Landlord Tennant Question

I’m currently interviewing prospective tenants for a rental property and find myself with a potential gray area in the law (or perhaps just one I am ill informed of). There is one prospect that I find myself liking as a person and since this particular rental unit is part of the duplex my parents live in personability is an important factor. This person has a significant amount of money from a medical settlement but is currently starting up their own business so they have little in the way of verifiable income. They are offering to pay three months rent in advance in addition to first month+security deposit and continue monthly payments leavening the three months advance rent as a form of insurance. I am of course verifying background and references.

Assuming all background checks out one problem I see is if a few months down the road they stop paying rent I might not be able to begin an eviction proceeding against them until they are actually in arrears in rent (barring any other lease violation), which rather negates the extra three months in advance as insurance idea. I’m wondering if I could phrase the lease in a way that the advance three months rent was more of an extra security deposit to be refunded to the tenant (with nominal interest as is required) when they vacate the property adjusted for any rent they might owe on that date. This would appear to allow me to begin an eviction if they begin to default and better guaranty the rental income on which my parents rely.

I do like this person and more importantly my mother does as well. She’s a single mother with some physical handicaps and the location of the property is ideal, walking distance to the child’s school, the grocery and public transportation. I respect her devotion to her daughter and her determination to overcome her difficulties. I would like to give her a “break” but while my parents are comfortable they do need this rental income.

I do understand the limits involved in soliciting what very well may be legal advice in a public online forum. But I was hoping someone out there may have been involved in or had knowledge of any similar circumstance and may be inclined to honor me with their comments. I thank you in advance.

What state are you in?

Ohio

I believe that this will quickly degenerate into the standard, “ask a lawyer,” but I was reading up on the Chicago Quick Guide to Tenant’s Rights (which I believe isn’t that much different than what you’ll find anywhere else) and it explicitly stated that asking for more than a security deposit of 1 month (or it might have been 1.5) is illegal and will get your ass busted. I left my copy at work, but there were other provisions that made trying to skirt this pretty difficult.

Given legal problem and the (IMO) unethical nature of this, you may be able to charge a variable rent rate with the first couple of months being significantly more expensive than the following. Given the proscription against screwing your tenants like this, I believe this sentiment would also deny the tenant the ability to request the money back at the end of their leasing term being written into the contract, so if you would want to do this, they’d have to trust that you were returning the money (if you were going to).

The reason I even bring this up is that IME and from what I gather talking to others (and I believe from other landlord posts on the board), this seems to be a common feature although the number of months changes.

May I have a cite, please?

Thank you Chairman Pow, this is the exact nature of my question and I fear you may be correct that this may be a legal question beyond the scope of this board. As far as easy googleing can show, I know the specific statute in the Ohio Revised code is title 53 chapter 21 and has been referred to in several sites as the Ohio Landlord Tennant Act in which section 16 reads:

I don’t see anything there which indicates my “security deposit” idea violates Ohio law. However I do not know if this is definative. The search continues. Thanks again Chairman. :slight_smile:

IANAL but I am a landlord, so I won’t give you legal advise, but I will give you landlord advice. I strongly believe in having a good personal relationship with my tennents. I trust them, they trust me. I cut them slack, they cut me slack. They pay, I collect, and the world is a happy place.

I trust my gut much more than any background check, and I’ve been pretty successful (in a part-time way) at this business for over 20 years.

It sounds like you have already established a pretty good personal relationship with the prospective tennents. That’s good. Discuss your concerns with them candidly. Tell them you want to rent to them and are trying to figure out a way to handle the particulars of this case. They may very well volunteer something like three months up front if they trust you.

(So much for the utility of being polite in cases like this.)
Ennui, Chairman Pow has no clue. He’s wrong about Chicago law and he’s wrong about Illinois law. There’s no cap here on security deposits.Even if he weren’t incorrect, what his hazy memory of what some Chicago brochure supposedly said would have no relevance to your Ohio question. Your own online efforts are far more likely to provide useful guidance about Ohio law.

Good luck. You sound like a decent person with good instincts. I’m not qualified to give you advice on Ohio law, or the ordinances or whatever city this apartment is located in, but please ignore Chairman. He doesn’t even know enough to realize that Chicago and Illinois cites are useless.

Oh, and since you have no particular reason to believe me over the Chairman or any other random person, here’s what the Illinois Attorney General has to say:

"Security Deposits
Your landlord can require you to pay a security deposit which may be used to cover unpaid rent, repair damages to the unit, and clean the unit after you move. The amount of the security deposit is normally equal to one month’s rent, however, there is no legal limit on the amount your landlord can require. "

Cite: http://www.ag.state.il.us/consumers/landlord.html

(and the Illinois AG is a very nice person who tries hard and has done a decent job so far, even though her actual legal experience leaves a little to be desired.)

