Q: When my tenant moved out, he left rugs that were badly stained. Although I could have had them cleaned professionally, I decided after my tenant left to pull them up and refinish the hardwood floor beneath. In fact, I gave the unit an overall facelift, so that I can charge more rent, and I would have taken the rugs up even if they had been left in a clean condition. My tenant doesn’t dispute that the rugs were dirty, but says that because I didn’t actually clean them, I shouldn’t be allowed to deduct from his deposit an expense I never incurred. Who’s right? –Mary M.
A: Yours is a question that would warm the hearts of law professors everywhere. Like many issues in the law, there’s no simple, applies-everywhere answer. But here are the basics.
We would first need to take a look at your state’s security deposit statute. Some statutes simply tell landlords that they can use the deposit only for unpaid rent and damage beyond normal wear and tear. Some go further, and specify that landlords who make deductions for necessary cleaning and repair must send tenants the receipts for these expenses.
If your law is like the second type, you won’t be able to deduct for cleaning you never had done because you won’t have a bill from the carpet cleaners to show the tenant.
Now, let’s suppose your law is not so detailed, and simply tells you what you may use the deposit for. You could advance a pretty strong argument that the deposit is intended to compensate you when there’s damage beyond normal wear and tear, and that you are under no obligation to actually accomplish the repair. In a sense, if you don’t repair the property, its value will go down, and the rent you can expect to get from this now-deteriorated rental will also fall. Arguably, you’ll be "using" the money you kept from the deposit to pay yourself for the diminished value of the unit and make up for the lower rent you can expect to receive. The choice — to repair, or use the deduction to make up for diminished value — should be up to you.
Your tenant, of course, won’t buy this theory. And to be sure, it just doesn’t seem fair to deduct for professional cleaning when you candidly admit that your decision to refurbish required tearing up the rugs even had they been returned spotless.
But I don’t think the tenant will find too much support in the law. To prevail, he’d have to convince a judge that somehow he’d been wronged by you. But you did nothing wrong — you simply decided to use the money you were entitled to in a different way. People do this all the time — many car owners involved in accidents, for example, receive compensation from insurance companies that’s intended to cover the cost of repairs, yet the owners often decide to live with the dents and pocket the money instead. …CONTINUED
Q: I’m leasing my single-family home to a family with teenage kids. They are pretty sure they want to stay in the rental until the kids leave high school, which is four years away. I’m hesitant to give them a four-year lease, but I would consider giving them a two-year lease with an option to renew. How should I do this? –Milton F.
A: Options to renew are common in commercial leases, less so in residential ones. But in situations like the one you describe (or when tenants are willing to put considerable improvements into property that they will not own), it makes sense to give tenants some assurance that they will be able to renew. From the tenants’ point of view, an option to renew is better than a four-year lease because if the tenants’ situation changes, they won’t be on the hook for another full lease term.
From your point of view, however, there’s a serious drawback to an option to renew. If the tenants satisfy all of the conditions for renewal (more about that below), you’ll be committing yourself to rent to residents whom you might rather see leave. For this reason, many landlords charge the tenant for the privilege of getting a renewal option. This fee won’t make annoying tenants move at the end of the original term, but it might discourage those who would lightly ask for an option.
If you decide to give your tenants a renewal option, avoid the rookie’s mistake of saying simply, "Tenant has the right to renew the lease for an additional two years." You may think that all other terms of the contract will be up for negotiation, but that’s not what most courts will say. Instead, you’ll be giving your tenant a new lease for two years, with all the terms and conditions of the prior one (including the rent). To add insult to injury, you may be creating an endless lease — upon exercising the option, the tenant gets another lease with a two-year renewal option, and if he exercises this, he gets yet another. To prevent endless renewals, you’ll need to say that the tenant can renew one time only.
Next, be sure to specify under what conditions the option will be available. You’ll want the tenant to be completely paid up in rent, and may want to specify that the tenant was not late paying the rent more than one or two times in the past. You may also want to require no serious violations of other important lease provisions. And you should state when the tenant must exercise the option — say, six months before the end of the term. This gives you the notice you’ll need to begin looking for another tenant, if the original tenant decides not to renew.
It’s very important to state what the rent will be. Of course, in fluctuating markets it’s impossible to say now what the market rate will be in two years. You can provide that the rent will be the market rate for comparable housing, and you should specify how that rate will be determined (by use of a real estate mediator, if necessary). Do not say that the rent will be negotiated at the time the option is exercised. If you do, and the two of you cannot come to an agreement when the time comes, you may have a hard time getting a judge to enforce the option. A judge can’t force you to negotiate and agree, and most courts will not want to decide what the rent should be. It’s far better to provide for an ascertainable standard for the rent (such as "market rent") or a specific remedy if the two of you can’t agree (such as submitting the matter to mediation). That way, you’ll avoid the risk that the option will not be enforceable.
Janet Portman is an attorney and managing editor at Nolo. She specializes in landlord/tenant law and is co-author of "Every Landlord’s Legal Guide" and "Every Tenant’s Legal Guide." She can be reached at janet@sandbox.inman.com.
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