Do I return deposits or not

[Darlington Agu]

I currently have a tenant that occupying one of my properties, she's paying rent on time and arguably has been a great tenant. Unfortunately I received a call from the HOA regarding my property as being used temporarily house patients. I had no idea that she was doing this. I called the tenant to ask what was going on and she stated that's she's been doing this for years and runs her business out of several homes. The tenant states that there are two there homes across the street doing the same thing and she doesn't understand why the HOA is comparing about my property. I informed her I would check with the HOA and see what are their guidelines. The HOA has a guideline stating that the residence must be used as a single family residence only. This is an amended guideline which I wasn't aware of when I purchased the property. The tenant is lease ends in May but she is requesting to break the lease now and have her deposit returned in full. I'm not sure what I should do here , allow her to continue her business there as she has statuses that she wants to remain in the property till May or have her leave the property and return her deposit (I believe she isn't entitled to her deposit back because she broke her lease )

The property is in Houston Tx any advice would be helpful 

[Nathan Gesner]

1. I've looked at a lot of HOA rules and every single one of them says the dwelling must be used as a single-family residence. Even if they did amend the rules after you purchased, why weren't you aware of the amendment?

2. Your lease should limit the residence to residential purposes and not allow businesses of any kind. You open yourself to a lot of liability by allowing a daycare, hair salon, medical care facility, etc. Even if zoning and the HOA allow a business, you can (and should) still restrict it to a single-family residence. If the place burned down and your insurer found out she was operating a business, the insurance provider could refuse to cover your loss. Or what if something happened to one of her patients and the family decides to sue? Again, you could be held liable even though you didn't know she was operating a business in the home.

3. She is bound to the term of the lease. The HOA will not allow her business but that doesn't release her from the terms of your lease agreement. HOWEVER...you're at fault. As the owner/landlord, you should know the HOA rules and you are responsible for ensuring your tenants abide by them, as well. You failed to keep up on the rules and keep your tenant in compliance so you can't really blame her for the violation.

Here's what I would do. Tell her she is released from the lease agreement. Once she is out, inspect the rental and treat her deposit like you would with any termination. For future renters, I would know the HOA rules inside and out, ensure my lease agreement was in compliance, and provide a copy of the HOA rules to the tenants and document that you've provided it.