Landlord Tip: Security Deposits that include Last Month’s Rent

In my November 1, 2012 blog entry we discussed the importance of adjusting your rents annually to current market levels.  Over the past 12 months rents throughout the Bay Area have risen dramatically. Take note, do some research and adjust your rents accordingly at the next available opportunity.

This raises an interesting question if you have labeled a portion of the security deposit as the last month’s rent.  If a long term tenant gives notice to move out and has paid the last month’s rent when he moved in, can you charge the tenant for the difference between the initial rent amount and the current rent amount?

This is a grey area of the law. If your lease or rental agreement labels part of the upfront payment as "last month's rent", then the tenant has a strong argument that he paid the last month's rent when he moved in.

To avoid this situation change your lease or rental agreement to read "security for last month's rent". This will give you a strong argument that the tenant has not actually paid the last month's rent, but has only provided security for it, giving you a case for collecting the difference between the deposited amount and the current rent amount.