Moral/Legal Obligation?

Question

A friend is letting out her house privately. One month ago,potential tenant signed an Individual Tenancy Application and paid a month's rent as deposit. She was given a receipt which stated 'This deposit secures the rental of the house' (and stated the correct address). In the past month,my friend has turned away 5 potential tenants and has been preparing the house for the occupant. She received a letter this morning saying that her tenant had pulled out due to financial reasons. The letter asked for the deposit back in full. She was due to move in in 5 days time. Where does my friend stand as far as returning the deposit is concerned? Is there a legal obligation? Or a moral obligation? What would you do? Any help would be greatly appreciated.

Answer 1

I am in the US and perhaps things are differerent here (we use the word "renting" instead of "letting" but the way I used to do it was that to obtain possession of an apartment a new tenant would make a security deposit of one and one-half month's rent plus the first month's rent. The refund of the security deposit would depend on a 30-day notice of intent to vacate, So it did not only cover damages it also covered the lack of proper notice, for exactly the reasons stated in your question. All these agreements should be in writing and spell out the terms so there is no confusion at some future date. Now your friend will suffer a finanacial loss because a prospective tenant defaulted on an agreement. There should have been a written agreement as to what would happen in case of a tenant default, specifically stating the obligation of the tenant for the first month. At the very least the tenant should be responsible for one month's rent for failing to give proper notice (the 5 days). A landlord renting a house is a business, not a charitable organization. A tenant also has responsibility to fulfill terms of an agreement. Lack of a written agreement clouds the issue and opens the door for dispute.

I used to be a landlord and never had any problems with anything like this.

Answer 2

Hi, my name is Eunice Saunders and I am a REALTOR. This is a good question and I will try to help you find the answers. First you must know the laws of your State. You did not mention what state you are in so it is hard to say as to what laws would come into play here. Second it would depend on how she wrote the contract for the rental and what stipulations she put into the contract about Deposits? A rental contract is usually for a year or at least 6 months. In my state the Deposit would be forfeited due to the breach of contract and also the renter would be responsible for any rents lost.....which means starting from the day she was supposed to move in until the day the property is rented again to another tenant the rents would be prorated and first deducted from the deposit and then billed the difference to the former tenant. Example: Former tenant was supposed to move in Dec 1st but backs out.........The property is not rented again until Jan 15th......the former tenant would owe for the whole month of Dec (Deposit pays that month) and they would owe for the 15 days in Jan (Bill to them.) Once the property is successfully rented the former tenant is no longer responsible. On the other hand: If the property is rented right away....on or before the date the former tenant was saposed to move in...the deposit should be returned in full as you the landlord have not lost anything.....All Deposits should be escrowed in a separate bank account and you should keep diligent records as well. This is the proceedure for my state........and may be very different where you are so my best advice to you would be to check the laws of your state before you make any decisions about this situation. Rental/Tenant laws can be very strict and if it ever goes to court the law usally always favors the tenant over the landlord. Good Luck, Eunice

Answer 3

It depends. First off, this is not in the realm of moral obligation, so get that out of your head right now. This is about legal obligation. Outside of not intentionally setting out to screw someone using the letter of the law to mislead and take advantage of them, morality isn't an issue. The reason I say this is people have all sorts of funny ideas about what they or the other person should or should not do as a matter of right and wrong, with almost no basis in real morality.

A lease is a contract. But is it a HEAVILY regulated contract. Your state and local governments have varying degrees of strictness with regard to what can, what cannot and what MUST be in the lease. If it's in the lease but not allowed, it is, of course, non binding. If it's not int he lease but compulsory it is in effect just as much as if it was written down. Further, verbal agreements are also binding if they can be proven. There is also the reasonable person standard. If a reasonable person would interpret something ambiguous a certain way.....guess what.

Now, let's say your friend put in the lease that the "deposit" (bad term to use here) is a "non-refundable deposit to secure the rental and be applied to the first month's rent". And that she emphasizes this point verbally to the tenant. That is pretty clear.

However, let's say she simply collects a deposit and signs a boiler plate lease with the tenant. Is that money the first month's rent? A security deposit? What? A reasonable person would assume it's a security deposit. Almost every municipal has strict rules for the handling of security deposits and controls how they are handled and what they can be used to pay for. Most specifically disallow them to be applied towards rent owned and force the renter to return them....promptly. Failure to comply can be punished severely in certain locals.

