5 Ways a Security Deposit May Cost a Landlord Money

by | Nov 14, 2011 | Rental Property Management Tips

Security deposits may be the most regulated part of the landlord-tenant relationship. There are rules limiting the amount that a landlord can charge, the length of time they can hold a deposit, and what deductions they can take when a tenant damages a property.

Often, these rules include serious penalties for landlords–like double the deduction taken plus payment of the tenant’s attorneys fees.

Violate these rules, and you could end up owing your tenant money:

“I Don’t Do Windows”

Any deductions from a security deposit must be for items that the tenant expected to maintain during the term of the tenancy. If it’s not spelled out in the lease, then it should be in the move in/move out reports. If not there, then it must be intuitive–particularly if there is a legal dispute over deductions.

If the tenant would have to use special tools or equipment, climb a tall ladder or move heavy objects, or if the item is something that has never come up in the course of the tenancy or routine property inspections, then you are probably dealing with an item the landlord has the duty to repair, not something that can be taken as a deduction.

“I Fought the Law…”

The law will always win when it comes to security deposit deductions, regardless of what your lease may say. Even if your tenant openly agreed to forgo their deposit or pay some predetermined lump sum as a penalty–like liquidated damages, the tenant will have the right to challenge that provision later. And chances are, they will win.

You Do the Math

Security deposit accounting is a science, and deductions must be exact. Never ballpark or pad the costs. Standard fees for certain items can be a disaster for a landlord, especially now that social media makes it so easy for former tenants to talk. That $10 extra fee you charged on carpet cleaning over your actual costs doesn’t seem like much — until you add up all the tenants who have paid the extra fee, plus penalties and attorneys fees.

Never deduct the entire cost of replacement of an item unless you are absolutely sure you can attribute the damage to that tenant–and only that tenant. Otherwise, you will have to prorate.

Likewise, don’t deduct for items that you are not going to repair. That will be very awkward to explain if your tenant takes you to court over the deduction.

Take My Word For It

Many landlords complain they were not on equal footing with the tenants when they had to appear in court. The problem is the rules are designed to protect the tenants, so it will seem they are getting preferential treatment. Also, there is the perception that landlords are more sophisticated in the business world and can therefore defend themselves.

Be prepared to have your honesty questioned. Every statement that you make in court must be backed up with documentation.

Before and After

A security deposit dispute rests on the change to the condition of the rental property. The move in/move out statements are central to the security deposit issue. If the tenant hasn’t signed either of these forms, it can be difficult to defend against an allegation from the tenant that you are simply making it up. If you failed to take photos or videos that show the condition of the property before move-in, you will be hard-pressed to show the after effects.

On the other hand, develop the habit of properly documenting each tenancy, and you likely will sail through any disputes that may arise.

This post is provided by Tenant Verification Service, Inc., helping landlords reduce the risks of renting with fraud prevention tools that include Tenant Screening, Tenant Background Checks, (U.S. and Canada), as well as Criminal Background Checks, and Eviction Reports (U.S. only).

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Disclaimer: The information provided in this post in not intended to be construed as legal advice, nor should it be considered a substitute for obtaining individual legal counsel or consulting your local, state, federal or provincial tenancy laws.

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