What to do? Tenant signs lease, pays, but asks out of lease before moving in.

[kchaplin43]

So I just got one of my units ready to rent, and found a nice couple who were interested in the unit but asked for a shorter lease (month to month) than I was initially asking (1-year) because they were new to the area and may be purchasing a property if it pops onto the market. After discussing the situation with my business partner, we agreed to offer them a 6-month lease with slightly higher monthly rent. Their background check came back great.
The unit rents for $800/mo with a $500 security deposit.
After expressing concern over the 6-month lease and relevance of security deposit — including talking it over an additional time — the couple signed the lease, paid first, last, and a deposit, including a $50 non-refundable cleaning charge, we set up utilities, took down our postings, cashed the checks, and contacted all other potential applicants to tell them we had already found someone for the unit.
ONE DAY LATER
My business partner got a call from the couple, who informed us that they had just made an offer on a piece of property hours after signing the lease and they would not be moving in. They offered us $200 for our troubles and asked out of the lease.
After much discussion, and consulting the lease, we found many legal options, but felt moral dilemma.
1) "Sorry Charlie," we retain the entire sum as they indicated they will not honor lease
2) "We feel your pain," we return all money
3) We charge daily rent to the couple until the unit is re-rented, returning the remaining balance once new lease is signed
4) We return the rent, but retain the $500 deposit
5) "Sure, $200 covers our troubles" but not our time and we return the balance
6) Other ideas? 

[ltt]

Honestly, is it worth it?  Who knows, they may have friends who are looking for a place to rent in the future or they may recommend you to someone else.  I'd cut them some slack.  The place is already cleaned and ready to rent.  What do you have to do??  I'm not even sure you have to place ads or put up new signs because you could make a few phone calls to the other potential applicants that were turned down, and call the utility company.  As my daughter would say, easy peasy lemon squeezy.  Take their $200 for your troubles, give them the rest of their money back, and be done with it.

[kathrynd]

You state where your rental property is.

Ours are in canada, and it is very specific what our province allows.

This happens a lot..and we tell them, we will attempt to rent it asap, but any shortfalls, come from the money they already paid.

So many tenants do not believe a lease, is a real contract.

[MrFrugalChicago]

EIther way get looking for renters again. Nothing changes that need ;)

I would take a fee of the larger of the $200 they offered, or actual rent lost. So if you lose 30 days of rent, sounds like they are on the hook for $800.

Obviously they can get the security deposit back, but the first and last months rent will pay part of the shortage...

[electriceagle]

3) We charge daily rent to the couple until the unit is re-rented, returning the remaining balance once new lease is signed

Many (but not all) states require a variation on this. I believe that CA lets you charge daily rent until re-rented, plus cost of re-renting activities. If you use a property manager to re-rent and that manager charges for re-rental, or you place an ad in a newspaper, you can include those costs.

[DoubleDown]

Yes, you should make good faith efforts to re-rent the property, and be left whole at the end of the process. That is, you should not have to eat any lost rents, cleaning costs, costs to find new tenants, etc. And of course, as already stated above, follow your local laws.

So, don't let them off the hook with some arbitrary amount, and don't overcompensate yourselves either. Recover exactly what is needed as if they never backed out.

[kchaplin43]

To clarify we are in Washington State. From our real estate law research we understand that Washington is very tenant-sided.

[totoro]

Where I live there is an obligation on the landlord to try to re-rent and if they do they can only charge for the lost rents between the lease start and the time a new tenant takes possession.  If it is not re-rented despite all reasonable efforts, and you can ask the tenant to try to find someone too, they need to continue to pay until the lease is up.  You should check your local laws.  I would be surprised if you can just keep everything - it is likely more than a moral dilemma.

[Jack]

What does the lease say is supposed to happen when the tenant wants to move out early?

[mskyle]

Just call the next person on your list and get it re-rented ASAP and accept their $200 offer. You probably have no legal recourse as far as charging them rent if you can get the unit rented before the start of their lease, which is presumably what you want to do anyway - get new, good tenants in ASAP.

In the future, you might want to consider charging a nonrefundable application fee that can be applied towards first month's rent to cut down on flakeouts - obviously whether tenants are willing to pay this kind of thing depends on the market (and I don't know whether it's legal in your jurisdiction), but as a tenant I've been happy enough to pay an application fee to demonstrate that I'm serious.

[Jack]

Also, is there a right of rescission / cooling-off period for leases?

[MrFrugalChicago]

In California, just because the tenant owes you money, doesn't mean you can withhold it from the security deposit.

But you can withhold it from first and lasts months rent, no?

[CommonCents]

Yes, you should make good faith efforts to re-rent the property, and be left whole at the end of the process. That is, you should not have to eat any lost rents, cleaning costs, costs to find new tenants, etc. And of course, as already stated above, follow your local laws.

So, don't let them off the hook with some arbitrary amount, and don't overcompensate yourselves either. Recover exactly what is needed as if they never backed out.

+1