Gave 1st month rent but didn't sign lease, and they won't return it.
March 14, 2011 2:29 PM   Subscribe

Girlfriend gave 1st month rent, but hasn't signed lease. They won't give it back.

She was arranging to rent an apartment for herself through a real estate company in Chicago, IL. She's not experienced with this sort of thing, and I wasn't there. She paid the application fee & 1st months rent for April.

Yes, it was silly to pay 1st month rent before signing the lease.
She made an error in judgment. She knows not to do this in the future.

She called the real estate company, and they asked her to write a letter explaining why she is backing out. She did so. I went with her to talk with the real estate company (a staff of perhaps 3 people), and they were being deliberately unhelpful. The guy refused to give any type of time-frame by which she can expect a response. I told him I expect to hear back in 2 days. He implied that she would get little if any of her money, which I think is probably illegal.

Her letter requests the refund within 2 days (yes, her check was cashed, and no, her bank can't help).

When she gave the money, she signed a document that specified that she was paying her application and 1st month's rent. The language of the doc specifies that -- if she backs out -- the agency can take "liquidated damages" from the amount she paid. There was no mention of the money being a holding deposit.

I expect that we will continue to communicate in writing, and go to court if they are unresponsive. I will also encourage her to give one hell of a bad Yelp review. They appear to be a new-ish business, and they're rather unprofessional.

How would you handle this? I won't consider anything you say as legal advice, so don't worry.
posted by sorrenn to Law & Government (22 answers total) 3 users marked this as a favorite
I'd start with a tenant advocacy organization. This one, the Illinois Tenants Union appears to cover all of Illinois.

Beyond that: Better Business Bureau?

Manager for whoever she's been talking to? (E.g. escalate up the chain of command) I suspect at this point that friendliness and candor would be more helpful to your cause than threats.
posted by arnicae at 2:33 PM on March 14, 2011

This is what Small Claims Court is for.
posted by bitdamaged at 3:28 PM on March 14, 2011 [1 favorite]

Assuming they are actually licensed (and even if they're not) you might want to look here: Under "Consumer Services" they have a complaint link.
posted by norabarnacl3 at 3:34 PM on March 14, 2011

I would definitely talk to an attorney. IANAL in that state, but "liquidated damages" clauses tend to be upheld for situations where there are actual damages, but they are hard to measure, and not for punitive reasons or to create a windfall for someone. Uh, also, there is some question as to whether there is even a contract since she didn't sign anything. In most states, contracts regarding real property, including leases, are required to be in writing.

Only a lawyer can help you figure out if they are entitled to keep the money, but if you subscribe the "in for a penny, in for a pound" approach to things, I think a local lawyer conversant with either landlord-tenant law or consumer law stands a reasonable chance of giving useful advice or help.
posted by Hylas at 3:53 PM on March 14, 2011

Response by poster: Thank you for the excellent answers so far.
posted by sorrenn at 5:23 PM on March 14, 2011

Were there specific items in the lease that caused her not to want to take the apartment? Maybe she has some wiggle-room if there are some some strange or restrictive lease stipulations that she wasn't made aware of when she put down the $.

The tenant org would be better able to answer this because it's so area specific, but signing the "liquidated damages" paperwork (and putting $ down) might be a problem if Illinois considers that she now has a verbal lease or whatever the term is. If Illinois says she's in a lease then the real estate company can say that they had a renter for April 1st (her) and now they don't so they are out a months rent. In theory, if they get another renter for "her" apartment for April 1st then they haven't suffered any damage and you should get your $ back. Of course, you have to figure out if they have a renter which can be a pain because I'm sure they aren't going to tell you. Also, they might be able to deduct some money for relisting the apt etc.

Hopefully the tenant org. can give you some good advice. Good luck and IANAL.
posted by victoriab at 5:25 PM on March 14, 2011 [1 favorite]

Response by poster: She never signed a lease. She chose not to take the apartment because she decided it was too expensive for her budget. She put down the first month's rent with her application fee - I think it would be a stretch to call that a "verbal lease."

They aren't out a month's rent, because it was only a few days that they thought she was probably going to rent the place. Then she quickly changed her mine.
posted by sorrenn at 5:30 PM on March 14, 2011

I'm confused.

- Why was she REQUIRED to give a check for first month's rent?

- Is the rental agency also the owner or management of the apartment? Or are they strictly a rental agency showing vacancies for many different units and owners??

I ask the second question because I want to know if the owner of the property has the money or if the rental agency (if that is what it is) kept it?

