Advanced Rental

Lessors demand tenants pay “advanced rental” in lease contracts. This amount is measured by the number of months of rental (e.g., two months' advance rental).

The purpose of this payment is to protect the seller in case the tenant misses rental payments. The “advanced rental” is different from the “security deposit,” which is meant to cover unpaid bills and repairs at the end of the lease.

The problem with most lease contracts is that lessors/brokers apply this amount to the first two months of the lease term when it should be applied to the last two.

So ideally, the lessor receives three months' advanced rental payment at the beginning of the lease, one for the first month and another two for the last two.

Why is this important?

In the event of a pre-termination or an unfunded check for rent, the lessor is protected all throughout the lease term. If they were to apply this to the first two months, the lessor would be exposed right after the first two months.

Lessons from the COVID-19 Pandemic

At the height of the pandemic, there were many pre-terminations, and it was normal for the tenant’s check to bounce. Often, tenants would convince the owner to apply the security deposit to cover the unpaid rent–which is also wrong. The security deposit should solely be for repairs and unpaid bills.

If the owner applied the advanced rent to the last months of the lease, he would have had the option to pre-terminate the lease, kick the tenant out, and collect the unused advanced rental as a penalty.