Ask any landlord in Ontario and they’ll likely say they’d love the opportunity to collect security deposits to hedge the risk of income loss. Unfortunately, it would take a change in the law to make that happen.
Surprisingly, in provinces that allow for security deposits, landlords can find themselves at increased risk for income loss. That’s because security deposits come with strings attached.
Those strings are in the form of regulations on how these deposits must be managed. Deviate from the rules, and a landlord could wind up owing the tenant money at the end of the lease.
Decisions by dispute resolution officers in British Columbia reveal just how often landlords make mistakes when dealing with security deposits.
In one recent case, the landlord deducted unpaid utilities from the tenant’s security deposit at the end of the tenancy. But the rules in British Columbia require that the landlord file for dispute resolution within days after termination before taking any deductions.
The landlord in this case returned the unclaimed amount, but did not file an application for the deductions. The penalty: an order to pay double the security deposit to the tenant. That amount was calculated by doubling the full deposit, in this case $400, before any funds were returned.
Ultimately, the landlord was ordered to pay the tenants $446. This landlord was lucky: the tenant’s claim for lost wages was dismissed, and the landlord’s claim for unpaid utilities was allowed, reducing the amount owed the tenant by $175.
Even when the the rules are followed, initiating dispute resolution with a tenant has its drawbacks. In another recent case from B.C., a landlord’s claim for plumbing repairs was denied, but the tenant used the opportunity to claim a full rent abatement and compensation for emotional distress, in part because of spotty Internet reception.
Security deposits do serve a purpose, but landlords must be cautious not to rely solely on the deposit to ward off losses. That false sense of security can be overcome by paying more attention to screening tenants and selecting the ones with a good rental history.
If you do collect security deposits, keep these tips in mind to prevent income loss:
1. Know what your provincial law requires. How much can you collect? Is a move-in condition report mandatory? Are there other conditions?
2. To prove security deposit deductions are justified, ALWAYS conduct move-in and move-out inspections and prepare condition reports, even if it isn’t required by law.
3. Remember, security deposits alone won’t protect you. It’s better to take the time to screen tenants, and to perform routine property inspections throughout the tenancy.
4. Make sure the security deposit amount is clearly stated in the lease agreement.
5. Proper documentation is the only way to win a security deposit dispute. Receipts rule. Don’t rely solely on your own notes or estimates.
And, if you can’t charge a deposit, don’t despair. A strong tenant screening policy, complete with credit check and previous landlord references, will go a long way toward shoring up your rental profits.
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.