I think the owner can keep a deposit on the unit if a tenant who has been OK'd for a lease backs out. I'm pretty sure a rental agency needs to give the money back, and furthermore, should not have taken those funds in the first place unless the check was made out to the owner and not them.

I'm wondering how legal it was to require the money in the first place in your jurisdiction depending on what entity cashed the check.

What happened may be legal. I can't tell from your description.
posted by jbenben at 6:06 PM on March 14, 2011 [1 favorite]

Here are some other organizations that might help -

Chicago Renters Resource Guide
Center for Renters Rights - Chicago
posted by victoriab at 6:06 PM on March 14, 2011

Response by poster: @victoriab: Thanks for following up.

- Why was she REQUIRED to give a check for first month's rent?

I'm not sure how the conversation went, because I wasn't there. For some reason, the guy asked for 1st month's rent, as well as a deposit. She only gave him 1st months rent. Here is the receipt, which states that the 1st months rent is only refundable if the application is denied:

- Is the rental agency also the owner or management of the apartment?

No, the agency is merely seeking a renter on behalf of the owner/landlord.

The 1st month's rent check was made out to the real estate agency, and quickly cashed. In my opinion, the landlord probably agreed that the real estate company keeps 1st month rent (isn't that how those arrangements often go?).

Perhaps you will have some insight when you look at the receipt above. The receipt doesn't appear to be in our favor, though the legality of requiring 1st month's rent at that time is in question.
posted by sorrenn at 6:15 PM on March 14, 2011

Although I consider it completely unethical, this real estate agency may end up claiming the costs of the entire rental application process as liquidated damages if they have disposed of the other applications.

I hope your gf won't have to end up wearing this on the chin. It'll be a very expensive lesson.
posted by smithsmith at 7:09 PM on March 14, 2011

Read the receipt.

- Did the owner approve her application?

- Did she have an appointment for a lease signing??

A million years ago in NYC, here is how it worked when I had my RE license... when you filled out the app, we took the fee plus checks for rent and deposit. Then, if you didn't get the apt, we would try and hold on to your checks and try to find you a comparable unit. This was to keep you from going with another agency so we could eventually earn a commission from you.

I definitely remember going to arbitration against someone in your GF's situation (application, no lease signed) and winning the case, but can't remember if the details were at all similar.

Maybe you should go ahead and contact a lawyer to help clarify things? Maybe have some lawyer friend write a letter demanding the funds back??

But first, confirm your GF's situation so you can provide ALL details. I'm not sure if it is legal for the rental agency to take a penalty in this particular situation. You also want clarification that the owner approved your GF's app. As far as I can tell, you only have the agency's word for it right now. It's different in every city, but the owner (or owner's agent) contact info is usually posted in the lobby of the apt building. You need your facts straight.

IF it turns out the agency is shady once you have the facts straight... you might notify them you are going to lodge a complaint with the Illinois state real estate licensing board (or whoever grants the brokerage licenses in Illinois - google) if they don't give your money back. Then lodge that complaint if need be! At least in NY State, the real estate board takes misappropriation of funds super seriously.

I still can't tell if there is wrong doing in your situation, though.

Good luck.
posted by jbenben at 7:28 PM on March 14, 2011

Response by poster: jbenben, thank you for your response.

-Did the owner approve her application?
Yes, the application was approved.

- Did she have an appointment for a lease signing??

No, there was no appointment for lease signing.

It's also important to note that this was for May 1st, 2011 move-indate. She submitted her application on 3/10/11, and revoked her interest in the place on 3/14/10. I don't believe that there are any reasonable claims of lost rent considering that this was for a May rental.
posted by sorrenn at 7:49 PM on March 14, 2011

Oh no. I think you misunderstand here!

Since your GF decided against the unit on her own, WHATEVER THE DATES, she basically handed them the "liquidation fees" or whatever they are trying to label her first month's rent. That's as per the application she signed and you posted. Your dates don't matter and are not actionable, IMHO.

I just don't know if major parts of process itself are entirely legal. That's where your wiggle room may lie...

- Again, you don't state exactly how she was notified she had the owner's approval. I could see a scam where they cash all checks whether an owner has evaluated the app or not, then if someone changes their mind before the final decision is in... oops, your money is gone!

- I'm not sure it is legal for them to cash the first month's rent check on their own behalf or on behalf of the owner. HOLD the physical check - sure! But cash it? Not so much.

