What Is Rent Escrow?

Definition and Examples of Rent Escrow

Rent escrow allows a tenant to legally withhold rent payments from the landlord if the landlord has failed to make appropriate repairs to the rental property. A lessor can do this by paying rent directly into an escrow account, established by the local district court, until the landlord resolves the issue at hand. By placing funds into a court-mandated account, your rent will be kept safe and held until a judge hears your case and makes a decision.

There are many cases where a lessor may consider pursuing rent escrow. Some examples include a lack of heat in the winter, a rodent infestation, or structural defects.

Rules for rent escrow tend to vary by state. In most cases, though, you may consider pursuing rent escrow if your landlord fails to maintain a “dwelling in habitable condition,” and one of the following conditions are met:

• You have appealed to your landlord in writing to make the repairs to the unit at hand.
• The apartment or home has failed to meet the local Board of Health requirements, your landlord was notified, and they did not subsequently make changes.
• You have paid rent in full until your landlord learns of the issue, you (and all other tenants) are not the cause of the problem, and the unsanitary conditions do not require the apartment to be vacated to solve the problem. 

Alternate name: rent withholding

How Does Rent Escrow Work?

In many cities, renters have the right to a property that meets basic structural, health, and safety standards. In other words, the property needs to be considered livable. If rain continually enters the property through a damaged roof, for example, that would be a violation of basic safety standards. If you've properly notified your landlord of necessary repairs and the landlord has failed to fix the problem, you may be able to legally withhold rent payments. To be protected by the court, you are required to follow the rent escrow process outlined by the state or city laws for which the building is located.

Generally, the tenant has to notify the landlord, in writing, that the property needs serious repairs. The landlord then has between 14 and 30 days, depending on local law, to make the repairs. If the landlord fails to make repairs in that time frame, the tenant can file for rent escrow with their local court. Once approved, the tenant makes their regular rent payments to the escrow account.

Placing the rent payments in escrow shows you are willing and able to make your rent payments. Once the court has reviewed the evidence from both you and the landlord (if applicable), the court will determine what to do with the rent escrow. This may include:

• Terminating the lease
• Ordering the rent escrow be paid out to the landlord or the tenant
• Ordering the tenant to continue paying rent to the escrow account until the repairs are made
• Order a lower rent amount be paid into the escrow account or to the landlord
• Order the rent escrow be paid to a contractor to make the repairs
• Refer the account to state or local agency for further investigation
• Order the rent escrow be paid to a mortgage company to prevent foreclosure
• Order the rent escrow be paid to another creditor

Alternatives to Rent Escrow

Not all states allow rent escrow or rent withholding. If your state doesn't allow rent escrow, such as is the case in Texas, you may be able to repair the problem yourself and deduct the amount of the repair from your rent. Alternatively, in some states you can make the repairs, pay the rent, and sue the landlord for the cost of repairs made to the home.

Requirements for Rent Escrow

To take advantage of rent escrow, your state or local law must allow rent withholding, your landlord must be aware of the issue, and you must give your landlord reasonable time to make the necessary repairs. As mentioned, the problem must be serious, making your home unlivable or causing a health problem. If the problem was caused by you or a guest, you are not eligible for rent escrow.

To pursue rent escrow, you must also:

• Be current on rent payments, both before being approved and after, while paying in an escrow account. In some cases, late payments can be grounds for eviction.
• If approved, you must notify the landlord of rent withholding, in writing, noting why the rent is being withheld and the name of the party who holds the escrow account.
• File the appropriate documents with your court. For example, you may need to complete an application and provide a copy of your lease, utility bills, and identification, depending on the state.

Is Rent Escrow Worth It?

If you're having trouble getting your landlord to make necessary repairs to the rental property, rent escrow can be a way to force them to make changes. The court may order the landlord to make repairs, or allow you to break your lease with no penalty if the landlord fails to make the property livable.

The court will hear your case and decide whether using rent escrow was justifiable. In the event that rent escrow was not warranted, the landlord may be able to evict you immediately. This eviction record could go on your credit report, impacting your ability to rent or borrow money in the future. Because of the possible repercussions of a failed rent escrow, you may want to get legal advice prior to pursuing it.