Held House for a Month Now Tenant Doesn’t Want It

[Kristen Watts]

Hello BP members. I collected a $1125 deposit for a single family home to hold a house for a prospective tenant. It’s been a month since she applied and a few weeks since I got the deposit. Her move-in date kept getting pushed out (it’s a couple weeks late at this point). Would you refund the entire deposit or how do I handle this? Thanks in advance!

[Erik W.]

I don't like using the term "deposit."  It opens up the door to having to possibly prove I suffered a loss.  Can I prove without a doubt that another willing and able applicant would have rented the property if I hadn't been holding it?  Even the term "non-refundable" seems open to legal challenge.  I prefer not to risk it.  More on that below.

So here's what you do this time: call up the applicant and give them a drop-dead ultimatum.  They will sign a lease, pay all move-in funds within the next 48 hours, or you are handing their deposit back to them minus 50%.  Call it a good faith bargain since you all didn't spell it out this time.

Here's what you might consider doing NEXT time...

1) I never hold for more than 2 weeks without starting to collect rent.  

2) I call the money a HOLDING FEE, not a deposit.  As we said above, "non-refundable deposit" may be open to challenge.  However, if you call it a FEE, then there is no refund.  A fee is money paid for something in exchange.  You are exchanging time for money.  I credit the FEE toward their total move-in costs.

3) Spell out the terms for how long you will hold in language a 5th grader can understand.  Also, be sure to specify that they cannot back out for ANY reason.  Even if Dear Old Aunt Tilly dies.  I am sorry to hear about Aunt Tilly, but I still need to be compensated for lost rent and since I didn't kill her there's really no reason to expect me to "eat the loss."

4) I include several "forfeiture statements" in my holding FEE agreement.  For example, if they fail to transfer utilities before the move-in date, lose their job, or screw their old land lord out of last month's rent, we have already agreed in writing that I can rent to someone else and retain the holding FEE.  In other words, I require them to keep at least 90% of their income as at the time of approval, and they must stay in good standing with their current land lord.  

Good luck!