Tenant Is Short On Deposit Money, Wants To Do Work For The Landlord?
Question
I am considering the only application I have received for my vacant rental home. The person is fairly well qualified under all my screening procedures, but is short regarding the total amount of cash he will need including rent, security deposit, utilities services, and his moving expenses. The applicant is a carpenter employed on some construction in the area. He has asked to be allowed to cover the amount of the security deposit by doing some work that I need done on the property. Are there any problems with doing this?
Answer
First, any such agreement should be in writing. If it’s not in writing, the terms of the agreement will depend on who the judge believes and that may be the party who is the best liar. The terms of the deal must be covered in detail. The contract should include the exact tasks to be performed and the scheduling of the work, particularly the completion date of all work.
Second, allowing a tenant to do work for money (including credit against deposits or rent) can subject the landlord to employment issues such as workers’ compensation insurance, FICA tax, FUTA, and income tax withholding. It can also expose the landlord to liabilities resulting from injury to the tenant or to others by the tenant while working on your property. Landlords must be sure of their insurance coverages regarding such issues. While one may assume that tax and workers’ compensation issues can be ignored by considering the worker to be an independent contractor, such is often not so. There are IRS and other federal and state laws/regulations that determine whether a worker is an employee or and independent contractor. The details of these rules are beyond the scope of my answer, but info is easily found on the Web sites of the IRS and other relevant agencies. I will mention that you will have significantly less risk if the worker is a licensed contractor who meets the appropriate criteria, the most important perhaps being that you specify the results and he controls the process for producing the results.
Third, the fact that a tenant works to pay the security deposit does not change the fact that the deposit (money earned) belongs to the tenant unless and until converted to landlord’s funds because of unpaid rent, damages, etc. You will have the same requirement of returning and/or accounting for amounts not returned on the same schedule as required by law if the tenant had paid cash in the beginning. Failure to do so can subject the landlord to any penalties provided for in the state’s landlord-tenant law.
Finally, if you decide to go ahead with this tenant, I would advise that he be required to pay the security deposit up front and work off the first month’s rent. The reason for this is that it is usually easier to evict a tenant for non-payment of rent than for most other reasons. It also changes the risks related to security deposit laws.
While I have discussed important issues related to your question, I would strongly advise against having tenants do work on your property, as there are other potential problems. For example, would his failure to provide completed results up to your standards allow you to obtain an eviction?