The Difference Between Last Month's Rent and a Security Deposit

Security deposits, the first month's rent, and the last month's rent each have a different purpose, but they all provide the landlord with some measure of security with a new tenancy. For example, a security deposit protects a landlord against financial harm caused by damage to the property. Most state laws have specific monetary limits for tenant security deposits.

This FindLaw article explores the differences between last month's rent and a security deposit.

What Is Last Month's Rent?

Before moving in, a tenant often pays the last month's rent, which the landlord or property management company uses to cover the tenant's final month in the rental property. Landlords often ask for the last month's rent to financially protect themselves from renters who may try to avoid paying for the last month of their tenancy. The upside for tenants is that prepaying their last rent payment may ease the financial burdens of moving out and to a new location.

State Limits on Last Month's Rent

In many states, the last month's rent is part of the overall security deposit, which limits the total amount of the security deposit a landlord can collect. Landlords and tenants should check their state's security deposit laws to make sure the landlord doesn't exceed the total amount of money the landlord may seek upfront.

For example, in California, the landlord cannot charge more than two month's rent for a security deposit for an empty residential apartment. They can charge up to three times the monthly rent for a furnished apartment. In this scenario, the landlord can charge two months' rent for an ordinary security deposit, or they can ask for a month's rent for security deposit and a month's rent for last month's rent. The total amount must be at most two months' rent.

What Is a Security Deposit?

A security deposit is an amount of money, often equal to one month's rent, that a landlord collects before the renter moves into the property. The purpose of the security deposit is to financially protect the landlord against any damage to the rental unit. In most localities, like New York City, landlords must place the deposit in an interest-bearing bank account.

After the tenant moves out at the end of the lease agreement, the landlord or property manager inspects the apartment for damages.

Deducting From the Security Deposit

If the landlord uncovers any damages beyond normal wear and tear, they can deduct the cost of repairs from the security deposit. They should create a list of damages and an itemized statement for the former tenant. Landlords should mail the statement to the former tenant via certified mail with a return receipt.

Differences Between a Security Deposit and Last Month's Rent

If the landlord or property manager collected last month's rent, they must use it for that purpose. Landlords cannot use that money for any other purpose. If the landlord only requires a deposit of "last month's rent," they have lost the financial flexibility to pay for repairs and services beyond normal wear and tear.

An Illustrative Example

Consider the following example of the value of a security deposit:

You're a new landlord with your first tenant. You want the tenant to pay the first month's rent, last month's rent, and a security deposit to cover damage and any unpaid rent should the tenant abruptly leave before the lease expires. First, you should check your state's laws to ensure you stay within the monetary limits for security deposits. Instead of calling that deposit "last month's rent," which would force you to cover costs at the end of the lease, you should call it a security deposit. Doing so gives you flexibility on how to spend the money should the need arise.

Return of the Security Deposit

If you're the tenant, the return of the security deposit is a fairly standard process. Each state has security deposit return timelines, which you should check before your rental agreement ends. Give proper notice, per your rental agreement, before the end of the lease term. You should also provide a forwarding address where your landlord can return your deposit. Send your written notice to your landlord or property manager via certified mail with a return receipt.

Ask for a walk-through before you leave so that your landlord can point out any issues you need to address. If your landlord does not return your deposit within the time frame allowed by your state's laws, you should consider legal action. You can file a case in small claims court for the return of your security deposit. If you prevail, the court may also award you court costs and attorney's fees.

Get Legal Help

If you need help understanding the difference between last month's rent and a traditional security deposit, you should get legal advice. A qualified landlord-tenant attorney can help you understand security deposit law. Whether you are a landlord or a renter, this information can save you time and money. Speak to an experienced local landlord-tenant attorney today.