Renting a new apartment can be a major financial commitment for your tenants. After all, between paying the first month’s rent, arranging movers, and setting up new utilities, it’s normal for anyone to feel like they’re under a lot of financial pressure. As a result, to make housing more accessible and cut down on the burden of up-front moving costs, it’s no surprise that a high-demand city such as Philadelphia allows tenants to pay security deposits in installments.

That’s why Bay Property Management Group Philadelphia reminds investors to plan their finances properly to accommodate installment schedules. Beyond that, it’s also important to understand how installment rules work to avoid payment disputes in the future.

Security Deposit Installments are smaller, scheduled payments a tenant makes over time to spread out the high security deposit over several months. This recent provision means that rather than paying the entire amount upfront, tenants can now space it out, especially if the fee is greater than one month’s rent.

Right to Pay in Installments

If you require your tenants to pay more than one month’s rent, then you’re legally compelled to offer them the option of paying in installments. You’re not expected to spread out these payments indefinitely, as the law requires you to pay one month’s equivalent upfront and spread the remaining over the next three months. 

For example, if your monthly rent is $2000 and your security deposit is $3500, and you have a new tenant coming in January that wants to utilize their option of installment payments, how do you do it? At the beginning of the lease, they’re expected to pay their first month’s rent, $2000, and a portion of the security deposit equal to the rent. That’s another $2000. Then the remaining balance of $1500 gets split into three equal monthly installments, that’s $500 each, which they’ll pay between February and April.

Small Landlord Exemption

However, it’s essential to note that this law does not apply to every landlord in the city, as there is a “Small Landlord Exemption.” As a result, landlords who own and control two or fewer units may still mandate their tenants to pay their security deposit in full. If you’re simply leasing out your second house for extra income or building your portfolio, you don’t have to offer tenants the option of installment security deposit payment.

Protection and Penalties

On the other side, if you violate this new provision and your tenant decides to take it up in court, you could be facing major legal and financial repercussions. For instance, if you own three properties or more, not offering tenants the option of installments would be violating the rules. Another way you can also get in trouble is by charging interest or fees because a tenant chooses installments. You could be liable for statutory damages plus the tenant’s attorney fees if they file a civil suit. That’s why investors should review security deposit installment laws in Philadelphia to know their rights and responsibilities.

Acts as Proof of Compliance

Create a paper trail that proves you are compliant with the law by having your tenant sign a written agreement. Rather than settling for a verbal contract, it would be best to put your agreement in writing to prevent arguments in the future. Without a clear document, a tenant can claim they still have more time to pay despite violating your agreed-upon schedule. It also gives you solid evidence if you decide to file an “at-fault” eviction for non-payment of the deposit.

Encourages Financial Planning

Reduce the risk of non-payment or confusion about the deposit balance with a written agreement. Beyond spelling out the contract in writing, it also acts as a financial plan for both you and your tenants. It helps renters to budget effectively, knowing how exactly they’re meant to spread out their security deposit. It also helps to have a clear record of expected payments, which can improve your financial planning.

Security deposit installments in Philadelphia offer a practical solution for renters to meet their financial obligations without undue strain. It also creates a realistic payment plan for landlords to receive their due in a timely manner by spreading it across three months. Unless you manage two or fewer properties, in which case you can still request a lump sum.

Otherwise, if you’re not exempt from this law, it would be best to have your agreement in writing. This approach acts as proof that you’re compliant with local laws and provides clarity on payment terms. It also offers you legal evidence for future suits and can be a useful framework for budgeting.