A pre-lease refers to an arrangement by which a prospective tenant places a money deposit with a landlord to reserve a rental unit for a future rental period. When the tenant moves in, the pre-lease deposit becomes a credit toward the rent. A pre-lease may work, but this arrangement usually heavily favors the landlord.
A pre-lease arrangement may work out well. It allows the tenant to reserve a rental unit, so he can begin looking for a place to stay before he actually has to move in. If everything goes well, the pre-lease does not cost the tenant anything because it reduces the amount of rent he has to pay. This arrangement also allows the landlord to get the tenant to commit to a rental unit. For his protection, the tenant should always check the rental unit and be certain that he wants the unit before placing a pre-lease deposit. A written agreement must always spell out the terms of the pre-lease arrangement.
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Depending on the pre-lease terms, the landlord may be able to rent out the unit to another tenant even if another tenant has placed a pre-lease deposit. If this happens, the landlord usually has to refund the pre-lease deposit money. While the tenant gets his money back, he loses the ability to use the money for other purposes during the time the landlord holds it as deposit. Additionally, the tenant may find himself unexpectedly and suddenly having to look for another rental unit.
A landlord benefits when a tenant commits to a rental unit with a pre-lease deposit because he gets a guarantee that the tenant will rent the unit as long as the landlord makes it available. The tenant, however, may find himself stuck with a rental unit he doesn't want because the pre-lease agreement may not even specify which unit the landlord will reserve for the tenant. If he changes his mind, the tenant has to forfeit the pre-lease deposit.
A pre-lease agreement takes away the tenant's bargaining power. This is because the tenant has to move in or risk losing the deposit. If the landlord presents the tenant with unfavorable lease terms at the time of moving in, the tenant may not be able to get the landlord to change these terms. Without a pre-lease agreement, the tenant may force the landlord to change the lease terms before signing the lease. With a pre-lease agreement, the tenant has to sign the lease or lose the pre-lease deposit.