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When Can I Keep my Tenant's Security Deposit?

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By : Shamon Kureshi    99 or more times read
I am frequently asked for legal advice relating to tenancy rules and regulations from landlords. Over the past few years I have studied tenancy and rental property legislation in numerous states and provinces. One of the most common questions I get relates to what to do when a tenant breaks their lease and moves out prior to the expiry date on the contract. One such question was raised to me at a recent seminar where I was speaking on matters relating to tenancy legislation in Alberta, Canada.

“I have a fixed term lease that contains a provision that, if the lease is broken by the tenant during the term of the fixed tenancy, the tenant will pay $500 for re-rental fees. My tenant broke the lease, but I was able to re-let the premises for the next month and I did not lose any money. Am I entitled to keep the $500 from her security deposit for the re-rental fee?”

To answer the question, Firstly, you cannot retain any money from a security deposit unless you have completed a property inspection when the tenant first moves in, as well as a move out report when the tenant leaves. Absent this, the landlord cannot legally make any deductions.

Before discussing whether it is proper to make the deduction from the security deposit, we need to look at the issue of re-rental fees. If you did not actually spend any money or suffer any damage as a result of lost rental income, this is very likely that the “fee” is more properly a penalty. The courts do not readily enforce penalties and, in fact, have the authority under the Judicature Act, to relieve from penalties in a contract. In these circumstances, it is my opinion that because you have not suffered any out of pocket expenses or loss in relation to the breach of the tenancy and re-letting, and because the “fee” is quite high, that you are likely to lose if challenged in court by the tenant. If you incurred costs and could prove the costs (i.e. cost of placing an ad in the local paper) then you may have an argument for reimbursement.

A lot of landlords retain money from security deposits for money owing for rent and or other matters and not strictly for damages to the premises. The wording of the tenancy legislation in Canada relates to deposits for damages to the property and not for unpaid rent or other costs/expenses. If you want to be 100% safe, the landlord would refrain from retaining any monies other than for legitimate damages to the property. If you choose to do otherwise, there is no guarantee you will be immune from an investigation and potential prosecution by the appropriate government authority. Your only other remedy is to sue the tenant in court for recovery of damages, or the “re-rental-fee” in your case, and you already have my comments on the likelihood of success if you are not truly out any money.

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