Taking prepaid OR advance rent for some or all of the term of a lease is dangerous and laws must be followed.

In most cases it is NOT recommended.

 

Requiring a last month rent is normal and while considered “advance” or “prepaid” rent, the same dangers do not apply. Note that this last month rent payment cannot be used by the Landlord until is legal to use it and it must be kept in the same account as the security deposit. 

Q. Can the Landlord use the prepaid rent now?   

A. Prepaid rent must be held in the same account as the security deposit.  It cannot be used or touched until it becomes due each month.

Q. What can occur if the Landlord uses prepaid rent that is not yet due for the month?

A. The Landlord can be charged with civil or criminal theft as the money does not belong to the Landlord until the money is due each month.

Q. If the Tenant pays prepaid rent and backs out of the deal can all the prepaid rent be retained by the Landlord and used by the Landlord?

A. NO.  Forfeitures are illegal. Prepaid rent can only be touched and/or used when it becomes due each month.

Q. Why can’t the Landlord use the prepaid rent immediately if the Tenant backs out or breaks the lease? 

A. It is illegal to touch or use any prepaid rent until the rent is due each month.  When a Tenant breaks a lease, the Tenant owes rent as it becomes due.  Acceleration of rent or “forfeiture” of that rent to the Landlord is illegal.

Q. This does not seem FAIR. Why can’t the Landlord take all the rent and use it?

A. Because it is illegal.  A Tenant owes rent as it becomes due until the lease is up or until the home is re-rented.

Q. If the Tenant fails to pay rent during the term of the lease and it is not the last month of the lease, can a last month rent held by the owner be applied?

A. NO.  Only if the Landlord and Tenant agree in writing at that time and use the proper form our office provides.

Q. Why even bother taking prepaid rent?

A. Taking prepaid rent creates an illusion of security for the Landlord and the negatives outweigh most of the positives.

Q. Can the property manager retain all the commissions from the prepaid rent when the Tenant pays the prepaid rent and moves in?

A. NO.  The money does not belong to the Landlord and no commissions can be taken from the money until such month where the prepaid rent is due and applied to that month.

Q. Are there other resources I can use to understand this?

A. Yes. The Landlord and property manager should watch the videos below and also read the below articles.

 

PREPAID RENT DANGERS VIDEO  https://vimeo.com/295649162

PREPAID RENT EXPLANATIONS VIDEO https://vimeo.com/295615477