they should use good judgment and be fair in their holding deposit policy. An applicant whose holding deposit is retained without adequate justification may well have a cause of action for damages against the landlord which can result in more time and expense than the deposit was worth.

Disclosure Issues – Part 1

Once upon a time and throughout the land, the basic rule of buying anything, including real estate, was “Caveat Emptor” – that is, “Buyer Beware.” In more general terms it was consumer beware and applied to a purchaser of any product or service. The seller or landlord had no responsibility to disclose defects in what he was selling or leasing and had no liability for any problems the buyer or tenant had following the transaction.

Things have changed, particularly regarding real estate. Over the past several decades, the legislatures and courts have put more and more burden on sellers and landlords to fully disclose defects in the real property they are selling or leasing.

It is very important that adequate disclosure be made by sellers and landlords to buyers and tenants, respectively, in order to avoid (1) risk of misunderstandings and disputes and/or (2) violation of laws, either of which can be costly. While many disclosure issues are important only in sales transactions, other issues can potentially also be of concern in a leasing transaction. Adequate disclosure is far less time-consuming, costly, and stressful than is litigation.

Discussions in this article are based on general legal principles that apply to many states. However, as with most issues regarding real property transactions, one must know and understand the laws of his state and local governments and/or consult with a competent real estate attorney experienced in the particular area of law at issue.

Although states vary regarding protections provided to buyers and tenants, all states provide significantly more than was the case a few decades ago. Most states require disclosure of known defects and many require disclosure regarding certain specific issues.

Most states no longer allow a seller to escape liability for known defects by selling the property “as is” except for certain transactions such as foreclosures or sales by government agencies (e.g. bankruptcy courts). Most states also provide for tenant protection against “as is” by statute and/or, for residential leasing, through the legal principle of “warranty of habitability.”

Typical disclosure laws require a seller to notify a buyer of certain things regarding the property’s physical condition, material defects, or major repairs that might affect a buyer’s decision to purchase the home. Some states have disclosure laws that require the seller or agent to reveal events such as crimes.

While there are issues specific to only a buyer or to only a tenant, certain issues must be disclosed to both buyers and tenants. The latter includes the lead paint disclosure that is required by federal law for properties built before 1978 and, in some jurisdictions, by more stringent state and/or local laws. Furthermore, some issues are solely or more relevant to residential than to commercial properties.

The temptation to not disclose known material facts should always be resisted by sellers and landlords. Other than the fact that the failure could be considered misrepresentation or fraud, one should expect that the information will eventually be discovered by the buyer or tenant. For serious issues, later discovery sometimes results in litigation.

Discovery by the buyer or his agent before close of a sale escrow may result in cancellation or require renegotiation of the contract. This will result in loss of time and may even be costly, depending on the specific circumstances.

If discovered by the tenant soon after moving in, he may be able to legally break the lease. If a serious material fact that was known, or should have been known by the seller or landlord (or agent thereof) is discovered after it has caused injury or damage, the failure to disclose may result in a lawsuit against the seller or landlord (and probably any agent thereof), usually a costly event no matter what the outcome.

A majority of the states require written disclosure of various issues that might be a material factor in deciding whether to purchase a property and how much to pay for it. In some of those states, the requirement is limited to residential properties of four or fewer units. If the buyer is represented by an agent, such a disclosure will likely be required by the broker even when not required by law.

Many states have also made disclosure of certain non-physical matters an issue, either through legislation or court decisions. For example, a buyer’s agent who has reason to believe that his client cannot perform for some reason could be held liable to the seller if the buyer cannot close escrow because of that issue, as could the buyer himself. Similarly, a listing agent could become liable to the buyer for the inability of the seller to close escrow because of an issue known to the listing agent, as could the seller himself. Examples include (1) the seller is planning to file bankruptcy and (2) a divorce is underway.

Courts have generally extended the idea of fair dealing to apply to buyers and sellers as individuals, whether or not a real estate agent is involved.

As a seller, if you have knowledge of a potentially material fact, disclose it as early as practical in order to minimize possible waste of time and money for all parties.

If you are a buyer, require written disclosure regarding all issues of material concern to you. Written disclosure serves two purposes. First, it points out potential issues before you spend the time and/or money to look for them. Second, it gives you additional legal recourse in the future if full and truthful disclosure is not made.

The disclosure statement should cover such items as known (1) zoning, building code, or permit violations, (2) utility services (including whether or not on city water and sewer), (3) soil stability problems, (4) environmental issues such as mold or asbestos, (5) prior significant damage to the property or any of the structures from fire, earthquake, floods, etc., and (6) any pending or potential legal actions involving the property.

Habitability Standards – As a result of shoddy and improper maintenance by landlords, American courts began to hold that there is an “implied warranty of habitability” in housing that is offered for rent. Many states have codified that concept by statute and landlords can now even be held criminally responsible for neglecting certain maintenance in some states.  Both civil and criminal liabilities can be very substantial when related to health or safety issues, even when those issues are not explicitly covered by laws.

Habitability standards apply regardless of how low the rent is and require that rental units meet certain standards for safety, health, and cleanliness. The federal guideline standards are quite low compared to those of many states and local governments. The strictest of the different levels of government for the location of a property will be the safest standard to follow.

