Security deposits: Landlord’s responsibilities and rights

There is always so many questions surrounding how to handle security deposits. Each state has its own laws regarding how long a landlord has to return a due security deposit, if any interest should be accrued, and more. Sometimes, these laws may even vary county to county. Many questions that landlords have are a matter of judgement in a somewhat gray area or because of a former tenant who is unhappy about their lack of deposit return. These disputes can be prevented from the very day your tenant moves in by completing a move-in checklist together that you both sign. Any existing damage should be noted. Any brand new items such as appliance, flooring, etc should also be noted as new. Consider taking pictures or a video tour of each room as well.

Examples of when to withhold a security deposit either partially or in full

• Your tenant wants to move out before their lease is up. There should be a clause in your lease that states some sort of financial penalty if the tenant breaks the lease. My lease states that there is a fee equal to 2 month’s rent due and that they will forfeit their security deposit. It continues to say that if the unit is rented out in less than 2 months, that the tenant may be entitled to a partial refund of the fee. I recently had a good tenant who needed to move out a few months early. I drew up a short document just stating that I was releasing her from the lease and that she was returning the unit to me in clean condition along with keys on X date. We both signed and got our own copies. She provided me her forwarding address, and her rent was current. I decided not to charge her the fee equal to 2 month’s rent, but I did withhold her security deposit. This was my choice and I was happy with it.

• While a security deposit is never meant for a tenant to use as paying their last month’s rent, it can indeed be withheld to recoup any missing rent. The distinction is that you don’t give your tenants permission to use their deposit as the last month’s rent. If you allow this, you set yourself up to pay for any damage they caused out of your own pocket. It could be small damage such as a broken towel rack that you didn’t notice until they left. While not expensive, if you keep finding little things, it does add up.

• Replacing carpet is always a judgement call. It helps if you know when the carpet was installed and how many years the manufacture says it should last. This is also a great time to refer back to that move-in checklist. Was there any notations on the checklist about its condition or age? If the carpet should last 10 years, but 5 years in it’s torn or stained beyond repair, there should at least be a partial deduction from the deposit. This would be 50% (because 5 years is half the life of a 10-year carpet) of the cost of a similar product. If you decide to upgrade the flooring, you can not deduct from the security deposit the difference in cost due to upgrade. You’d have to calculate the cost of a similar product. So if replacing the carpet with a similar carpet would cost $500, 50% of that is $250. If you upgrade the damaged carpet with hardwood and the hardwood cost $1000, you still could only deduct $250. Clear as mud? Feel free to ask in the comments! By the way, if you need a move-in checklist, try this one: MoveInChecklist.pdf
  

  

  Credit: www.legalcrunch.com

• Sometimes damages could exceed the security deposit! This could be for a number of reasons such as extensive damage to the unit or lost rent. In this case, you have to make a choice. You obviously would keep the entire deposit. But what do you do for the remaining amount out of pocket? You could take this to court and sue them, but you need to know if you’d have any chance of receiving not only a judgement, but also their ability to pay. If they live off of social security, for example, you can have those types of wages garnished. This person would need a normal W-2 job for your best chances. However, you may be happy with simply getting that judgement on their credit score. Again, depends on the type/class of tenant and if they would even care about such a thing. Otherwise, just take what you can get out of that deposit and move on!

Examples of when NOT to withhold a security deposit either partially or in full

• The carpet was 8 years old when your tenant moved in and after they move out, you can no longer squeeze another year out of it with a steam cleaning. This would be normal wear and tear and the cost of business to replace.

• Some sticklers may disagree with me, but if this argument was to go to court, try to imagine what the judge would think. Your tenant moves out with proper notice at the end of their lease and you find several small holes to patch and touch up paint. The holes are from previous hung pictures, decorations, ect. I think this is the cost of business. Your tenant should be able to make their rental feel like a home by putting things on the walls. This is life. Perhaps if you’re extra lucky, your tenant patches the holes for you (and does a good job so you don’t have to re-do it anyway).

• You wait longer than your state’s/county’s given period to return the deposit (or send an itemized list of deductions). Now you could be responsible for not only their deposit, but extra costs. So even if there are legitimate charges that leave your former tenants with no return, you must send them the proper notification within the proper timeframe! You need to know your area’s laws which are generally easy to find with an internet search.

Without being too long of an entry, this is a start to help you determine when to keep partial or all of a deposit and when to return it. As always, it is imperative that you know your area’s rental laws!