Are Landlords Losing Money by Collecting Security Deposits?

by Chris on March 11, 2013

A security deposit is supposed to offer landlords a safety net against income loss, but sometimes the strategy backfires.

There  are a number of situations where collecting a security deposit can come back to bite a landlord, leaving him or her to not only absorb the financial losses of unpaid rent or property damage, but in some cases, to pay money out-of-pocket to a deadbeat tenant.

For instance, each month in British Columbia, tenants are awarded money from their landlord for one simple reason: the landlord didn’t follow the rules.

In B.C., before taking deductions from a security deposit, the landlord must request dispute resolution within 15 days after the lease terminates or the tenant provides a forwarding address in writing.  If the landlord fails to take this step, the tenant may be entitled to a penalty of double the security deposit. If the landlord also collected a pet deposit, the penalty can quickly escalate.

In Ontario, tenants may claim injury to their rights if a landlord attempts to collect a security deposit, a practice prohibited there. In Alberta, a landlord cannot automatically take deductions from a security deposit unless he or she has also completed a move-out inspection report.

These are but a few examples of the regulations that landlords face when collecting and applying funds from a security deposit to any resulting damage to a rental property.  Landlords can’t afford to make assumptions concerning the handling of security deposits.

Before collecting a security deposit, first do some research. Make sure you know the answer to each of these questions:

Am I allowed to collect a deposit?

If so, is there a cap on how much I may collect?

May I collect a separate pet deposit in addition to the security deposit?

Must the funds be kept in an interest-bearing or other special account?

How often must I account for interest? At what rate?

What conditions are placed on security deposit deductions?

What is my time frame for returning any undisputed portion?

Some security deposit rules appear to apply universally. For example, deductions can only be made for damages caused by the tenant, and not for normal wear and tear. It is important that landlords and tenants alike learn to recognize the difference.

If a tenant disputes a deduction for damage, the burden is on the landlord to prove the loss occurred as well as the specific amount. One of the easiest ways to accomplish this is to perform move-in and move-out inspections. Record the condition of the property in writing in an inspection report, and take photos or shoot video to use as evidence if needed.

Collecting a security deposit is generally a good strategy for landlords — but  it comes with a price. Following the law and keeping proper documentation will go a long way towards minimizing tenant disputes, and the resulting income loss for landlords.

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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