- I'm not sure the first month's rent check should have been made out to them at all. I'm pretty sure those checks are always made out to the owner, NOT the agency.

- If the owner pays the fee instead of the applicant, that would NOT be labeled as "first month's rent" on any documents, especially any documents presented to the applicant/tenant. That is a transaction separate from the application and lease. Your assumption that the landlord "lets" an agency keep the first month's rent is not correct, even if the fee amount from landlord to agency is the same as the first month's rent. (check illinois state law on this, but allowing that would be super convoluted unless maybe the agent was exclusive to the landlord. and even then, it sounds hinky.)

Your phone call to clarify legalities of the process should be to whatever body governs brokerage licenses. Your second call to verify the legality of the process should be to whatever body governs tenant law. Your third call should be to an attorney, if applicable.

Don't make any calls until you have a firm timeline, all docs, and all contact info for relevant parties (including the owner of the building) in your hands.

You, uh, have been a little unclear all along. You'll get better answers once you have better facts.
posted by jbenben at 8:26 PM on March 14, 2011

Response by poster: Thanks jbenben. Sorry for not being more clear - some of what I know is second-hand knowledge, because I wasn't there when she submitted payment.

The reason I thought the dates are relevant is because they would be keeping the money on the grounds that it kept other potential renters away. In this case, she only "reserved" the apartment for a brief time far from the expected move-in date, so it's unreasonable to expect that they lost money beacause of her.

She was informed by the real estate co. by phone that her application was approved, and her check was quickly cashed that day. That is all I know about the nature of her approval.

She did indeed make the check out to the real estate agency, not the landlord. In the receipt here, it was indicated that it was for first month's rent.

The IL Bureau of Real Estate Professions is the governing body, and that's where I will be directing my questions. Thanks again!
posted by sorrenn at 8:37 PM on March 14, 2011

This strikes me as immoral at best and criminal at worst. Find a lawyer with relevant experience, and have them draft a letter. It shouldn't be terribly expensive, and sometimes threats go much further when they're in legalese and on letterhead.
posted by Gilbert at 8:53 PM on March 14, 2011

Money is not usually transferred until a lease is signed and keys are in hand.

If they took the money out of her account prior to a lease being signed... Damn.

It's too bad she put her reason for canceling the transaction in writing.

I'd have called the deal off based on them cashing my check after a phone call and before signing a lease, because that's a problem right there!

Lawyer. Sometimes there are financial penalties for this sort of behavior. A lawyer in your jurisdiction will know for sure with the relevant documentation in front of them. A lawyer might make her admissions in writing irrelevant (I hope.)

Let me know how it turns out via Memail. I'm curious now!

Good luck.
posted by jbenben at 9:40 PM on March 14, 2011

Did she sign that receipt? Because aside from the "liquidated damages" bit, it says:

As the applicant, I understand that the security deposit and/or first month's rent will be refunded to me only if my application is rejected...

If she did sign that, then it seems pretty open and shut to me.
posted by EndsOfInvention at 2:58 AM on March 15, 2011

Response by poster: Did she sign that receipt? Because aside from the "liquidated damages" bit, it says:

Yes she did sign the lease, but I don't think that the verbiage of the receipt can justify a realty company keeping first months rent. In other words, their receipt can say whatever they want, but that doesn't mean they can keep her rent money. If it were marked as a "holding deposit," it may be a different case.
posted by sorrenn at 6:05 AM on March 15, 2011

Yes she did sign the lease

I'm assuming you meant the receipt?

I don't think that the verbiage of the receipt can justify a realty company keeping first months rent

I don't know. It seems pretty explicit as to the circumstance under which the deposited monies would be returned. It's unfortunate and probably unethical, but I believe that under the law the receipt would be considered a written contract, the terms and conditions of which your gf agreed to by signing the document.

As I said, a very unpleasant and expensive lesson on understanding the value of your signature.
posted by smithsmith at 1:54 PM on March 15, 2011 [1 favorite]

P.S. Let us know how it turns out!
posted by smithsmith at 1:54 PM on March 15, 2011 [1 favorite]

It's unfortunate and probably unethical, but I believe that under the law the receipt would be considered a written contract, the terms and conditions of which your gf agreed to by signing the document.

*Many* jurisdictions have laws that affect the enforceability of even written agreements in property/residential lease situations. I would *not* assume that anything you sign is enforceable, pretty much ever. It may or may not be, and that's why it's great that the OP is following up with actual local experts.

Good luck!
posted by Salamandrous at 5:58 AM on March 16, 2011

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