Let's say it is pretty clear that it is for the first month's rent. What does the lease say about the terms under which a tenant may break the lease? More importantly, what does the local law say about this. I suspect that there are specific rules regarding the special case where a tenant breaks the lease before even moving in. Note that if the lease is not broken, the tenant is still liable for rent unless you obviously have removed the property from their control (changed the locks....something that can land you in jail in certain areas like Chicago, put it back up for rent etc.)

Your friend's best bet is to either hire a lawyer or talk to the legal aid organization that handles tenant's rights in your area.

Answer 4

I'm not sure what country you live in but most deposits for rental or real estate are returned AS A COURTESY- if a financial problem arises by the signer, however the whole point of a deposit is to protect the renter/seller from the exact situation that you described above. She should keep the deposit and send a letter informing the person that the deposit was kept because she lost a potential months rent turning away other applicants because of the signed lease.

Answer 5

For starters this is business...morals dont come into it.

Your friend must not do anything until she has received legal advice. I would give you it if I knew all the terms of the contract but you didnt metion any clauses reagarding the terms relevant to the notice period or whether she was due to pay monthly, is it periodic or assured tenancy agreement?

If it is assured shorthold she can retain the deposit and persue the tenant through the courts to pay the amount of rent owed further until she finds a replacement tenant. So if she can't find one for 2 months then she can get a court to order the tenant to pay this loss.
But the landlord has an obligation to minimise his/her losses. So your friend must take reasonable action to find a replacment tenant. This means advertisment. But if she cant then she can sue the tenant for the whole term of the contract.
If it is a periodic tenancy your friend will have a lot less rights but generally(depends on their contract) the notice period the tenant must give is when the rent is paid, so if its monthly then the tenant must give one months notice.

But I would advise she speaks to at least, community legal service direct which is free about this and they can refer her to a good solicitor.

In future this is a learning curve for you friend and I would strongly reccommend that she invests in some text books about the legal elements of being a landlord and her rights she need to know at least about the following;
leasehold terms
eviction procedure
types of leasehold
tenants rights
lanlords rights and obligations
These topic are covered generally under uk law as land law.
I hope a solicitor has read and drafted the contract too and advised her on how to complete the contract in a manner that makes it vailid such as co-witnesses.
If you need anymore advice let me know, I'd be happy to go over the contract and offer informal advice.

Answer 6

That is the exact purpose of the deposit. It works two ways. It insures that the landlord does not rent to anyone else and that the tenant will not rent anywhere else. In this case your friend has a legal and moral obligation to keep the deposit. If she gave the deposit back this tenant would do the same thing to some other landlord.

Answer 7

A deposit NEVER secures rental of a property no matter what you put on a receipt. If the bond was a standard rental bond it only covers for damage to the property, since the person never moved in they are entitled to all of it back.
Your friend could've told the tenant at the last minute that she was no longer letting the house and He/she would have no comback. There needs to be a contract signed, always! If the prospective tenant had signed a contract then he/she would be liable for all the money for the term of the tenancy

Answer 8

What did the contract state? If you have someone sign a lease there should be some kind of security deposit, as well as notice for how much notice is required before the tenant vacates...this includes never moving in. If all there was was a receipt than I don't know how legal it is, and you should check with a lawyer.

Answer 9

The obligation on the deposit payer is that if there is a loss involved such as re advertising or no tenant on the expected move in day the holder of the deposit is entitalled to cover such loss from the deposit but as in all law the loss must be proved.

Answer 10

If you are in the UK, dont forget that a contract can be verbal also. A contract is made on the three conditions that must be fulfilled; i.e. offer, acceptance and consolidation. If you walk into a shop and they are OFFERING sandwiches at £1.50, and you choose to ACCEPT that offer and buy, and you then CONSOLIDATE the offer by handing over the money, the contract has been fulfilled. It is at this point that the contract becoved void. A contract is in force until all the conditions (whatever they maybe) are fulfilled.

I think your friend should seek advice from the Citizens advice bureau. If they think she has a case to answer, she should persue the tennant for the full tennancy as they seem to be in breach of contract.

Take profeesional advice would be my advice.