The Tenant wants to use his security deposit as the last month’s rent. Would this be a problem with the Landlord?
Answer:
There could potential problems regarding the conversion of funds designated as a security deposit into payment of last month’s rent.
Whether you can use the tenant’s security deposit as the last month’s rent depends upon your state statute requirements for security deposit collection, handling, and return. Whether you should allow use of the deposit as payment of rent is a business decision. Most business owners would consider this practice a risky business decision.
Security deposits are not rent. The intent of a security deposit is to protect the landlord from any damage that the tenant may have caused to the rental unit during his tenancy. Damage can be physical damage to the rental unit or grounds, or financial damage such as loss of rents.
Most states have landlord-tenant statutes on security deposit handling that specify how a security deposit may be used by the landlord. Money held as a security deposit in most states may be used to cover back rents, physical property damage, and cleaning of the property when the tenant vacates the property.
Converting security deposit funds into rent could be a risky business practice. Until the tenant actually vacates and the final inspection is done, the landlord has no way of knowing what the condition of the rental unit will be at the end of the tenancy. Damage to rental units most often occurs during tenant move-ins and move-outs.
Usually the security deposit amount is the same amount as the monthly rent. If there is damage to the unit and the landlord needs to make repairs, the repair amount is deducted from the security deposit. This will reduce the amount that can be applied as last month rent. The landlord either has to cover the shortfall himself or file a lawsuit to try to recover the money.
The tenant may not be thinking of the potential liabilities that could cause him problems. If there is damage and shortfall in the amount that can be applied to rent, the tenant is responsible for the full rent. If the tenant does not pay, he has defaulted on his lease and the landlord has a cause for action. The landlord can sue for a money judgment which will be a matter of public record. The landlord could report the delinquency to the credit bureaus which could affect the tenant’s credit rating.
It matters not if the ex-tenant has moved to another state, as long as you can locate him and have him served with the summons and complaint. The fact that he would have to appear in the court of jurisdiction for the rental property might add incentive for him to pay up. If he fails to appear and you can provide the court proof that he was served you would likely receive a default judgment. This judgment can be enforced in a court in his new state. In most states judgments accrue interest at a significant rate. The judgment should appear in credit reports obtained by other landlords when he seeks other rental housing or when attempting to obtain financing for any need, forcing him to pay both the principal and accrued interest at a future date. Finally, judgments can be renewed.