1st year completed. Tenant's leaving a month early.

[Lue Brooks]

So I've completed my first year of being a landlord. It had its ups and downs but I have loved it. I will post about it another time if anybody is interested. I have one problem though. My tenants want to leave 1 month early. They gave me their security deposits and the lease says "it is to be refunded upon vacating, returning the keys to the landlord and termination of this contract according to other terms herein agreed." I've looked up and down this lease 3 times and have not seen anything about leaving early. (I know I have no excuse to why I didn't have that taken care of, but It was my very first month of being a landlord, and a lesson for me to learn from.) I want to know what you all think? Will I have to give the money back or is it automatically assumed that if you leave early the money is to be kept from the landlord? They had 2 kids and a dog as well. The kids more than likely messed something up so some of the deposit will have to be kept. I am also in the state of Texas. 

[Jeff Willis]

In some states, a security deposit CAN NOT be used for rent. Look at this article

https://www.rentprep.com/security-deposits/can-security-deposit-be-used-for-unpaid-rent/

[Lue Brooks]

Originally posted by @Jeff Willis:

In some states, a security deposit CAN NOT be used for rent. Look at this article

https://www.rentprep.com/security-deposits/can-security-deposit-be-used-for-unpaid-rent/

Thanks for the heads up!

[Lue Brooks]

I have just read that they would still have to pay the lease even though they left early, but it is my responsibility to try and find a tenant to replace them as soon as possible. The only problem is that the property was to be remodeled after they left. Suggestions?

[Nathan Gesner]

The Tenant is required to fulfill the terms of the lease. I they leave early, you are supposed to make a "good faith effort" to find a new tenant and minimize losses to yourself and the departing tenant.

Since you intend to remodel the unit, you can't really fulfill your obligation to find a new tenant and minimize losses. 

The law says you can't use the security deposit for rent, but you are allowed to use it for unpaid charges after termination. If the tenants leaves without paying October rent, you can terminate the lease and apply the deposit towards that charge. 

It sounds like your tenant is willing to forfeit the deposit. If that's the case, put it in writing and you'll be safe.

"Tenant hereby gives notice they intend to vacate the rental no later than October 1, 2019 at 5:00PM. Tenant acknowledges they are terminating their lease early and willingly forfeit any security deposit refund as a penalty for said early termination."

Both parties sign it, make a copy for both of you, and move on.

[Theresa Harris]

@Lue Brooks  Nathan has good advice.  For the security deposit check your local laws, but it doesn't have to be returned right away.  You need to do a thorough inspection and see if there are any damages or cleaning that need to be done.  The home needs to be in the same, or better, condition than when they moved in. Take photos of any problem areas. You itemize the damages and deduct those from the deposit.  When you return the deposit, you provide them with a list of the expenses you incurred to return it to the pre-move in condition. there is often a maximum amount of time to do this, but normally you can do it within a few days of them moving. 

For your next tenant, re-write the lease to add a clause for early termination.  I would also suggest if they are paying utilities, to request a copy of the last statement at the end of the lease to show that they are fully paid.

[Nicole Heasley Beitenman]

@Lue Brooks Did you draft your own lease or use a template?

[Lue Brooks]

@Nicole Heasley I used the template from the book Brandon turner wrote about managing properties. It’s a pretty thorough lease.

[Lue Brooks]

@Nathan G. Thank you so much! This is just what I needed to hear. Would I still be able to charge them for the rent before they leave? And if they don’t want to just take the deposit instead? They were good tenants so I don’t mind letting them leave early but at the end of the day it still is a business and would like the money. I was thinking about charging them half now. Then half the middle of the month of October and if they choose not to pay me back for some reason then at least I’ll have the security deposit. The security deposit is only half of the rent so if I get half now and they decide to bail at least I’ll have something.

[Lue Brooks]

@Theresa Harris didn’t even think about the utilities thing! That is a great idea. I’ll be using that in the future as wel as for this turnover.

[Sandra Habiger]

@Lue Brooks @Theresa Harris

They might not have their last utilities statement yet when they move. When they call the utilities companies to tell they’re moving (they can do that before they move), they will have to tell them the new address for their bill.

Because you’re gonna renovate the house, you’ll be responsible for the utilities during that time. I’d just call the utilities company, switch the billing back to my name and ask if the renter already called, too. Ask when their last bill goes out.

From what it sounds like, they seem like good renters, so I don’t think they won’t pay their last bill.

[Nathan Gesner]

@Lue Brooks you continue charging them and continue expecting them to pay. If they don't, you can apply the deposit toward the unpaid rent but only after they move out and the lease is terminated.

Personally, I start the eviction process even if I expect them to leave. My policy is to hit them with a late fee on the 5th and start eviction on the 10th. I would do this even if the tenant tells me they intend to be out the end of the month. Why? Because Tenants aren't always honest about their intentions. If I don't start the eviction process and they fail to move out by the end of the month, I'm out the month of rent and it will take another 3-4 weeks to evict them which means i could lose two months of rent.

Start the eviction. Stop it if the tenant pays or vacates.

[Theresa Harris]

Originally posted by @Sandra Habiger:

@Lue Brooks @Theresa Harris

They might not have their last utilities statement yet when they move. When they call the utilities companies to tell they’re moving (they can do that before they move), they will have to tell them the new address for their bill.

Because you’re gonna renovate the house, you’ll be responsible for the utilities during that time. I’d just call the utilities company, switch the billing back to my name and ask if the renter already called, too. Ask when their last bill goes out.

From what it sounds like, they seem like good renters, so I don’t think they won’t pay their last bill.

 True, but at least you'll know if they are current with their bills.

