Never let a tenant use the security deposit for rent

Am helping a client close on a nine apartment building in Silver Lake tomorrow.

One of the tenants has given notice of his intent to vacate at the end of this month. When I reviewed the rent statemnt in advance of closing, I noticed that the current landlord allowed the tenant to use his security deposit as his last month’s rent.

This is a seriously terrible idea for the landlord. Why?

When you allow a tenant to use his security deposit as his last month’s rent, you are trusting him/her to vacate and deliver the unit to you in good condition. If he doesn’t, you’re going to have to eat the cost of any repairs, because you don’t hold a deposit and there’s no chance you’re getting any more money out of the tenant at the end.

And, to make matters worse, the kind of tenant who doesn’t have his act together enough to pay you the last month’s rent is exactly the kind of tenant you don’t want to trust to deliver you back your unit in decent condition!

So, what do you do when a tenant fails to pay rent on the first day of the last month of a lease? You immediately post a three day notice demanding your payment. Then, if the tenant doesn’t pay, you threaten to begin eviction proceedings and, if you still don’t get paid, you go through with your threat. Most people (sensibly) want to avoid have evictions on their records, so they will pay.

I know this sounds harsh, but the security deposit is not intended to be the last month’s rent. It’s your only leverage to ensure that the tenant returns your unit to you in decent shape. You’re running a business and you need to stand up for yourself.