No matter how well you screen your tenants, chances are that every now and then you will rent to one that won’t treat your property with the proper respect. That’s why security deposits were developed; to give some measure of protection to landlords from the expense of repairing and cleaning a unit after one of those types of tenants has vacated.
“The security deposit ensures that when the tenant leaves, he leaves the premises in a clean, rentable condition just as he received it,” says Priscilla Nieto McDonald, Associate Broker with RE/MAX Action Realty. Priscilla went on to add that any expenses incurred to bring the property back to a rentable condition can be deducted from a security deposit as long as those repairs are more than what is necessary because of normal wear and tear.
The phrase “normal wear and tear” can itself be subject to a certain amount of subjectivity. However, Priscilla explained that there are instances that are clearly indicative of tenant abuse: “If a ten-year-old door is falling off the hinges, that’s normal wear and tear. But, if the door has a great big hole in it because a tenant put their foot through it, that’s not. If the wall has children’s finger prints on it where the kids held on as they climbed the stairs, that’s wear and tear. But, if the wall has a big hole in it because the tenant brought the sofa down the stairs and it didn’t fit, that isn’t.”
The other important thing to remember about security deposits is that they may be regulated in your state. Many states limit the amount of security deposit landlords can charge. Some states, however, have no statutory limit, meaning that landlords can use their own discretion when setting the amount.
Residential security deposits may also have a state-imposed limit on the amount of time a landlord has after the tenant leaves to return the security deposit. In most states, this time frame is between one to three months.
Because as Priscilla noted, “One person’s idea of damage is different from another person’s,” she recommends that landlords take pictures of the apartment after the tenant leaves. The landlord has to make a claim for the security deposit, so it‘s a good idea to have documentation to back up that claim. She added that it is the tenant’s responsibility to mitigate damages by calling the landlord as soon as a repair becomes necessary.
The biggest mistake many landlords make is thinking that the security deposit belongs to them. The security deposit is the tenant’s money, which means it cannot be comingled with the landlord’s money. Priscilla creates a special bank account with the tenant as the owner of the account, and with herself as the escrow agent. By establishing the account in this manner, she not only maintains separation, but the interest on any monies in it are mailed directly to the tenant, freeing her from the legal obligation to do so.
She also recommends that if it is permitted, a landlord should charge a month’s security deposit and the last month’s rent. The last month’s rent can immediately be put into the landlord’s checking account to help pay expenses. Of course, when the tenant gives notice, you have to remember that they already paid in full.
And speaking of that last month’s rent, Priscilla said that if the tenant leaves without paying it, you can subtract it from the security deposit. The same goes for any late fees and any interest on the unpaid amount.
Although the security deposit is there to protect you from tenant abuse, if you abuse it by not returning it, or by not returning it on time, there are consequences. The tenant can sue you for the money, and as Pricilla explained, “The law would be on the tenant’s side.” That’s why it is imperative that you maintain the separation between your money and the security deposit, and that you have documentation in the form of receipts, pictures, etc. to prove that any money subtracted from the security depost was legitimately done so.