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Pennsylvania Tenant Left 2 Months Before Lease Ended

Tenant left 2 months before the Lease expired.  On the day he left, he asked for his security deposit back since he had notified us that he was leaving.  He gave us written notification that he was leaving on 4/5/11, stating he would be out by 5/3/11.  He didn't actually leave until 5/4/11.  The Lease doesn't expire until 7/4/11 and clearly states that he agrees to pay rent for the entire period of the lease.  I'm fairly certain we can apply his security deposit to the unpaid rent, but am unclear as to whether we have to notify him of that in writing.  There was little damage and little required repairs - too minimal to worry about, really.  We had to patch a few nail holes and paint the walls.  He was a good tenant, but is facing some legal action from an accident which forced him to leave since they attached his wages and were coming after him for other sums due from the accident.  The apartment is not yet rented, so we are applying the security deposit to one month of unpaid rent and do not intend to pursue collection of the remaining rent due.  Just trying to be fair and meet him halfway, but we don't want to waive our rights in the event he sues for return of the deposit.  What should I say and/or not say in the letter about the security deposit?
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That is a great question that lots of people tend to have. First of all, include the months rent in the letter showing how you used up the security deposit. A lot of states require that you forward on the money or an explanation of how you used the security deposit money within 30 days of vacation of the apartment. You may want to write to the prior tenant that the lease was until July 4th and that a months worth of rent has been deducted from security deposit since he moved out early and you could not get a replacement tenant (it is your duty to try to minimize your damages on that front, so do advertise). You don't have to write up that there were any damages (especially since there weren't anything you're worried about). Purposefully leaving the other month of rent unasked for, but explaining the lease was until July 4th, gives the tenant the understanding (usually) that you are trying to be nice and not make them pay both months, but also helps if they do come after you - as you can add the extra month at that time.

Make sure you mail out that letter ASAP - most states allow you 30 days... after which, they usually automatically award the prior tenant with the security deposit *and* additional punitive damages.
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