What Does "Last Month's Rent" Really Mean?

Why landlords shouldn't collect a deposit for the last month's rent.

Question

A tenant has been in my single-family rental for three years, on a month-to-month basis. When she moved in, I collected a security deposit (equal to a month's rent) and the last month's rent. Last year, I raised the rent by $50 per month. I now want to terminate her month-to-month tenancy with a 30-day notice. I know that I have been paid for the last month, but can I legally expect her to pay the extra $50?

Answer

When you collect the last month's rent, and clearly label it as such, the tenant is paid up for that last month—whenever it happens to be, even if the rent has gone up in the meantime. Under most states’ laws, you can’t raise rent under a month-to-month rental agreement without proper written notice (usually 30 days). The best practice in this situation would have been to give similar written notice that the pre-paid last month’s rent (and perhaps security deposit) was increasing, too, and that the $50 increase had to be paid upon signing the amended rental agreement. Unfortunately, if you plan to give your tenant 30 days’ notice to terminate now, it’s too late.

For your future rentals, be aware that it’s rarely in a landlord's interest to label any deposit as the last month's rent. Rather, it’s far better to collect a general security deposit that is at or below your state's limit, and label it simply as such. This strategy will give you much more flexibility in using the funds you’re holding: You can use a security deposit to remedy any issue allowable by state law—which usually includes costs of cleaning and repairing damage to the unit that goes beyond normal wear and tear as well as any unpaid rent or fees. If you’ve labeled a deposit more specifically—such as for last month’s rent or a pet deposit—you can use those funds only as designated. In other words, you cannot use last month’s rent to cover a bounced check fee, and you cannot use a pet deposit to replace a broken window (unless you can prove the pet broke the window).

There's no reason to sideline a large portion for the last month's rent when, under the terms of your lease or rental agreement, your tenant is legally required to pay that month when due, regardless.

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