Can a landlord retain a security deposit as damages because their tenant did not move out when they indicated? Even if the tenant still has a lease in effect throughout the period promised?
How This Dispute Starts
A tenant notifies the landlord that they will not be renewing their lease and due to circumstances (a job relocation, a marriage, new roommate, etc.) the tenant plans to vacate early. For example, a tenant’s lease expires Sept 30 and they plan to vacate by September 15. The tenant informs the landlord they will pay rent for the full month and maintain the property as expected in the lease. They just plan to vacate earlier than the end of the lease term.
Landlord Senses Opportunity
A landlord may see an opportunity to quickly turn the property. A chance to not lose any rent by leasing the home in the last half of September. The landlord plans to rent the property to a new tenant with possession on September 25th. When they show the unit they basically violate the privacy of the existing tenant. At that point the landlord should have realized the tenant had not finished vacating. When the landlord discovers the tenant had not vacated, they face the possibility of having two tenants in the same property. The landlord will have to cancel the new lease offer and possibly lose the new tenant.
The new potential tenant loses interest as it no longer appears the unit is ready for rental. The landlord feels they have lost a new tenant because the existing tenant has not vacated.
The landlord believes the tenant not moving out as indicated has caused them financial damage. Due to this perceived damage of a lost rent from a new tenant, the landlord plans to retain the tenant’s security deposit.
Can a landlord retain the security deposit in this situation?
Legally the rental is in the possession of the existing tenant until September 30. If the tenant physically hands over the keys to the landlord, then they are relinquishing possession. If the tenant simply did not move out as first indicated, they still have every right to stay at the property through September 30th. This is not grounds for retaining the deposit.
This dispute could have been avoided by keeping communication lines open with the existing tenant.
Always make sure you have a clear understanding of local laws regarding how a landlord must process a security deposit. In Indiana we have 45 days to produce a settlement statement. Other states have similar timelines. If a landlord decides to hold the security deposit and charge the tenant for the days they were presumed to be leaving, the tenant can visit any kind of legal services and formally create a complaint. If the landlord has a real estate license, this entire scenario could include professional licensing involvement.
How Should The Landlord Handle This Next Time?
The best option for a landlord is to have the tenant sign an amendment with a new lease end date. In return the landlord may choose to refund part of the rent on a pro-rata basis. Such an agreement would eliminate the possession issue and result in a breach of an agreement if the tenant did not vacate as promised. In that case, charging the security deposit for the lease holdover daily rate would be justified.
Lessons learned:
- Document in writing your tenant’s intents as to vacating.
- Keep lines of communication open.
- Don’t enter rentals that appear to be occupied without giving proper notice.
- Finally, be careful with any decision to retain a security deposit or a portion of the security deposit.
