Credit Security Deposit?

Question

So I have this scenario:

Tenant early termination, fee = $800 (equal to one month's rent)

Security Deposit = $700

He is entitled to security deposit as per condition of unit, however he has not paid the early term fee, hence he is not cleared for the security deposit if he owes us $.

He is not grasping the concept of, why can't he just pay me $100 (the difference) and call it a day? I am telling him that he must pay the $800 first (via cozy, takes 5 days to clear w/ACH) and then I will mail him a check for $700 (takes 1-2 days first class).

My understanding is this must be done for accounting purposes and technically that security deposit is in a separate account than the operating (where rent & fees would go) so it really needs to be two separate transactions.

Also if I were to "credit" his cozy account $700, showing he would only owe $100, then I am in essence jumping the gun by saying, you got your security deposit back so that would imply his account was all clear, which would not be valid.

Thoughts? What are other options or ways to explain to a tenant that this is non-negotiable, but to help them understand why?

Holly Barrett · Answer

Thanks @ Mike Cumbie

i ended up folding and doing exactly what you said.

this has been a lesson learned though to make it Crystal clear in the lease going forward that these are two completely separate transactions and cannot be commingled.

I'm also going to double the ETF to 2x rent and that it must be paid upon the 30day notice to start the timeline to depart.

thanks everyone for the advice!

Mike Cumbie · Answer

@Holly Barrett

I am guessing this is something to do with the Software? If so I am not sure.

Just as a matter of principal (if the software wasn't the issue) I agree with him. Trying to get someone who just moved to give you $800 to hang onto for a week or so just complicates things. I would have him send the $100 and a letter that simply says "I authorize the landlord XXX to keep the $700 security deposit for the property at 123 main street. These funds are to balance out the account for the early termination".

Once received send out an itemized list of zero repairs and $700 for the ETF and send him a copy so you close up the back end. Waiting 5-6 days for the funds to clear when you have them in your bank just does seem a little silly to me.

You said he is entitled to the whole thing per the condition of the unit.

Just my 2 cents and good luck!

Erik W. · Answer

@Holly Barrett, hi and welcome to BP!

Congrats on charging an Early Termination Fee!  Many land lords are too old school (i.e. timid) to do this, but ever since I started going it about 5 years ago my profits have been up, up, UP and hassles have been low!  So good job.

If I may offer a few suggestions:

1) Make your ETF higher. I charge 6 weeks of rent, but am about to re-write that part of my lease to be 8 weeks.  Why?  I had a few vacancies go over 4-5 weeks, and all that hassle plus lost rent should be fully compensated.  Remember, the tenant is breaking the deal: you should be made whole not only for all the rent you lose, but also the cost of your time, the hassle factor of ads, showings, applicant screenings, utilities at a vacancy, mowing the yard, etc.   Those costs are about DOUBLE the amount of lost rent.

2) Add in your lease, if you haven't already, that the Security Deposit cannot be touch for ANY REASON until after the lease ends.  Until the ETF is paid, the lease has not ended; ergo, you cannot touch the Security Deposit.  Then you don't need to "explain" anything.  You point to the lease agreement and say, "This is what we agreed was the deal, and I will return your SD as required by state laws on Security Deposit handling."

Here's the thing: I am 99% certain your tenant KNOWS what the deal is.  He fully understands it.  But he is trying to wheedle, whine, and get you to make an exception to policy.  Nope, don't do it!  If he fails to pay the ETF, then rent is still due September 1st.  Btw, in my lease he would have had to given official written notice that he was terminating the lease and once that notice is given it cannot be taken back without my permission, so if he stays put then I would be able to treat him as a hold over tenant, in which case per state law rent doubles automatically.

Be firm, be fair, and get paid!  That's why we got into this biz, yes?

Good luck!

Will Gaston · Answer

@Holly Barrett

The process goes like this:

1) The early termination fee concludes the lease.

2) After the lease is concluded, the deposit is returned.

I'd also add that the tenant is assuming that they would get all of their security deposit back anyway. There certainly could be deductions that you'd need to make from that deposit too.

The fee/security deposit should not be co-mingled. At least in my experience.

Jim Adrian · Answer

I would tell the tenant, he doesn't have approval for early termination due to fee not paid in full and not following the lease agreement process and you will continue to charge him rent and late fees accordingly.   Most likely he will just leave and you are out the $100 minus any other damages but stand your ground firmly.   Remind him he is in breach of contract.  You will be obligated to hold that unit open / vacant due to the initial lease.  Remember, if a tenant wants to leave, they will just leave.  Its always best to get them out fast and without damage to the place and just re-rent it asap.   Below is my early termination clause.  This is also why some landlords collect last month rent at lease signing.   Something I have considered but i can't see young people able to come up with $3600 at one time.

Make your security deposit equal to rent or as high as legally possible.

• EARLY LEASE TERMINATION FEE (LIQUIDATED      DAMAGES). In the event the Tenants desires to terminate the Lease      early they may do so at the written approval from the Landlord.  A thirty day (30) written notice is      required and will be provided at the first (1st) day of the month.      Rent will be paid through the end of the month.

• a.      Military Deployment Orders / PCS:

The Servicemembers Civil Relief Act (SCRA) is a law that is intended to help protect the legal rights of members called to active duty. The protections under SCRA apply to active duty members of the regular forces, members of the National Guard when serving in an active duty status under federal orders, members of the reserve forces called to active duty and members of the Coast Guard serving on active duty in support of the armed forces. Tenant’s protection under SCRA begins on the date they enter active duty and generally terminates within 30 to 90 days after the date of discharge from active duty. If you terminate your lease under the SCRA, your lease will end 30 days after the first date on which the next monthly payment of rent is due.  Tenant will provide written notice to the landlord and a copy of your Permanent Change of Stations (PCS) / Deployment Orders.  Tenant received permanent change of station orders or deployment orders for a period of more than 90 days will be allow ending the lease process. The deposit will be processed according to Lease agreements. No additional penalty fee will be required.

• b.      Tenant Requested:

The Tenant will provide written and proper notice as stated above.

• 1.      0-3 Months: There is a penalty fee of one (1) month’s rent.
• 2.      3-6 Months: There is a penalty fee of two (2) month’s rent.
• 3.      6-9 Months: There is a penalty fee of four (4) month’s rent.

Will Gaston · Answer

@Holly Barrett can you get their security deposit outside of Cozy via Venmo, Zelle etc?

It seems like it is the tenant wants to end the lease. Are they financially capable of getting $800 together?

Holly Barrett · Answer

Thank you guys for the feedback!

Question. What is my next step if he doesn't pay this $800?

I have tenants already teed up for Sept. 1st move in, but I cannot get them assigned to the unit in Cozy until this other tenant is released.

I'm not going to engage an attorney over $100. So what is my next move?

Credit Security Deposit?

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