The type of disclosures required varies significantly among states. Examples of disclosure items required in some states include (1) the name of the owner and/or any other person authorized to receive legal papers, (2) the bank where the security deposit is kept, (3) any planned condominium conversion, (4) existence of illegal drug waste, (5) the landlord’s tax number if the tenant needs it in order to file for the state’s low-income tax credit, (6) availability of an official registered sex offender database, and (7) existence of “dangerous” mold.

In general, most states require disclosure of issues that could cause injury or substantially interfere with the tenant’s safe enjoyment and use of the property (e.g., asbestos) and under general legal principles, failure to disclose such things would increase risks in litigation related to them even if not an issue covered by statute or ordinance.

Landlords should disclose likely material facts, particularly those disclosures that are required by law, as early as practical in order to minimize possible waste of time and money by sellers and possible buyers or by landlords and possible tenants.

Rent control properties can have additional disclosure requirements. In most controlled jurisdictions, the tenant must be provided the name and address of the government agency or the elected board that administers
the control ordinance.

Question:

I have potential renters, but they do not want to move in for another month. Am I legally allowed to require a deposit to hold the property for them and not look for another tenant?

Answer:

It depends both on what type of deposit it is and what the deposit agreement says, with the terms being in accordance with any state statutes on the subject.

If it is considered a security deposit, either by written words, by spoken words, or by some action or implication that might make a judge consider it to be a security deposit, the applicant might be considered to have become a tenant even without a lease having been signed by both parties – in other words the parties had entered into an oral lease. Oral leases up to one year are valid in most states. Unfortunately, it is usually difficult to prove the terms of oral leases. Therefore, any deposit taken should be accompanied by an adequately detailed statement of terms that is signed by both the landlord and the applicant.

A holding deposit is sometimes used to protect the landlord against taking the unit off the market for a specified time, with the landlord being allowed to keep some or all of the deposit if the applicant does not follow through with paying the funds and signing a lease agreement and can be used to allow the applicant time to get his move-in funds together. A properly worded agreement can protect a landlord from financial loss due to the failure of the applicant to perform as agreed. However, the landlord cannot rent the unit to another applicant unless the original applicant has materially defaulted on the terms of the agreement, preferably in a way that is indisputable.

If I understand your question correctly, you’d like to take the deposit without giving the applicant the right to rent the unit if you happen to find another tenant at any time. I think that this would only be acceptable to a reasonably intelligent applicant if you promised to return the deposit in full if a new applicant was accepted before the original applicant was ready to close the deal.

Question:

What do you do if a tenant just up and leaves the home with one day notice under a 2 year contract?

Answer:

If the tenant provided evidence of his intention to return possession to the landlord – e.g., gave written notice about leaving, turned in keys in a way that can be proven, left a message that was recorded or witnessed – you can immediately take possession, rekey locks, and begin preparing the unit for the next tenant. At the same time, unless the tenant agreed to make good on any damages and on the rent until you have a new tenant and you have a written promise or have other reason to think he might do so, you should proceed with a lawsuit.

From your stated “with one day notice” I assume you probably meet the criteria to proceed in this manner. However, I’ll mention a couple of possible other scenarios just in case I misinterpreted your statement or for possible future use.

If there is a reasonable question regarding the tenant returning possession, it can get a lot more complicated. For example, simply disappearing may not signify intent to return possession. Even when it appears the tenant has “abandoned” the premises, many states require following specific procedures before the landlord can take possession.

There are similar possible issues when a tenant has left behind personal property– e.g., clothing or furniture. Again, many states require specific procedures before the landlord can legally dispose of the property. In both the abandonment matter and the personal property matter, failure to follow the law can result in damages being assessed against the landlord if the tenant takes the matter to court.

If you need additional input regarding your current problem, feel free to ask, providing as much detail as you can.

Question

How do I locate a previous tenant who owes me back rent money?

Answer

There are many ways to attempt to locate a previous tenant. An adequate discussion is well beyond the scope of this forum.  Accordingly, I refer you to our Mini Training Guide titled “9 Steps to Collecting a Judgment” and to our larger related eCourse titled “Collecting Judgments,” more specifically to Lesson 15 of the eCourse. Both of these items have discussions regarding locating tenants, whether for demanding repayment or for collecting court judgments against them. I also refer you to the Mini Training Guide titled “9 Fair Debt Collection Practices Act Issues” and to Lesson 10 of the referenced eCourse which provide information that will allow you to avoid violating state and federal statutes regarding collection procedures.

In order to file a lawsuit against a person, you must know where he is so that he can be served with a complaint and summons. Once you locate the debtor you can then not only demand payment but also file a lawsuit against him. One can usually obtain a judgment for valid claims, sometimes by default when a properly served defendant does not answer the complaint or appear in court.

Having a judgment is an important tool because it increases the chances of a voluntary payment at some date in the distant future when the debtor must remove the judgment from his credit record in order to borrow money, get a job, or even rent another property. Judgments are typically good for five or more years, depending on the state, and can be renewed for one or more extensions. Also, interest accrues on unpaid judgments, the rate being significantly higher in most states than one can earn from most other investments. Finally, when the judgment is obtained in the proper state of jurisdiction (where the debt was incurred) it can be collected in any other state, although at some extra effort and expense.

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