While there is a measure of protection in security deposits, handling them improperly can lead to big trouble for landlords. In every state there are rules governing the amount and disposition of security deposits. Specifics do vary on a state-by-state basis, but some rules are hard and fast. We’ll take a look at those here, as we list security deposit mistakes landlords should avoid.
1) Over Charging
Most states tie the amount of the security deposit to the rent and cannot exceed two months rent for unfurnished places and three months for furnished dwellings. Charging more could lead complaints and a lawsuit from your tenants.
2) Treating Security Deposits Like a Liquid Asset
As long as your tenant has a valid lease or rental agreement in effect, the security deposit remains their money. You’re just holding it in case something goes wrong. Treating it like free money could set you up for legal action.
3) Imposing “Standard Deductions”
Some landlords routinely deduct a percentage of every deposit when they return it, claiming standard wear costs. It’s important to note normal wear and tear are not grounds for withholding any part of a security deposit. Any withholdings must be documented and verified with repair receipts.
4) Overlooking Walk-throughs at Move-in
Every state requires an itemized list of items to be checked off and their condition noted at move-in. Similarly, a comparative walk-through must be conducted at move-out, using the same checklist as a baseline. It’s the only acceptable method of documenting and quantifying repairs.
5) Conducting Move-out Inspections Without a Witness
Ideally, you’ll have the tenant with you during both the move-in and move-out inspection. That way, you both see the condition of the unit and sign a document stating you agree on it. Conducting a move-out inspection alone leaves you open to allegations of creating damage so you can hold on to the deposit.
6) Failing to Provide a Written Security Deposit Policy
Tenants are entitled to a written document outlining your security deposit policy. If none is provided and you wind up in litigation, you’ll have no way to prove your tenant was aware of any issues you may have. If this happens, expect the judgment to go against you.
7) Neglecting to Provide Evidence of Damage
This is where those move-in/move-out walk-throughs become an issue. You have to provide written proof of damage. You can’t just say something is wrong and hold on to their money. If the tenant is with you during the move-out inspection and you’re both noting the condition of items on your checklist you’re covered.
8) Failure to Provide a Written Repair Estimate
You have to tell tenants how much it will cost to repair the damage you’re citing as justification for withholding all or part of their deposit. You also have to afford them the opportunity to conduct the repair themselves — to your satisfaction of course.
9) Failure to Provide an Itemized Repair Invoice
All repairs must be documented and the tenant has the right to see an itemized invoice covering the costs of all repairs. They also have the right to hire their own repair people. You can’t force them to use someone you choose. You do get final approval over the work, but you can’t make them use anyone in particular.
10) Exceeding the Time Limit for Refunds
Most states require deposits to be refunded within 14 to 21 days of move-out when the unit is left in good condition. If it is not, repairs must be conducted in a timely manner and any balance remaining after the repair must be refunded within 14 to 21 days. Take a look at our guide to California State Rental Laws and Washington State Rental Laws.
10) Expecting a Security Deposit to Cover all Damages
A tenant can easily cause more damage than their deposit will cover. After all, in most cases you’re only talking two month’s rent. It’s important to maintain as cordial a relationship as possible with your tenant and make sure you do everything possible to keep them happy in your place.
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