Holding Interest Deposit still non-refundable if tenant refuse to sign lease?

Question

Accepted an applicant and received a non-refundable Holding Interest Deposit for my rental. I asked if he would consider a two years lease and he said he would after he inspect the maintenance repairs.

He did an interim walk-thru while the work is half way completed with his brother. Beforehand he told me his brother and his brother’s young daughter will live with him for a year. I told him his brother will need to go through the same credit and background check, and along with an increase of the rent for one year. After the one year term with his brother moving out I can revert the rent back to the original rent amount. He did not want an increase at first and then he offered $90.

I am thinking $200 more and since I had never done such lease contract before I had to do some research. Before I could even give him a reply he called and told me he was not interested to rent the place any more because the rent is too high. He threatened to go to a lawyer to collect his non-refundable hold deposit. Within 15mins he called back and said he would rent the place.

My first question is if he would not sign the lease because of any one thing on the contract can I still keep the Holding Interest money?

My second question is if he agrees to the rent increase for the extra people for one year, how to go about handling the lease agreement.

Thank you all in advance to assist me with this situation.

-Mary

Marcia Maynard · Answer

@Mary Young In our state it would not be legal for me to even make a "non-refundable deposit".  Holding Deposits are typically made with clearly defined written terms for their use and return.

Your post indicates to me that you are very new to this and do not understand landlord-tenant law. If you do not know how to properly advertise, qualify tenants, and enter into lease agreements (or rental agreements), then you need to educate yourself in this regard.

Return his holding deposit if he decides not to rent. No questions asked. Don't agree to take a holding deposit based on one offer and then switch the terms. It would not be ethical and may not be legal.

If he decides he wants to rent, then rent it for the original advertised price. Do not raise the rent based on the number of occupants. Your rental price should be based on the property itself, not the number of occupants. Of course, if the number of occupants exceed typical occupancy standards (such as two people per bedroom), you do not need to rent to the larger group at all. If you are paying for utilities, you could charge extra for increased utility use. But this all needs to be negotiated in advance.

Also, I think it would be foolish to lock yourself into a 2-year residential lease agreement; it would benefit the tenant more than it would benefit you. In some jurisdictions the law would not even allow it, so you will want to check that out before you proceed.

Account Closed · Answer

Is the rental market so bad that you give 2 months to allow a tenant to move in?

Mary Young · Answer

Sue, thank you very much for your opinion and analysis. My husband agrees with you and suggests we should go find a new tenant just to avoid future issues this person may create.

Lew Payne · Answer

There is the HUD standard, which limits occupancy to two persons per bedroom.  But, as you've pointed out, there are local laws as well which must be looked at.  While it's true that you cannot (and should not) discriminate against families with children, those laws are very specific and are limited to members of the immediate family.  A tenant, renting a one bedroom place on a solo basis, cannot up and decide to "get a roommate" if the agreement is specific about tenancy requirements.  In addition, I found local ordinances that deal with minimum square footage required per person, per bedroom... so these vary from location to location.  In addition, I found that some requirements do not apply to the rental of a single family home.

Georgia State University Law Review, Vol. 28 [2011], Iss. 3, Art. 11 deals with occupancy issues.  It is not illegal for a landlord to advertise (let's say) a "one bedroom place for rent, perfect for two people" for $400... and then demand more rent if three people will be occupying it (unless the third is their child).  In addition, there's an entirely different set of rules when dealing with senior housing.

The tenant cannot substitute a different tenant in their place, especially not if your lease or rental agreement specifically spells out who will be residing on the premises (as mine do).

I want to also acknowledge that I came on a bit strong... and I apologize for that.  I let my frustration get the best of me.

Marcia Maynard · Answer

@Mary Young To answer your question.... You can keep the holding deposit per the written terms agreed to by both parties, if the agreement conforms with the laws in your jurisdiction. Do you have a signed written Holding Deposit agreement? What does it say?

Two things....

1. Why are you proposing to charge more based on the number of people in the unit? That could get you into trouble with fair housing law. It is also not customary to do so by residential rental industry standards. However, if your rent includes utilities, you could justify charging more for each additional occupant and clarify this in the beginning when you are advertising.

2. Why would you hold a unit for more than two months? Absolutely does not make sense. I would let this one go and look for another tenant. Make a clean break of it and return his holding deposit. Go with the original deal, or the deal's off. If the unit is still available when he is ready to move, he can reapply. As it is now, it might take you two months to sort this out and he still might not sign the agreement in the end. You would have a lot more to lose.

Lew Payne · Answer

How about just sticking to written agreements, and making it clear to any prospective tenant that, to avoid any misunderstandings, you do not accept verbal agreements or negotiations of any kind... if it isn't in writing, signed by both parties, the "understanding" does not exist.  In fact, you should have a written sheet that you hand to the prospective tenant upon their first visit.  This is also your documentation trail of what happened, and usurps any "he said, she said" arguments to the court.

