[Direct answer]When determining whether the security deposit can be refunded upon early termination of the lease, it should be judged based on the contract provisions, the actual losses, and the condition of the property handover, rather than simply refusing to refund it outright. The purpose of the security deposit is to guarantee the lessee's fulfillment of obligations, settlement of fees, and compensation for property damage, rather than a penalty that the lessor can unconditionally confiscate. If the lessee unilaterally moves out early, the lessor has the right to claim offsets for losses such as vacancy rent, unpaid utilities and property fees, and reasonable repair expenses. However, withholding an excessive amount beyond the actual losses lacks legal basis. The rules on breach of contract liability and compensation for losses in the Contract Chapter of the Civil Code of the People's Republic of China (effective January 1, 2021) serve as the basic standard for settlement. Whether and how much the security deposit can be refunded depends on three factors: whether there are contractual or statutory grounds for termination, whether reasonable notice and cooperation in the handover process were provided in advance, and whether the property was returned in good condition.

1. Problem background and typical scenarios

There are many situations where tenants want to move out before the lease expires, such as job transfers, relocating to another city, moving into a new home early after purchasing a property, housing leaks or odors affecting living conditions, conflicts with roommates, landlords arbitrarily raising rent or frequently entering the property, as well as ownership disputes over the property or quality issues with newly built or renovated projects that make the property uninhabitable. The most common mistake is leaving without claiming the deposit, which not only results in the deposit not being refunded, but also losing the prepaid but unused rent, and even being sued for losses during the vacancy period. During settlement, it's important to distinguish between different types of payments: the deposit is a performance guarantee, the remaining prepaid rent is payment for the unfulfilled period, the penalty or vacancy losses are consequences of breaching the contract, and the cleaning and repair fees are compensation for the condition of the property. These should not be lumped together and deducted in full. Common practices to minimize losses include finding a successor tenant, negotiating termination, giving advance notice according to the contract and cooperating with inspections; while the handover checklist, returning the keys, and recording the readings of water, electricity, and gas meters determine the time of transfer. Combined with review practices in the real estate sales and construction fields, if the property is subject to mortgage or seizure, if the co-owners do not consent, or if the project fails to meet completion and safety delivery conditions, tenants may enjoy the statutory right of rescission, in which case the full deposit should be refunded, and they may even claim additional damages for losses.

II. Key points of contention

The disputes focus on six aspects. First, whether moving out early constitutes a unilateral breach of contract, a negotiated termination, or a statutory termination, which directly determines whether the deposit will be deducted. Second, whether the contractual provision that the deposit will not be refunded or that the tenant needs to pay two months' rent as a penalty for early termination is an excessive penalty and whether it can be adjusted. Third, how to calculate the loss during the vacancy period, whether the lessor has an obligation to mitigate the loss, and whether the loss will be reduced accordingly after finding a successor tenant. Fourth, the scope of the deposit offset and the burden of proof: whether wall wear, furniture damage, unpaid fees, and cleaning fees require receipts and before-and-after comparison photos. Fifth, whether the remaining prepaid rent can be returned together with the deposit or be mixed and offset. Sixth, how to determine the time of house handover, and whether the failure to hand over the keys or clear out the items is considered continued occupation and continued rent calculation. Both parties usually argue against each other: the tenant claims that he/she has given advance notice, found a successor tenant, and returned the house intact; the lessor claims that the tenant moved out suddenly, causing vacancy, damage, and unpaid fees, and that the deposit will not be refunded according to the contract. In arbitration or mediation, the arbitrator or mediator typically first examines the basis for termination, then verifies the notice and cooperation in handover, and finally checks the actual losses and receipts before determining the amount to be returned, rather than directly adopting the contractual provision that the deposit will not be refunded.

