Should you let your tenant apply the security deposit to last month's rent?
Moving is expensive, whether you're moving into a new home or moving from one apartment to the next. A tenant has to come up with first month's and a security deposit in Rhode Island, and in Massachusetts they might have to have both first and last month's rent PLUS a security deposit PLUS a lock change fee.
Most of us don't have large sums of cash in the bank meaning it's a scramble to get ready for the new spot. Tenants often as the landlord if the landlord will apply the security deposit to the last month's rent so that the tenant can pay for the next place.
What should you do?
Generally speaking, DON'T DO IT!
Applying the security deposit to the last month's rent can be a big help for Tenant's but it has NO benefit for a Landlord and is in fact a very risky move.
Security Deposits are there to help the landlord keep the property in a rentable condition, or return it to a rentable condition, and keep the property in service and making money.
Security Deposits also serve as some leverage over your tenant, an inspiration to treat your property well and to meet their obligations under the lease!
You, the kindly, benificent landlord, agree to apply the security deposit to the last month's rent. Your tenant, who has been an ideal tenant for the last year or more, loses their job, or gets injured and can't work or god forbid develops a drug habit or has a child that develops a drug habit or any number of things go wrong and the cascade starts....
Maybe you don't have the next tenant lined up yet because the current tenant doesn't keep a nice apartment so you haven't had much luck with showing, or;
Maybe the tenant has been really difficult and giving you a hard time with getting into the place because they don't want you to see they're growing marijuana, or;
The Tenant's grown son is sleeping on the couch all day and smoking weed, or:
They've been smoking in your house and you didn't know it, or:
They adopted a dog without telling you and the dog is left alone too much and chewing all your casements and window sills and busting screen doors, or;
Your tenants have actually already moved out but the roommate you let them add to the lease is holding over, or:
The Tenants just refuse to move at the end of the lease and don't pay you any rent because they're betting you won't know how to protect yourself?
The list is endless. Without some kind of leverage a savvy tenant knows they have you over a barrel and they're betting you won't spend the money you need to spend to get them out or to get them in court to pay the damages they now owe you.
Don't. Do. It.
Here's a link to a Worst-Case-Scenario blog.
What does the law say?
Rhode Island allows a Landlord to charge a security deposit in an amount equal to one month's rent. Rhode Island law specifically prohibits any other deposits, including pet deposits, lock deposits or other names for security deposits. Unlike Massachusetts, Rhode Island landlords are only permitted to collect first month's rent and a security deposit at lease signing.
Massachusetts landlords are permitted to collect first month's rent, last month's rent, a security deposit in an amount equal to one month's rent and a lock change fee.
In Massachusetts this type of question may not come up as often because the Massachusetts Landlord already has the last month's rent in addition to the security deposit.
Warner Realty Group's Take on the Security Deposit:
WRG has a highlighted line in our lease that specifically states Security Deposits May Not Be Used as Last Month's Rent.
This is to protect our landlords and to alert them to the possibility of a tenant asking for this. Ultimately it's the Landlord's decision and we're here to provide the information needed to make that decision along with years of practice and real life experience.
We recommend that the Security Deposit is not used as rent, and that the Landlord take time to really view her property carefully, taking detailed notes and pictures between tenants. Don't rush to get the deposit back the day the tenant leaves. Rather, the landlord should take the time necessary to completely inspect the property and provide the incoming tenant with a quality space that is fully functional, safe and up to code as well as being an inviting, pleasing living space.
For some thoughts on how to inspect your property and transition between tenants, check out our article on Returning the Security Deposit.
As always, Sandi Warner, our resident Attorney at Warner Realty Group, is happy to offer a brief consultation to determine if we can help YOU with your Investment Property!