Security Deposit Return Before Move-In Date

[Abby Holland]

I had a unit come available March 7th. I had applicants within a few days. They gave me a deposit on March 13th but didn’t sign their lease right away for an April 1 move-in. They asked to push the date to mid April tentatively due to covid-19 which I agreed to do (still no signed lease). They just informed me today that they won’t be taking the unit.
It’s now been vacant nearly a month and I’ve put it back on the market with someone viewing it as I type this (someone else is showing for me). 
I wouldn’t normally hold a unit without a signed lease but quarantining started around the time the new tenants would have signed so I was willing to work with them. That said, do I have any recourse with their deposit? I’ve already gotten 3 messages to view the unit in only a few hours so people are still looking and moving during the pandemic, but my largest and most expensive unit has been sitting vacant longer than it presumably would have, pandemic or not. 
I’m not looking to be greedy but like the rest of us, this hurts my pocketbook too. 

[Kyle J.]

Unfortunately, based on what you wrote, you'll need to return their security deposit.  You had no signed lease with these people, they were never your tenants, and a security deposit (actually anything you call a "deposit") is inherently refundable according to the law in California unless there's a valid reason to deduct from it (and you haven't outlined anything in your post that would give you a reason). 

Next time have the applicant sign the lease when you collect the money.  That way if they break the lease and fail to move in like they did in this case, you can charge them rent up and until you find a new qualified tenant to replace them.  (Because you'd still have to mitigate your losses and make a reasonable effort to find a replacement tenant, which it sounds like you are.)

Alternatively, if you really want to collect money up front but delay the lease signing for some reason (like you did here), then don't refer to the initial money you accept as a "deposit".  Call it a non-refundable "holding fee" that gives the applicant the exclusive right to enter into a lease agreement for the property.  But make sure that they understand that you'll be removing the property from the market based on the belief that they intend to enter into this lease agreement and that if they fail to do so they'll be forfeiting their entire holding fee to you as liquidated damages.  (Obviously this should be in writing and what I wrote above is just a summary of what should go into this document, but I'm sure you get the idea.  I'd also suggest that if you intend to do this that you have your own attorney review your form for you to make sure yours is legal and will work for its intended purpose.)

Hope this situation works out for you and that you get your unit re-rented quickly.  It sounds like you're already getting some interest so that's a good sign.