Again, though, what she, I or any other Illinois attorney have to say on the issue doesn’t have any relevance to your situation. I post only to correct misinformation.

Sage advice bnorton, I haven’t been at this as long as you and I defiantly agree. Keeping a friendly human face on things avoids most problems before they become problems. But I do find it easier to accept a “risk” in my own dealings than I do recommending someone else, in this case my parents, take the same risk. If this particular lady (the prospective tenant) could produce a pay stub with the appropriate income I’d have printed out a lease as soon as her references cleared (this would be my only minor disagreement with your post, if I don’t feel I can trust someone I don’t rent to them, but I run their numbers anyway). But as stated, this is my parent’s money I’m dealing with, I am a bit more cautious. Thanks again.

Random, I thank you for your time. From the Ohio statutes I sited and the abbreviated information provided by my own city’s web site I am beginning to feel more comfortable that an increased security deposit might well be the best approach, but I will spend more time the morning to verify that conclusion. I’ll discuss this with the prospective tenant tomorrow.

I do respect your specificity in rebutting Chairman Pow, it’s what this forum’s about, but I still appreciate his efforts on my behalf.

Sounds like appropriate advice has been given.

I never worry too much about verifiable income. Too easy to fake. I DO rely heavily on credit reports though.

I seldom ever rent a place without one, even when I think I know the person. They contain a lot of information other than past and current debt once you figure out how to read them.

A credit report, along with a photo ID is also the only way I know of to verify that the individual is who they say they are and have given you correct information, including past addresses.

I’m intrigued to know where a sum of $50 or one month’s rent can be invested and return 5% simple interest. Any answers, Ohio?

Thanks for saving me the trouble of finding out that I was really wrong. That was a serious remark by the way. I’ll also issue an apology to Ennui for going off half-cocked.

I disctinctly recall being told (of course since I already misremembered reading this, I can’t trust my memory this one any more), so I’ll have to dig up where I heard this. It was most likely someone who had worked with a Tenant Advocacy group at one point so hopefully they’re not telling other people about this. Considering it was a friend of a coworker who was working with the group I imagine that it’s something that got lost in the game of telephone rather than the Advocacy group misrepresenting the law. I also recall my previous landlord telling me that 1.5 was the law, but considering how well they kept their records…

Anyway, consider this one small blow against ignorance and a reminder to always check your sources…

With the standard disclaimers that you are to speak to your own lawyer and that this is not advice, keep in mind that there are security deposits, and there are prepaid rents, and they are not the same thing. A landlord is supposed to keep security deposits in a segregated account, apart from his rental income funds. In many states the amount of the security deposit can be of any amount, but if the amount of the security deposit is more than the amount of the monthly rent then the landlord is required to pay the tenant interest on the excess.

Prepaid rent is more an accrual accounting problem than a legal one. It is to be held by the landlord and applied as rent according to the lease, usually on the first day of each succeeding month. Prepaid is the tenant’s money, held by the landlord, up until it is earned by the landlord month by month as time goes by. An accountant would tell you that prepaid rent is an asset on the books of the tenant and a liabilty on the books of the landlord

Say for example the landlord is holding 3 months of prepaid rent and the tenant violates the lease in the first month by keeping a tiger in the apartment, such that the landlord had to evict the tenant and his tiger. Assumng the tenant (and the tiger) vacates the apartment before month 2 begins, the landlord gets to keep the first month’s rent and apply the security deposit to any amount of damage the tiger did to the rental unit, and has to refund the two months balance.

Since landlord-tenant laws vary widely from state to state, would it be safe to assume you are speaking of your own only?

Ya’ know, I don’t think I’ve ever been *defiantly * agreed with before. People have been defiant in their disagreement, but never in their agreement. How does that even work?

[Power Ranger accent]
“You’re right, and I will destroy you!”
[/Power Ranger accent]

And a tip of the hat to Chairman Pow, for his class act in admitting an error.

Agreed.
And Chairman, I’m sorry if I came off as too heavy-handed. I felt I had to be very direct when it appeared that the OP was placing some reliance on what had been said.

Certainly not - as mentioned, I appreciate the correction. I’m just kind of miffed that the first time someone took my advice, it turned out to be wrong… But I’m glad it was caught before any damage was done.

I more or less agree with bnorton. But I’d just say “trust them”. What they are offering is a month’s security deposit, and three moths rent in advance. Instead what you want is a months security deposit and "last months rent’’ (and of course, first montsh rent, sometimes called “first & last months rent”. In this case, the 'last months rent is a special kind of deposit that can only be used against rent. It’s a little better for them, as they can also give you 30 days notice and tell you to use that “last months rent”.

Look, they were open & honest with you, right? trust them a little.