Turning security deposits already held in to last months rent

[Scott Esmail]

I own several rental properties and tenants have given me 1st months and security deposit when they have moved in, I now am holding a lot of security deposits that have amounted to a good amount of casht, I understand that security deposits can not be touched until they move out, is there a way that I can send tenants a letter or something telling them that we are going to use it for there lasts month rent instead  and then I should if I am correct be able to use the funds ?

[Steve Rozenberg]

I would be very cautious about this type of business practice. I am not an accountant or a lawyer but I would say that could be very close to being considered Co-Mingling of Funds which is illegal. 

You are holding the security deposit as part of the contract you and they signed. In a contract it is a bi-lateral agreement, meaning you perform and they perform... If they do not perform then it is spelled out in contract of what will happen next. You do not have the right to change the contract at your own discretion or own needs, just as they cannot change the wording of the agreement either or you can evict etc...

You are holding that in lieu of them not performing to the contract agreement. It is not to be used as any type or form of payment.

I have seen recently some judges have actually asked the landlord to see the paper trail that shows from the time of accepting the deposit to sitting in a separate account and that it has never been touched till the time that was returned. 

Also I would suggest you create an itemized list of what you will deduct from the security deposit that they have to sign and acknowledge of these fees, if you would like what we use or anyone would simple message me and I would be happy to share.

If you decide to go down this path I would make sure you have full disclosure upfront, and also I would discuss this with your real estate attorney to have them sign off that you are not violating any laws or have any tax implications on this matter related to your state tax or federal tax laws.