How to Take the Bite Out of Security Deposit Disputes

by Chris on February 21, 2011

Security deposit disputes are a sure way for a landlord to lose any profit they may have negotiated in a lease agreement.

Yet, there are some issues that commonly give rise to these disputes. Avoiding those issues can help a landlord dodge the income loss that comes with a security deposit dispute.

The Letter of the Law

While security deposits are governed by specific state laws, some of which are quite persnickety, judges expect landlords to know these rules and follow them to the letter. Chances are, the lease agreement must refer to these security deposit rules, identifying the amount of the deposit to be retained, stating whether or not the deposit will be held in an interest bearing account, and informing the tenant when the deposit will be returned.

These same state rules, however, are often vague when it comes to describing under what circumstances the landlord can take deductions from the deposit. But other cases that have gone before a judge shed a little light on what not to do.

First and foremost, landlords can only charge for damages specific to that tenant, and cannot charge for ordinary wear, like fading carpet.

Landlords who estimate damages often run into trouble justifying the deduction if there is a dispute. A judge may question whether the repair could have been done for less or whether the repair was actually made after charging the tenant.

Charging every tenant for the same repairs — for instance, charging to repaint the apartment every time a tenant leaves regardless of the condition of the property, or adding on a ‘surcharge’ to the repairs can lead to legal problems.

Landlords in these situations must be especially concerned if the former tenants communicate with one another. When tenants can establish a pattern of abuse regarding security deposit deductions, a court may be able to award additional damages, or certify the case as a class action, which likely will prolong the litigation and generate exorbitant legal fees.

A landlord has the burden of proving the validity of every deduction if the tenant decides to dispute the charges so must keep records of all damages and repairs. The hazards and risks of litigation must be factored into any decision to take deductions from the deposit. Some tenants sue just for the heck of it — figuring they have little to lose.

The landlord, on the other hand, has a lot to lose, especially in those states that allow the judge to ratchet up the penalties against the landlord for wrongful withholding of the deposit. These costs can easily multiply into thousands of dollars, and eat up any profits from the lease.

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.

{ 1 comment… read it below or add one }

Kathleen Scott February 22, 2011 at 7:08 am

Unfortunately, if you have an unreasonable tenant, there is almost nothing you can do to protect yourself. The laws are there, for the most part, to ‘protect’ the tenant. It comes down to who is willing to be the most aggressive, and often who is the first aggressor. I recently had a tenant move out in the middle of her lease. Because I “let her” move out rather than going through the legal eviction process she is not bound by terms of the lease she signed. I even had to return the bulk of her deposit to avoid the type of costly litigation mentioned in this article. The lesson learned here? The lease is no better than the tenant who signs it. Even if they are in the wrong, they can take you to court and cost you thousands of dollars. Whether you lose the legal suit or not, you lose. Screen your tenants and use measurable requirements like minimum credit scores and stellar rental history as your basis.

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