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Mistakes Landlords Make with Security Deposits



Collecting security deposits from tenants is an essential part of being a landlord. However, handling security deposits is one of the most rule-specific responsibilities of a landlord’s financial world.

Every state has particular rules governing everything from the allowed amount to charge as a security deposit, to how the funds must be held, to when and under what circumstances all or part of it should be returned to the tenant. Landlords must be familiar with the rules that determine how they should be handling security deposits.


It is important to remember that the security deposit is the legal property of the tenant. The purpose of a security deposit disposition is to legally inform the vacated tenant of any amounts of the security deposit that are now being legally withheld by the landlord. These withholdings may only be done for damages to the property caused by the tenant, amounts past due per the lease, and withholdings must comply with the terms of the lease agreement as well as state laws. If you make one of many potential security deposit mistakes, you could be on the hook for big fines or penalties.


What Can A Security Deposit Be Used For?

Many new landlords and first-time renters have a similar question: What can the landlord use the security deposit for?

Security deposits are typically able to be used to repair all damages that go above and beyond the scope of normal wear and tear.


Normal wear and tear is considered to be anything that happens during a tenancy that isn’t caused by accident, negligence, misuse, or abuse of the property. Examples of normal wear-and-tear are:

  • Faded paint

  • Light wear of carpets

  • Fixtures that get old or break from age


However, any damages that go beyond the scope of these normal occurrences due to aging and use may allow for landlords to hold onto some or all of the security deposit. Such damages could include:

  • Stolen appliances

  • Structural damage to the property

  • Walls painted without permission

  • Unpaid rent

The exact rules about what a security deposit can be used to pay for depend on state and local laws. However, most of these laws hold a similar scope of what can be withheld from a security deposit in terms of damages.


Common Landlord Security Deposit Mistakes:


Not using security deposits properly

The basics of a security deposit are common knowledge, but you would be surprised how often landlords misuse security deposit funds. Deductions from a security deposit can be taken for multiple reasons. The first is severe damage done by the tenant during their time using the property or leaving it to maintain the property in a presentable state. The second reason is to cover unpaid rent, lastly, for absolutely needed cleaning services and not for upgrading appliances. Typically, the security deposit cannot be used for any other charges unless agreed to in writing. 


Overcharging. 

Charging for the wrong reasons is another instance that could cause you to end up in small claims court. Often Landlords associate normal wear and tear done by merely living in a home with damages. When this happens, tenants might be motivated to pursue legal action. If a court determines a landlord has misused security deposit funds, the landlord may be forced to repay the amount with additional penalties.


Spending the security deposit

The security deposit belongs to the tenant even while the landlord is holding it.

The landlord may spend it only on certain specific items, like damage beyond ordinary wear and tear or for unpaid rent in applicable states.

Trying to keep part or all of the security deposit to cover new appliances, cleaning, or anything else the security deposit does not cover may expose a landlord to liability.

A landlord cannot spend a security deposit without proper documentation and cause.


Lack of documents. 

Having the right documents can go a long way. First, a lease agreement sets the basis for your relationship with your tenant. A lease agreement should be as specific as possible to avoid any misunderstandings. A written security deposit policy should identify reasons why you may retain their deposit within the lease agreement. Documentation of these violations along with any money transacted on behalf of it is crucial. 


Taking too long to return the security deposit

Another critical aspect of the landlord security deposit is how long you can hold onto the funds at the end of the tenancy period. After the tenant moves out, you have a specific number of days to look over the property, get quotes on repairs, and let the tenant know what will be withheld from the deposit. Then, you must return any remaining money within a set amount of time.

To know exactly what you are responsible for when handling security deposits as a landlord in your state, make sure that you review your local laws.


These are just a few of the common mistakes we see landlords make when renting out their homes. The best way to avoid them is by working with a qualified property management company. We can help you earn more and spend less by steering clear of these common – and often expensive – mistakes. Please contact us at Overland Management for more information.

 

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