Refund rules for prepaid vacation rental

Rent it Right

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Oct. 6, 2011

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Rent it Right

Janet Portman
Inman News™

Q: We prepaid for our vacation rental at the beach in New Jersey, which was to begin the day the governor issued mandatory evacuation orders for that area. Are we entitled to our money back? The landlord is being evasive. --Jack and Ellen

A: When a lease cannot be honored because of an "act of God," the fate of prepaid rent depends first on whether state law has a specific rule that applies.

In the absence of that, the next question is whether the lease addresses this contingency. Finally, if both state law and the lease don't address the issue, some tried-and-true legal rules will settle the matter -- though not always so easily, as you'll see below.

Some states -- naturally, those with lots of vacation rentals -- have passed laws that provide some solutions. North Carolina's Vacation Rental Act considers the effect of mandatory evacuation orders on the rental: Landlords must offer a refund, but not if tenants have either refused the landlord's or broker's offer of insurance, or if they bought insurance that will reimburse them. Landlords and tenants cannot vary this rule in their leases.

California, with its many vacation rentals, does not have a statute covering this situation. Instead, pursuant to a 1926 case, unless the rental agreement says otherwise, when the property has been destroyed prepaid rent cannot be recovered (Pedro v. Potter, 197 Cal. 751).

Landlords can anticipate this problem and provide for a solution in the lease (except in North Carolina, as noted). A good clause will provide that if the landlord cannot deliver the house through no fault of his, here's what will happen: The tenant gets a total refund, a partial refund, or no refund.

Leases that provide for no refund often urge tenants to buy travel insurance, which should step in if a hurricane, fire or other unforeseen event makes it impossible to occupy the rental.

Sometimes neither the lease nor state statutes nor cases address the issue of prepaid rent for a vacation rental that can't be occupied. When this happens, a court is likely to look at past similar cases from higher courts and follow their solutions.

The general rule is that prepaid money must be refunded, as long as the event that made the lease impossible to carry out was not only something the landlord couldn't control, but was unforeseen, too.

That last requirement suggests lots of arguments: Are hurricanes during hurricane season really "unforeseen"? Consider mountain road closures in the winter -- if that frequently happens, is it a risk that renters are assuming when they book their rentals?

The answers may be "yes," particularly when the landlord has brought the risk to the tenants' attention by urging them to buy travel insurance.

Q: The tenant who used to live with me became abusive and dangerous; I had to get a protective order, directing him to stay away. He complied, but has left a ton of personal belongings behind, some of it rather valuable. What are my obligations regarding this stuff? I certainly don't want him coming back, even just to collect it. --Richard D.

A: Many states have procedures for landlords to follow when tenants leave behind personal belongings. Some, like California, aren't hard-and-fast rules -- they are simply a process that, if followed, will shield the landlord from lawsuits over abandoned property.

In California, the steps involve determining the value of the property and store everything, other than obvious garbage. Then, landlords must give written notice to the tenant, wait a specified amount of time, and if the property isn't claimed, they can do whatever they want if the value is less than $300.

If the value exceeds that, the landlord must sell it at public auction and publish a notice in a newspaper. The landlord can keep from the proceeds enough to compensate for expenses, and must turn the rest over to the county. Needless to say, this statute is on the far end of the spectrum.

Other states are far less accommodating to the tenant. In many, the landlord can simply do what he wishes; others take a middle approach, and require notice and an opportunity to claim, but then give the landlord the go-ahead to keep or dispense of it as he wishes.

The situation you're in is a bit different than the typical scenario that the statutes address: The tenant who is departing willingly (or if not voluntarily, at least with knowledge of the move, as happens when law enforcement personnel carry out an eviction order).

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