Q: I am a real estate broker and I am representing a tenant (the “Tenant”) who is approaching the final month of his current lease. The Tenant will be leasing a new space. The lease for the new space requires the Tenant to give the new landlord a three month security deposit. Given the large cash outlay for the new security deposit, the Tenant would like to use the security deposit that his existing landlord is holding in order to pay the last month’s rent that is due on the existing space. Can the Tenant do this?
A: Although many tenants attempt to use a security deposit as rent, virtually all leases contain a provision which explicitly states that a tenant may not withhold a rent payment with the intention of applying the security deposit as a credit against such rent payment. Whether or not expressly stated in a lease, a security deposit is not intended to be used for the purpose of paying a tenant’s rent. Rather, the security deposit is intended to provide a landlord with a level of protection for a tenant’s non-performance of its monetary and/or non-monetary obligations under the lease.
The failure of your Tenant to make a final rent payment without the permission of the landlord (even with the intention that his security deposit can be applied to such rent payment), may result in your Tenant being in default under his lease. A default under his lease may lead to late fees, collections costs, and attorney fees. Furthermore, the decision to withhold the rent payment could potentially have a negative credit impact on the Tenant, as well as create a situation where the Tenant may no longer be able to use his existing landlord as a reference in the future (prior to leasing a tenant a new space, many landlords request the name of a tenant’s previous landlord and, in some cases, a reference from the previous landlord).
Important Tip: You cannot provide the Tenant with any legal advice. Your Tenant should speak to an experienced landlord-tenant attorney to review his lease and determine what rights, if any, the Tenant has regarding his decision to pay, or not pay, the last month’s rent.
The Legal Line Question by:
Neil B. Garfinkel
REBNY Broker Counsel
Partner-in-charge of real estate and banking practices at Abrams Garfinkel Margolis Bergson, LLP