Legal Corner Q & A
by Various Authors
Q. I accepted a $200 deposit from a prospective tenant to hold an apartment for her. Later, she changed her mind, and chose not to rent the place. I ended up renting the unit out without any "down time" but I really feel like keeping the deposit because she jerked my chain around. What is the law on this subject?
A. The law states that you must return the security deposit in full and this includes "holding" deposits. Security deposits can only be used for the following reasons: (1) to cure a default in rental obligations; (2) to repair damages, exclusive of ordinary wear and tear, caused by the tenant or his guest(s); (3) to clean the premises upon termination of the tenancy "necessary to return the unit to the same level of cleanliness it was in at the inception of the tenancy;" and (4) if expressly authorized by the rental agreement, to reimburse the landlord for damaged personal property (for example, the landlord’s furniture loaned to the tenant).
Remember that a security deposit includes all money collected by the landlord, with the exception of the first month's rent. Thus, the last month's rent, cleaning deposits, pet deposits, holding deposits and the like are all security deposits. For unfurnished units, the total amount collected cannot exceed two months' rent, and for furnished units, you may only collect three months' rent.
Last year, the state legislature passed a new amendment to the security deposit law that now requires landlords to notify the tenants, in writing, of the tenant's option to request a move-out inspection by the landlord. If the tenant requests the inspection, then no earlier than two weeks before the move-out, the landlord (or his/her agent) must perform the inspection and leave a written summary with the tenant that delineates any deficiencies that may cause a security deposit deduction. The tenant will then have the option, if the lease agreement so allows, to cure any noted defect(s). Make sure you obtain the proper "right to inspection" notification now required to be served on your tenants when they are departing, either voluntarily or by way of eviction; otherwise, you could be liable to the tenant for bad faith retention of the security deposit.
Last, the law allows owners to charge a nonrefundable application-screening fee to cover the costs of obtaining credit reports and personal reference checks. However, the amount of this fee should not exceed the actual out-of-pocket costs of gathering information, inclusive of the reasonable value of time spent obtaining the necessary information. In addition, the amount of the fee should not exceed $30 (subject to annual adjustment by the landlord commensurate with yearly CPI increases beginning on January 1, 1998). An applicant is entitled to an itemization of all expenses charged against this fee. Remember that the applicant is also entitled to a copy of the credit report. If you do not perform a personal reference check or obtain the credit report, you should return the application-screening fee.
- David Wasserman
Q. How can I recover lost rent when a tenant moves out prior to the lease expiring?
A. The most direct way to recover lost rent, or at least part of it, is from the security deposit. Failure to pay rent is one of the justifications for the security deposit. You will most likely have to pursue the tenant either in court, or by means of arbitration, if your lease or rental agreement so provides. If the total rent that the tenant owes is $5,000 or less, you can take the tenant to Small Claims Court, where the procedures are simple and informal, with neither side permitted to be represented by an attorney. That way, in a relatively quick proceeding and at little or no expense, you can get a judgment against the tenant. Of course, you would still have to go out and collect the money, but the tenant may cooperate rather than suffer continuing damage to his/her credit rating. Even if more than $5,000 is owed, for example $7,000, you might waive the additional $2,000 beyond Small Claims Court jurisdiction in order to utilize this process, with its speed and lack of cost.
If the unpaid rent is substantially greater than $5,000, you will be left with no other choice than to sue in Superior Court; or if the lease or rental agreement so provides, to demand arbitration. Arbitration is generally more advantageous to the landlord than court proceedings, but it can be more expensive in some relatively simple matters such as the collection of rent for an unexpired term. Even if there is an arbitration provision, however, it can be waived, which might prove beneficial to both you and the tenant.
Remember that before initiating any action, a landlord may not simply sit back, make no effort to re-rent the unit, and collect the rent for the balance of the term from the absconding tenant. The landlord has a legal obligation to mitigate, i.e. minimize, the damage suffered by making every reasonable effort to rent the unit for the unexpired balance of the term, even if this means at a lower rent. Any rent collected from the new tenant would have to be credited against the amount the departed tenant owes. Of course, the costs of re-renting, such as advertising and commissions, may be charged in whole or in part to the tenant who broke the lease, depending on the circumstances, as would any difference in the amount of rent.
Most important in your assessment of the appropriate course of action, perhaps, is for you to determine the reason the lease was broken and to decide if the likelihood of collecting the unpaid rent justifies the expense and effort of going after it. This will, of course, depend on the availability and the solvency of the breaching tenant.
- Saul M. Ferster
The opinions expressed in this article are those of the authors and do not necessarily reflect the viewpoint of the SFAA or the San Francisco Apartment Magazine. The information contained in this article is general in nature. Consult the advice of an attorney for any specfic problem. David Wasserman can be reached at 415.567.9600.Saul M. Ferster can be reached at 415.863.2678. Copyright © 2003 San Francisco Apartment Magazine