Property Management Blog

What If the Deposit Doesn't Cover Unpaid Rent

System - Thursday, September 28, 2023
Property Management Blog

Owning rental property is a profitable investment, but it has its fair share of challenges, one of which is dealing with unpaid rent. Landlords often rely on security deposits to cover unpaid rent or damages caused by tenants. However, what happens when the security deposit falls short of covering the outstanding rent? 

In such situations, property owners may find themselves in a difficult position that could cost them. This article explores the steps property owners can take when the security deposit doesn't cover unpaid rent. 

Communicate with Your Tenant

When you discover that the security deposit won't cover the unpaid rent, the first step is to open lines of communication with your tenant. While it may seem obvious, some landlords jump straight into legal actions without attempting to resolve the issue through dialogue.

Initiating a conversation with your tenant can help you understand their circumstances better. Sometimes, tenants may have valid reasons for falling behind on rent, such as unexpected financial hardships or personal emergencies. By engaging in a productive conversation, you may be able to work out a payment plan or agree on a solution that benefits both parties.

Send Them a Demand Letter

If discussing the matter with your tenant does not yield satisfactory results, the next step is to send them a demand letter. It is a formal written notice requesting payment of the outstanding rent. It should state the amount owed, the due date, and any additional fees or penalties as per the lease agreement.

letter sitting on desk

Sending a demand letter serves several purposes:

  • It documents your attempt to resolve the issue amicably.

  • It informs the tenant of your intention to pursue legal action if the rent remains unpaid.

  • It provides a paper trail that may be useful if you decide to take the matter to court.

Conduct a Move-Out Walk-Through Property Inspection

If it becomes evident that the tenant will not be able to pay the unpaid rent and you wish to terminate the lease, it's essential to conduct a move-out walk-through property inspection. This inspection will help assess the property's condition and identify damages beyond normal wear and tear.

Documenting the property's condition allows you to make deductions from the security deposit and cover for damages and unpaid rent. Ensure you adhere to local laws and regulations regarding security deposit deductions, and provide the tenant with an itemized list of deductions along with any remaining balance from the deposit.

Consider Taking up the Matter with the Small Claims Court

If all attempts to resolve the matter amicably have failed, and the unpaid rent remains unresolved, you may consider taking legal action by filing a case in small claims court. It is designed to handle disputes involving relatively small amounts of money, making it an accessible option for many landlords.


Here are some steps to consider when taking the case to small claims court:

  • Gather Evidence: Collect all relevant documents, including the lease agreement, rent payment records, communication with the tenant, and any photographs or videos of the property's condition.

  • File the Complaint: Complete the necessary paperwork and file a complaint in the appropriate small claims court. 

  • Serve the Tenant: Ensure the tenant is served with the summons and a copy of the complaint. This may involve hiring a process server or following the legal process in Texas.

  • Attend the Hearing: Prepare your case thoroughly and attend the court hearing. Present your evidence and arguments to the judge, and be prepared to answer any questions.

  • Collect Your Judgment: If you win the case and are awarded a judgment for the unpaid rent, you will need to collect the money from the tenant. This can sometimes be challenging, as the court may not assist with collection efforts.

However, it's important to understand the risks and disadvantages of this course of action:

  • It is time-consuming: Small claims court cases can take several months to resolve, during which you may not receive any rental income.

  • You may not be able to collect the money owed to you. Even if you win the case, collecting the judgment can be challenging if the tenant lacks the financial means to pay.

  • You may not have sufficient evidence: Winning a small claims case requires strong evidence, including lease agreements, communication records, and documentation of damages. These are necessary to avoid losing the case.

  • Your tenant may file a countersuit on you: Be prepared for the possibility of your tenant counter-suing you, which can further complicate the legal proceedings.

drafting documents

Conduct Regular Inspections

Preventing unpaid rent issues starts with proper tenant management. Regular property inspections help to identify any early signs of trouble. 

By conducting routine inspections, landlords can detect lease violations, property damage, or any unauthorized occupants before they escalate into bigger problems. 

SGI Property Management offers professional property management, ensuring that your property is well-maintained and tenants adhere to the lease terms.

The Importance of Properly Screening Tenants

Choosing your tenants carefully is one of the most effective ways to avoid unpaid rent issues. Proper tenant screening is crucial to ensure you rent to reliable individuals who meet their financial obligations. 

SGI Property Management offers comprehensive tenant screening services, including background checks, credit reports, and reference checks, to help you make informed decisions when selecting tenants.

Bottom Line

Dealing with unpaid rent can be a challenging and frustrating experience for landlords. The steps outlined in this guide help landlords take proactive measures to address the issue effectively. Remember, open communication, formal demand letters, and property inspections are essential tools for you as a property owner.

If the situation escalates to legal action, SGI Property Management is here to support property owners every step of the way. From drafting demand letters to navigating the complexities of small claims court, our services are designed to ease the burden on landlords and protect their investments. 

Additionally, our proactive tenant screening services help prevent such issues from arising in the first place. By partnering with SGI Property Management, property owners can safeguard their rental income and enjoy peace of mind in their real estate investments.