Avoiding and Handling Security Deposit Disputes
Security deposits can be one of the most contentious areas of a landlord and tenant relationship. Usually, disputes come down to misunderstandings and poorly communicated expectations. There are also different sets of laws and regulations from state to state and city to city.
Wherever you happen to be renting out property – avoiding security deposit disputes should be a priority. Mistakes can be expensive when it comes to security deposits, and you want to know how to handle tenants who are pushing back against charges you might have made.
Best Practices for Avoiding Security Deposit Disputes
The first thing you can do to avoid security deposit disputes is to set clear and consistent expectations. This begins when your tenant moves into the property. It continues through the lease period and then it’s reinforced when the tenant decides to move out or you decide not to renew the lease.
Talk to your tenant about what you’ll expect the property to look like when they move out. Include this information in your lease agreement, and when notice is given from either party that the tenancy will end, be sure to reiterate those expectations. Provide a list of things that the tenant needs to do to get the full security deposit back. This will give them plenty of time to return the property to the same condition it was in when they took possession.
Document Condition with Inspection Reports
Documentation is pretty important when you’re moving a tenant in and moving a tenant out. Before a tenant moves into the property, do a thorough walk-through and a move-in inspection report. You and the tenant need to walk through the property and document the condition of the unit. When both of you sign off on that inspection report, you’re agreeing to how the property looks. You can use that same inspection form during the move-out, and then compare the condition at each time.
You want the property returned in the same condition it was in when your tenants moved in, except for the normal and expected wear and tear. Your residents should understand this.Pictures can supplement the inspection report and are excellent to include. When you can document the condition of your property with pictures, you’ll be able to prove that there was damage or changes to the property during the lease period.
Provide an Opportunity to Remediate
Along with setting clear expectations at the start and end of the tenancy, you also want to give tenants an opportunity to remediate and address any conditions before they move out. Give them notice so they know what types of things you will deduct for when you’re reviewing the security deposit return.
In some states, like California, you’re required to do a pre move-out walk-through with your tenants so you can point out any deductions that they may be subjected to. In California, landlords are required to do this, but we think it’s a good idea for all landlords to do it, even if your state doesn’t require it.
When you offer this to residents, there can be no surprises from the tenant when part or all of their security deposit is withheld. Mutually coordinate a time to walk through the property together, and then itemize any issues you see so the tenants have the information they need.
They have an opportunity to cure the problem before leaving. It’s a great practice to adopt, whether it’s required in your state or not. This helps you to avoid disputes and it adds transparency. Your resident can decide if they want to do any additional cleaning or address the problems you’ve pointed out, or if they’ll move out knowing they’ll have some of their deposit withheld.
Document the Money You Spend
Another thing that’s critical to avoiding disputes is the documentation of any money you spend on the cleaning or repair of your property after a tenant moves out. If you do have to do some work after a resident leaves and you’re going to charge the security deposit, make sure you have invoices and appropriate bills and receipts to back up those charges. This will go along with the security deposit accounting statement to the resident who has moved out. Be clear about the deductions you’ve made and the balance that the resident is getting back, and have supporting documents to match.
It’s important to remember that these best practices must layer in with knowing the statutory requirements in your jurisdiction. Each state will have a requisite timeframe for landlords to return the security deposit and the accounting to the resident. You need to know what your timeline is so you don’t make the mistake of missing it.
Usually, you’ll need to return the money and/or the itemized deduction list to your residents within 15 to 30 days of their move-out date. It depends on where your rental property happens to be. In California, for example, landlords have 21 days to either return the deposit or provide an accounting of where the deposit was spent.
While you’re researching your state’s requirements, remember that you also need to know if there are any requirements or limitations on the amount of money you can charge in a security deposit. Some states have a multiple of monthly rent that’s followed when deposits are collected. In California, you cannot collect more than two times the monthly rent for a security deposit. Some states also have limits on the amount you can collect in pet deposits and cumulative deposits. Usually, they are aggregated with a total deposit amount.
Why You Might Charge the Deposit
You need to understand what’s appropriate for reductions, and these things are pretty similar everywhere. Landlords can withhold security deposit for unpaid rent, any repairs to the property for damages caused by abuse, misuse, or neglect, and any cleaning that’s required to bring the property back to the level of cleanliness it was in when the home was rented out.
All of this is subject to wear and tear. Landlords cannot charge the security deposit for general wear and tear that happens to every property, regardless of who is living in it. The courts also expect you to amortize big ticket items like paint and flooring over the lifespan of that thing. If a floor has to be repaired after five years and your resident only lived there for two and a half years, you’ll have to amortize the amount of what they owe. They shouldn’t have to pay the full flooring replacement cost.
You have to understand the penalties involved in security deposit disputes. Be aware of them because a lot of times, there’s a multiplier that’s implemented by the courts.
These statutory penalties can be steep. If you don’t comply with the law and you don’t have the required documentation, or you miss the deadline to return a security deposit, you can find yourself paying the resident one, two, or even three times the amount of the security deposit as a penalty.
These are the things to be aware of if you want to avoid disputes.
Managing Security Deposit Disputes
If you are in a security deposit dispute, there are a few things you can do to resolve it. Do your best to talk to your former tenants and reach an informal settlement. If you can’t resolve things, your case may end up in a small claims lawsuit or a hearing; local rules decide how the dispute or the claim is handled.
The first thing you should do is double-check the charges you made. Determine whether you made appropriate deductions or if they were over-reaching in terms of property condition when you initially leased it. Review whether you complied with all statutory regulations. If you didn’t, it will be very hard to defend yourself in court.
For example, if you didn’t provide an itemization within the requisite time period, you’ll probably have a losing case even if you were justified in what you deducted.
Here are a few of the main takeaways of what we’ve discussed:
- Be organized.
- Be diligent.
- Document everything from the condition of the property to the amount you spent to repair it after a resident moved out.
- Set clear expectations when your tenant moves in, and then reiterate those expectations when your tenant is preparing to move out.
- Offer to walk through the property with your tenants so they have the opportunity to resolve any issues for which they might be charged.
- Try to avoid going to court, especially if you have a losing case. Try to settle or negotiate with the tenant to save yourself time, money, and legal fees.
We work with security deposit issues in multiple states, and we have a lot of experience collecting, holding, and returning them. If you have any questions about what you should do when it’s time to return a resident’s security deposit please contact us at Mynd Property Management. We’d be happy to go over the requirements in your state and help you make smart decisions.
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