May A Tenant Use Their Security Deposit As Rent?

The owner of a rental holds a security deposit for protection. Protection from damages and unpaid rent and fees. Tenants usually believe they are leaving a home in a similar condition as when they moved in.  This leads to the incorrect assumption by the tenant that they are free to use their security deposit as rent.  Great tenants under this assumption will ask permission.  Not so great tenants will just not pay rent in the last month.  They will argue that the held security deposit is the rent.

A request to use the security deposit as rent is most common in the last month of the tenancy.  Probably because the tenant needs funds to pay another security deposit for their new rental. This is not a reason an owner should feel like helping the tenant.  In fact, agreeing to such an arrangement usually turns into a regretted mistake.  The owner should confirm to the tenant the terms of the security deposit in their lease.

The following are the four best responses for a request to use a security deposit as rent.

No!  Your lease specifically prohibits this request.

The terms of your lease, combined with applicable state laws, govern security deposits.  It is very important that your lease contain a very specific security deposit clause.  "Tenant shall not apply or deduct any portion of any security deposit from last or any month's rent." is a clause from the WILMOTH lease.   A tenant is reminded of this language if they request to use the security deposit as rent.

A settlement process occurs at the end of the lease to determine if any deductions are to occur.  The security deposit funds are not to be charged until lease end and the tenant has vacated the property.

Not paying rent when due will harm your credit.

A tenant should be advised how their credit will be harmed by the decision to not make a rent payment.  A tenant who has always paid their rent on time will tarnish their record and credit by assuming a security deposit can be used as rent.   The path to the tenant's credit being impacted begins with the security deposit settlement process.

Owners or their managers are required to confirm any funds withheld from a security deposit by issuing a settlement statement.   Many tenants do not understand the settlement process.  They believe the most money they are going to lose is the amount of the security deposit.  An owner might wish to review with a tenant how a security deposit is settled.  This discussion should include the likelihood of the owner obtaining a judgement from a court against the tenant for any amounts owed in excess of the security deposit ( to include rent and fees).  This deficiency judgement will damage the tenants credit and ability to rent in the future. The judgement will also include court costs, attorney fees, and collection fees. Paying the rent on time is a much less costly decision.

I have found many tenants just do not understand that paying the last month rent is not a legal use of the security deposit.  Instead of running the chance of their credit being ruined, good tenants will make the payment.

eviction-courtNot paying rent when due will cause the owner to file for eviction.

An immediate eviction filing may be the best option when it is suspected the security deposit will be needed for repairs. This decision rests somewhat on how much money is involved. An eviction filing will cost the owner funds that may be better left to handle the repairs and lost rent. An eviction may make sense with a more significant amount of rent.  Most tenants understand the damage an eviction lawsuit creates on their future attempts to rent.

Not paying rent when due will cost more money.

Communications should make it clear that the tenant faces the probability of an eviction filing.  The filing will end up burdening the tenant with damaged credit.  A judgement will include unpaid rent, late fees, court costs, collections costs, attorney fees and damages.  Paying the rent is the better, cheaper, option.

It will still cost the tenant more money even if an eviction filing is not pursued.   A deficiency judgement will include court, attorney and collection costs in addition to any outstanding balances calculated in the settlement statement.  The judgement can be collected by garnishing wages and assets.

Other Options?

Sometimes a good option is to require the last months rent at the time the lease is signed.  It really depends on the type of property and tenants.   For some properties it is too expensive for the applicant to fund two months rent and a security deposit equal to one months rent.   The prospective tenant will just move on to another opportunity.  It also does not prevent the tenant from trying to use the security deposit as rent for another month.

A lease with strong, specific language regarding security deposits is the key to avoiding this tenant request.  There are multiple reasons to explain why rent will not be covered by the security deposit when supported with this type of lease. 

 

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