[Michael Noto]

Do not let them use their security deposit for the last months rent. If they are the kind of people who just think they can skip out and end a lease a month early they are probably the kind of people who will not leave the unit in good shape once they vacate and you will likely at a minimum have some legit deductions on their deposit. 

Tell them they are still expected to pay the last months rent by some other way than their security and take it from there. 

[Erik W.]

@Lue Brooks, congratulations surviving your first year as a land lord.  A few thoughts....

1) "They are good tenants..."

No, they are not.  Good tenant fulfill the terms of the lease, up to and including the last month's rent.  These are borderline BAD tenants who feel comfortable screwing you out of a month's rent.

2) Precedent.

If you let them leave, you have established a business practice.  If in the future you try to drag other tenants into court for non-payment, their attorney may ask you, "Have you ever let any other tenants in the past not pay rent as agreed in the lease?"  Then you have a choice to lie or be honest and let the attorney pick apart the reason for why his clients should be expected to pay.  Could involve a claim of illegal discrimination too, if his clients are members of a protected class.  Think that could never happen?  ;-)  

3) Trust

They have violated the trust that is required for a good land lord/tenant relationship.  What if they don't move out early because of this or that reason?  How long will you let these "good tenant" slide on unpaid rent?  They have already broken their word to you once by deciding to violate their signed lease agreement.  Why would you expected them to be truthful now?

4) Running your rentals like a business vs. a hobby

A lot of new land lords think they have to be "nice" when tenants do not follow the lease.  They use phrases like "They were such nice tenants..." or "they always kept the place looking good" as excuses for why they rationalize letting the tenants not live up to the agreement.  This is not proper business behavior.  Think about it.  What other businesses let their customers just say, "you know what, I'm not going to live up to the last 8% of our agreement."  Phone companies have contracts.  They are much richer than you and can afford to let people skip out of contracts, but they do not.  Why not?  Because allowing people to skip out on their obligations is not business-like behavior.  Businesses can and do sometimes offer good customers discounts or loyalty incentives, but that is not what is happening here.  The customer (tenants) is TELLING YOU what incentive you will be required to give them: early release.  Nope.  That's not how this works.  You're free to do what you want: it's your property, but allowing the customer to dictate terms and break agreements with no penalty is a hobbyist's action, not a business-person's.

Bottom line: the lease is the agreement.  I recommend you stick to it, or you open up a can of worms that benefits them 100% and you 0%.  

[Anthony Rosa]

If the tenant was a good tenant anr didn't wreck the place I wouldn't make an issue of it.  For one month, who cares. I remember when I was renting and in a jam the landlord was understanding of me and I appreciated that.

[Joe Splitrock]

Originally posted by @Lue Brooks:

@Nicole Heasley I used the template from the book Brandon turner wrote about managing properties. It’s a pretty thorough lease.

As a PRO member, you have access to download state specific lease and lease forms. Click on "PRO-ONLY" then click on PRO PERKS. Then select forms and you can go to Texas specific forms. 

[Mary A.]

If they are not fulfuilling their lease, you keep their deposit (since we must treat all tenants the same), but make sure your lease is airtight on this (see below).  I thought in the beginning that best practice was to be nice to all tenants no matter what.  It wasn't until I let a couple of tenants walk all over me that I could give myself permission to be firm, and to not let my guilt be tripped because "it's in the lease".  Now, I have an initial telephone conversation form, and no one sees an apartment until each item is covered and answered.  My form includes "You will be expected to know what is in your lease and follow it - will that be a problem?"  and also how quickly I will evict them if they don't pay rent.  

I am in Texas, and the Texas Property Code prohibits use of security deposit for last month's rent (92.108):

<p>Sec. 92.108. LIABILITY FOR WITHHOLDING LAST MONTH'S RENT. (a) The tenant may not withhold payment of any portion of the last month's rent on grounds that the security deposit is security for unpaid rent.</p><p>(b) A tenant who violates this section is presumed to have acted in bad faith. A tenant who in bad faith violates this section is liable to the landlord for an amount equal to three times the rent wrongfully withheld and the landlord's reasonable attorney's fees in a suit to recover the rent.</p> Info on refund/accounting for the security deposit:

<p>Sec. 92.103. OBLIGATION TO REFUND. (a) Except as provided by Section <a target="new" href="http://www.statutes.legis.state.tx.us/GetStatute.aspx?Code=PR&Value=92.107">92.107</a>, the landlord shall refund a security deposit to the tenant on or before the 30th day after the date the tenant surrenders the premises.</p><p>(b) A requirement that a tenant give advance notice of surrender as a condition for refunding the security deposit is effective only if the requirement is underlined or is printed in conspicuous bold print in the lease.</p><p>(c) The tenant's claim to the security deposit takes priority over the claim of any creditor of the landlord, including a trustee in bankruptcy.</p> Note the below sentence from the above section of the TX Prop Code:
A requirement that a tenant give advance notice of surrender as a condition for refunding the security deposit is effective only if the requirement is underlined or is printed in conspicuous bold print in the lease. My Lease did not comply, but it does now.

The TX Prop Code should be your best friend.  I keep a hard copy next to my PC for quick reference, especially to my margin notes.  It contains a tremendous amount of information that will help you in your early years.  I am only in for 6 years thus far, and started completely unprepared to manage Tenants when my property manager quit with no notice.

Take note that the TX Legislature just passed new laws relating to Landlords.  Watch for this around Sept. 1st each year.  One this year has to do with late fees.

Following are the TX Prop Code chapters and what they cover, this is from https://guides.sll.texas.gov/landlord-tenant-law:
Ch 91:  Duscusses provisions generally applicable to landlords and tenants.
Ch 92:  Discusses residential tenancies.
Ch 24:  Discusses eviction
Ch 54:  Discusses landlord's liens.

Hope this helps, and good luck!