After all the remodeling, juggling phone calls and emails, showing the property, screening the tenants, and writing the lease your property is finally rented.
But just before moving day, your new tenant calls you and tells you that she lost her job and she will not be moving in.
What can you do? You can’t force her to move in but there should be consequences for canceling the lease because the tenant not only wasted your time but you may have missed the best time to rent your property thus reducing the rent you can get.
Many landlords are aware of what they should do if the tenant breaks the lease after moving in but what if they haven’t moved in.
Why do tenants decide to cancel before moving in?
If you manage rentals for a long time you will get a tenant who loses her job before moving in or even breaks up with a spouse. This can happen but it’s rare.
Most of the time, if the tenant doesn’t move in after signing a lease is because of the following reasons.
- The rent is too high for the location and condition of the unit. Right now, it’s tough to find a rental and some tenants may apply to a couple of places just so they can be certain they will have a place to live. Your rental may have been a backup.
- The application was made without seeing the unit
What can a landlord do to prevent it?
Price your rental well for the condition and location
The best way to be objective about your rental is to ask a professional manager or even two for estimates. You don’t have to give them the property to manage but you can ask for an opinion.
We, humans, have, what psychologists call “cognitive bias” We look for confirmation that our judgment is correct. That’s why getting a second opinion is very helpful
Request a deposit within 24 Hours of signing the lease
This is very important because some tenants will sign the lease but not give you the deposit. Nowadays, many leases are signed electronically so this can happen.
In your lease, there should be a written clause on when the deposit is due and what happens if you don’t receive it.
When you receive a signed lease from the tenant, immediately sign it and email back a copy. The lease becomes valid when both parties have signed it. If you don’t sign it, the tenant can cancel and there is nothing you can do about it.
Have a clear language in your lease of what happens if tenants break the lease early or they don’t move in.
Here is a sample termination of the lease.
TERMINATION OF LEASE: TENANT has the right to terminate this lease if payment equal to 2 months rent is made as compensation to the LANDLORD and 30-day notice is given. This compensation should be paid before TENANT leaves the property and should not include SECURITY DEPOSIT as part of this payment.
If TENANT terminates the lease before moving in, LANDLORD will keep the entire SECURITY DEPOSIT as liquidated damages.
TENANT on active military duty can terminate lease without penalty if deployment or transfer orders are presented to Landlord.
Never rent a property sight unseen
I understand that tenants can be relocating and don’t have the time to see the property, so in some circumstances, I will make an exception. In those instances, I ask for someone local to come and visit the property and I make sure to point out that they will be accepting the property AS-IS, we will only repair and replace the warranted items in the agreement. This is actually good to point out to all tenants.
Here is a sample AS-IS clause you can include in your lease.
TENANT agrees that they have fully inspected the premises and accepts the condition of the premises in ‘as is’ condition with no warranties or promises express or implied.
What are the consequences of terminating the lease before moving in?
If the lease has been signed by all parties and a deposit has been made, and the tenants don’t move in, the landlord can keep the security deposit. It’s important to make a distinction between Security Deposit and Holding Deposit (deposit to hold the property before the lease is signed).
If you decide to accept a Holding Deposit, make sure you give the applicant a receipt with a clear explanation of how much you will keep if they don’t rent the property. You can find a Holding Deposit Receipt in our Rental Forms.
Automate your leasing process so if early termination does happen it will not waste your time.
Finding a tenant, showings, and screening can take a lot of your time. If you plan to acquire more properties, to own or manage, it’s best to streamline the entire process.
Automate everything you can. I know some landlords insist that they can read the tenants so well that they have never had a bad tenant. These landlords usually have one or two properties so they simply have not had the opportunity to meet a “professional tenant.”
Here are the things you can automate:
- Showings – Use Self-Showing Technology and Lockboxes.
- Use online application and screening – Read our article on best screening services.
- Use e-signing for the lease.
If you don’t live in the same area as your rental, there are services that will provide an independent move-in condition report.