Of the many complaints we hear from property owners with self-managed units, tenants trying to use their deposit as their last month’s rent is common. This can be stressful and create a financial burden for the owner.

The first thing owners should understand is that under Hawaii law, an owner has the right to apply a deposit to unpaid rent, the tenant does not. This should be clearly stated in the tenant’s lease. Unless the landlord has specified in writing the tenant can use the deposit as the last month’s rent, the law is on the side of the landlord whether or not it is in the lease.

If a tenant asks to use their deposit as last month’s rent, your first line of defense is to say no.

What a security deposit can be used for

Landlords may use a tenant’s security deposit only for the following instances:

(1)  To remedy a tenant’s defaults:

(a) for accidental or intentional damages resulting from failure to comply with Section 521-51 of Hawaii’s Residential Landlord-Tenant Code,

(b) for failure to pay rent due, or

(c) for failure to return all keys furnished by the landlord at the termination of the Hawaii rental agreement;

(2)  To clean the dwelling unit or have it cleaned at the termination of the Hawaii rental agreement so as to place the condition of the dwelling unit in as fit a condition as that which the tenant entered into possession of the dwelling unit; and

(3)  To compensate for damages caused by a tenant who wrongfully quits the dwelling unit.

Here is a common scenario: The tenant gives notice and at some point asks for their deposit be applied to their last month’s rent. If this is allowed, the tenant may not feel compelled to clean or make repairs to the unit to put it in the condition it was when they moved in. The tenant moves out, and the landlord must go in and clean, patch and make repairs, replacing any missing items at their own expense.

How much a landlord can charge a tenant for a security deposit

A landlord may only charge a tenant the equivalent of one month’s rent for the security deposit. Landlords may require an additional deposit of one month’s rent for tenants who keep a pet.  Nonrefundable fees are not permitted, (See: Haw. Rev. Stat. § 521.44).

When a tenant leaves before the end of their rental term

If the tenant vacates the unit with no intention of resuming the tenancy, the landlord is entitled to the lesser of:

  1. The entire rent for the remainder of the term;
  2. The daily rent for the period necessary to re-rent the dwelling, plus a reasonable commission, plus the difference between the rent agreed to in the prior rental agreement and the fair rental value (See: Haw. Rev. Stat. § 521.44 Section 70(d)).

When a tenant fails to pay their last month’s rent

Failure to Pay Rent – Section 68(a). The landlord may demand payment of rent anytime after it is due. The landlord may notify the tenant in writing that unless payment is made within five business days after tenant receives the notice, the rental agreement will be terminated. This is commonly called a “Pay or Quit” notice. Even if you know the tenant is going to stick it out in the unit for their last month without paying rent, it is important to have this document in writing, should the matter go to court.

The deadline for returning a security deposit

  1. Under Hawaii law, a landlord must return the tenant’s security deposit within 14 days after the tenant has surrendered the rental property to the landlord (that is, returned the keys and vacated the property) (See: Haw. Rev. Stat. 521-44(c)).

deposit checkIf a security deposit was applied to unpaid rent, that should be detailed in writing and sent to the tenant within 14 days of vacating the unit.

  1. If the landlord retains any amounts from the security deposits, the landlord must provide a written accounting with copies of invoices or receipts (See: Haw. Rev. Stat. 521-44(c)).
  2. Make sure to promptly return and deposit money and/or provide a written accounting! If the landlord fails to return the security deposit and written notice within 14 days after the termination of the rental agreement, the landlord is not entitled to retain any part of the security deposit(See: Haw. Rev. Stat. 521-44(c)).

When a dwelling is sold

An owner will transfer rental deposits to the new owner at the time of sale. The new owner or landlord must give written notice to the tenant within 20 days of the amount credited for the security deposit. If notice is not given, it will be assumed that the tenant has paid a security deposit equal to no less than one month’s rent at the time the tenant originally rented the unit. (See: Haw. Rev. Stat. 521-44(f)).

Security Deposit Disputes

If a tenant does not pay their last month’s rent and/or has other damages exceeding their security deposit, the only legal remedy is through small claims court. In this type of small claims court action, lawyers are not allowed to represent either party.

Landlord/tenant small claims court generally has three possible outcomes. Where the court determines that the landlord:

  1. Wrongfully and willfully retained all or part of the security deposit, it may award the tenant damages equal to three times the security deposit, or part thereof, plus the cost of the suit.
  2. Wrongfully retained all or part of the security deposit, it shall award the tenant damages equal to the portion of the security deposit, or part thereof, wrongfully retained plus the cost of the suit.
  3. Retained the security deposit lawfully, it shall award the landlord damages equal to the portion of the security deposit, or part thereof, in dispute plus the cost of the suit. (See: Haw. Rev. Stat. 521-44(h)(1)(2)(3) & (4)).

Other damages, such as unpaid rent or costs that exceed the security deposit can also be awarded.

It may be helpful to provide a copy of the small claims court application before it is filed in case the matter may be settled out of court. Stick to the facts and avoid any inflammatory language. Remember, the goal is to cover your costs and move on.

For more information

See Hawaii’s Landlord Tenant Handbook for more information. If you are having issues self-managing your rental, give Destination Maui Realty a call.  We specialize in long-term rentals and are experts in areas like security deposits. We would be happy to discuss solutions with you!