III. Professional analysis by Hengluo Lawyers

An analysis in five layers will make it clearer. The first layer is the definition of the right of rescission: contractual rescission refers to the contract stipulating that the contract can be rescinded by giving written notice several days in advance; consultative rescission refers to the parties reaching an agreement on moving out and settlement; statutory rescission occurs in situations such as the house endangering safety and health, ownership defects rendering it unusable, and the lessor's fundamental breach of contract. Under statutory rescission, the deposit should be returned; under breach of contract rescission, the loss offset begins. The second layer is the offset of breach of contract penalties and losses: the Civil Code stipulates that the principle of offsetting losses applies. If the contractual breach of contract penalty is excessively high compared to the actual losses, the parties may request a reasonable reduction; the deposit is not a breach of contract penalty, and the deduction should be limited to the actual losses. The vacancy period is usually based on a reasonable rental search period and the rent in the same area. The lessor also has an obligation to mitigate losses. The third layer is the breakdown of payments: the deposit, unpaid but unoccupied rent, breach of contract penalties or vacancy losses, unpaid utility bills, repair costs are itemized and offset against each other, rather than the total loss of the deposit; the unpaid pre-occupied rent is generally refunded according to the unperformed period, unless otherwise stipulated in the contract. The fourth layer is the evidence and determination logic: the settlement list, photos and videos before and after moving out, electricity meter readings, the return of keys, the delivery of notification records, communication with and showing of replacement tenants, repair quotes and invoices jointly determine which deductions can be supported; the party claiming deductions bears the burden of proof for losses and expenses. The fifth layer combines with the fields of real estate sales and construction projects: if the house is subject to ownership disputes, mortgage seizures, or construction quality and fire safety issues affecting habitation in new or renovated projects, the lessee may invoke the requirements of the Urban Real Estate Management Law of the People's Republic of China (amended on August 26, 2019) on transactions and ownership management, and the Construction Law of the People's Republic of China (amended on April 23, 2019) on construction quality and completion acceptance to claim that the lessor failed to provide a suitable house, thereby supporting the rescission and return of the deposit; the registration inquiry of the Interim Regulations on the Registration of Real Estate (implemented on March 1, 2015) can be used to verify the rights holder. It is also necessary to distinguish the scope of application of the regulations. The Interpretation of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trials of Disputes over the Sale of Commercial Housing (amended in 2020) applies to the sales relationship, and the settlement of leases still follows the contract section of the Civil Code. After entering litigation, the burden of proof, jurisdiction, and time limits are determined according to the Civil Procedure Law of the People's Republic of China (amended on December 24, 2021, and implemented on January 1, 2024).

IV. Practical Suggestions and Legal Basis

It is recommended to proceed in eight steps. First, review the contract to identify the early termination clauses, notice periods, and penalty provisions to determine which termination path you are in. Second, send a written notice of your intention to terminate the lease and the proposed handover date in advance via multiple channels, including WeChat, email, and SMS, combined with a paper letter. Third, actively assist in finding a successor tenant and cooperate with inspections to reduce the vacancy period. Fourth, on the day of handover, prepare a settlement list, record the readings of water, electricity, and gas meters, take photos of each room, return the keys, and obtain a receipt. Fifth, settle the water, electricity, and property fees and request receipts to avoid default fees becoming a basis for deductions. Sixth, require the lessor to issue a written settlement statement listing the deduction basis and amounts item by item. If there are unreasonable deductions, raise objections in writing on the spot and keep records. Seventh, if mediation fails, apply for arbitration or sue the people's court with jurisdiction in accordance with the Civil Procedure Law. Eighth, retain written evidence to claim reimbursement, and the statute of limitations for such claims is generally three years under the Civil Code. Legal references also include the Interim Regulations on Real Estate Registration, the Urban Real Estate Management Law, and the Construction Law. Our firmGuidelines for Handling Disputes over House Renting and SettlementHere are some examples of fields containing delivery lists and settlement documents, which you can use as a reference when preparing your own documents.

5. Henglu Law Firm's Reminder

There are three points that deserve special attention. 1. **Don’t move out silently**: Failing to notify the landlord, not handing over the keys, or leaving them inside the apartment can easily lead to being deemed as continuing to occupy the property and having the rent charged accordingly. Both the security deposit and remaining rent may be deducted in this case. 2. **Don’t accept verbal deductions of the full security deposit**: Demand a written settlement statement and corresponding receipts. Verify the number of vacant days, outstanding fees, and repair quotes item by item. Raise written objections immediately to any unjustified deductions. 3. **Don’t overlook the remaining prepaid rent**: This is a separate payment from the security deposit. During the period of payment but non-occupancy, the landlord should generally refund the unutilized portion, rather than simply keeping the security deposit as a penalty. Additionally, if the contract states that the security deposit is non-refundable or that early termination requires paying two months’ rent as a penalty, this doesn’t necessarily mean the landlord must enforce it. Whether the penalty is proportionate to the actual losses or whether the terms were clearly disclosed—there’s room for review. The Civil Code and Civil Procedure Law jointly define these boundaries, requiring written records for the three steps of notification, handover, and settlement. This ensures legal clarity and avoids post-contract disputes.

VI. Frequently Asked Questions

Q1: If I move out before the lease expires, will the deposit be fully deducted as a penalty fee?

