The LPA Newsletter: Security is NOT Rent

Dear Fellow Landlord,

Have you ever had a tenant ask you (or tell you) to use the security deposit for rent or other charges? Of course, we all know that the security money is not to be touched until the rental is vacated and then returned to the tenant, but what do you say when you are asked. Many owners who are caught off guard wind up with no security deposit and a bunch of damages!

By the way... I'll be attending The 2012 National New Strategies Summit for Real Estate Investors and Landlords Sponsored by the Ohio Real Estate Investors' Association November 8-11, Great Wolf Lodge, Cincinnati Ohio. Will I see you there?

In this newsletter:

• The Security Deposit is not Rent!
  
• The Importance of a signed Property Condition Report
  
• Ask the Attorney, Real Estate Attorney, John Reno
  
• Quotes for Success
  

Please e-mail us if you have any questions or would like to add or share any material / information. Have a great month and an even more successful year ahead.
John Nuzzolese
John@theLPA.com

So your tenant asked to use the security deposit as rent? This happens to landlords everywhere every day. The rent isn't paid, you ask the tenant for the rent and they say, "We don't have the rent this month, couldn't you just take it from our security deposit?"... or ... "We are moving - you'll just have to use our security."

Most landlords are caught off guard and are dumbfounded when this happens. Beware, this is a common occurrence in the landlord business. The tenant wants to use the security deposit for a purpose other than what was agreed.

How can we be prepared to deal with this situation? First, it is very important that your rental agreement contains a good security deposit clause, like the LPA Lease does. I believe it is very important to read the lease to the tenant before the tenant signs it. The Security Deposit clause explains how security money may not be allowed to be used as rent. That's when I warn the tenant against trying to use the security deposit as rent.
These are the points I try to make clear to the tenant:

• Security is to be kept in a special escrow account for the entire term of the tenancy.
• Security may not be used by the landlord for any reason other than physical or financial damages as a result of the tenant's failing to comply with the lease contract.
• Failure to pay rent is cause for eviction which will result in the destruction of your credit rating.
• I report delinquencies to the credit bureaus.
• Your lease agreement states that security deposits are not to be used as rent, so if you ask me to do that, you would be breaking your contract and your word.
• If your word and signature are no longer good, then I may not believe anything you say about when you want to leave, so I'll be forced to begin legal action.
• In the event you default on your rent, you are responsible for my late fees, collection costs and attorney fees.

I've been able to counter this particular type of "tenant attack" by being ready with the right comeback:

Tenant: I don't have the rent this month. You're going to have to take it from our security deposit.
Me: That's too bad. I hope you remember the consequences you agreed to in your lease.
Tenant: Oh yeah? What's that?
Me: Security is not to be used as rent... ever. Non-payment of rent is a breach of this lease subjecting you to late charges, delinquency credit reporting, attorney fees, etc. Do you really want to incur all these charges, flush your credit down the drain and have to go to court over your last months rent???
Tenant: No. Thanks for setting me straight.

OK, the tenant doesn't usually say that. He may say a few things I don't want to print on this site, but will usually snap back in line. Sometimes the tenants will bluff to see what you will do, but when they receive an attorney's letter that shows you weren't kidding, they should pay up and follow the rules.

Try to remember these points or have these points ready in case the tenant pulls the old "Use my deposit as rent" trick.

The Condition Inspection Report may be used with or without a Security Settlement Statement, but I have had better success using both together.

This document is not only a complete condition checklist at Move -In and Move - Out, signed by the tenant at move -in, it also puts the tenant on notice that the condition has been documented, dated and acknowledged. It is very important for the landlord to establish the condition of the premises before the lease begins and after the term ends.

It will be very difficult for the tenant to argue the facts noted on this form which is signed by them!

Video and Photo reminder: Tenants are reminded that the premises may have been photographed and video taped prior to occupancy and also upon vacancy.

Includes a Security Settlement section to calculate any deductions

Using The Condition Inspection Report along with the Security Settlement Statement will afford maximum landlord protection. As long as your charges are legitimate and conform to your lease agreement, it is very unlikely that any deductions will be challenged by the tenant.

The Landlord Protection Agency® presents John Reno, Esq., a highly experienced Landlord - Tenant attorney based on Long Island, NY.

John Reno also does Mortgage Loan Modifications (Nationwide).
(Mention The LPA for a 10% discount!)

Dear Mr. Reno:
My husband and I are landlords in Southern CA. We have 2 rental homes. One tenant is fantastic, the other is chronically late. We have a 1 yr. lease signed which won't be up until March. We are doing our 2nd (they paid the Sept rent but no late fees) 3-day pay or quit notice tomorrow for the Oct rent and fees (using the LPA form). My question is whether we should hire a real estate attorney if they fail to pay this time? Thx,
Renee McCarty

A: There are different schools of thought. Some are very strict and react fast and have lawyer fees. Others try to work with the tenant and often lose a lot of rent. So pick your poison. My rule of thumb is if the whole October rent isn't paid by 11/1, start the eviction.

If you have a landlord tenant problem you'd like to ask a question about, please feel free to e-mail me your question.
Submit a landlord / tenant question for Mr. Reno
Please try to keep your questions as short and to the point as possible.

Have you ever been beaten by a tenant on the rent?
Most of us have and unfortunately, it is one of the costs of doing business as a landlord.
On the bright side, remedies are available. If you have documented your tenancy with the proper paperwork including a rental application, lease agreement, late notices, etc., you may have a chance of collecting.

Credit bureau reporting is an option in which many modern landlords are beginning to participate....

Click here for the full article

"Knowledge is power. The more knowledge, expertise, and connections you have, the easier it is for you to make a profit at the game of your choice." - Stuart Wilde

"God made the Idiot for practice, and then He made the School (or CONDO) Board." - Mark Twain

"The only thing worse than having a rental house not rented is having it rented to a bad tenant." - John Nuzzolese

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