SEC DEP FORFEITURE

A client asked me if it's acceptable to forfeit the full amount of Security Deposit of a condo rental in case of pre-termination. Here's my reply.

"The ideal practice is: if the tenant preterminates, they forfeit X months of unused advance payments (e.g., two months). The number of months depends on how long it would take to fix the place and rent it out again.

The security deposit, on the other hand, should be applied to whatever repairs and unpaid bills. The balance from such repairs and unpaid bills will then be returned to the tenant. The security deposit should never be applied as rent.

However, in the PH, lessors typically apply the advance payment to the first months of the lease. So, the lessor normally asks to forfeit the security deposit instead in cases of pre-terminations.

The problem with this approach is that what if the security deposit isn’t enough to cover the X months of lost time AND the repairs? In such cases, the lessor would be forced to chase after the tenant (good luck with that).

At the end of the day, you simply have to follow what’s written on your contract. But I suggest following the ideal application of advance payment and security deposit. 🙂"

Just thought of sharing.