Most landlords would agree security deposits are a valuable tool when it comes to minimizing income loss. Just ask landlords in Ontario who are fighting for the right to collect deposits.
While a security deposit can serve as an incentive for a tenant to return a unit in good condition and a quick source of funds for needed repairs, British Columbia’s rental regulations can place landlords at risk for income loss.
A landlord in British Columbia can take deductions from the deposit only if the tenant agrees or if the landlord files for dispute resolution in as few as 15 days after move-out.
The landlord then will need to present a condition report and receipts to justify the deductions. If the landlord violates these rules, then the landlord owes the tenant double the deposit. So, the higher the deposit, the more the landlord stands to lose.
In one example from February of this year, the landlord collected a $2,850 general deposit and a $2,850 pet deposit. She returned $3,616 to the tenant, but the tenant denied reaching an agreement for that amount and filed for dispute resolution to claim the remainder.
The adjudicator in that case determined that both deposits were past due, and calculated the penalty against the landlord based on the full deposit amounts, like this:
($2,850 + $2,850 x 2) – $3,616 (the amount returned) + $100 (filing fee) for a total monetary award owed to the tenant of $7,884.
A review of published decisions from the B.C. Residential Tenancy Branch proves that many landlords are making costly mistakes when it comes to security deposit deductions. Some have no condition report or inadequate receipts, others charged more for deposits than allowed by law.
On average, landlords who collect a general and pet deposit and don’t follow the rules stand to lose an amount equal to one month’s rent, plus any damages they are not allowed to deduct from the deposit. That’s a significant bite out of profits.
The B.C. Rental Task Force recommendations that were released last fall include administrative changes to expedite security deposit claims. While the intent is to aid tenants, to the extent the landlord’s deductions are legitimate, that rule change could benefit landlords as well.
To avoid this potential income loss:
Review the rental regulations or ask for legal advice before collecting a deposit;
Understand the limits of how much can be charged for deposits;
Segregate the funds so the money is easily identified;
Pay interest on deposits as required (currently set at 0%);
Take deductions only if the tenant agrees or file for dispute resolution within the allotted time;
Prepare a condition report (before and after) and save receipts; and,
Don’t claim deductions for ordinary wear and tear.
Because the amount that can be collected for a deposit is relatively small, it may not cover the actual damage a tenant causes. For that reason, it is prudent to manage the property as though there is no deposit:
Be careful when screening tenants to choose a qualified applicant who is credit-worthy and has a good rental history;
Make the tenant’s job easier by equipping units with durable finishes;
Provide a tenant orientation to highlight proper use of appliances and other features of the unit and to review the tenant repair request policy; and,
Conduct routine property inspections to catch damage early.
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Disclaimer: The information provided in this post is 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.