Return Security Deposit?

Question

Hi BP!

My brother and I are house hacking our home. We found an applicant who completed an application, and paid a security deposit 3 weeks ago and has yet to sign the lease. The young man is a student and did not want to sign lease until closer toward the start of school, later this month. The applicant was expected to move-in 10 days from now. Today the applicant stated that he could not move-in because of tuition cost and his job suddenly being unable. I thanked him for being open and wished him the best.

But he asked for his security deposit back since he has not moved-in nor signed the lease. I do not think he is owed the security deposit since we turned away other applicants and held his room for over 3 weeks now. So what do you think, do we have to return his security deposit?

We are new to real estate and being landlords. I just wanted to ask for a second opinion before telling him we cannot return security deposit. We are in the Sacramento, CA region.

Nathan Gesner · Answer

@Patricia Steiner is usually right, but I disagree in this case. She's correct that you should have something in writing, but the fact is verbal agreements can also be legally binding. The question is, can you prove you had a verbal agreement? If you have even a text or email, that may be sufficient to prove your case. And the odds of the tenant taking you to court are almost nil.

When someone is approved, I offer them the rental with a specific start date and require money paid within 24 hours to lock it in. I call it a "holding deposit" that says we will hold the property until the agreed start date. If they rent as agreed, the holding deposit converts to a security deposit. If they fail to follow through, they forfeit the holding deposit and we put the property back on the market. That's fully disclosed, agreed to in writing, fair, and legal.

If I were in your position, I would contact them to explain that you've held the property for three weeks so they are costing you at least three weeks of lost rent and they will forfeit the deposit. That's not unusual. If they push back, you can decide whether you want to negotiate something different.

Patricia Steiner · Answer

This is why you have to know your state Landlord-Tenant Laws:

"In California, all security deposits are refundable, even if the lease says otherwise (Civil Code Section 1950.5)."  More on this topic at:  https://statelaws.findlaw.com/...

Colleen F. · Answer

@Emmanuel Ivory if you are in California you gotta return the money like @Patricia Steiner says. It is very important that you learn the laws in your state, county and maybe even your town regarding  rentals.  There may be exceptions to your advantage that apply to roommate type of situations. Generally I charge a holding deposit if they aren't occupying right away.  And if this is a roommate I highly recommend month to month agreements so if you have an out if they aren't a good fit.

Patricia Steiner · Answer

Give it back now...you're not entitled to the security deposit because you didn't execute the lease.  A security deposit isn't a retainer fee; it "serves as a means to fix or replace something in a rental unit that was damaged, lost, or stolen by the renter."   A security deposit is owned by the TENANT until claim in made against it for cause and documented by the landlord with notice given within state law mandates.

And, don't accept a security deposit until the lease is signed.  And, don't hold a unit/room/property for anyone until the lease is signed.  Do yourself a big favor and get a copy of your state's Landlord-Tenant Laws. They're available for free online.  Being "new" isn't an excuse.  It's real painful overcoming stupid in this business.

Return the money today.

Scott M. · Answer

Your own words make it super clear you need to give it back, give it all back.  You said "and paid a security deposit".  You didn't say a non refundable deposit, you said security deposit.  He isn't behind on rent, he doesn't owe utilities, he didn't do any damage to the place you need to give the security deposit back, all of it.

Then change how you do business.  First, see if you are allowed to collect a non refundable deposit ahead of time and if you are make sure you have paperwork that makes this clear.  You collected X that is SD and Y and is NRD and when they move in it all gets converted to SD and if they don't you give the SD back and keep the NRD.

This college kid just taught you a free lesson.  Give the money back before he charges you tuition.

Adam Martin · Answer

I avoid this even further i do the deposit to hold but also require the first months rent within 2 days of being accepted regardless of when they are moving in.  Hard truth is you should have seen this coming with him not signing the lease and I would have passed.  I think one of the biggest problems we have in today’s society is people don’t feel they are responsible for their own actions and he feels he should get his money back since he changed his mind.  I would thank him for letting you know but in the words of Kevin Heart “you goin to learn today” and that is what deposits are for to mitigate risk.  School is starting soon so hurry up and get someone else in there but I’d keep the deposit, he isn’t going to sue for it.

Return Security Deposit?

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