It’s the most disputed and potentially contentious event in a landlord-tenant relationship; the security deposit return.
Clearly, the tenant wants their money back. But as a property manager, it might not be in your best interest. Let’s take a moment and discuss the things to consider before you go cutting your tenant that check.
The Importance of a Security Deposit
The security deposit is your insurance as a property manager, in case anything goes wrong during the duration of the lease.
Recovering costs from your tenant after they’ve vacated the property can be costly, time-consuming, and most of all, frustrating. A security deposit is your ace in the hole, so you needn’t bother worrying.
So, your tenant returned a space that’s a mess? The security deposit exists so that you can take care of whatever extra costs are required to get your property back on the market fast and generating income.
No matter where you are, several circumstances allow a property manager to retain a tenant’s security deposit. It’s all about knowing the circumstances of your area.
Know the Laws
Each state is different, so it’s super important to know the property laws and your rights and responsibilities as a property manager in your state.
Depending on your location, you generally have between 14 and 60 days to return the tenant’s deposit as a property manager. That is if the deposit isn’t required to cover costs.
It’s a fine line to walk. Deducting costs is what a security deposit is there for, but you have to be able to justify the costs you’ve deducted if you ever end up in court.
If you’re ever in doubt, it’s never a bad idea to consult a lawyer with a background in landlord-tenant law.
Most importantly, no matter what the laws are in your particular area, it’s always going to be in your best interest to provide documentation of the situation.
Be Prepared from Day One
The smartest move you can make to protect yourself as a property manager is to document, document, document!!
On the day the tenant gets the keys, its best practice to do a walkthrough inspection to document the condition of the space. But if you want to really cover your bases, step it up and consider a video walkthrough.
If a picture is worth a thousand words, how many words is a video worth? A video is worth enough to protect you from the costs of busted windows and holes in walls.
Don’t forget to document your correspondence as well. All communication with your tenant should be in writing for your protection.
Pro tip: Consider using a communications app that will store your conversation for you.
Podium Starter is a great option that allows for easy tracking of correspondence with tenants. Podium is a winner because it’s a texting style platform; your tenants text and so should you.
You can even use Podium to invite the tenant to a video walkthrough. If you provide the tenant a copy of the video at the outset of their lease, there should be no need for a dispute later on.
With a video walkthrough and a well-written lease agreement, there can be no misunderstandings about the condition you expect the property to be returned in, and the consequences if it’s not.
Preparing and planning are essential. Preparation will help you take control of the situation that no property manager wants to be in, withholding the security deposit return.
What the Deposit Covers
A security deposit is not a piggy bank that you can pull from because you feel like it. It can’t be used to cover costs of light cleaning or repairs due to normal wear and tear.
However, it can be used to cover large, unforeseen costs that fall on you but are the responsibility of the tenant. Here are the most common reasons to hold onto a tenant’s deposit.
Abnormal Cleaning Costs
A little dust here and there? Some smudges on the windows? No big deal. A two-foot red wine stain in the middle of your snow-white carpet? Much bigger problem!
Perhaps it’s not even something that’s visible.. Maybe your tenant was secretly a smoker or kept an exotic pet. Now you’re left with a space that smells like ferrets. What do you do?
The only thing you can do, get it cleaned! But a thorough, professional cleaning can be costly, and you might not have that kind of capital just lying around.
Don’t worry! Your tenant does. And they left it in your hands for just this sort of scenario.
Non-Payment of Rent
It can happen for a myriad of reasons. Maybe your tenant lost their job, perhaps they broke their lease and took off months before they were supposed to, or maybe they’re just a person who doesn’t pay their bills.
Either way, it’s the first of the month, and you haven’t been paid, even if you have requested payment. That’s not going to fly. You depend on that money. And what’s more, you have a contract stating you’ll be paid in a timely fashion monthly.
No sweat! Your tenant’s security deposit can help soften the blow and make sure that your bills still get paid even if your tenants haven’t.
Having a security deposit that is equal to one month’s rent can come in handy with these situations, so keep that in mind when you’re setting the cost in the lease agreement.
Your tenant has moved on. Everything is going smoothly. And then, bam! The unexpected bill from the utility company.
The utility company doesn’t care that you didn’t use that electricity or burn that gas. Those resources were used and they were used at your property.
The utility company needs a payment. But that money shouldn’t have to come out of your pocket.
The security deposit can be used to get you square with the utility company so that you can hand your next tenant a clean slate.
It’s a nightmare scenario—the move-out inspection. Windows are broken, there’s a fist-sized hole in the wall, the sliding door is off its runner, and someone’s been putting their cigarettes out on the carpet.
Most of the time, situations will not be this severe. But the simple fact is that it can and does happen.
Don’t panic. Take a deep breath. Remember, you’re holding a security deposit. Maybe it won’t cover all of this damage, but it will certainly get the repairs started.
Now, all you have left to do is inform the tenant that they’re not getting t deposit back.
Managing the Return
Out of the 40 million or so tenant households in the U.S., most are trustworthy and respectful.
They are a breeze to work with and leave your space in excellent condition. Which is probably why most tenants expect to get their full security deposit back.
Having to inform your tenant that they will not be getting the money they planned on can be daunting. Which is why it’s highly recommended to brush up on some conflict management.
Another vitally important tip to follow: be clear and concise in your communications. Let the tenant know exactly why you’re withholding their security deposit return.
Send your tenant a short message, carefully worded using your conflict management skills, when you notice they’ve missed their payment. Give them the opportunity to respond and correct the situation, and beyond that, simply notify them that their deposit will be used in the case of non-payment.
If necessary, after the move-out inspection, send an itemized list of any damage assessed or cleaning required, including the associated costs.
When you have a copy of the move-in walkthrough the tenant participated in via Podium to verify your claims, there’s no disputing the facts.
If you get that unfortunate overdue statement, send a photo of the utility bill to your tenant the moment it comes across your desk.
Take Charge of the Process
Now, you’ve covered all your bases. The tenant has been respectfully informed, and your financial needs are being taken care of. Plus, you’ve done your homework, and you know you’re legally in the clear.
As long as you’re using an app that saves your correspondence and provides a quick reference back for documentation, you’re covered!
Now you don’t have to worry about ending up in a situation where it’s your word versus your tenant’s, and you can get back to running your business.