A signed lease represents a contract both the landlord and tenant must fulfill. When a tenant breaks the lease agreement, they have breached the contract, and therefore are usually responsible for paying the remainder of what they agreed to when they signed the lease.
But a vacated tenant might not pay what they owe. Rather than hunting down a tenant who is long gone and then trying to slap them with a lawsuit (if you can find them) to help make yourself whole, you might just want to keep your tenant's security deposit. It may not cover all of what you're out, but it can certainly help. The question, however, is whether you can legally keep the security deposit to pay for rent if your tenant breaks the lease.
The security deposit
The security deposit is to pay for damages a tenant caused to your property beyond normal wear and tear. It is not a rent payment, but tenants often ask if the landlord will just keep the security deposit in lieu of last month's rent. That is usually not a good idea for a landlord, because there might be damages after the tenant moves out and then the landlord will have no money (except for their own) to pay for those damages. So security deposit law in most states is written to protect the function of the security deposit.
But even though the security deposit is slated for possible damages and not rent, landlords typically can use the security deposit to cover unpaid rent if the tenant breaks the lease.
The lease term
All leases need to have a start and end date: the rental period. Let's say the lease term is 12 months and the rent is $1,800 a month. When your tenant signs this lease, they are really contractually obligated to pay you $21,600 to rent your property for a year. But you are breaking up that $21,600 payment into 12 equal installments of $1,800.
So what happens when a tenant, say, eight months into your 12-month lease, wants or needs to move? They still owe you $7,200. What do you do?
How to get what is owed to you
You can't force someone to stay in your rental property, but you might be able to insist they pay what they owe you. If your tenant moves out early and still pays you, in the case of our example, $1,800 a month for the remaining four months, then you are made whole.
But most people can't afford to pay rent after they have moved out, since they're likely paying rent or a mortgage elsewhere. You can track down your tenant and sue them for the money. Taking them to small claims court, though, will take some time and effort on your part. There are other options.
A lease-break fee
Some landlords include a lease-break fee, or an early termination fee, in the lease. They might charge two or three months' rent, for example, to a tenant who leaves early.
If you charge a lease-break fee, several scenarios might occur:
- You might not be made whole: If your tenant moves out, say, four months after moving in, and you charge only two months' rent as your lease-break fee, you will be out some money (unless you re-rent the unit before two months' time).
- You might break even: You might charge a lease-break fee of two months' rent and then have a new renter by the third month, meaning you have not made or lost money on the deal.
- You might make money: You might charge a lease-break fee of three months' rent and then re-rent your property in a month, in which case you make money from a tenant moving out early.
You need to take action
What generally happens when a tenant breaks the lease is they are responsible for paying the rent every month until the lease ends. But in most every state, landlords must make an effort to re-rent the property by finding a replacement tenant instead of relying on collecting rent from a vacated tenant. So in most states, you can't just sit on your hands and collect rent while doing nothing to mitigate your damages.
But don't think you can cash in, either, by collecting rent from both your original tenant and new tenant. You can collect rent from only one party at a time. As soon as you re-rent and start collecting rent from a new tenant, you can no longer keep charging your original tenant. That would be double dipping and is typically not allowed.
Keeping the security deposit
Most states allow landlords to keep the tenant's security deposit, typically equal to one month's rent, if the tenant breaks the lease. That takes care of one extra month, and if the tenant moves out a month early, then you will have been made whole, assuming the tenant caused no damage. If they did, then you would need to bill your tenant for the damages and then sue them if they don't pay (if you think the amount is worth suing over).
You can also bill your tenant for what is still owed. But before you do, check your state law on whether you need to make an effort to re-rent.
Tenants can break a lease in some cases
Note that in certain cases, tenants have a right to break the lease, including:
- Active military: Tenants who are on active military duty have the right to break the lease without penalty if they are ordered to report elsewhere for duty. They do need to give you a month's notice, however, and provide you with a copy of their orders.
- Uninhabitable unit: Landlords are required to provide a habitable unit. If your property doesn't have heat, doors that lock, or running water or has a pest infestation, it's not habitable, and your tenant can typically break the lease and move out without penalty.
- Breach of quiet enjoyment: All tenants have the right to quiet enjoyment of the rental unit. If you think you can just pop by any time because you own the place, your tenant can break the lease without penalty because you are depriving them of their right to live in the property undisturbed. If you must visit the property for an inspection or to make a repair, you generally need to give at least 24 hours' notice.
The bottom line
It's usually OK for you to keep the security deposit if your tenant breaks the lease. If you are unsure of what to do in your state, you can always check with an attorney who specializes in landlord-tenant law.