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If rent was due 9/1 and he did not pay the rent prior to move in and by 9/2 he was delinquent, then legally he is in breach of the contract and you are entitled to keep the deposit. So you need to send him written notice that he has breached the lease by not paying rent when due on 9/1 and that as of 9/2 he refused to make payment and as such he breached the contract and you are retaining his security deposit based on his breach of the lease. Tell him if he continues to insist on pursuing the matter, you will sue him for the rent you lost during the time when he was supposed to agree to rent the property from losing other tenants and seek further damages from him.