Take Three Steps When Resident Tries to Use Security Deposit to Pay Last Month's Rent
Getting departing residents to pay their final month’s rent can be difficult. Many residents think it’s fine to tell owners to apply their security deposit to their final month’s rent.
But doing this can cause problems for you. For example, you may not have enough funds left over to cover damages that exceed normal wear and tear, says Ohio attorney James Bownas. Or, if the resident holds over, you may not have enough funds left over to cover any holdover penalties your tax credit site imposes. Even worse, if the resident ends up not moving out, you’ll have little or no security deposit to cover the new lease term, and you’ll have to re-collect the deposit from the resident.
That’s why it’s important for you to take immediate action when a resident tries to use his security deposit to pay his final month’s rent. Here are three steps real estate attorneys recommend you take:
Step #1: Talk with Resident
Call the resident or stop by his unit and tell him he can’t use his security deposit to pay his final month’s rent. If the final month’s rent is past due, ask the resident to pay it immediately. You might say the following to the resident:
Paragraph 7 of your lease states that a security deposit isn’t rent and can’t be used to pay your final month’s rent. The security deposit is generally used to cover damages to a unit that are beyond normal wear and tear. As long as everything seems to be in order, we’ll return your security deposit, less any amount for damages beyond normal wear and tear and other deductions permitted by the lease. I would be happy to discuss any other security deposit questions you may have now, or you could contact the management office at 555-2345. Please pay your final month’s rent before your account becomes seriously past due.
The resident may not realize that what he’s doing is a lease violation. Honorable residents will submit the final month’s rent after realizing their mistake, says Bownas. But if this doesn’t work, you’ll have to take stronger actions.
Step #2: Start Eviction Proceeding
If the resident doesn’t respond immediately to your request, start an eviction proceeding for nonpayment of rent as soon as you legally can, says New York City attorney Todd Nahins. Realistically, there won’t be an actual eviction because the resident will probably have moved out before you get to court, he says. But serving eviction papers may convince more reluctant residents to pay up.
Starting an eviction proceeding promptly may also ensure that the resident vacates in a timely manner, says Nahins. For example, in New York, if you let a resident live off his security deposit for the month of January and he doesn’t leave at the end of the month, even if you bring an action in late January or early February for rent or holdover, you won’t be able to evict him until sometime in March, says Nahins. That means that even if the eviction goes as planned, you still lose two months’ rent, he adds.
Another reason to start an eviction proceeding is that it will enable you to quickly get a judgment against the departing resident for the amount of the final month’s rent and still have the security deposit to work with if you need to deduct for damages. It’s easier to do this than to sue the resident for damages after he has already moved, since such a lawsuit can take many months, even years.
If you plan on going this route with a resident who refuses to pay his final month’s rent, you need to make sure you have your bases covered, says Bownas. You should:
Put language in lease saying security deposit isn’t rent. Make sure your lease says that a security deposit isn’t rent and that the resident can’t use his security deposit to pay his final month’s rent. This way, you’ll have strong proof to show a judge that the resident violated his lease by not paying his final month’s rent. Here’s Model Language, based on language used in the Apartment Association of North Carolina lease agreement, which you can adapt and use if you don’t already have such language in your lease. Show the language to your attorney before using it.
Model Language
Resident understands that the security deposit serves as security for performance by Resident of the terms and conditions of this lease, and may not be applied by Resident toward rent or other charges due while Resident remains in possession of the unit, including the final month of the lease term.
Put language in lease saying security deposit can be applied to unpaid rent. You don’t want the resident to use the security deposit as rent, but you do want to reserve the right to apply the security deposit left in the resident’s account to any past due rent that remains after the resident moves out. Otherwise, you may have a situation where you’re legally forced to return the resident’s security deposit, even though he has moved out without paying the final month’s rent. Here’s Model Language that you can adapt and use to give yourself this right if you don’t already have such language in your lease. You can add other things to the list, as needed.
Model Language
Lessor will refund Resident the amount of the security deposit, less any amount needed to pay the cost of: (1) unpaid rent; . . .
Wait until payment due date has passed. If the resident tells you beforehand that he plans to use his security deposit to pay his final month’s rent, don’t immediately start an eviction proceeding. Even though the resident has told you his plans, you must wait until the due date for the final month’s rental payment has passed and the rent is past due before starting the proceeding. Otherwise, your proceeding will be considered one for an “anticipatory breach”—that is, a violation of your lease that you expect to happen, says Bownas. This type of case is hard to prove, and isn’t appropriate in many states.
Be sure to check with your attorney before starting an eviction proceeding for nonpayment of rent. Some state laws require owners to wait not only for the rent payment due date to pass but also for a number of additional days to pass before they can bring an eviction proceeding for nonpayment of rent, Bownas points out.
Step #3: Strictly Follow Requirements for Security Deposit Return
Chances are that if a resident skips out without paying his final month’s rent, you’ll use most, if not all, of his security deposit to make yourself whole again. But just because the resident violated his lease doesn’t mean you don’t have to follow your state’s requirements for itemization of security deposit deductions. Also, if you’re going to sue to evict a resident who has told you to use his security deposit for his final month’s rent, you’ll need to be extra careful when following the statutory procedures for security deposit returns, warns Bownas. This means making sure you follow your state’s security deposit return requirements, including the proper notice and itemization of deductions, to “the last comma,” says Bownas. Otherwise, the resident can sue you for statutory damages, which, in some states, are typically up to triple the amount of the security deposit.
Insider Sources
James Bownas, Esq.: Lane Alton Horst LLC, 2 Miranova Place, Columbus, OH 43215; www.lanealton.com.
Todd Nahins, Esq.: Borah, Goldstein, Altshuler, Schwartz and Nahins, PC, 377 Broadway, New York, NY 10013; www.borahgoldstein.com.