Can I Lose My Security Deposit if No Lease Was Signed?

••• Jupiterimages/Photos.com/Getty Images

When renting an apartment or other property, many landlords and property managers require you to provide some sort of deposit. If all goes well, you get the deposit back at the end of your lease. Sometimes, however, tenants change their mind about renting after handing over a security deposit but before signing a formal lease. When a tenant does this, he is at a higher risk for losing the deposit.

Tips

  • You can lose your security deposit even if no lease was signed. It all depends on your specific circumstances and the laws in your state.

The Application

Most landlords and property managers ask tenants to fill out a formal application when you want to rent an apartment or similar property. The application allows the landlord to run a basic background and credit check on you to determine whether you meet current rental eligibility criteria.

On some applications, there is a statement that specifically indicates whether the application fee and any deposits are refundable in the instance you don't rent. If the application fee states that the security deposit is not refundable, the landlord legally can keep the deposit because the signed application shows you understood the terms for deposit forfeiture.

Financial Loss

Landlords are businesspeople who are concerned with turning a profit from the properties they rent. When you end up not signing a lease after telling the landlord that you want to rent, she potentially suffers financial loss because she does not have the rent she expected from you and could not offer the property to anyone else.

Landlords frequently keep security deposits to offset this loss. In most instances, a good landlord will not keep the entire security deposit; she will deduct only the loss related to the lack of rental. For instance, if the landlord rented the apartment you were to rent three days after you told her you no longer wanted it, she should keep only three days of rent from the security deposit.

Contract Law

Contract law states that, even in the case of verbal contracts, something of value has to pass between two parties before a contract can be considered valid. In relation to rental and deposits, this means you have to get something in return for your deposit, the temporary hold of the unit, until you sign the lease. If you don't get this return, which may happen if you immediately get cold feet about the rental, the contract is void and you should get the entire deposit back.

An important note is that some states have cooling off laws that allow you to get out of rental agreements within three days, so if you live in one of these states, the landlord cannot deduct funds from the deposit if you change your mind during this period.

Taking the Case to Court

In some instances, landlords can rent the unit you were supposed to rent almost immediately; in fact, sometimes potential tenants fight over units, offering higher deposits or rent to secure the property.

If the landlord does this and your application does not state that the deposit is nonrefundable, you might make a case that the landlord did not experience any financial loss and therefore is not entitled to the deposit.

Depending on the deposit amount, if the landlord tries to keep a deposit to which he is not entitled, filing a small claims lawsuit might be worth your effort. Sometimes landlords give in to return requests when they see that a person is serious about pursuing legal action.

Bottom Line

In most cases, a landlord is entitled to keep some or all of your security deposit if she can show that holding the apartment for you caused a loss of potential funds. She also can keep the deposit if the application says the deposit isn't refundable.

However, most landlords and understand that circumstances and gut feelings can change and that people may have to walk away from properties before a lease is signed. Many will return deposits in full if they could show and rent another unit of similar condition and price while yours was held because they consider similar units to be somewhat interchangeable, so vacancy rates may impact whether you get the deposit back.