Rumen Mladenov · Answer

I have never charged per person, and as @Marcia Maynard pointed out, it would most likely be illegal. You are not running a hotel...

I would also not hold a property that is ready to rent in April (the time rental demand is highest) vacant for over two months. It just doesn't make sense, unless you are in a terrible market and even in April you can't find other qualified applicants. Other than lost rent, you have to consider the expenses (water, sewer, insurance etc) for those two months, as well as the higher risk of break-ins, vandalism, getting your HVAS unit stolen for the copper in it - however small that risk may be in that neighborhood, it is still there. And your insurance may not even cover a loss for a property that has been vacant over 2 months.

Account Closed · Answer

Hi Mary,

In my opinion, which I'll explain below:

1. No.

2. Most likely b) No.  Based on their relationship.  But, you are free to completely change the terms of the contract, because once he turned down the original deal, all bets were off, and you were free to start new negotiations.

First of all, when the tenant wanted to change the initial terms of your agreement, he backed out of the original agreement.  What he then did, was proposed a new agreement, and you counter-offered with a new lease agreement.

Second, I don't know GA laws.  But, if you can't discriminate based on familial status, this may include family such as brothers and nephews and neices.  However - since your first deal was turned down by the applicant, which he did as soon as he proposed new occupants, you were free to completely change the terms of any new agreement.

This is not a bait and switch.  Well, maybe by him LOL.  But, you offered a rental at certain terms, and were ready to produce it, just as described and agreed upon.  So, you didn't do any baiting and switching.

In my opinion.

BUT, where I see a potential problem here, is whether or not GA law requires you to actually suffer out-of-pocket damages, for him refusing to sign the first contract.  The rental is not ready.  So, you really can't say you lost money over him backing out of this deal.  If you could show that, then I don't see any problem.

If I were you, though, I would not want to rent to this guy.  He pulled a fast one on you, then when you counter-offered, he pulled out the "I'll sue you" card.  My advice is to give him his money back, and tell him you're not interested in renting to someone who springs new occupants on you, and who threatens to sue when you balk at his bait and switch tactics.  People who do this are not a protected class.

Let him go.  Look for a better tenant.  And good luck with your PM, yikes!

Mary Young · Answer

I do appreciate the recommendations and reminders to caution me not to violate any Fair Housing rules.

The reason I posted the question is not because I to take advantage of families or single person with children. ALL the renters I had in the past have children and pets.

I never had this situation arises for an applicant to add extra occupants AFTER I accepted the application that listed one occupant. My last tenant allowed extra family members, three more people, to live there, and I was advised to notify them they broke the lease and they needed to be checked, added to the lease, and with extra rent.

Please provide me a feedback to my initial question: May I keep the Hold Interest Fee if the tenant refuses to sign the contract. I think he now changed his mind to rent the place and at the lease signing he will nitpick the contract. I probably will not remove any stipulation then he can ask for his non-refundable fee back. I really cannot afford to lose any month's rent.

After reading all the discussions additional questions come up for me -1. Can an applicant change the number of occupants after Landlord's acceptance?  Yes or No2. Does it make any difference to Landlord's rights to increase the rent if the additional accupants are related or not related? a) Yes, Landlord can change the amount if they are roommates. b) No, Landlord cannot change the amount if they are related or not related.

Lynn McGeein · Answer

Could you let me know where in this handbook it states a landlord specfically can charge more for additional tenants, even children?  When I searched your link, it specifically states:

"However, the landlord cannot base the difference in rent on the tenant's race, color, religion, sex, national origin, disability or family status. In addition, a landlord may not advertise rents at one rate and then rent them at a higher rate."

This sounds to me like it is specifically stating that you can't charge additional rent for someone with a child than you do for someone without a child (family status).  I believe this is a federal law as well as state, so I don't believe you can call it misinformation or conjecture based on a different state.  The way I read the info in your link is that your state's rules allow a landlord to set a specific, reasonable occupancy limit (I think it actually gave an example of no more than 2 people per bedroom, where 1 per room would likely be unreasonable).  Then if they've advertised the unit for x amount, they cannot raise that rent, but they could deny an applicant if they are over occupancy limit.  In Annapolis, it's much stricter with actual square foot requirements per child under 12 years old, different ones for over 12 years old, access to window, etc.  So I understand your wishing to avoid confusion from other states' rules, but there are federal minimum standards that prevail in every state, and families with children are a big protected class everywhere.

Holding Interest Deposit still non-refundable if tenant refuse to sign lease?

Most Popular Reply