Of course, the deposit will not be fully deducted. The deposit can only be offset within the scope of the actual losses and arrears of the lessor. According to the "Civil Code of the People's Republic of China" (effective January 1, 2021), the contract section adheres to the principle of compensating for losses. The deposit is a guarantee of performance, not a sum that can be confiscated unconditionally. If the lessee unilaterally terminates the contract in advance, the lessor may claim for the losses of the vacancy period, the arrears, and the reasonable repair expenses, but must provide evidence of the actual losses and their amount. If the contract stipulates that the deposit will not be refunded in the event of early termination, such a clause may be invalidated because it unreasonably imposes obligations on the lessee, excludes major rights, or is deemed an excessive penalty and subject to adjustment.

Q2: If the water and electricity meter readings at the time of handover differ from those on the settlement list, which one is missing and will result in the deposit being difficult to refund?

Both are crucial. If either is missing, the deduction amount may easily become subject to the unilateral decision of the other party. The list of materials includes: the settlement list signed by both parties and the condition of the furniture and appliances; photos of the water, electricity, and gas meter readings and records on the day of the lease termination; the receipt of the return of the key and access control card; before-and-after comparison photos and videos of the property; payment receipts for property fees and internet fees; the deposit receipt and the lease contract; a written notice of lease termination and proof of delivery; and chat records of negotiation and settlement. If the meter readings are missing, there will be no reference for the amount of unpaid fees; if the settlement list is missing, it will be difficult to distinguish between existing scratches and new damages; if the receipt is missing, the handover time may be deemed delayed and the lease may continue to be calculated.

Q3: For the expenses incurred in helping the lessor find a successor tenant, how much of the breach of contract penalty can be offset against them?

Instead of offsetting the amount of the expenditure, the landlord reduces the amount that can be withheld by minimizing the losses from the vacancy period. The settlement logic is to offset the actual losses. After finding a successor tenant, the landlord's rental vacancy losses are reduced accordingly or even zeroed out based on the connection between the old and new lease periods, and the proportion of the deposit that can be refunded increases accordingly. Therefore, what's worth keeping are not the expense vouchers themselves, but the start date of the new lease, the viewing records, and the chat or written confirmation with the landlord confirming the connection. If the landlord refuses the agreed-upon successor tenant without a legitimate reason, the tenant can claim that the landlord failed to fulfill its obligation to mitigate losses, and the landlord may not be supported for the extended part. Whether the attorney's fees, agency fees, and other expenses can be claimed separately depends on whether there are contractual provisions and legal grounds. It cannot be presumed in advance.

Q4: How many days in advance do I need to notify the landlord in writing about my intention to move out in order to avoid having to pay an extra month's rent?

First, check the notice period stipulated in the contract and send the notice in writing according to that period; if there is no such stipulation, a reasonable time for finding a new tenant should be allowed. Many standard lease contracts stipulate that the lease can only be terminated after 30 days or a similar period of written notice. Complying with the contract can avoid being claimed for an additional month's rent or a breach of contract penalty. If the contract does not stipulate this, it is advisable to send a notice in a reasonable period in advance in a form that can be preserved, and specify the proposed handover date to leave room for the lessor to find a new tenant. The notice should be sent via a combination of WeChat, email, text messages, and a hard copy letter, and the delivery receipt should be preserved. An oral notice is the most likely to be denied.

Q5: On the day you decide to move out, should you first take photos of the current condition of the house or send the notice of termination first?

First, take photos to document the current condition of the house, and then send a written notice. Reversing the order of these two steps may lead to ambiguity regarding the handover benchmarks. However, the following actions can be implemented on the same day: Before moving out, take photos and videos of each room, walls, floors, furniture, appliances, and water/electricity/gas meters, and record the time. This will create a complete record of the current condition. Subsequently, send a written notice of termination to the landlord in a form that can be preserved, stating the intention to move out, the proposed handover date, and contact information. Organize the contract, deposit receipts, historical rent transfer records, and settlement lists. Actively offer to cooperate with inspections of the property and assist in finding a successor tenant. Do not move out silently, leave keys inside the house without a receipt, or sign settlement documents stating voluntary waiver of the deposit.

The above answer is based on the judicial practice in the Beijing area. The judicial interpretations in other provinces and cities may vary. For specific cases, please refer to the local rules and evidence situations.

If you are currently facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the relevant evidence, to avoid missing the statutory time limits.Legal services for the purchase and sale of real estate·Beijing Hengluo Law Firm

Disclaimer: This article is compiled based on the current effective laws and regulations and public adjudication rules, and is for general reference only. It does not constitute a formal legal opinion on specific cases. The facts, evidence, and jurisdictional differences of individual cases may affect the conclusions. If you encounter disputes, please consult a practicing lawyer in time.